Methanex Corp (MEOH) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation First Quarter Results Conference Call. As a reminder, this call is being recorded on Thursday, April 26, 2012.

I would now like to turn the conference call over to Mr. Jason Chesko, Director of Investor Relations. Please go ahead, Mr. Chesko.

Good morning, ladies and gentlemen. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections, which are included in the forward-looking information. Please refer to our latest MD&A and to our 2011 Annual Report for more information.

For clarification, any references to EBITDA, cash flow or income made in today's remarks reflect our 60% economic interest in the Egypt project. In addition, starting this quarter and going forward we are reporting our operating results using adjusted EBITDA and adjusted net income, which exclude the mark-to-market impact on share-based compensation. We have reported our results in this way to make it a better measure of underlying operating performance, which we expect will make analysis of our results more straightforward. For consistency, we encourage analysts covering the Company to report their results in this manner.

I would now like to turn the call over to Methanex's President and CEO, Mr. Bruce Aitken, for his comments.

Good. Thanks, Jason, and good morning to everyone and welcome to our first quarter conference call. I've got a number of colleagues with me in the room and they'll be here to help answer questions a little later on.

Firstly, some comments on our Q1 results. Methanol pricing was stable in the quarter and we reported adjusted EBITDA of $93 million and adjusted net income of $39 million or $0.41 per share.

Production was similar to last quarter. However, due to inventory timing differences, we sold lower volumes of produced methanol and this contributed to lower earnings.

Shipping costs were also higher in Q1 as a result of a one-time $7 million charge taken to rationalize our vessel exposure, which will result in cost savings going forward.

In addition, our GAAP income was impacted by higher stock-based compensation expense which resulted from the 40% increase in our share price during Q1.

Over the past couple of quarters our production has been impacted by maintenance and other issues at our plants, mainly in Trinidad, and this has reduced sales of produced methanol and earnings. With all our plants now back from maintenance outages and operating well, we expect sales of produced methanol and earnings to be stronger during the remainder of the year, particularly in the second half after we restart the second plant in New Zealand.

I'll comment more on our expectations for the second quarter and the industry and pricing outlook a little later in the call but, before I do that, I will make some comments around our operations for the quarter.

In Trinidad we produced 342,000 tonnes of methanol compared to production capacity of about 500,000 tonnes. The Atlas plant was down for a turnaround in the first half of the quarter and that was the primary reason for production being below capacity. I have mentioned on previous occasions that downstream gas consumers in Trinidad have been impacted by supply disruptions in recent quarters.

During Q1 this issue did not have a significant impact on our operations as the Titan plant operated at 96% and Atlas operated at lower rates for maintenance reasons. It is difficult to forecast the impact of this issue on operations going forward. However, we understand that there are more outages planned by upstream producers later this year and we expect to continue to see some shortfalls in gas supply commitments.

In New Zealand, the Motunui plant produced 174,000 tonnes in the first quarter. The plant was down for a couple of weeks to accommodate upstream gas supply maintenance, but operated at full rates during the rest of the quarter, while in Chile we continued to operate one plant at about 40% capacity and produced 113,000 tonnes of methanol, which is similar to the production over the last few quarters. I'll comment more on our outlook for both New Zealand and Chile in just a few moments.

In Egypt we enjoyed the best quarter of production since the plant started up last year. The plant operated at 106% of design capacity to produce 202,000 tonnes based on our 60% interest.

And finally, our plant in Medicine Hat in Alberta also operated very well and produced 114,000 tonnes. We have recently secured some gas into 2014. And as North American natural gas prices have continued to trend down, the economics of this asset are continuing to improve.

Turning now to industry conditions. Methanol demand remained healthy during Q1. As we enter the second quarter, we are seeing higher demand from our customers and methanol demand into energy applications also continues to be robust, supported by high energy prices.

Recent strength in crude prices resulted in China increasing gasoline prices twice during the quarter and this has further enhanced the economic incentive to blend methanol into gasoline. And, China continues to implement programs to encourage more methanol use in transportation fuels. Over the last quarter the Chinese government commenced a trial to run methanol fuel cars in three regions of the country.

A primary objective of the trial is to set standards and specifications for high-level blend methanol vehicles. This was an interesting development as it was the first such trial organized by the central government and is consistent with its earlier actions when it implemented national standards for M-85 and M-100, 85% or 100% methanol blends.

Methanol use in transportation fuel also continued to attract attention outside of China. The first methanol policy forum was held in Washington D.C. earlier this month and focused on methanol's potential as a transportation fuel in North America. The event attracted over 150 stakeholders and included industry leaders, energy policy experts, members of Congress and media. So, while we do not expect an immediate change to policy on transportation fuels in the US, it was encouraging to see methanol being discussed and highlighted as an attractive option to supplement gasoline in the United States.

Methanol-to-olefins, or MTO demand, is also experiencing strong demand growth in China. Currently, there are four MTO plants operating, consuming over 5 million tonnes of methanol annually. To date, these projects have had a minor impact on the merchant methanol market as three of the four plants operating are integrated from coal through to olefins and, thus, mostly rely on their own captive methanol supply.

However, there are a number of MTO projects under development using merchant methanol, including a large project in Ningbo on the coast of China, which is expected to start up by the end of this year. This project is expected to consume up to 2 million tonnes of merchant methanol and could have a notable impact on the market later this year.

