Methanex Corp (MEOH) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation first-quarter 2015 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 first-quarter 2015 results conference call. Our 2015 first-quarter report, along with presentation slides summarizing the Q1 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 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 2014 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 50% economic interest in the Egypt facility.

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

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

Good morning.

In Q1 2015 we achieved adjusted EBITDA of $97 million and adjusted net income of $21 million, or $0.23 a share. Earnings per share were about $0.20 below consensus. The main reasons for the difference in achieved earnings per share versus estimated earnings per share were as follows.

We have just over $100 million as non-US-dollar net assets on our balance sheet, and when the US dollar appreciates, this generates a foreign exchange loss. In Q1 this foreign exchange impact was approximately $9 million. Although we experienced this loss in the quarter, a strong US dollar has a net benefit to the Company. We have approximately $150 million per year of non-US-dollar costs in our cost structure. Over the year, our lower relative costs will more than offset this one-time foreign exchange loss in Q1.

In addition, in March 2015 we repaid $150 million bond originally due in August of this year from cash off of our balance sheet. In effect, we prepaid interest in the amount of $3.2 million, which was recorded as a finance expense during the quarter and was not anticipated by analysts.

Also, volumes of produced product were lower than expected due to production outages in New Zealand and Egypt, and this increased costs and lowered margins.

We achieved a major milestone for the Company with the successful start-up of our new facility in the United States. We delivered and sold our first methanol from our Geismar 1 facility during the quarter. The plant operated exceptionally well and produced 180,000 metric tonnes and is running today at a rate of over 3,000 tonnes a day. This is a fantastic achievement by our entire organization.

We've also made solid progress on the construction of the second plant, which remains on target for start-up in late Q1 2016. The remaining capital spend for Geismar 2 at the end of Q1 was approximately $265 million. We believe the revised budget of $1.4 billion for completion of both plants is achievable.

During the quarter we returned over $70 million in cash to shareholders in the form of dividends and share repurchases. Regarding the normal course issuer bid initiated May 6, 2014, as of today we have purchased approximately 5.7 million shares, of 6% of the public float.

Today we announced a new normal course issuer bid of approximately 4.6 million common shares, or 5% of issued and outstanding shares at April 29, 2015. We also increased our dividend by 10% to $1.10 per year, which equates to a meaningful yield of approximately 2%.

The establishment of a new normal course issuer bid, along with the increased dividend, builds on our solid track record of returning cash to shareholders. We believe that buying back our own production capacity continues to be an excellent use of capital, and we have strong confidence in our ability to generate solid future free cash flows from our business.

During Q1 demand contracted modestly versus Q4 of 2014. We saw a seasonal slowdown in traditional chemical applications during Chinese New Year celebrations. Also, lower energy product prices reduced methanol affordability into certain energy applications, notably dimethyl ether, methanol to propylene, and methanol to gasoline.

Contract prices stabilized in March and have moved higher at the beginning of Q2, helped by a recovery in oil and related product prices, which raises methanol affordability into new energy applications.

Another new MTO plant started up in the quarter and there are now a total of eight completed merchant MTO/MTP plants that can consume up to 9 million tonnes of methanol. There are an additional eight MTO/MTP plants under construction that are planned to start up over the coming 15 months, which will add an additional 10 million tonnes of methanol demand at full operating rates.

During the quarter Stena Ferries completed the conversion of the first methanol-powered ship engine on a Stena- Germanica ferry. Stena anticipates that the three remaining engines on the Germanica will be converted later this year. This is the first ship in the world to be powered by methanol.

Our methanol production, including tolling volume, in Q1 was 1.264 million metric tonnes versus 1.207 metric tonnes in Q4 2014.

In New Zealand, two of the plants undertook unplanned downtime due to mechanical issues. The combined impact of these outages led to approximately 80,000 tonnes of lost production.

