Methanex Corp (MEOH) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation third-quarter 2014 results conference call. I would now like to turn the conference call over to Ms. Sandra Daycock, Director of Investor Relations. Please go ahead, Ms. Daycock.

Thank you. Good morning, ladies and gentlemen. Welcome to our third-quarter 2014 results conference call. Our 2014 second quarter report, along with presentation slides summarizing the Qe results, can be accessed at our website at www.methanex.com.

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 than 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 2013 Annual Report for more information.

For clarification, any references to EBITDA, cash flow or income made in today's remarks reflect our 63.1% economic interest in the Atlas facility and our proportionate economic interest in the Egypt facility. On December 9, 2013, we completed the sale of a 10% equity interest in the Egypt facility and our proportionate interest in the facility was 60% prior to that date and 50% thereafter.

In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation and other non-operating items. We report our results in this way to make them a better measure of the underlying operating performance of the Company and we encourage analysts covering the Company to report their estimates in this manner.

I would now like to turn over the call to Methanex's President and CEO, Mr. John Floren, for his comments and a question-and-answer period. John?

Thank you, Sandra. Our third-quarter results were very solid. We generated $137 million in adjusted EBITDA and recorded earnings per share of $0.69. Contract methanol prices held steady over the quarter trending upward leading into Q4. Demand from methanol grew about 3% from Q2 levels with the bulk of this growth stemmin from two new MTO plants start-up in China. We continue to see about six new merchant MTO plants on the horizon through the end of 2015, with combined annual capacity to consume over 9 million tons of merchant methanol.

We expect MTO demand to remain strong in Q4 with the start-up of one new facility and pre-purchasing of methanol from companies that will be starting up in 2015.

In the wake of the continued move in oil prices over the past several weeks, there has been considerable focus on the correlation between methanol and oil pricing. The use of methanol as a subsitute for petroleum-derived products in energy application as being one of the main drivers of growth in our industry.

While there is a historical correlation between methanol and oil prices, this correlation is indirect through the [pipes] of end use products such as gasoline, olefins and prophane.

But today's prices for these end used products, methanol continues to be a competitive substitute and we have not seen any mark impact on methanol prices from lower oil prices.

In the quarter, we return $110 million in cash to shareholders. We distributed $23 million to dividend and repurchased aproximately 1.3 million common shares representing $87 million of cash under the normal course [issued a bit].

The shares repurchased to September 30, 2014 represents approximately 56% of the total shares approved to be purchased. As a result of the stable pricing environment, experienced in Q3, there was minimal net impact related to timing of inventory flows on margins from produced and purchased product. Further, the discount between posted and realized prices including Q3 as forecasted on our last call.

Our New Zealand plants continue to run at very high rates -- 2.38 million tons annualized or 99% during Q3. We started receiving high C02 gas in May, and we are currently looking to secure additional high CO2 gas.

We continue to experience gas restrictions in Trinidad. The plants operate at an average combined rate of 84% in Q3 and most of the production interruptions were gas related.

The Egypt operating rate was 32% in Q3 as a result of an extended outage for most of the summer [key] electricity demand period.

The plant resumes operations in mid-August. It is difficult to give guidance on production rates in Egypt at this time. Although, we are optimistic that we will be able to run at higher rates on average that we achieve during the first nine months of 2013.

We continue to make excellent progress on our Geismar project. OUr two Geismar plants will be first-class assets and are expected to generate significant EBITDA over the coming years. A major milestone was achieved in September when all major equipment including the Geismar 2 reformer arrived on the site.

This milestone was a significant dericking event for the project and has allowed us to firm up our schedule. We continue to expect the completion of the construction of Geismar 1 by the end of this year with first methanol production in January, 2015. The Geismar 2 plant is on track for a late Q1 2016 start-up.

We have also revisited the amount of capital required to complete the Geismar projects on schedule in light of the escalating wage pressure and lower labor productivity we're experience in Louisiana. The total cost of the projects is originally budgeted at $1.1 billion and we are now estimating the projects will cost approximately 25% to 30% more than the initial budget. We believe that even with the higher capital cost, that these two plants will be built for significantly less capital than a greenfield or brownfield project.

We have placed priority on project schedule and the amount of time from the start-up of the project to first methanol is significantly reduced relative to a new built plant allowing us to start generating our capital back in the coming months. I'll now stop there and take some questions.

Thank you. (Operator Instructions). Steve Hansen, Raymond James.