Turning now to methanol supply, industry operating rates have been fairly stable over the last couple of quarters. There have continued to be a number of planned and unplanned outages across the industry and there are also several planned outages in the second quarter. Overall, methanol markets have remained tight to balanced, while pricing has been relatively stable.

European quarterly contract prices increased by EUR20 in Q2 and we are currently discussing May prices with our customers in North America and Asia. There is a probability that the impact of -- on Iran of sanctions, together with other supply disruptions, could further tighten the global methanol market in Q2 leading to higher prices. In recent weeks methanol prices in the spot market have been increasing.

Longer term, the industry outlook suggests a healthy price environment as demand growth is expected to significantly outweigh new supply additions over the next several years. This implies a strong pricing environment will be needed to entice high-cost industry capacity to operate and this outlook matches well with our plans to increase production over the next few years.

So, on this note I will switch topics and provide you an update on our key initiatives to increase production and capitalize on the favorable industry outlook.

Firstly in New Zealand, our project to restart the second Motunui plant is progressing very well and is on time and close to budget. We currently have over 500 contractors on the site, all mechanical works are expected to be complete in early June and we remain on track for first methanol production in July.

The addition of a second plant will increase capacity at the Motunui site by 650,000 tonnes to 1.6 million tonnes. Our success in increasing production in New Zealand is underpinned by the improving natural gas supply position that has developed in that country over the last several years. And the signing of a long-term supply agreement earlier this year is a reflection of the improving fundamentals.

We continue to work with gas suppliers in New Zealand to secure more gas for our existing operations, with the longer-term goal of further increasing production in that country. We are currently working on a debottlenecking project that could add another few hundred thousand tonnes of production to the Motunui site over the next year.

Turning to our Chile assets, as mentioned earlier we have continued to operate one plant at about 40% capacity. In the short term we are entering the winter period in the Southern Hemisphere when historically we have experienced reduced gas deliveries as more gas is required for residential heating purposes. We have been working closely with the gas suppliers in the region to manage the seasonality of gas demand and have reasonable confidence that we can maintain continuous operation through Q2.

So, while the short term is challenging, longer term we continue to believe there is the potential for natural gas supply in Southern Chile to sustain a multi-plant operation. Drilling activity has started in new blocks in the region and there are a number of prospects that could result in significant quantities of gas over the next few years. We also believe that new technology and new participants could unlock some of the reserve potential in the region and we're working on initiatives to encourage boarder participation.

Our project to move one of the Chilean plants to Louisiana is progressing very well. We are in the process of decommissioning a plant in Chile. We have lodge applications for environmental permits and detailed engineering work is well underway. We are also talking with various potential gas suppliers about securing a long-term contract. However, based on long-term gas fundamentals in North America, we would likely proceed with the project even if we were not successful in securing a long-term gas contract. We expect to finalize the capital cost estimate and reach a final decision on the project during Q3 of this year.

We are working to an aggressive timetable and targeting for the plant to be operational by the end of 2014. The project benefits from competitive natural gas prices in the US and can be completed at a lower capital cost and in significantly less time than a new greenfield methanol plant. These [data] make the project quite compelling.

We were also pleased yesterday to announce that we've signed an offtake agreement with Orascom Construction for the significant proportion of the production from their methanol plan in Beaumont, Texas. This (inaudible) matches nicely with our supply chain needs and further improves our reliability to supply to customers.

We've also continued to examine the viability of converting one of our plants in Chile to operate on coal sourced from Southern Chile. Over the next year we plan to complete more detailed engineering and expect to better understand the viability of this project. In addition, we will have learned more about the relocation project and the prospects for gas in Southern Chile. And depending on the progress in these various initiatives, we may consider moving a second plant.

I'll change topic now and make a few comments regarding liquidity and capital allocation. We're in a strong financial position. During the quarter we completed a $250 million notes offering, with most of the proceeds being used to repay the $200 million notes which come due in August of this year.

During the first quarter we generated $89 million of cash flow from operations. We have conservative leverage, a $200 million undrawn operating facility and about $400 million of cash in hand after taking account of the repayment of the bond in August.

To fund growth initiatives we have about $35 million left to spend to restart the second plant in New Zealand and we have committed to spending around $50 million this year on the Louisiana relocation project. We also plan to continue committing capital to gas development in Southern Chile. We are well positioned to satisfy all of these initiatives and planned maintenance expenditures.

With the positive outlook in the methanol industry and the strong performance of Egypt and the Medicine Hat plants, the cash generating potential of the Company has improved. In this regard, I'm pleased to report that yesterday our Board approved a 9% increase to our regular dividend. This makes the 8th time we have increased the dividend since 2002. And with the significant initiatives we have in place to increase production over the next few years, we expect to be in a position to continue growing our regular dividend over time and, longer term, be able to build on our strong track record of returning cash to shareholders through share repurchases.

So, before stopping for questions, I will comment briefly on our expectations for the second quarter. As ever, there are lots of moving parts and assumptions that will evolve over the quarter, so it's difficult to provide precise guidance.

Firstly, prices are on an upward trend and we are currently expecting to achieve a slightly higher price realization in Q2 compared to Q1. Secondly, as mentioned earlier, we expect higher production in Q2 and this should ultimately result in higher produced methanol sales. And thirdly, of course, we do not expect to repeat the one-off factor that influenced the result in Q1.

Taking these factors into account, we expect higher adjusted EBITDA and slightly higher adjusted net income. And assuming a reasonable price stability, we expect further improvements to earnings in the second half of the year, supported by the restart of the second plant in New Zealand.