Our Medicine Hat operation continued to be constrained by mechanical issues and production remains approximately 10% below capacity. We expect to bring the plant back to full capacity following the major refurbishment scheduled for later this year. During the quarter we made progress in locking up about 40% of our natural gas requirements for Medicine Hat through the year 2019.

We operated the Egypt plant for only six days during the quarter, due primarily to gas constraints, which compared to relatively strong gas deliveries in Q4 2014. We believe the deterioration in gas availability is due primarily to the extensive upstream maintenance programs, combined with delivery declines from the upstream fields. The maintenance programs are both corrective and preventative in nature, and follow multiple years of delaying the maintenance activities to maximize supply.

In late February we were provided with gas to restart; however, we experienced a technical problem during the plant's startup, which required approximately three weeks to repair, by which time gas was no longer available. We have been advised by our gas supplier that supplies should be available for our restart mid-May following the commencement of LNG imports, and we expect to operate at reduced rates until the peak summer gas demand period starts and we will likely be required to shut down again.

There's too much uncertainty to give specific guidance on operating rates in Egypt. In the near term we expect intermittent operation of the plant when gas is available during the nonpeak gas demand months. However, we are optimistic that recent developments for upstream gas supply in Egypt will result in improved gas deliveries in the medium term.

In Chile, we operated one plant at a rate [about] 30% for Q1. We anticipate we will have to shut down the operation at some point later in Q2 as we enter the winter season in the Southern Hemisphere. We expect that there will be sufficient gas available to restart the plant after the winter. We believe [that] are good medium-term prospects that promise to bring new Chile-based gas into the market, and we believe our two Chile plants could run at higher rates in the future.

In Trinidad, overall production was higher in Q1 versus Q4 due to better plant operations. Gas curtailments continue this quarter at a rate of about 15%, and we anticipate these levels of curtailments for the foreseeable future.

Although this has been a very disappointing quarter for earnings, we forecast improving industry conditions and asset performance in the coming quarters.

I would now be happy to take any questions.

Thank you. (Operator Instructions) Daniel Jester; Citi.

So, in Trinidad one of your competitors recently announced that it was going to partner with NGC to build a new methanol plant in the country. So, given all the gas issues that we've seen over the past few years, do you think that project announcements in the country are a sign of confidence that, even though in the near term the gas situation in Trinidad is still uncertain, the long-term gas situation is set to improve?

Yes, that's been our position for some time. I think there wasn't a lot of investment in the upstream for some time in Trinidad due to the economic differences between the upstream and the government. There has been recent investments. We see the restrictions for, like I said, the foreseeable future, but some of the projections we've seen in the 2016/2017 period look to be quite positive, but there's a lot of water to flow under that bridge yet.

As far as other announcements, you probably have to talk to Mitsubishi and others about their intentions. I was interested, though, in the announcement that they're talking at this point $1,000 a tonne for capital, even in Trinidad. So it's hard for me to comment on some of these other announcements.

Okay. And then, two quick questions on hedging, I guess for Medicine Hat the 40% you've locked in through 2019. Could you give us any details about the structure of that, or what the average cost you were able to lock in? And then, any updated thoughts about locking in gas at Geismar 2 once it comes on line next year. Thank you.

Yes, the Medicine Hat market is quite different than Henry Hub. It trades at a discount. You can look at the forward curve. You can look at where gas has been trading at around that $3 range. And at $3 it gives us a cash cost of around 170 a tonne in a market where we sell it all within -- most of the year within a couple hundred miles.

So pretty nice economics, and as we do the major refurbishment there we'll get some extra production than what we've been experiencing lately. So, again, we're just really happy with that plant. We call it the Jewel on the Prairie, and it's just going to continue to generate strong earnings for shareholders.

G2, we're not as anxious to tie up that plant for gas as G1. I think I've mentioned before that for G1 we had to hire 130 people and having a 10-year gas contract to give us some certainty about our future was important. Certainly for G2, with a market that's changed again, unlikely that we would sign a methanol-linked contract at this time, but we would never say no.

