Methanex Corp (MEOH) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation second-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 second-quarter results conference call. Our 2015 second-quarter report, along with presentation slides summarizing the Q2 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 revenue, EBITDA, cash flow or income made in today's remarks reflect our 63.1% interest in the Atlas facility and our 50% economic interest in the Egypt facility.

In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation and the impact of certain items associated with specific and identified events. 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.

Thank you, Sandra.

In Q2 2015 we reported adjusted EBITDA of $129 million and adjusted net income of $51 million, or $0.56 a share.

Net income attributed to Methanex shareholders was $104 million, reflecting a $57 million after-tax contribution from an agreement reached in the second quarter to terminate a terminal services arrangement. We're very pleased with this transaction that monetized the value of one of our terminal contracts.

Our Q2 earnings are somewhat lower than we expected heading into the quarter. The weaker performance is attributable to two main factors: unplanned production outages in New Zealand and Egypt, and a build in produced product inventory of over 70,000 tonnes.

Although our overall sales volume increased in Q2, as a result of inventory flows we sold proportionately more third-party product. This means that we have not yet realized the full benefit of what we produced during the quarter.

During the quarter we continued to make solid progress on our Geismar 2 relocation project. Assuming construction and commissioning continue at the current pace, we expect that we will achieve first methanol by the end of the year. The estimated remaining capital expenditures at the end of Q2 for Geismar 2 are approximately $185 million.

The Geismar 1 plant operated exceptionally well in Q2, achieving 276,000 tonnes of production, or over 3,000 metric tonnes per day.

In the quarter we undertook a major refurbishment of our Medicine Hat plant and restarted the plant in July. The plant is operating at high rates and we expect the plant to operate at higher rates and more reliably going forward as a result of these investments.

Demand for methanol was good in Q2. Traditional chemical demand rebounded, led by China, following a seasonal slowdown from Chinese New Year celebrations in Q1. Energy demand improved as the recovery in oil and related product prices restored methanol affordability into certain energy applications, notably methanol-to-olefins, methanol-to-propylene, and dimethyl ether.

New methanol-to-olefins capacity came into the market and there are now a total of 10 completed plants in China that can consume up to 10 million tonnes of merchant methanol supply at full rates. There are also 6 more merchant methanol-to-olefin plants in China at various stages of construction which are anticipated to be completed in the 2015/2016 timeframe, which would add another 9 million tonnes of methanol demand at full operating rates.

Production including tolling volume was slightly higher in Q2 versus Q1. In New Zealand both Motunui plants undertook unplanned downtime due to a mechanical issue. With a combined production impact of approximately 110,000 tonnes, the plants have been repaired and have recommenced operation.

Further work needs to be done to fully address the mechanical issues and this work is currently scheduled to be completed by the end of 2015. The capital expenditures for the maintenance are included in the total estimate of $130 million capital requirements to the end of 2016.

In Egypt we operated our plant for only six days during the quarter, due primarily to gas constraints as well as some technical issues at the plant. The deterioration in gas availability has continued and we have been advised by our gas supplier that supplies should be available for a restart following the peak summer gas demand period.

Based on the best information we have available, we expect intermittent operation of the plant when gas is available during the nonpeak gas demand months. There's too much uncertainty to give specific guidance on the operating rates, but we expect that our gas supplies at the plant will be significantly curtailed for the foreseeable future and we will continue to require periodic shutdowns until the country's gas deliverability is restored.

We cannot predict when the gas supply will fully recover, but there are a number of positive developments in the country that we believe will allow the situation to improve in the future. We are advised that the country is taking steps to reduce energy subsidies and to improve the efficiency of electricity generation infrastructure and both could impact domestic demand for gas.

We also understand that LNG imports have commenced to improve available gas supplies. As well, there has been considerable investment announced in the upstream that we believe will result in improved domestic gas supplies in the medium term.

Our Chile 1 plant was idled in May due to insufficient gas supply. We currently expect the plant to be restarted following the end of the Chilean winter. ENAP, the country's main gas supplier, has advised that it continues to make promising progress in bringing new unconventional gas supplies to the market. We're optimistic that this may translate into higher gas supply for our Chile assets in the future.

Our plants in Trinidad ran well during the second quarter. We experienced an approximately 15% gas restriction, which is in line with our previous guidance. We expect gas restrictions to be similar in Q3.