So, at this point, operator, I'm happy to stop and take any questions that might come from our listeners.

Thank you. (Operator Instructions). The first question is from Jacob Bout from CIBC World Markets. Please go ahead.

Hi. I had a couple of questions on Chile. So, you've got one plant that operating I think you said at 40%. When do you think you're going to be able to have that plant fully operational? If the plan is still to have two plants operational in Chile, maybe you can talk a little bit about your investment in gas exploration in the area and how much money you're willing to spend on that.

Okay. It's a hard question to answer, Jacob, because I -- we've under-delivered relative to our own expectations and certainly relative to the expectations that I've given to shareholders in the past. So, I'm a bit leery of making strong commitments.

What I observe going on there is that momentum is clearly building in terms of the activity that's taking place. We have a broader array of companies that are spending money and we're participating with a lot of them. We have a financial interest now in 5 different blocks in the region. There's a total of 14 exploration blocks. So, we are on the inside in terms of knowing what's happening.

As I mentioned in my comments a little earlier, there are some really interesting prospects in that region. There was one that we were talking about last week of 2.5 Tcf potential prospect. Now, just to remind you, like, 1 Tcf of gas produces 20 million tonnes -- no, sorry -- a million tonnes of methanol for 20 years. So, 1 Tcf would completely change the outlook that we currently have for natural gas and the production rates from our plants in Chile.

So, I guess what I've learned in the last 5 years, since we lost our gas supply in Chile, is there's no doubt in my mind that gas is available. There's lots of gas in that region. Most of the conventional reservoirs are either depleted or depleting, and so we're now talking more about unconventional gas and some different ideas in the basin and those are things that are beginning to happen.

What we observe is we still need more modern drilling equipment, we need better technology, we probably need more fracking equipment. So -- and I think all of those things are beginning to happen. But, this is a -- compared to the speed that things happen in the methanol industry, it seems to me that gas exploration proceeds at a more glacial pace and I think that's the primary reason that we've been disappointed with progress.

In terms of our own participation, we've talked about $50-odd million a year. We've spent to date probably a total of $110 million, $120-odd million. And when we've looked at the discreet projects and measured the economic return on those, in every case we've made really decent returns on every investment we've made.

So, you could ask, well, so why don't we spend even more? The only reason for that is it's not -- this is not our industry. We've not -- we don't have the technology. I think what we can offer is some assistance and guidance and help in operating in Southern Chile and we're prepared to back up our commitment with some dollars. And I think that's our role in the exploration in that part of the world. So, I hope that's helpful.

Maybe just as a follow-up, where are things at with the gas exploration -- or sorry, the coal conversion that you're looking at for one plant?

Yes. So, I think the -- and we talk about the relocation project very positively. And while we mentioned that we haven't made our final investment decision yet, like, I hope everyone takes from that. I also mentioned we're spending $50 million this year. So, we don't $50 million without a very high expectation that this is a project that's going ahead. So, every behavior we are exhibiting in relation to the relocation is supportive of the fact that we plan to do this project. And the only reason we're waiting for a final investment decision, we want to firm up the capital number before we do that.

And you'll notice -- and I don't talk quite so much about the coal project. It's -- to me, it's a more difficult project. I think it looks interesting. I think the -- from the high-level numbers that we've seen it makes a decent return on investment. But, we're a lot more wary about that. It's -- we've never dealt with coal before. We've looked at other coal projects around the world and seen how challenging they can be. So, I think we're taking much more of a -- I'd say perhaps a traditional Methanex approach, where it's very much one step at a time. We have to be very cautious and very sure before we spend large amounts of money.

But, what I'd say about the project, there's a lot of coal in Southern Chile. It's close to our plant. It's the right sort of quality. I think we understand the technologies a lot better now and we're working through the process of how do we transport coal and how do we -- how and where do we process it. But, the project at a high level continues to look financially attractive. So, we'll continue to spend I'd say some millions on that, but not a large amount of money this year anyhow.

Thanks for that detail.

Okay.

Thank you. The next question is from Bert Powell from BMO Capital Markets. Please go ahead.

Thanks. Bruce, just in terms of the relocation and the thought that perhaps it might be better to move two rather than one, do you have currently sufficient -- like, in terms of land that you've secured, do you have sufficient space to put two there, or does that kind of take you back to the drawing board?

No, there is adequate space to move two there, for sure; and probably three, but there's certainly room for two. And I didn't say we'd necessarily move to Louisiana. There might be some other locations we're thinking of. So, I don't want to be committed on that, either. But -- so, the indication was that we were -- we are -- it's in the back of our minds that we -- there will be a time in the next 12 months when we want to make a decision around that.

Okay. So, it's not a -- the FID isn't -- part of the thinking isn't that we've got to -- you've got to load up -- do we load up two or one here?

No. And there's no real advantage in making that decision today. We can -- the advantage of doing them sequentially will come I think within the next 12 months. So, we'll make the decision when we have to make it and, as I say, that's probably sometime in the next year.

Okay. So, FID for one move in Q3 and then how long would you think before you then look at the second plant and what would be the gating issues there?

I think -- I'm just looking Michael McDonald here, a VP of Global Operations. And I know we've talked about the efficiency of not demobilizing and mobilizing, Michael, so --.

So, [offsetting] a second plant by sort of 6 to 12 months is probably the optimum. And we have a bunch of work paths which will converge to allow us to make that decision in a timely way, as Bruce commented.