We're looking at financial instruments to give us some sort of average cost of around $4 for the next 10 years, bit lower in the first 5, bit higher in the second 5. The curve is pretty liquid in the first five years, but then it gets pretty thin. So, our team is looking at that. And certainly in the current environment with a three- to four-year payback period on that operation, the current gas market looks quite attractive.

Thanks a lot.

Jacob Bout; CIBC.

What is the scope of the work to be done at Medicine Hat, and how long do you think it will be down? And are you still thinking about building another plant there?

Yes, so, Medicine Hat is not too dissimilar to what we did in New Zealand. I'll remind you that when we started Medicine Hat up in 2011 we had a three-year run in front of us. We couldn't see what we see today on the gas market in North America. So we invested about $50 million to get the plant going. We didn't do everything to make it really robust and long term.

So we knew that at some point we'd have to go in and what we call our major refurbishment, which is a really overhaul. It's not a normal turnaround, including replacing all the tubes and redoing the converter. It's a big job. But once it's done we'll get more production and it should be very reliable for the next 10 to 15 years.

So our view of Medicine Hat operation now is no longer three to four years; it's long term, like our other plants. So you should expect the turnaround to last in the order of around 60 days major refurbishment, and we've mentioned around $100 million in capital.

And as far as building another plant there?

Oh, sorry. Yes, so we continue to look. It's a great place to build, especially the current environment with the downturn in the oil industry. The big challenge, Jacob, is railing the product to the Coast to get it to Asia. And we've been unsuccessful in negotiating with the railway company that services that plant site a long-term deal that would allow us to underpin our economics for about 10 years.

So we're working hard on that. But we don't want to find ourselves into a position like the Oil Sands, where they built a lot of production and they don't have a way of getting it out of the country in an efficient way. So we're continuing to work hard on that. We're a lot more optimistic today with the current labor environment and gas environment in Medicine Hat.

The second question is just strategically how do you think about market share in the methanol industry? Do you look at maintaining -- is there an optimal market share? And then, maybe from a Board perspective, does this market share play into when you think about a new build?

Yes, leadership is extremely important to us, Jacob. And we'd like to maintain leadership. We're adding 3 million tonnes in three years to enhance our leadership position when none of our major competitors are building capacity in the same time.

The market is predicted to grow somewhere between 7% and 8% per year. In order for us to keep our current market share we need to add about 1 million tonnes every two years. That's what we like to do. That's in our vision.

We've added 3 million in three years, so there's no rush for us to go and add new capacity to keep our current market share. We're enhancing it, and I think there are opportunities, especially in North America, for us to look to build new capacity, brownfield at the appropriate time. But there's nothing imminent at this particular time.

Okay. Thanks a lot, John.

Steve Hansen; Raymond James.

Quick one on some of the operational issues we've had here, just on New Zealand in particular. Are any of those issues expected to persist going forward or are those sort of one-time in nature for the quarter?

Well, since they're always unplanned we don't have unplanned outages in our forecast. So, these three plants are a little bit older in nature, and we refurbish them. There's issues that crop up from time to time.

And I think what we look at, 2.2 million tonnes for the three plants, is pretty well what we would hope to get out of them in a year. They certainly operate on a daily basis on higher rates than that, but we put in these forecasts unplanned timeouts during the year, and it's hard to forecast when those are expected. If you look at Q3 last year we produced 600,000 tonnes in New Zealand for the quarter, which is a run rate of 2.4 million. So it's really hard to predict.

But I'd say I'm comfortable at 2.2 million tonnes for the three-plant operation, is a good number until we get the higher CO2 gas.

Okay, that's helpful. And just to follow up on the capital allocation or returning to shareholders, the buyback of 5%. I'm just curious, looking at your free cash profile, it's ramping. It would suggest that you could have done more than 5%. Any reason you didn't decide to go to 10%?