Just a quick question on the Canadian gas situation and how you see that evolving going forward. There have been some reports about improving, I guess, opeartion capabilities in the upstream there. I'm just trying to get a sense whether you guys are getting any visibility on higher rates perhaps, I guess, on 2015 or 2016, you've all ready given guidance for the back half of this year.

Yes. It's difficult. I was just down in Trinidad, Steve, so I would agree with you. There are new fields being tied and/or new production being tied in but we still have depletion. So I think for the next few years, we're going to continue to have restrictions in Trinidad but it's really difficult to give guidance. I think 20% is at the high end. I would expect things to improv but it's really difficult to predict.

Okay, fair enough. And just one follow-up, if I may, on sort of the derivative impacts in the guys in my facility. How do you feel about the pace of the CapEx inflation? I'm just trying to get a sense of whether it's accelerating or stabilizing in the broader context just as we think about other facilities that might be contemplating getting started on the greenfield side?

Well, it's definitely accelerating. I've got in front of my here an -- I'm sorry -- ISIS list of projects in the US petrochemical industry between now and 2018. There's 58 projects on this list and the bulk of them are going to be in the construction period between to 2016 and 2017, representing over $100 billion in planned investment. So I believe we're still ahead of the curve and in the reforecast of the budget, including the G2 or Geismar 2 we've taken into account and anticipate further inflation in and labor and productivity you'll see [we back] -- we're adding a few months into the schedule versus what we completed on the first project because we think the productivity issues are going to continue to be a challenge over the next two to three years.

Okay, very helpful. Thank you. I'll jump back in the queue.

Joel Jackson, BMO capital markets.

Hi, good morning. First question just on LPG prices and DME in China. So we've seen LPG prices that take a big step down, benchmark pricing for November. Just what you said in DME here as you're getting into the season four the -- if you would see maybe the non-integrated DME production shutting down and hurting the methanol demand a little bit there.

No, we haven't seen that, Joel. Actually seeing DME rates as you mention in this time of the year being quite robust. It's difficult to predict the future but at current prices for methanol and current prices for propane, methanol continues to be used quite a lot for DME production.

Okay. And switching to North America, you're able to raise your methanol price in November a little bit on your contract pricing. We did see North American -- excuse me US Gulf spot pricing fall across the -- October. Maybe you could give a little bit more color on your confidence on able to raise the price a little bit in North America. Thanks.

Yeah, so when we raise the price like we said before, we don't do it for a month. We look at what we see the supply/demand balance out for a number of months. So, you know, I think it's public information that both Lyondell and OCI are going to have outages in the coming months. OCI for a big turnaround and Lyondell announced nounsed in their call that they're having some production issues with their facility and have to take it down as well. So we look out a few minutes with a supply demand balance in the Atlantic basin and we are and pretty covetable in raising prices for November.

Thank you very much.

Jacob Bout, CIBC.

Good afternoon. Can you talk a little bit about your thoughts now about moving a third plant from Chile and if you're to move that that Geismar, what do you think the costs would be today? And is there a chance or would you look at possibly moving this out to New Zealand?

Yes, so I think as mentioned a couple as -- a key -- couple of questions ago, we see a really, really tough construction market in that 2016/2017 period so we still have a team looking at possible relocation of a third plant. I'd say moving it like making the decision to move it, say, starting 2015 or 2016 would be the [too] difficult brackets for us right now. So we'll see how these projects evolve. We'll see how many of them actually go forward. We'll watch the construction labor market. We're in that market obviously through the bulk of 2015 and we'll have a project ready to execute if and when we think the construction labor availability and cost will allow us to do it at any reasonable price. It would be just a guess if I give you a price today so I don't like to guess. So if we do it, we'll have to have some sort of view on what the labor market availability and price will be.

New Zealand, yes. It's interesting, the New Zealand gas reserves were just redetermined there and upped by about a third versus the gas reserve predictions in 2013. Having said that, I think we need to see a fairly significant find of additional gas and there's drilling happening in the Maui basin by shale so that's not impossible.

But based on the current supply/demand balance of gas, we're certainly going to run those three plants there for longer than we thought this time last year. And, you know, having those three plants with a longer run life based on the current gas is better than thinking about putting new capital there.

So, you know, there's a lot of work happening in the south islands in New Zealand as well for oil and gas exploration. We'd love to have more production in New Zealand but I think it's bit premature to be thinking about that right now.