Okay. And just last, just in terms of follow-up to this, have -- in your team's experience, has anybody else been involved in this move? And I'm just wondering how complicated or common this is in the industry, Bruce, and what sort of -- what are the real big risks in terms of not hitting the timeline?

I'm wondering if I should ask Ian Cameron, who's leading this project, but let me give you my answer first and Ian might have an addition to it.

There have been lots of methanol plants moved, mostly from North America to China. And I think the Chinese, you'd say, are very adept at disassembling and reassembling plants. I'd like to think that we're doing them a different way and I'll say a slightly more professional way.

The companies that we're using, there's a heavy haulage company that has a long history of cutting these things up and putting them on ships and moving them around the world. And we looked at a lot of their projects and there's certainly a skill set out there that is very capable of delivering on these plants and in a very timely fashion.

So, Ian, what have you learned over the last year or so out of this?

Well, I think as Bruce said, we're taking a very professional approach. So, we looked at (inaudible) as we do the engineering. We don't see anything that really -- big things that can get in the way. I think the logistics around dealing with the -- some of the tight issues and water level issues in the Mississippi can be challenging in terms of timing. But, based on all the engineering work that we've done, we think that the schedule, second half of 2014, is achievable.

Okay.

Yes, Michael?

Yes. I'd just add a comment to that. There are a number of petrochemical refining projects around the world that constructed greenfields in a modular fashion. And so, the approach we are taking is simply saying what are the sensible modules would we break out and run it down into and move them and put them back together. So, this is a practice that's very common in the industry. We haven't built a modular plant for a long time. We've preferred to build -- stick built or greenfield stick-built plants. No, it's not something that's unusual or not practiced elsewhere.

And I guess this modular construction is part of where the cost savings come from, Michael.

That's right.

You don't have all the labor hours to put the thing back together again.

That's exactly right. Yes.

Okay. Thank you.

Okay.

Thank you. The next question is from Steve Hansen from Raymond James. Please go ahead.

Yes. Good morning, everyone. Bruce, I recognize the decision that to move one of the Chilean plants is not dependent upon securing a gas contract, but I think, as you suggest, that you are continuing to make progress here in negotiation. So, I'm just hoping you can maybe give us a bit of clarity on the nature of the negotiations and others parties involved. And perhaps even just what your sense is at this point for the likelihood of a gas contract before the year-end.

Okay, Steve. I don't want to provide too many details. We're engaged with four different parties. They're all active in the Eagle Ford shale. That's one of the -- a liquids rich reserve that's in South Texas and Louisiana. So, all very well located to supply this facility. And I -- we've been surprised at the enthusiasm that we've had from gas suppliers to talk about different pricing mechanisms.

Our fundamental belief is that this disconnect between natural gas prices and crude oil prices is sustainable over the next -- who knows, I'd say 10 years and maybe 15. I don't know. But, it feels like sure as hell is a long enough time for us to get all of our money back and make a really decent return on capital.

So, that's why we're not anxious about it. If we can do a contract, then I think that's -- there's a nice win/win there that we provide some certainty for a gas supplier and we provide some more certainty for ourselves. And I think it certainly makes a decision around the second plant somewhat easier if we have some economic certainty around the first plant.

So, levels of confidence? Ian? I don't know, I'd say it's better than 50/50.

That's right.

Yes.

Okay. That's helpful. And just a follow up. The evolution of this MTO technology and the construction of four large plants already in China has been incredibly swift, certainly a faster evolution than I would have expected here. And just your talk about the large Ningbo plant starting up later this year. The market already seems relatively right, at least that's what pricing would suggest. How do you go about finding 2 million tonnes of annualized methanol supply in today's market and in the context that there's more of these plants coming down the pipe? I'm just trying to get a sense for where these startups are going to find supply.

Yes. Maybe I'll ask John, John Floren, who spends a lot more time in China than I do, if he can give you some reflections on that topic, please.

Hi, Steve. Well, with no real new production coming in to the world outside of China, it'll have to be solved in China. So, two things will probably happen and it reflected a price. So, as price goes up, because of the higher cost capacity and China having to start out to meet this additional demand, we would expect some of the DME demand today to be impacted economically, depending on where LPG prices go. So, we're expecting this demand to be filled by a combination of higher operating rates in China and some demand destruction on DME.

I see. That's helpful. Okay, thanks. I'll jump back in the queue.

Okay. Thank you.

Thank you. The next question is from Hassan Ahmed from Alembic Global. Please go ahead.

Good morning, Bruce. How are you?

Good, thank you.

So, a couple of -- well, I'll try to keep them quick. But, since all the chatter seems to be around this whole relocation side of things, I know that in the past you've talked about around a $400 million cost associated with relocating this facility to the US.

Now, I mean, if you were to focus on sort of the big silos in terms of the costs associated with the $400 million, I mean, I'd say that you have land costs, you have dismantling costs, you have shipping costs, and obviously re-erecting the facility in the US. So, I'd like to think that -- I mean, you can't see too much overage associated with that $400 million. I mean, if at all, these big silos that I've presented to you, if you were to sit there and say, alright, maybe I'm a bit off on one of the costs, which one would that be and how much potentially of a swing could that cause in terms of what you're thinking?

Yes. One of the big costs, Hassan, is site preparation and foundations and that's very (inaudible) if they're a greenfield site and we've done that in Egypt a few years ago. So, we have some understanding. That said, there's always different soil conditions and different things you have to do.