Well, we can go to 10% at any time. So it gives us flexibility to do 5%. I can't predict the future. Nobody told me oil was going to 40 last August. And the appropriate methanol price, as you recall, was in the mid 200s for a while. So I can't predict the future. We're being prudent. And if we complete the 5% you should expect us to announce another 5%. We still have the capital in front of us on G2, and I mentioned the Medicine Hat refurbishment, so why put out 10% at this point when you have the flexibility to add another 5% at any time?

Okay. Very helpful. Thanks.

Joel Jackson; BMO Capital Markets.

First question on G1 -- could you maybe give a bit of color in the first month or two of operations here, how much sales you've been able to do from G1, maybe what the mix has been domestic versus export and if you've been able to maybe make up some of your lost sales out of Egypt with G1?

Yes, so G1 has been absolutely fantastic. So it's ran from the time we started it at very high rates and it continues to run at very high rates. So we're extremely happy with that project. It ran at higher rates than even we were forecasting in the first quarter.

This crazy accounting that we have with these FIFO layers in our inventory, all the product we produced in probably the first and second quarter is not going to flow exactly through into EBITDA in those particular quarters. But over time that will normalize and whatever we produce is what we should sell. So it's probably going to take a couple of quarters to balance that out.

As far as what we're doing with the product, we probably don't want to comment on that. And what I would say is Geismar 1 and 2 will add to our global supply chain and allow us to even improve our flexibility and ability to supply our customers globally no matter what happens to us.

So that's our strength, reliable quality supply. Geismar only enhances that. And we have our fleet of ships, our terminals around the world, and we'll utilize them to the best use of them to get the best pricing for our shareholders.

Okay. And then second question, just on G2, you reiterated the guidance to have methanol produced at G2 by late Q1 of 2016. What is the opportunity here that you can move that schedule up? We all know the timelines. When G1 came on after all the equipment was delivered, some of that math would suggest that G2 should be up at some point in Q4. What are the opportunities to increase that schedule? Thanks.

Yes, it's all about productivity. You can always move schedule, but that means adding more people to the site. Adding more people to the site lowers productivity. So I think right now we're pretty happy with where we're at on the progress of that project.

I'll remind you it's not just the mechanical completion of the project, but there's gas pipelines, there's the logistics to get the product out, which we're all on a timeline of the end of Q1 2016. So we will optimize the schedule based on cost and EBITDA generation of the molecules that we can produce out of that plant. We're still very comfortable with the schedule, and if we think it's the right thing to do to beat it a bit, then that's what we'll do.

So I think by the end of next quarter we'll be in a position to give you better guidance than the end of Q1 2016. Right now I'm still very comfortable with that guidance.

Thank you.

Ben Isaacson; Scotiabank.

I have two questions on Egypt. The first one is you mentioned that there's a project that's been announced for a capital cost of roughly $1,000 a tonne. If I remember correctly, I think you built the plant in Egypt for maybe it was about $700 or $750 a tonne, but you sold a 10% stake for about $1,200 or $1,300 a tonne.

Is there an opportunity for Methanex to de-risk Egypt by monetizing that 50% stake? Is there a market there?

Okay. Well, first of all, thanks for your headline this morning -- forgettable quarter. (Laughter) I thought that was quite creative. So, I appreciate that. It made me chuckle at about 6 a.m., so thank you.

As far as Egypt goes, we were very happy that we monetized 10% of it at $1,200 a tonne. I think if you had somebody knock on the door and made that kind of offer tomorrow, it's something we'd have to think about. But Egypt is an important part of our global supply chain. It's an important part of our global footprint. It is pretty difficult right now and it's been difficult for the last few years, because of the revolution and the change.

But I'm optimistic about what I see from the government there. I think they're really focused on getting the country right, getting things back to a situation where tourism is back and really to get Egypt to be a major player in the Middle East.