We continued to buy back shares in Q2 and as of June 30, 2015, we'd purchased approximately 15% of the normal course issuer bid which commenced on May 6, 2015. We believe that buying back our own capacity continues to be an excellent use of our capital.

We are in a period of transition for the Company as we complete our growth initiatives and improve the reliability of our recently restarted plants in Medicine Hat and New Zealand. We will continue to position our company for growth, and we are committed to allocating capital in a manner that is optimal for shareholders.

I would now be happy to take questions.

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

So just a couple questions on China. I guess first, seems like coal prices are seemingly under pressure again. So I was wondering if you could update us on your thoughts on the cost curve and how the marginal costs of methanol production is looking these days in China.

Yes, coal prices have come down slightly after being quite stable at albeit a lower rate. We do think there's a large percentage of the coal industry in China currently under water from a cash cost point of view. Our current view of the methanol cash cost is around $300 a tonne, to $320. And certainly spot prices today are lower than that, so we're watching carefully to see the reaction to the current pricing and the impact on production.

Thank you. And then secondly, on sort of the traditional end markets for ethanol demand, you noted in your press release that it's relatively stable growth. But we've heard reports recently that there's some slowing in some of these traditional markets. So can you provide any additional color of how the market has evolved maybe over the past few months into July? Thank you.

Yes. We saw Q1 to be quite soft for traditional demand, but rebounding quite nicely in Q2. And so far in Q3 it seems to be okay. So we haven't seen anything that would worry us as far as a significant downturn in regular demand at this point. But obviously we watch it closely and will report such should we see a difference.

Thank you very much.

Hassan Ahmed; Alembic Global.

You obviously touched on some newer MPO facilities that have come online in China. Just wanted to get a sense of what you're hearing in terms of the sort of operating rates they're currently running at. Are they in this energy price environment running at relatively sort of high operating rates, or not?

Again, each one of these plants has their own specific economics. So you can't give a blanket statement that they're running at X%. But the ones that we've seen the most pressured are the pure methanol-to-propylene merchant plants. And they've been running at, I would say, lower rates.

The integrated methanol-to-olefins, where they're making a number of downstream derivative products, have been running at high rates, so in the 80% to 90%. I think the numbers that we see overall for those 10 plants are in the mid-to-high 70s at this point. But certain ones run at higher rates and certain ones, depending on their affordability, depending on what they're selling, pure propylene or other derivatives, are different.

I think one point I'd like to make about this -- once these plants start up and run, unless there's capacity, extra naphtha-based olefin capacity that can run, why would you expect these to shut down? I mean, they would have to be able to source olefin somewhere else in order for them to shut down their operations.

So what we've seen as prices of the relative substitutes go up and down, the plants continue to run. And they may throttle rates up and down by 10% or 20%, depending on what their particular product slate is at any given time.

Fair enough. And just sticking to the China side of things, obviously some market shares relating to a potential sort of slowdown in China. As you sort of have gone through July, in this energy environment, volatile energy prices and the like, leaving the MTO thing aside, fuel applications, chemical applications and the like, are you seeing relatively normal demand in China in particular?

Yes, we haven't seen any real change. Like I mentioned, Q1 was not great and Q2 was much better. So if you look at the growth overall, it's been a little less than forecasted, but we have quite a few MTO plants coming on in the back half of the year as well, which we think will continue to drive demand for methanol in China.

The traditional derivatives, they're growing probably at the rates that we would have expected, at GDP rates. So overall we haven't seen any significant slowdown at this particular time.

Super. Thanks so much, John.

Jacob Bout; CIBC.

Hoping you can expand a bit on the termination of that terminal services agreement or just provide a little bit more detail on that? And can we expect to see gains like this in the future?

Well, again, I don't predict the future. We have a number of different assets around the world that we utilize to deliver methanol reliably and in good quality to our customers. As our supply chain changes, as we bring on more capacity, of our own production capacity in North America, maybe some of these assets that we have become less strategic for us. And if we have opportunities to monetize assets that are no longer strategic to us, we'll continue to do it. Nothing imminent that comes to mind that's similar to this particular deal but, you know, things change all the time.

And then maybe just a question here on Medicine Hat. Now that that's up and running, maybe talk a little about bit about what the capacity there is like and maybe talk a bit about your thoughts on another plant there.