And then -- the big buckets of cost then are shipping and transportation. So, we understand that. Decommissioning is probably $20 million to $30 million there. We kind of have a good understanding of that. And then reassembly. And we know -- our belief is that you save about a million man hours by modular construction that Michael talked about earlier, as opposed to stick-built construction. So, we understand -- I think we have a pretty good understanding of what we think labor costs would be as well.

So, we -- I've always been a bit reluctant to kind of throw out numbers because we haven't --.

That's fair. That's fair.

Completed our detailed engineering. But, when we reconcile kind of greenfield's costs to relocation costs, we can see hundreds of millions of dollars of savings between those two, and that's kind of reflective in the estimate that we've thrown out before.

Very fair. Now, another one, changing gears a bit. Obviously, today in North America, natural gas pricing-wise, completely different sort of pricing regime. In the past, obviously, we've talked about the sort of fuel opportunity as it pertains to methanol in China. But, I mean, I'm sure you guys are thinking about the fuel opportunity now within the US as well. So, I mean, any thoughts you would have for us to sort of think about potentially that opportunity?

Well, there's this open fuel standard that's been swirling around Congress. We've seen it for the last, I guess, few years, John. It's -- and it -- well, it seems to gather steam and then die again. And the whole concept behind the open fuel standard is that there's a level playing field between methanol, ethanol and gasoline. And the consumers in the end get to choose and they'll choose based on performance and economics.

And the open fuel standard requires auto companies to manufacture some percentage of their cars that are capable of running on any or all of those three fuels. And I think that's a very smart legislative move. It cost almost nothing, but it opens up huge opportunity for the future. So, it does seem that there's a gathering opinion in the United States amongst decision makers that maybe this is a good idea.

Now, that said, you've got the auto lobby who aren't particularly enthusiastic. You've got the big oil lobby who are certainly not enthusiastic about anything that doesn't come out of a barrel of oil. So, there are some powerful lobbies there that would like to maintain the status quo. So -- and then that's why I guess we don't have a lot of anticipation that there'll be a dramatic change. And it feels to me that every year there's a bit more talk about methanol and ethanol and gasoline and how they can work together more, rather than creating an exclusive privilege for one of them or another of them.

Okay.

I don't know. John, do you have anything to add on that?

Just the MIT study that was commissioned showed that for using low-cost natural gas in the US for transportation fuels, methanol was the preferred and most economical option. So, again, I remind you that the supply and demand balance for the next five years looks kind of snug. So, we'd like to see orderly development of this industry as opposed to a big bang. So, that's what we're working towards and that's what we think will happen.

Okay. And one final one, if I may, on the supply/demand side of things. There seem to be a couple of moving parts as we sit here today. On the supply side of things, obviously, the sanctions on Iran. If you could comment a bit about what you're seeing in terms of trade coming out of Iran with regards to how it's changed maybe on a year-on-year basis. So, that's one part of the supply question.

The second thing is that in the news we've recently heard about a Middle Eastern company potentially considering setting up a MTO facility out in Trinidad. And as I think about that and think about the gas situation in Trinidad, I mean, there seems to be a bit of a disconnect. So, I would love to hear your views on that one.

And finally, on the demand side of things, recently it seems that acetic acid, obviously one of your big, big demand drivers, not obviously as big as fuel, but still there. Acetic asset margins seem to have come under pressure with one large acidic producer shuttering a facility in Asia. So, as I think about the next couple of quarters at least, demand-wise would that sort of shuttering have any impact at all with regards to 2012 demand? So, if you could --.

John, do you want to start off on those follow-up questions?

First of all, with Iran, it's a developing issue quite rapidly, so -- and getting information out of Iran is quite challenging.

So, there's three issues in Iran. There's the sanctions that have been put on by the European community that effectively start May 1st and some start July 1st. So, about 400,000 tonnes of methanol on an annual basis was finding its way into Europe, which we would expect that to stop mid-year sometime.

The other two issues are sanctions kind of related. One of them is the banks and getting lines of credit and banks able to deal with Iran, which is proving to be quite difficult and challenging, especially in countries like Korea and Japan.

The third issue now is insurance on ships. And because of the sanctions, getting insurance on these ships is proving -- not only for methanol but for very large crude carriers as well, to be quite problematic. So, we have seen one plant in Iran go down for, quote-unquote technical reasons, but we do understand that site is at tank tops as well for methanol and an inability today to move it out.

So, we would expect if there's no solution to this insurance on the shipping side, that rates will have to be reduced in Iran. There is still local consumption and then they've had fuel bending trials there as well. And we would expect maybe some ships from -- smaller ships possibly from India and China be able to get in there and get some of the methanol out. But, unless something was to change, we would expect fewer exports from Iran going forward than we have seen in the past 12 months.

On the acetic side, I think it's more of an overbuild on the producer side. So, the demand for acetic continues to grow, but there has been a lot of production increases, especially in China, over the past 24 months. So, when you see shutdowns I think it's a capacity issue as opposed to a demand issue. So, we wouldn't expect the growth of methanol into acetic be hurt in the short-term. In fact, the Celanese technology that they're promoting is using a lot of acetic into ethanol. So, as that technology moves forward, we would expect methanol --.

More demand would be created, presumably.

Be created for that acetic going into ethanol. So, we're kind of bullish on acetic.

Did you want to the Trinidad question?