So it's going to be difficult in the short term, but I think the gas is there. It's around 60 Tcf. There's $24 billion in announced exploration and development since March. So, people are spending real money and when people spend money and the reserves are there, they get developed.

I think it's too early to panic about Egypt. It's an important part of our global footprint and if we came to a position sometime years down the road that we had a different view, then we might consider that. We're always considering all options that will add to shareholder value. But I think it's a little early to panic about what's happening in Egypt.

Okay. That's great. And then I guess, just as the follow-up, and you've half answered it already, could you just talk a little more detail about the recent developments in terms of upstream gas supply that kind of gives you confidence over the mid-term? What specifically are you seeing right now?

Well, BP announce a $12 billion investment program and it (inaudible) the serious player in the region. They're a large supplier there, so that gives me confidence. I think what I see between the government and the upstream and their willingness to pay a bit more for gas than they traditionally have been. And others in the region, Shell and others, spending money, so BG, which is maybe now Shell as well.

So I think for the first time in years we're seeing really major investments. And the current gas supply/demand profile doesn't look too attractive, but the gas is there. There's more exploration happening. That area's quite prospective. There's been new blocks let.

And if people in the current oil and gas environment are willing to spend $12 billion of their capital, that gives me confidence that they must be pretty optimistic that there's gas and oil there that they can recover and make money on. So, it's not our business but we just are very happy to see these kinds of announcements.

That's great. Thank you, John.

(Operator Instructions) Hassan Ahmed; Alembic Global.

Quick question on the near-term supply/demand side of things. Obviously there have been a series of outages. Obviously, Egypt's out there, as I understand it in Azerbaijan, Venezuela, Malaysia and the like. Now, as these facilities come back on line, do you think demand is strong enough to basically offset this incremental supply for things to be sort of relatively snug and pricing to continue its ascent, obviously barring any sort of further declines in crude oil?

Well, I can't predict the future and I won't. But what I would say is, if you look at the operating rates for the industry, they are pretty similar to what they've been in the last 8 to 10 quarters. And until we see it better we're not going to plan on anything different. And we don't know which particular plants, our own or competitors, that are going to run or not run.

Seems to be most of the issues are related to gas in Venezuela and Malaysia and Azerbaijan and other places. So we have our gas issues. We're a public company. We're pretty open with our gas issues. Other companies aren't because they're not public. So we're aware of gas issues in many places around the world.

We're above the cost curve today. In China we're 340-ish, 350-ish per tonne. The cost curve's still in that 300 to 320. So that tells me that demand is really driving the price. And there's a raft more of these MTO projects coming on. The MTO affordability today is over $400 a ton in methanol. So they're running at hard rates.

If that stays the same as it is today -- which is impossible to predict the price of ethylene propylene and all the associated derivatives -- then we would expect pricing to remain quite robust. But it's really hard to predict the future.

Fair enough. And as a follow-up, obviously a lot of headlines around easing sanctions on Iran and the like. Have you guys seen more Iranian product hit the export market?

No. You know, Iran has produced what it can produce for the last five years. It's got 5 million tonnes of productive capacity. It produces around 3.5 a year and that hasn't changed with sanctions or no sanctions. Where the methanol has gone for a period, only went to India and China. We're seeing a little bit in the last 12 months finding its way into the Mediterranean, but I'd say very little.

So, unless there's a deal and the deal is followed for some time and there's relief on the sanctions for some time and you see significant investment in the gas upstream in Iran and possible some of these long-announced methanol plants starting to move forward, it's years and years away before we'll see a change in the production volumes in Iran. Although, you may see a bit more product flow to Europe if sanctions are released and things normalize.

Very helpful. Thanks, John.

Laurence Alexander; Jefferies.

Just one quick one. When do you expect to get some material updates from Stena so that you can start getting a sense for plausible adoption [curve] in that market?