Yes. So I was just in Medicine Hat last week and the plant's running very nicely. Looks like a brand new plant. So this was not a normal turnaround. It was 1/10th of the man hours of a new build, and about $100 million, which is about 1/10th of a new build as well. So all of this was completed in just over 60 days, so an outstanding accomplishment by our team there.

We think we're going to get higher rates. It's early days. We are injecting CO2. We think we can inject up to 350 tonnes a day of CO2, and at that rate we believe we can get over 1,700 tonnes a day and well over 600,000 tonnes on an annual basis. We think this plant now is lined out and going to be real reliable to the end of the decade. We've tied up gas, 40% of our gas requirements, at really attractive prices. So this jewel on the prairie will continue to generate significant EBITDA and cash flow for the Company.

As far as a second plant, we continue to progress that. We hit a bit of a stumbling block on getting the product out of Medicine Hat to the West Coast. We wouldn't move forward with the second project until we had some sort of certainty on rail, i.e., now much it's going to cost us over a period of time. The team's working on that issue and we hope to resolve it in the coming months.

We progressing that project and a third plant in Geismar at the same time, spending some millions of dollars on both. Maybe do a feed on one or both sometime next year and look to be in an FID position for one or both at the end of next year.

So I think for the next couple of years as far as capital, we don't have any significant capital spend beyond what we're completing in Geismar. And if we sanction one or both those projects the capital spending would ramp up somewhere towards the end of 2017.

All right. Thank you very much, John.

Ben Isaacson; Scotiabank.

This is Carl Chen stepping in for Ben. John, we're just wondering if Methanex has shipped any methanol from Geismar 1 to Asia. If so, why ship into your lower [net back] market? And if not, when would that become a real possibility? Thank you.

Well, it's too bad Ben's not on the call, because I noticed in his report this morning he said the market won't care about an early start of Geismar 2. Well, I care about it, so hopefully the market cares, too.

With regard to Geismar shipping product, we don't comment on where we ship product anywhere at any time. We have a global supply chain and a global integrated set of logistics. And things happen from over time -- I remind you we used to take quite a bit of product from New Zealand into the Atlantic Basin. And we'll use our global supply chain to optimize our deliverability to our customers in a safe, reliable, effective manner.

Great. Thank you.

Steve Hansen; Raymond James.

John, New Zealand has clearly been a little bit problematic of late and I'm just hoping you can provide a little extra commentary or color on the expected operating rates we should expect to see here at Motunui in advance of the turnaround for later this year. And as just a follow-up to that, what is the progress, if any, on the CO2 gas availability there?

Yes. So it's not a turnaround, Steve. We have some mechanical issues that we're addressing. When we started these plants up, they're older plants. And we inspected them and we thought we had inspected and caught everything that we would have to address before start-up. Issue arose that we didn't catch. So we're currently addressing it.

As far as specific operating rates, I'm not going to comment for competitive reasons. But we think we'll be able to get these plants back to full rates by the end of the year. So right now they're running at full rates and I think we're going to look to make sure that we're investing money and time to make them as reliable as possible.

And before this issue arose they were very reliable. And even without the high CO2 gas, if you look at Q3 last year we ran at 600,000 tonnes, or 2.4 million on an annualized basis. So these plants have the capability of running at really high rates once we get this issue resolved, with or without the CO2 gas.

I'd say the progress -- we've got some of the high CO2 gas that we need. But the progress has been slow on getting it all, for reasons of commercial within the country between some of the parties that we're dealing with. So I don't anticipate we'll get the rest of the high CO2 gas this year. But there is activity as well in the exploration where one of the producers is finding more high CO2 gas. So it's a fairly easy tie-in if and when it becomes available. But even without it we've proven that we can run these plants at an annualized rate of 2.4 million tonnes per year.

Okay, helpful. And then, just on Geismar quickly, you mentioned how well Geismar 1 has been running. The upgrades you made to that unit on the move, or on arrival, presumably similar upgrades have been made to the second unit as well that allow it to operate better?

Yes. So we've been running the plants in the second quarter at a rate of 1.1 million tonnes per year. And we're very, very excited about how well that plant has run, how well the operators have performed in maintaining the high daily rate of over 3,000 tonnes a day.