Well, we know as much about Trinidad as you do, Hassan. And my observation is, if you can buy gas in the US at $2, people are going to be building olefins units in North America where (inaudible).

Very fair. Yes.

So, I think like all global companies, the two promoters there are probably casting around the world looking for opportunities. And maybe they've had some undertakings from Trinidad, but I think from what we've observed in Trinidad the country today struggles to meet all of its various commitments. The new gas is coming from deeper water and we're told it's becoming more expensive. So, it's hard to imagine that project gaining traction as both parties continue to do work. But, other than that, we know nothing about the details of the project.

Super. Thank you so much, Bruce.

Okay.

Thank you. The next question is from Paul D'Amico from TD Securities. Please go ahead.

Hi, Bruce. Just two --.

Hello.

Quick ones. First on the BP Atlas. Can you give us an update on that?

Well, BP put their share on the market in March last year, so over a year, and their initial objective was to close that sale in June. So, here we are in April 2012 and there's still no news. We expressed some initial enthusiasm around it and I think you can glean from our lack of comments on it that our initial enthusiasm hasn't gone anywhere.

I'd say from our point of view we've -- there are no synergies for us in buying that plant. We operate the facility. We market all the methanol. So, for us, it's a financial transaction that is interesting at the right price. And given that we don't talk about it and we're not working on it, it has slipped down on our list of priorities to a point where we've got a lot better things to work on and we're not spending any time at all even thinking about that today.

Okay. And you mentioned in terms of long-term demand, or at least over the next few years, expected the growth in demand to outweigh supply. Can you give any more granularity on that in terms of whether or not -- are we talking just in general or is there a particular bottleneck here that you're seeing in terms of the thresholds ahead?

Well, it's just the absence of new greenfield capacity. And as we look out from now until the end of 2015, if you take -- and so I'm quoting CMAI numbers here, which we would I guess broadly agree with, that there's 80 million tonnes of new demand between now and into 2015. And we -- when we count up all the new supply, including all the things we're talking about, we see 7 million tonnes of new supply, of which 5 million tonnes comes from Methanex. So, I'm assuming that we're successful with all the things we do there and getting to 7 million tonnes of new supply.

So, it's -- I think it's hard to kind of get yourself to the point of saying, well, the only way that demand and supply can be balanced is the price needs to be higher in order to entice high rates of production at the -- some of the high cost producers in China, which is what John mentioned a little earlier.

Sorry. And I can't -- I apologize if you did say, would you frame that in terms of -- are we talking $30 a tonne, $50 a tonne or just leave it open ended?

It really depends on what you see the future of coal, and coal is linked to oil, so it depends on what your assumptions are around coal. It's about 2.5 tonnes -- 2 to 2.5 tonnes of coal to make a tonne of methanol, $50 for freight and some return you get up the cost curve pretty high. And then, there's plants in China that are smaller that use even higher cost coal, anthracite-based coal. So, those are the plants that would have to start up in order to balance the market. So, it depends on your forecast for coal.

Okay. Thanks, guys.

Thank you. The next question is from Robert Kwan from RBC Capital Markets. Please go ahead.

Good morning. Just coming back to the Chilean gas supply. And you had the horizontal rig down there. I'm just wondering, you had cautious optimism as to what's going on. Just -- is there any more granularity as to what some of the results are for some of the drilling with that rig?

There's certainly -- there's nothing stunning. We would have mentioned it, Robert. These are the things that enthuse me today, really. We've done a lot more work on tight gas and the knowledge -- I think our knowledge on the widespread nature of unconventional gas in that area has improved to a point where -- I said it before. We know there's gas there. It's just -- this is a matter of getting the right equipment, the right technology and the right operators to exploit that.

And just as one kind of example, that the drilling equipment that was operating in Southern Chile when we first started on this process, most of it's dated for the 1950s. We're using very old technology, and that's fine for drilling conventional wells in well defined areas, but that's not the -- it's not what we need to turn around the production of gas in Southern Chile.

It does -- Chile reminds me a lot of -- if you think back in North America not too many years ago, where there was a view that we were running out of gas and it was just a matter of time before we were importing LNG and then -- and I think technology has completely changed that view around.

Now, none -- I'd say -- or maybe I'm exaggerating a little, but none of that technology has arrived in Chile yet. And that's what we need, to get some of those companies who are good at developing unconventional gas and some of the newer equipment down in that area to really change our fortunes there. And that's what we're mostly focused on.

So, is it just with that new rig, do you -- is there something different you need to see? Is it too early or has it just been a little bit disappointing with at least the technology that was introduced?

Well, I don't think we've seen much in the way of new equipment. There's one new drilling rig down there, but one rig in that area is -- like it's a pretty modest amount contribution. It's a state-owned company and that -- their drilling rigs tends to be quite old and very conventional. So, it's more of -- more modern technology is what we need.

Okay. Just the last question. Bruce, you made a comment that you're expecting for this quarter at least a pickup in EBITDA for a lot of different factors, but then you also mentioned only slightly higher adjusted EPS. I was just wondering was in behind why you're thinking a bigger change in EBITDA but maybe not so much on the earnings side?

No, you shouldn't read too much into that, Robert. As -- the big influences on our earnings, as I'm sure everyone knows, the volume of produced methanol sales. And you'll see in this current quarter that we sold less than we produced. And if you go back over the last 8 or 10 quarters, some quarters we sell more than we produce and other quarters less. And when we sell more, we -- our earnings look great and everything's fine. And then we have a quarter like this one where -- I think it's 50-odd thousand tonnes of produced methanol that's sitting in inventory. And that -- we're making, I don't know, $100 to $200 a tonne on most of that stuff. So, it makes a huge difference to the quarterly earnings.