Maybe just a follow-up here. What's your thoughts now on your total CapEx spend in 2015?

I don't have the number off the top of my head but, you know, we've probably spend -- order of magnitude $130 million other than the Geismar but I can get you the exact number off-line, Jacob.

Okay, thank you.

Hassan Ahmed, Alembic Global.

Good morning, John. You know you mentioned the start-up of some MTO facilities in China. Obviously crude oil prices coming down, a lot of focus on napsa based that's really economics in China improving quite dramatically. So my question is -- I mean I would imagine that at least the 2015 MTO facilities still come online but are you hearing anything about, you know, the longer term MTO facilities being reconsidered in light of this sort of, you know, lower naphtha price environment?

Well, what we from a visibility on is the 9 million tons I mentioned that's under construction in addition to the five that's operating today. Those will be completed. And will they run? We believe they will run. How hard they will run is probably somewhat determined on methanol pricing, but it's more determined for them on what their relative substitute that they're make, the MTO.

So it's not just naphtha to methanol. You have to watch ethylene glycol, ethylene oxide, EET, et cetera, becaise a lot of these projects are backward integrated so something they're already doing. So I think it's difficult again to predict the future of pricing for a number of these commodities. But at current prices per methanol and the current affordability, there's quite a bit of room still for these projects to run at higher rates and generate significant EBITDA.

Great. And, you know, I've been reading some articles over the last couple of weeks about bloated inventory levels, particularly in China. Where does the inventory levels it been in China or just globally?

Well, I'll remind you that the demand in China is at an all-time high so we need a bit more inventory. And I think the days of inventory haven't changed. So, you know, around I believe on the coast, 800,000 tons, 24 days, 23 days. That's not a lot of inventory. Like when you look around the world, a more normal inventory level is probably in the 40 to 45-day range. So I think yes, the absolute number's higher than has it been but we're adding significant amount of demand so we need higher inventories.

Fair enough. And one final one if I may. Obviously Geismar 1 and 2 now on track, we march closer to the start-up of Geismar 1, what are you updated thoughts about a potential MLP?

Again we're continuing to look at that, Hassan even we don't have to make a decision on that until sometime next year so nothing's really changed in our thinking so we'll continue to look at it. I've read somewhere that maybe the private letter rulings or the moratorium have been lifted, which is a positive but we're continuing to talk to a lot of different people on this issue to understand if it's long-term value generation for our shares holder base and we'll make a decision like I said sometime in the first quarter next year.

Very good. Thanks so much, John.

(Operator) Matt Daniel Jester, Citi.

Good morning. You said that most of the demand improvement you saw in the third quarter was due to the MTO plant start-ups. Maybe you could talk a little bit about what you're seeing on the demand side for some of the more traditional chemical markets.

Yes. We're seeing again not a lot of drop in demand. We're seeing solid demand pretty well across the board. Obviously, the GDP numbers around as good on the forecast or as good as they were. Europe is certainly softer and as well written that China is softer on the traditional demand as well. So the latest GDP numbers I have seen the 2% to 3% growth globally and that's what you should expect on the normal chemical derivatives. They track industrial production and GDP growth.

Okay. Great. And then on just coming back to Geismar and the inflation that you saw there, you know, based on what you're seeing for costs, the $1,000 per ton greenfield estimate that you've talked about in the past, do you have any update as to where you think a reasonable assumption for that should be?

Unfortunately you won't know until you actually build a plant. You don't get a lump sum turnkey today so you're on a time and material base. We know how many manhours it takes to build a plant so 5 million to 6 million manhours. So if you have a $10 increase on the labor component, $50 to $60 million. I'll remind you that we're also experiencing very long high daily per diems. So at lot of -- more than half the workers on our project are getting daily per diems which adds to the labor rate as well and then the productivity is even the bigger issue.

You know, US used to be the benchmark for productivity and that's long gone. It's now Korea. So US is actually Korea plus now on productivity numbers. So, again, I can't predict the future but I would be very, very reluctant to be committing any significant capital to building anything in the United States in the coming years.

Great. Thank you very much.

Ben Isaacson, Scotiabank.

Hi, John. I have two questions. My first one is on methanol price volatility. We've seen gas prices in China rise for I guess non-fertilizer industrial users and we've seen coal prices fall, which tells me that the cost has really steepened in roughly the same spot where demand sits. Would you therefore characterize the market of potentially having sharper spikes up and down as demand moves around? And if so, how do you manage that volatility in price?