And, yes, the second plant or Geismar 2 or Chile 3 is actually a newer plant than the first one that we relocated. And it ran extremely well in Chile. We're taking the opportunity to do the same upgrades there. I'll remind you it's a twin of the first plant. And we're very optimistic that we'll be able to run that plant at over 3,000 tonnes a day as well. But until we turn on the furnace and start producing methanol it's a bit academic. But we're pretty confident we'll be able to do so.

Great. And just a final, if I may, on Geismar. Can you remind us about the cadence, how you expect the cadence for Geismar 2 to ramp up, from the sales standpoint? As I recall, Geismar 1 there was a bit of a delay between the start-up and the actual commercial activity of sales and just due to some inventory issues. I'm just trying to understand if it will be any different with Geismar 2, given that you've already got Geismar 1 running with inventories available. You say by year end methanol, but when should we expect for sales to hit the income statement?

Well, again, you're asking me to predict the future, which is impossible. And it's really a matter of what our inventories look like around the world at any given time, and how that famous FIFO [layer] activity happens. And I don't think I can predict how that's going to happen next month, so in six months it's virtually impossible for me to give you guidance on that.

Okay, very good. Thank you.

(Operator Instructions) Joel Jackson; BMO Capital Markets.

I wanted to talk about your commentary on the cost curve. In the past you've talked about a cost curve being over $300 in China. Six months ago when things were kind of a little bit more doom and gloom, you talked about cost curve being $260, $280. Now saying $300 to $320. Can you talk about the moving parts in the last six months that take your idea of the cost curve from about $270 to the low $300s? Thanks.

Yes. So it does move around all the time. And depending on the demand for methanol it moves it to the right or to the left of the cost curve, and on the coal price, depending on the natural gas price. It's a lot of factors go into it.

And I'll remind you there's over 200 plants operating in China, so there are bands on the cost curve. Not every single plant would have the same actual cost, but we have a band of costs. And we estimate based on all of those inputs at any given time based on our forecasts. And we're pulling a narrow band, like you mentioned, between $280 and $320. But there's a lot of production in that band. So if you got well below those prices we believe there would be a lot of production that would come off which would rebalance the market, which is exactly what we saw late last year.

So I think when you're talking $10 either way, if you're a producer and you're thinking about shutting down, I think you have to have a view that pricing is going to remain lower than your cash costs for some time as you look to lay off people, et cetera. So cost curves and shutdowns never react exactly. When you're below the cash cost there is a time delay. But this cost curve has been there for some time and over the past three, four years has demonstrated pretty closely when people are below cash cost they turn down. And their current estimate is around that $300 level.

Okay, thanks for that. And just a follow up on G1, you talked about hopefully trying to get to 1.1 million tonne in the year run rate at G1. Looking at what the performance was like in Q2, can you give us a little more color? My memory is that on the new plant as the catalyst settles you get a little bit of overproduction. I was trying to get an idea of how much of the sort of overproduction in Q2 was because it ran so great versus maybe some transitory things related to the catalyst.

Yes. So, on the catalyst we know after about six months we would expect to see some decline. We haven't seen it yet. So, I think the performance in Q2 was more operations related -- the team did an outstanding job running the plant -- as well as the upgrades that we've made to that plant are proving to get us that extra couple hundred tonnes a day.

And we currently think it's sustainable. But it's only been five months of operations, so we're watching it closely -- well, six months, I guess now, but we're watching it closely. And that's why we haven't rerated the capacity at this particular time. As we get more comfortable, if 1.1 is a reasonable number over the life cycle of the catalyst, then we'll rerate the capacity. So I'll take the extra 25,000 tonnes a quarter any day. And we expect G2 to operate similarly. So we're pretty excited and optimistic we're going to run these plants at higher rates than when they were in Chile.

Okay, thank you.

Cherilyn Radbourne; TD Securities.

So you just had a couple of tough quarters here and I appreciate the visibility is limited. But could you just speak to your level of confidence that you'll be able to restart the plant post the summer period?

Well, I think I said that it's very difficult to predict operating rates. What I can report is just what we've been told by the Ministry and our gas suppliers. So I think there's some good things in Egypt. The country is more stable. This summer we didn't see any brownouts. That's the first time in a number of years there were no electricity brownouts. So the government is taking really seriously this supply of gas issue in Egypt and they're pulling a number of levers which I referred to in my opening remarks. They've told us to expect gas as the peak summer demand for electricity for cooling reduces. And that's what we expect.