Sorry; I didn't hear the question, Laurence. You were breaking up.

Sorry. When do you expect to get sort of a (inaudible) data from Stena so that you can start to get a sense for what a plausible demand curve might be in the North Atlantic market?

Yes, that's (inaudible) question around Stena. And so, the ship is running on methanol and it's running successfully. They're going to convert the other four engines. Their plan, their original plan, was to convert 25. So I would say this year we'll have very good data on how those four engines are performing on the Germanica. And depending on their view of relative future prices for the substitutes for methanol they'll move forward on converting or not.

So I think they're still very happy with the conversion. They certainly got a lot of positive press for it, as well as Ship Owner of the Year. And I'll remind you, Stena's big view on methanol is that it is renewable. And I think as they look 20, 30, 40 years down the road that was a key point for them as they look to convert from bunker fuels. So I think that project's been a great success.

When I started talking about it three years ago, nobody believed it would happen. And here we are. So let's see how things unfold this year.

Thank you.

Robert Kwan; RBC Capital Markets.

Just on the NCIB, John, previous NCIB messaging was basically you were just going to be in the market very regularly and the intention was to buy back the entire amount. Is that what you're expecting, or was that kind of the Board decision for this NCIB? And I guess, did that also factor into how you balanced the magnitude of the dividend increase?

Yes, we'll be in the market every day. That's what we've done with the normal course issuer bids. So we're not picking times to be in the market or not to be in the market. We may change the number of shares that we're looking to purchase. There are blackout periods for this as well, like blackout periods for other things.

So I would think -- we announced the bid. Our intention is to complete it. The speed of completion, we never talk about. And we look at our free cash flows and our other uses for cash and make a decision on what's the best use of that cash for our shareholders. And that's what we'll do with this one.

Okay. So that was all part and parcel, as well as how the Board was also thinking about the magnitude of the dividend increase?

Yes, the Board and us are very aligned for uses for cash. So three uses for cash -- grow the Company. We've spent a lot of cash growing this company for 3 million tonnes in the last three years, probably close to $2 billion when you add it all up. We want a meaningful, sustainable growing dividend and we look at it every year at around the AGM period. And our AGM is today and there was unanimous support to increase it by 10%.

And excess cash beyond those two things we'll go to share buybacks. And the higher the methanol price, the more we can produce, the more we're going to have to buy back shares.

So it's a fairly simple equation. We're not looking to diversify the Company or to get into other things. So we'll stay focused on methanol. So how much cash we have will be determined by the price of methanol and how much we can produce.

Okay. And just last, you made some earlier comments on the Medicine Hat expansion and comments that it almost sounded like the rail contract was one of the big hurdles. If you were to get that, is your sense that you could complete the capital a lot closer to where you're trading, in terms of enterprise value per tonne? Or is this kind of just balancing that desire, as you said, to maintain market share and this is probably one of the better, lower risk, lower cost growth initiatives in the portfolio?

I think if you look at our cost per tonne on our global portfolio, it's a little misleading. It's around 750 to 760 tonnes. But not all tonnes are created equally. What we're finding, our North American tonnes are a lot more valuable to the market and to us than some of our other tonnes. So, I think building and producing methanol in North America is, from a risk point of view and from a gas security point of view, a lot different than some of other places. So I don't think all tonnes are created equal.

We still use that $1,000 a tonne when we look at our estimates. Now, can you execute on that or not? Well, again, we continue to see cost overruns in this indus- -- not in our industry, but in the E&P industries in North America. So, although there's been, let's say, a pause in the increases in labor, the productivity is still not great and labor rates are still pretty high when you compare it to other parts of the world.

I think there is a pretty unique opportunity right now because of the turndown in the oil and gas industry and labor becoming available that it might make sense, if we can get this rail situation resolved -- which is a big if -- that we could execute something in Medicine Hat. But you shouldn't expect us to make a decision on that until sometime late this year or early next year.