I actually think we're going to see less volatility going forward that we have in the past. We had the methanol price reduced quite a bit in the early second quarter of this year and we saw it fall through the cost curve including coal. You know, coal hasn't changed much in price since that time. And then we saw it rebound to around the current levels of RMB350 for Chinese product and that's where it's been sitting, plus or minus, a few RMB.

I think also on the upside because of the affordability relative substitute for DME, for example, and MTO, there's probably a bit of a ceiling as well. I'm very happy with the current price. If I could get the current price. If I could get a current price for the next 10 years, I'd be even happier so I think we're in a very nice band for methanol.

Great. Thank you. And my follow-up is we hear about planned and unplanned outages all the time and of course the price will tend to adjust accordingly in the short term. But based on your experience, can you talk about average level of outages? And is there seasonality to these outages and when to we see more and when do we see less, at least on the plan side?

Again I'm terrible at predicting the future. I know in our own planned outages are every three or four years for a major turnaround as we call it, depending on the technology, depending on the plant so I think if you took the average plant around the world on a normal basis, they should be shut down for 30 to 45 days every three to you ever four years. The unplanned stuff, really hard to predict. You know a lot of these plants are older or haven't been maintained or maybe, you know, have inexperienced operators and there's lots of gas issues. So it's impossible.

I can tell you what we look at is, you know, in the last couple of years and then plug that number going forward. So as we saw in Q2 of this year, the industry operated way better than it has in a number of years in Q3 was back it where it was so I think it's really hard to predict the operating rates on an unplanned basis.

Sorry, John. I goes what I meant is on a kind of seasonal annual basis. Do we tend to see more planned outages occurring in the winter when there's demand low is it generally steady throughout the year?

I think you're right to point out that in the winter we see less supply so I think that's more gas related. Winter time in the northern hemisphere, gas is used more for heating and electricity in places like Iran so I would expect that trend to continue where in the winter months, the actual operating rates are lower, then maybe they schedule their turnarounds in that time because they won't have gas as well but I think in the winter, gas is an issue.

Great, thanks.

Laurence Alexander, Jefferies.

Hi, this is George D'Angelo sitting in for Laurence today. John, I've heard about EPA approval of biogas to DME, as part of the US RFS, what implications do you think that might have for the industry?

Well, DME, when DME was first talked about as an energy product, the big use was going to be to replace diesel and I think that's the future of DME. I mean the quick and easy win is to replace propane at 20% substitute based on economics where you don't have to change the cylinders or the burner tips or anything. So that's what we're seeing today but I think the future of DME is diesel substitution.

(Inaudible) great power for long haul of trucks, which is better. Obviously CNG doesn't have those same components characteristics and then very low polluting versus diesel. So I know Volvo has a big program on long haul trucks, heavy duty trucks with Safeway in the US and I would not be surprised to see DME commercialized as a substitute for diesel in the US and other place around the world in the coming years.

Okay, thanks. Just a follow-up, any additional commentary around adding capacity around Medicine Hat?

Yes. So we have a team working on that and I think I mentioned the capital cost that we looked at on the initial flush were pretty tough but we're looking right now to have a partner nor a project. I think I mentioned that we'd like to have somebody that could maybe bring gas to the equation and take some methanol and maybe take about half of the capital equity so the project would be a bit smaller for us to execute. The team working on that -- I think it's similar to what we said in the US. Maybe not quite to the same degree but depends on your view of diesel and [G products] on the coast. Are they going to go forward?

Oil pricing is certainly going to have an impact on the oilsands activity and expansion and there may be a time if we have a project that's on the shelf with a [preceding feed] ready to go that we can execute a Medicine Hat 2 and that's what we're working towards.

Thank you.

Robert Kwan, RBC capital markets.

Good morning. Just coming back to the new Geismar costs, I'm wondering how much contingency is in the new number?

Yes, what we've done, Robert -- and I've been pretty clear on this -- is that when I wanted -- when I gave a new number, I didn't want to have to give another new number. So we've built in different forms of contingency including labor escalation. I think if you look at the schedule from when the reformers on site versus G1, we built in some additional time to complete so therefore we have some flexibilities in the number of workers on site. The more workers on site, the less productivity you have just in general. And we've built in other contingencyies but I think we've also learned a lot from G1, Geismar 1, and I think I see those learnings applied all the time. I was just down their for three days about 10 days ago and I'm very impressed with what I see on the execution on the G2 from the learnings that we've had.