Difficult to give you exact timing on that, because we -- again, weather forecasting is kind of like forecasting methanol supply and demand. It's an inexact science. But as the weather cools down and there's more gas available we would expect to start up the plant and operate. Beyond that, as to timing and operating rates, it's really too difficult to give you specific guidance.

Okay, that's fair and those comments are helpful. Then just on the buyback, you've bought back about 1 million shares per quarter the last two quarters. You've got 3.8 remaining. Can you just give us your thoughts on the likelihood that you fully complete that program by May of 2016?

Again, you're asking me to get into future here. I think at the current share price, we're very likely to use all of our excess cash to buy back shares. We won't generate a lot of excess cash until we get G2 up and running. But we have some. And then we'll continue to purchase every day in the market. And as we generate more free cash we'll use that cash to buy back more shares. So I think depending on what the methanol price ends up being, how are production ends up performing, we'll have excess cash to buy back shares, ramping up to more excess cash as G2 comes on and we get the full benefit of the new operating rates in Medicine Hat.

Thank you. That's my two.

Robert Kwan; RBC Capital Markets.

Just coming back to the Medicine Hat expansion, and I guess what we're hearing across a number of different infrastructure belts in Alberta, is capital costs haven't really eased yet, but there is much better cost certainty, as a lot of people are getting more experienced labor. So I'm just wondering, what are you seeing in your early investigations? And when it comes to what you need, do you need more cost certainty? Or do you actually need to see the expected capital costs come down for Medicine Hat, on top of -- I know you talked about the rail -- being able to get the product out?

Yes. Well, in Medicine Hat we need rail certainty. All of that product will be going to Asia. And we'll probably rail it through the West Coast and put it on our ships to Asia. So having certainty around rail is the first thing we want to check before we spend too much money on that project.

As far as capital costs, until we do a feed, our front end engineering and design, we won't know exactly how many man hours and therefore capital costs.

What I would say in Alberta, certainly engineering services are readily available and probably cheaper than they were a year ago. Certainly building things in Edmonton seemed to be quite reasonable at this time. There's still projects in Fort McMurray that are being completed. So the actual labor availability is probably better than it was this time last year. We just had over 1,000 people as part of our major refurbishment in Medicine Hat and we had great availability of labor and good productivity.

I'd say capital costs are down 30% for the construction labor piece in Medicine Hat, because we're a US dollar company and we'd be paying labor in Canadian dollars. So we've all seen what's happened to the Canadian. So I don't know if it's 20% or 30%, but certainly for the 60% of the labor hours to build a new plant, in a US dollar term that's looking a lot more attractive today than this time last year.

So our plan is to proceed to get this rail resolved, to do a joint venture agreement with our partner, and then to proceed to a feed, and then be in a position to make an FID sometime late next year. And we'll have a lot more visibility and information about labor and availability and productivity by that time.

That's great color, John. I guess last question here, just looking at balance sheet leverage and your desire to be investment grade, you had a slide highlighting 3 times debt to EBITDA as a key threshold . And that slide had 2.8 times leverage at $350 a tonne realized, which is pretty close to where we are. So as you start to get a little bit closer to that 3 times, does that change how you think about the NCIB and the redeployment of free cash flow?

Yes, 3 times is over a cycle, right? It's not at any given point. Rating agencies don't look at a given low point in the cycle and say you're over the three times, or at a high point, well, you're only 1 time so we'll let you gear up another 2 points. So I think we look at it over the cycle of the methanol price. And I think between $350 and $450 methanol realized price, which we think is the current kind of bounds of the cycle, we're well within the investment grade rating terms that we have.

So we want to keep the investment grade and we think there's room to continue to buy back shares and keep our investment grade. And if we get into a situation where methanol prices are really depressed, then we have that flexibility through the normal course issuer bid of stopping or turning down the amount of shares that we're repurchasing. So that's what I like about the normal course, is it gives you tremendous flexibility depending on how things turn out in the marketplace.

That's great. Thanks very much.

(Operator Instructions) Chris Shaw; Monness Crespi.