That's great. Thank you very much, John.

(Operator Instructions) Charles Neivert; Cowen and Company.

Two quick questions. One, with Egypt offline and obviously constrained at least for another quarter, I assume you're buying more than you typically would in the marketplace. Does this mean that when this gets back to more normal operations that we should see some fairly significant drop in purchasing, now that at least Geismar 1 is in and Geismar 2 is sort of around the corner?

And second question, just on a follow-up. Can you give me a quick rundown on what -- you talked about how much CapEx remains on Geismar 2, but what's the number for this year and what does the sort of trajectory look like for next year, particularly when Geismar 2 is running?

Yes, so, on our purchased product, our target goal is once G2 is running, is to be selling about 80% of our own produced product, 10% off-take for other people, and 10% spot. That's where we're headed to. And certainly when you have unplanned outages, whether it's today or when we get to that goal, you'll be buying a little bit more. And that's probably what you should expect.

So to answer your question, yes, as G2 comes up you should expect us to see the amount as a percentage of our sales of purchased product go down.

As far as the second question, which is regarding the capital spending, I mentioned we have $265 million to go on Geismar 2. We've got about $100 million for Medicine Hat refurbishment. Not really anything else this year.

Next year we'll be in a more normal state. What I've guided to is without any new growth projects, you should expect us for every million tonnes of operating capacity to be spending $10 million a year over the turnaround cycle of our plants. So if we have 8 million tonnes operating you should expect $80 million.

Okay. And some of that $265 million is going to end up in the first quarter of 2016, though. Right?

Depends on when it gets completed.

Right. Assuming you're on your current schedule.

Yes.

Okay. That's it. Thanks.

Cherilyn Radbourne; TD Securities.

I wanted to ask about the eight additional MTO plants that you mentioned in your outlook commentary that are scheduled to come on over the next 15 months. Can you just give us some color based on what you know about the cadence of those plants coming on line?

Sure. Just let me get my data. Yes, so there's eight coming on between now and the first half of next year. And there's a combination of MTO and MTP. And our current look is having one coming on in the commissioning stage, an MTP plant starting up this quarter and then two MTO plants starting up in the third quarter, a further two in the fourth, and two more in the first part of next year.

Okay, perfect. And then, is there anything additional you could share in terms of the extension of your gas contract in Trinidad relative to the price that you're paying for gas and whether that does anything to increase the stability of your gas supply in Trinidad?

Yes, so we've signed a term sheet with the supplier. We're very close to finalizing that contract. It'll be a five-year term. It'll be a higher price, but the price will still be very, very attractive when you compare it to the cost curve in the industry. And it'll give us certainty for the next five years out of the Titan plant.

So I think we don't have anything to announce today, but I'd say by the next call we'll certainly -- believe that we'll have something to announce. And we're just really crossing the T's and dotting the I's. So we're pretty happy with the contract that we have for the Titan plant going forward.

Thank you. That's my two.

Yes, and I'll just reiterate, in our results we would be reflecting the higher gas price for Titan from the first of this year.

Brian MacArthur; UBS.

I just want to go back to Medicine Hat for a minute. That $100 million for the refurbishment, I thought the turnaround was in Q4. Does that all go into this year or into next year somewhat? Because you talked a bit in the press release having $265 million for Geismar, but then another $90 million this year which is partly for turnarounds. I'm just trying to figure out where that $100 million is actually getting spent, which quarters.

Well, for commercial reasons I'm not going to tell you when we're going to refurbish it. But we have less demand in the summer in Medicine Hat than we do in the winter.

Okay.

So that might be a good -- I don't know if you want to be refurbishing a plant in 40-below weather. But I'm not going to exactly tell you the dates. I would think it's safe to say that in the first quarter we've spent some money on the refurbishment of Medicine Hat, i.e., equipment. So I think that $90 million left to go is a good number for 2015 beyond the Geismar capital.