I can't predict the future again but I'm very, very, very comfortable in the number that I've given that we'll be able to execute unless you see something totally different than what we're expecting over the next 12 months.

So in some respects there's a chance you could come in underneath 1.4?

I like the 1.4 number right now. And if -- I like to -- let's say underpromise and overdeliver.

Okay. Just last year on Egypt you mentioned earlier that it's tough to give the guidance, which I totally understand. I just wanted to get a sense though as to what you're see moving around. Is it still prioritizing the gas rather demand or is there something structural related that's going on to your plant specifically?

No, I think we've been up -- since we had come up, we've within running at good rates. I mean we've had a great relationship with the minister and the petroleum business in Egypt and we're working with them to come over a very difficult time because of what the country's been through and I would say every commitment that -- the Egyptian government and ministers made to us has been lived up to and so it's going to be a difficult period like I've said and the difficulties will be more acute in their summer time when they have a higher demand for electricity. But I'm pretty positive -- or optimistic about some of the positive things I have seen in each Egypt. The country's much more stable. They're dealing with subsidies. They're paying the upstream. The future investments, the upstream are going to be higher than they have been the last three years so it's going to take some time. But, you know, again, I'm optimistic when we think in the long term that this would be a really good project for the company.

That's great. Thanks a lot, John.

Cherilyn Radbourne, TD Securities

Thanks very much and good morning.

Sure.

Just wondered if you could talk a little bit about your discount rate in the quarter. It did improve sequentially a expected but I was a little surprised to see it approach levels you last saw second half of last year when the market was considerably tighter.

Yes. So as I've said before when prices are going up, our margin will compress. When margins are going down, our margin will expand. It you take out the volatility on average, we renew about 20% of our contracts on a global basis every year, and in tight market conditions, we're able to improving the margin. And I'll remind you again we have a fairly significant fixed price contract coming off this quarter, which will impact the margin as well. So we do expect margins to improve going forward.

Okay. That's helpful. I wonder also if you could just indicate what kind of a production response you have seen or expect to see in China as a result of this September increase in gas prices?

Well, we've seen some of the gas plants reduce rates and then come back. I think the challenge for those plants in China is if they shut down on a more permanent basis, they may never, ever get gas again. So I think they're a hopeful that this demand that's coming for MTO will allow them to operate on a longer term basis. But I think it's pretty tough thinking of running a methanol business on $10 gas on any sustainable basis.

So I mean the country itself, the government has been clear in the five-year plan that they want to use gas or heating and electricity and not for chemicals. But, again this is directional policy. It's not mandated but that's what we see and every year for the past several years, they've been increasing gas prices and the latest one as you pointed out is September. So we could continue to expect in a trend to go forward in the future.

Great. Thank you. That's my two.

Thank you.

Charles Neivert, Cowen and Company.

Good morning, guys. One quick question, the plants you're bringing up from Chile are sort of the pre-mega methanol technology and the mega units seem to have some maybe more dependability issues than others. Do you expect that these things will run like the old plants did when they were in Chile is that they should run well? And should that be -- I expect that we'll see a significant improvement in your overall operating rate once these -- both of them are up or even the first one is up. Is that a reasonable way to look at things going forward? They should run at the kind of effectability of the premega units?

[Either] are fantastic plants and they're both the same and as we train operators, they can go between the two plants. Obviously as we are moving these plants, we're taking the opportunity to improve any of the debottlenecks or weaknesses that we might have seen in Chile. So our expectation is that these plants are going to run and run really high rates and for a really long time because there's lots gas and we're buying utilities across the fence and we know how it run these things so I'm pretty excited that these are going to be some of our best assets in our entire portfolio.

Thank. So because I had looked back at the Chile operating rates prior to the gas issues and they were exceptionally high so I'm expecting that that is what should continue going forward.

I would be very disappointed if we don't have very high operating rates out of these plants.

Okay. And again getting back to timin and I know this is sort of nitpicking a little bit but are we looking at production -- production start-up I guess you're going to go through commissioning and stuff like that in the fourth quarter. Are we are going to get off to a very early start? Are we looking that -- a significant proportion of the first quarter with real production rates, or is it going to take a month before you're at sort of full rates (multiple speakers) --

Yes. We're at 40% through the commissioning so we have been commissioning since July so I was just down there like I said talking to the project team and their expectation is they single start and will run at very high rates very quickly.