And it's just all about timing. So, that's the thing that's most difficult to gauge is when to produce -- when does produced methanol, when does it make its way through inventory and hit sales. So, there is a little bit of analysis that we've done around that, but we're a bit cautious around what our produced methanol sales look like. So, production is going to be better in Q2 and then a lot better in Q3 and Q4 as New Zealand comes on steam.

So, I -- I'm kind of hesitant to provide much more flavor than that, Robert.

Okay. That's great. Thank you.

Okay.

Thank you. (Operator Instructions). The next question is from Ben Isaacson from Scotiabank. Please go ahead.

Hi. It's actually Shawn stepping in for Ben.

Hi, Shawn.

Hi. Given the success of the Medicine Hat restart, could you give us some color just on the potential for any debottlenecking opportunities there?

Yes, yes. No, the -- well, just talking about the Medicine Hat restart, I just had a little look in recent days at the -- we've been operating just on 12 months here now. I think the -- the operating rate I think was 98% during last year, the reliability rate was 98% last year. We've made over $100 million of EBITDA and we spent $45 million starting the plant out. So, Medicine Hat's been a homerun. It's been just a fantastic project.

We're constrained with distillation capacity at Medicine Hat. So, we have actually acquired some secondhand distillation capacity and we're in the process of transporting that through our sites and doing the engineering that is necessary to debottleneck distillation. And that can get us about another 20% volume out of the Medicine Hat plant. Probably in about a year's time, Michael, is that a good guess? So, by this time next year we'd hope to be operating at about a 20% higher rate than we are today.

Okay, great. And then just one other question. If you could maybe give us a sense of some of the planned outages or maintenance for the rest of the year?

For Methanex?

Yes.

Well, the Egypt plant will come down -- I don't know, Michael, do you want to handle the question? Egypt's going to come down --?

Yes. Sort of -- probably sometime in the third quarter we'd plan to take Egypt down. We're nearing the end of the 18-month sort of warranty period on a brand new pump, and there's a couple of start-up issues we want to take a look at. So, we're planning that at the moment so I don't have an exact date.

And the real purpose of that is to be sure if there's any --.

Yes.

Related issues in any of the equipment that we find them before the warranty period expires.

Yes.

So, there's nothing really that forces us to do it other than that.

And the plant's upgrading really well and we're tempted not to go down, but we think it's a sensible thing to go down. So, that would be sort of two weeks planned sometime in the third quarter.

I think that the big uncertainty is just -- as Bruce has alluded to, is the gas situation, supply/demand in Trinidad. And that's something that there isn't a lot of planning around.

And there's not a lot of transparency around it --.

Right, right.

And we keep trying to seek (inaudible) some information, but it's hard to find. But, I think the New Zealand plants are all -- they're in good shape and Medicine Hat's in good shape. So --.

Right, they are. (Inaudible.)

Yes, of course. That's right. So, no, I think that's it. It's probably just a couple of weeks in each of them and I've certainly run through that, of the issues.

And potentially we have -- in the winter we're looking at a short outage in Chile as well, right?

Right. Yes, yes, yes.

We've got some sort of -- akin to North American statutory inspections we to do and things like that. So, we're looking to be off in a time during that -- the winter season to take one of the -- the Chile plant down as well.

Yes. And that's Q3 again, probably. Yes.

Yes.

Okay, great. Thank you much, guys.

Okay.

Thank you. We now have a follow-up question from Steve Hansen from Raymond James. Please go ahead.

Yes, Bruce, I just wanted to circle back on the debottlenecking opportunity you noted for New Zealand and the opportunity to get a couple hundred thousand tonnes back there. Is that -- I think you had mentioned in past calls that there was an oxygen shortage in the Motunui site or something. Is that what you were referring to? And can you just give us some --?

No. No, it isn't this -- again, we're distillation constrained in New Zealand. And as a way of reconfiguring the distillation problems that (inaudible) significantly improves the energy efficiency on the site and it's probably another couple hundred thousand tonnes.

The other opportunity, we used to take into that site a high CO2 gas and that gas field is still available. It doesn't produce today. So, we're talking to the owners of that gas field and trying to reinitiate supplies of high CO2 gas. So, when you bring the high CO2 gas into a -- into the technology methanol, it increases capacity as well.

So, we think we can get up to about 1.9, 1.95 million tonnes. So, it's a pretty decent jump in capacity that's available from just getting the distillation working more efficiently and bringing more CO2 onto the site.

Okay. And timing on that project would be?

Well, everything today is focused on getting the number one plant started up and that's in early July. So, I think we would start on this next project, and we've been doing some engineering already, Michael, but how long would you say before we could anticipate the heat integration project?

We would be doing the tie-in work in conjunction with the planned outage at the next turnaround, which is not this year.

Yes, yes.

So, it's well away yet.

It's well away. Okay.

So, the -- and the other thing that we've -- we haven't talked about it this morning, but we're certainly beginning to think seriously about, is the restart of the Waitara Valley plant. So, we need a little more natural gas and we need to employ some people. But, probably the biggest constraint today is people.