Okay. Perfect. And then, when you get that done, there was some talk at one time [to beat] -- you'd get a little more than whatever it was, to 550 originally. Will that actually get you extra above 550? Or will that just sort of get you -- as you said, you didn't put all the money in originally and so it just gets your operating rate back more to that 100% level?

Well, I was talking to the guy that's running that project, in charge of our assets in North America, yesterday. And he's guaranteed me (laughter) [1670] per day once we do all of this $100 million investment. So you look at the current methanol price in that region, that gets you to -- if everything runs at 365 -- over 600,000 tonnes of production. We'll get that $100 million back in about eight months. So I think it's a good investment.

I think so, too. Great. Thanks, John.

Chris Shaw; Monness Crespi.

Can you give me sort of an assessment of your customers' products in terms of what their profitability is right now? Are some of the these MTO, MTP, DME, are they profitable right now, do you think? Are they comfortably profitable or some losing money but continuing to operate? I'm just kind of curious how the -- I don't have a great idea, particularly in Asia.

Yes, it changes every day, depending on the relative prices. I'd say the MTO guys, ethylene prices are pretty good in Asia right now, propylene not as good. So if you're making olefins, a combination of propylene and ethylene, you're doing really well. I think the affordability for methanol in those applications today are over $400 a tonne.

The DME and MTP, the guys that are making just propylene, probably a little marginal. Still maybe -- the ones that are running are cash positive. The ones that aren't, aren't. And I'd say at current methanol prices in the mid-300s, based on the relative substitute, it's marginal. But we still see good demand from both MTP and DME. But we're seeing full rates on the MTO guys.

So, again, that'll change tomorrow as the relative other products change pricing. So oil price, ethylene price, propylene price, propane prices, things we follow on a daily basis, to look at these affordabilities.

So at least based on economics you wouldn't think that schedule that you said of the upcoming MTP and MTO plants would really -- there's no reason except for, I don't know, problems with the actual completion or building of it, that you would think they would come on stream when they're ready. Right?

We update that list and those timings on a regular basis, depending on what we hear and see, and that's our current view. That doesn't mean that view couldn't change as --

Sure.

-- things change in the marketplace. But that's our current view.

And then just a quick one. I was curious -- something like Geismar 1, how many years until you would actually have to take a turnaround, just out of curiosity?

The normal turnaround cycle for our plants is three to four years, depending on the technology. Some of the oxygen plants it's about three years to turn around. Our traditional steam [reformers] are four.

Okay. Great. Thanks.

And when I gave you that capital number of $10 million per million tonnes of operating, that includes the capital that we would plan to spend over that turnaround cycle.

The last question; Steve Hansen; Raymond James.

Just a quick follow-up on the tax rate, given that it was a bit wonky in the quarter. Any color on what we should expect going forward here?

Yes, I'll ask Ian to answer that, because I thought it was wonky, as well.

Steve, it's Ian. Yes, I did, too. When we get into a lower earning environment like we reported this quarter, you get kind of wonky tax rates. I don't think you read much into that.

So in terms of guidance going forward, structural tax rate, if you think about, say, a $400 methanol price, think of 25%-ish, little bit lower if the price was a bit lower, methanol price was a bit lower, so 25%-ish structural tax rate. And a current/deferred split, think of 70% of a tax rate would be current and 30% deferred.

Great. Very helpful.

Thank you. There are no further questions at this time. Please go ahead, Mr. Floren.

Well, thanks for all the interest. We believe that our results in Q1 reflect what we would describe as the price trough for the methanol industry. Improving global demand combined with limited new industry supply have contributed to higher spot and posted prices as we entered Q2.

Our sales volume of produced methanol is poised to increase due to the full impact of Geismar 1 production in Q2. And we expect that a higher price environment and improved produced sales volume will result in higher EBITDA and earnings in Q2.

Thank you for your ongoing interest in our company. Have a great afternoon.

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.