Okay. All right. That's it then. Okay.

Probably that the problems we've had in the past with the commissioning I remind you is when we have our own utilities, our own steam or oxygen and when we've had delays as commissioning is those types. All of this is cross the fence so we expect to start these things up and run them at high rates pretty quickly.

Okay. Great. Thanks very much.

Thanks though.

Chris McDougall, Westlake Securities

Morning, John. Thanks for the update and congrats on the solid results. So, I wanted a little bit of color on the modeling the Geismar plants as we get ready for those to start up. And I was thinking specifically around the freight rate expectations given that they'll be in the US with a lot of the demand. And then also the state tax situation I know [Louisiana] has a corporate income tax but a lot of times there's incentives for locating new facilities there and such.

Yes. I'll let Ian answer the tax question and then I'll come back on the logistics.

Okay, sorry, starting with the tax, Chris. Including federal and state taxes, we think the all-in tax rate for Geismar will be less than 40%, sort of 38%, 39%. We have put in place some tax structuring like we would normally do in these times of projects which we think is very good so we think that the overall effective tax rate to the company will be lower than that.

In terms of state incentives, there are some incentives as part of developing these programs. They are included as part of the capital cost of the project.

Okay, thanks.

And from a logistics sides, you're right to point out that the Geismar 1, volume will all stay in the United States. We have significant business in the United States basically all on import products. So -- and we'll move some of the imported product to other markets so we expect a net benefit on logistics as we start up Geismar 1.

Okay, great. And then on the cost of setting up these new plants, we see a lot of press releases and political announcements with prominent political folks about new methanol plants in the Gulf Coast and the prices that they sort of quote are south of this $1,000 ton benchmark. Given that you guys are building one or relocating one, how do you square these announcements with thinking that the $1,000 ton is the right benchmark?

Again, that's an estimate, $1,000. Until you actually build one and complete it, you don't know. And then what are people including?

A lot of these announcements are just EPC. They're not included owner's costs. We've had an organization of 100-plus employees in place for quite a long time. That's not cheap. There's obviously financing costs and capitalized interest. A lot of different things go into a project. So when we give a number, it's all-in number. And then if you build a $1.7 million ton oxygen-based plant, well maybe you can get a bit lower than that 1,000 a ton going, but is it going to be efficient? Can you operate it effectively? As we've seen in Trinidad, we have one of those and we've never been able to operate it consistently on a high efficient basis so that impacts your economics longer term. So I think the capital number is an estimate for us. And can you do it for less? Well, good luck is what I would say. But we will only know when something is built.

Okay. Thanks a lot, John.

Steve Hansen, Raymond James.

Yes, just a follow-up, John, here on the topic of the buyback with about half of the buyback or the approved buyback now executed. I'm just hoping you could provide some color or thoughts maybe around how you think about the buyback program going forward once the Geismar facilities or at least even once the first Geismar facility is up and running and the timing around future buyback rescheduling, if you will.

Nothing's really changed in our view on what our uses for cash so I'll remind you, we also have buyback shares all of October. Unfortunately, we're in a blackout that we couldn't change the daily number. So I think we'll continue to look to complete that normal course issue or bid of 4.8 million shares.

Beyond that the uses for cash are the same. We like to grow the company. Beyond G2, it looks pretty difficult in the short term to have something to dedicate some capital to that. Dividends, meaningful, sustainable and growing and that's what we've done and then excess cash through buybacks. So under a number of different pricing scenarios that you can run, we're going to have quite a bit of excess cash to be able to do all three and depending on if we have a project or not, we'll have more cash to buyback shares. So the current price, I'm really anxious to buy back shares.

Okay. Fair enough. And just as follow-up, maybe to I think it was Chris' question earlier around modeling Geismar, if we would have to just take a stab at Geismar 1 with the gas contract in place, and the existing methanol price in the Gulf under the new post [the rate here] for November, is there a range for the cash costs that you can give us that would give us a sense for how that would look or even a more precise number I suppose? We're just trying to get a handle for that we'll have a [thought] process in it so [I'd do] what generate them?

I think what we said we're not going to giving you specific numbers plant-by-plant because there's a lot of confidentiality around things like gas contracts and et cetera. But the EBITDA generation is going to be similar to our existing portfolio so that's how would I look at it.

Okay. That's helpful. Thank you.