So, it is something that we're going to spend more time on. And I think there is some probability that we can get all three plants operating in the next 12 to 24 months. And one of our objectives, as Michael mentioned, the downtime on the Motunui II plant, we need for (inaudible) reasons to take their plant down in October 2013. If we can get Waitara Valley operational before that date, then it allows us to consume our contracted gas during that outage and maintain our rights of production.

So, we're beginning to do some work on that as well. So, there's a lot of stuff going on in New Zealand, all of it very positive. And I think it does reflect a significant change in the natural gas supply outlook in that country.

That's brilliant. And then just a last one, if I may. Just thinking out loud. You mentioned that there could be other locations or potential destinations for an idle Chilean plant. And you've obviously had capacity in the past in Kitimat on the West Coast of B.C. here. I know there's also been a ton of new gas found just off the coast of Chile at the Falklands. Just trying to get a sense of where some of the opportunities might be that you'd contemplate.

Yes. I'd probably rather not speak on it. It's -- the challenge in Kitimat, of course, is there's still access to natural gas and there are some big pipelines that are planned to be built there. All the capacity on that pipeline is sold through LNG. And what we found, wherever we are in the world, if we're competing against LNG it's -- that's a tough thing to compete against when LNG is selling in Asia today at $15 or $16 in (inaudible) BTU. That probably nets back to the gas supplier at $10 or $11. So, it's a pretty attractive opportunity for a North American gas owner. And while I think methanol can play a decent price for natural gas, it's not quite that decent.

Right.

So, yes, I think Kitimat would -- it continues to be a bit of a struggle. We certainly -- we really like the idea of exporting methanol from North America to Asia if we could get access to reasonably priced natural gas. So, that's something that's in the back of our minds and we work away on that issue over time.

Okay. Very helpful. Thank you.

Okay.

Thank you. We now have another question from Bert Powell from BMO Capital Markets. Please go ahead.

Thanks. Bruce, I know you have some challenges with the upstream view in Trinidad, but we are a month pretty much into this quarter and I'm wondering if you could share with us what you're seeing so far in terms of the availability for tightening Alas.

Well, so far it's been reasonable. One of the factors is one of our competitors has a large plant there that's under maintenance at the moment. So, when one of the large facilities is in maintenance, then there's enough gas for everyone else to go around. So, it's helpful, but I think that plant will be back in production probably the end of the month.

And so -- and I'd say there's a kind of lack of transparency and clearness and we keep being told different things by the upstream producers. So, I think it's a reasonable expectation that we're going to continue to suffer from this issue during 2012.

Okay. So, probably a reasonable basis is to look at 2011 as a --.

That's probably a fair guide, yes.

Okay. And then just lastly, just a quick -- just for clarification on the Orascom. Will that -- you'll run that through the purchase methanol line or will that be a commission sale line, just in terms of --?

No, it'll go to the purchased methanol line, yes.

Okay, perfect.

Yes.

Thank you.

Okay. So, if there's one more question I'll take that and then we're closing in on an hour.

Thank you. The last question is from Costas Karathanos from Ivory Capital. Please go ahead.

Perfect. Hey, guys, thanks for taking the call. I just had a quick question. So, as you noted, Q1 results were impacted effectively from a little bit of building of inventory, producing more than you're actually selling. But, to note that Q2 I guess is, quote, slightly better than Q1 from a net income basis, are you suggesting this actually continues into the second quarter?

It might do and it's very hard to know. We operate 5 pools of inventory around the world. So, production flows into those pools and then flows out again as sales are made. And it's -- it is very hard to know how product flows out of those pools and the timing of those flows. So, it is possible that we end up building more produced inventory in Q2. And there's nothing strategic or technical about that, it's just all about timing.

So, it's certainly not something to get anxious about. There's nothing underlying it other than sometimes there's a vessel that ends up sailing on the 1st of April as opposed to the 31st of March and we lose 30,000 tonnes of sale in the quarter. So, there's -- it's kind of frustrating that one small thing can have a big impact on the numbers but, really, we shouldn't read too much into it.

Gotcha. I mean, am I overly focusing on the nuances of how that language was put forth? Because I would think production's higher, right, pricing is higher. There should be actually a material impact unless there's a mismatch like what we saw in the first quarter.

Yes. Well, that's -- I guess -- I wouldn't read too much into the words but, at the same time, I'd be a little bit cautious that -- because our forecast would see us building a little bit of produced inventory during the quarter.

Okay, perfect. Thank you.

Okay. Alright. Well, thanks, everyone, for participating in the call. I'm sure you've gleaned from the comments this is an exciting time for our company and our earnings are on an improving trend and really encouraging.

Don't get too focused on quarter-by-quarter things. They're too -- there's too much noise around these produced methanol sales that make a huge different on our results from quarter to quarter. So, if you look at the trend, we're on an improving trend. And as we get a full year of production in Egypt and Canada and Medicine Hat into our results this year, and then higher production from New Zealand in the second half, we expect to see continuing strong earnings as the year progresses.

And then, of course, with the debottleneck opportunities I've talked about and with Chile and the Louisiana project, there's a lot more upside to our earnings and cash flows in the coming years. And all this is happening in an environment where the industry's in great shape, where demand is strong and supply is constrained.

So, I think it's a very good time to be a Methanex shareholder. I continue to think that our stock is very modestly valued and there's a pre-option on a lot of this growth stuff for the future. So, thank you again for your support and good morning to everyone.

Thank you. The conference is now ended. Please disconnect your lines at this time and we thank you for your participation.