(Operator Instructions) Chris Shaw, Monness Crespi.

Hi, good afternoon, everyone. Good morning out there. A lot of ground's been covered but you mentioned before that -- your costs like at the beginning now have gone up on the Geismar plants at 25% to 30%. Would that be a similar sort of rate of inflation do you think for a greenfield project over that time? Is there anything different, the different parts of a plant build that would be different between greenfield that would either grow quicker or slower during that period? I'm just trying to gage with -- how others might be thinking about some of the greenfield projects?

Sure. So I'll remind you that the manhours we put into these projects a third was in Chile and two-thirds was in Louisiana because we had to disassemble the plant. If you're talking about a greenfield or brownfield in the Gulf and the US, all of the manhours would be US manhours and I think I've communicated pretty clearly what we see and what we've been experiencing and what we expect to experience.

The piece that we don't have a lot of transparency on today is the shops. You know, [all of] projects about 25%, 20$, 25% is equipment. We didn't have the same need to buy all of that equipment so I don't have a good feel for what's the line-up in the shops, what's the inflation in the shops? Can you even get the compressors and vessels and heat exchangers in a reasonable time? Until we actually get more down the road of doing a feed on a US or Canadian project, we won't have that information.

Okay. And then just (inaudible). Is there any update on getting longer term gas contracts for Geismar 2 in Medicine Hat?

Well, I think the lower the gas price, are the more optimistic I am of getting a gas contract. What I would say is the suppliers are probably taking a bit of a wait-and-see attitude. We're not going to be consuming gas in the G2 until sometime late 2016. So I think if I was a gas supplier, I might want to see how the LNG exports develop and what happens in the gas market on a more general basis? How many of these 58 projects I mentioned actually go forward?

So we're still optimistic and we're still working hard to get a gas contract for the second plant and we're optimistic we will. And as soon as we have something, we'll communicate it. As far as Medicine Hat goes, the spot price is $3 so I'm not too motivated in the next few years to go out and get a gas contract.

Having said that, if we could get a gas contract for a second plant and roll the first one into it, that's pretty attractive as well so we're a working on this.

Yes.

But $3 buck gas, that's $110 cash cost -- I like that.

Great, thank you.

Brad Lundy, Ivory Capital.

Thanks for taking the call. Quick follow-up on Geismar. Just wanted to clarify how much of the productivity decline that you referenced is really an industry issue or compared to a site-specific issue?

Yes, I don't have the industry data but when we did the project, we took the average of the last 10 years and we're experiencing 20%, and that's an average. Certain crafts -- it's even worse so this is an average the whole project.

So if you were to go to a site like ours, what you would see is a labor force of mainly made up of 20 to 29-year-olds and then the bulk of the rest is 45 to 60, even older. There's nothing in the middle. And there's a big competitive environment down there for people like pipefitters, ENI guys and welders and that's really without the bulk of these projects even starting.

So again we ask other people, IHS McKenzie to give us their view and the numbers I have seen is going to be a 30% shortage of these types of people to -- even if a fraction of these plants go forth.

So, again, I would not be wanting to be spending billions of dollars of capital in the 2016/2017 period in the US Gulf building a project.

All right.

That's just me. Others may have a different view but that's my view.

And did you say that the productivity decline as is compared to the last 10 years is 20%? Or did I (multiple speakers) --

On average, that's right. On average. But there's some craft where it's even worse.

That's right. And then just (inaudible). Sorry. Go ahead.

So therefore some are better. But when you look on average all of the crafts, we measure I don't know, 15 to 20 of them. That's what we see.

And then just last quick question on the [$300 million] increase. I presume that's mostly tied to G2 considering where you were in kind of the G1 finalization?

Again, I've said for about a year now it's impossible to split out what G1 and what G2 on an accurate basis. So obviously we have built contingency into G2, based on what we expect on labor and rates and productivity and I wouldn't put a number out if I didn't think I was pretty confident in achieving it with some good sized contingencies. So (multiple speakers) --

Understood. Thank you.

Thank you. I would now like to turning the meeting back over to Mr. Floren.

Okay. Well, thanks very much for all the questions and all the interest. So demand is expected to remain solid in the fourth quarter of 2014 really buoyed by the increase in the MTO demand. We had expect our production number to be higher in question, foreversus Q3 and prices to remain stable through the quarter leading to higher EBITDA and earnings per share in Q4 versus Q3. Thanks very much. Have a good day.

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