Could you give a little bit more detail about the sort of near-term price situation? You know, it's Asia, North America contracts down for August. I mean, you sort of painted a decent enough demand picture. I know that it all probably comes down to oil, but is there also a supply side issue this quarter where the global supply was a little bit better, people ran better? Or just can you dig in there a little bit to let us know how it's working?

Yes, supply was a little better in Q2 for sure. I mean, if you look at supply in Q2 versus Q1 it was better. As we go into Q3, pricing's reflecting the cost curve and the supply/demand balances that we see. There's a number of planned outages as we go into Q3 as well as we've got these other MTO plants starting up.

So, I think we sometimes focus too much on the short term pricing any given month on spot or contract. Think we should more focus on the medium term and the supply/demand balances that we see as a result of this new capacity for MTO and other energy derivatives. So we're still really optimistic about the supply/demand balance. And you're going to see these short-term ups and downs in any commodities. But I think structurally the industry is still really well positioned to have growing demand and limited supply over the next four to five years.

So we're really excited as we get our expansion projects done and we get up to that 8 million tonne run rate with some optionality in Chile, that we'll be able to really benefit from the improved demand and limited supply. So nothing's really changed.

Thanks. And then, if I could follow up on capital allocation. You mentioned yourself where your shares are trading right now, very attractive to buy your own capacity. So at these share price levels, how do you view the potential for the new Medicine Hat project, and potential Geismar 3? Because I would think your capacity is much cheaper now than trying to build some new capacity at those locations.

Yes. Again, we're thinking long term. We're thinking 10 years. Certainly if you asked me the question would I buy back shares or build new capacity today I'd buy back shares all day. And that's what we're doing. But these projects won't be ready to execute until sometime in -- to spend big money in 2017.

So options have value and I think we can continue to see this industry growing at 7% to 8% and we'd like to add 1 million tonnes every two years, in that kind of growth rate. We've added 3 million plus in three years, so we're not in a rush to find projects that we have to execute. But if there are good projects, and we think both Medicine Hat and Geismar are great locations to have further production. But really early days.

So, for me, it's about execution, about certainty around whatever budget that you go in with that you can execute. And we don't have to look too far in the past where we saw really different things in Geismar with regards to productivity. So we want to be cautious and with whatever numbers we end up with a certain project that we can execute on.

So we're still very optimistic about the supply/demand balance. The growth rate continues to go forward. And I think we want to have a project that we can get up and running by the end of the decade. But by all means, if we're trading where we are now, I think it's a better use of cash to buy back our own shares at, I don't know, $700 a tonne versus building at $1,000 plus.

Great. Excellent. Thanks.

Steve Hansen; Raymond James.

Yes, John, just a quick follow-up here on Chile. How much visibility is ENAP giving you on their unconventional gas search or progress? I think most of us have largely discounted any production growth out of Chile anytime soon, but your commentary suggests they are making some progress on the unconventional side. I'm just trying to get a sense of whether that might actually translate into some incremental production growth in the next two to three years.

Yes, they're making solid progress in the G7 or the tight gas. It's not really shale; it's tight gas. If you look at their hydraulic fracturing setup today versus two years ago, it more looks like a North American hydraulic fracturing operation than it used to, with just a few trucks. So they've learned a lot. They're pad drilling as well. So, ENAP would say if you asked them that question that there's 2 to 3 TCF of tight gas in the basin. And I say that's fantastic. You know, what are the economics and let's develop it.

So they've tied in some hundreds of thousands cubic meters a day of this tight gas over the last few months. And for the first time in a long time they haven't taken our gas in the wintertime. So there is more gas. They think there's a lot more reserves. It will come down to economics. And they're getting those economics really attractive as they use pad drilling and better techniques for hydraulic fracturing.

So, again, this is not going to be from where we are today to a two-plant operation overnight. This is going to be a gradual ramp-up. And what we've seen and what they've said is probably the most optimistic we've seen since 2007. So it's taken a heck of a long time. It's taken a heck of a lot of capital. But I think the outlook is quite optimistic at this point in time.

Okay. That's helpful. Thanks.

(Operator Instructions) There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Floren.

Thank you, Operator. So, our sales volumes of produced methanol are expected to increase in Q3 2015. At the same time, pricing is expected to be lower in both Asia and North America. As a result, we would expect our earnings in Q3 to be lower than in Q2.

Thank you for your ongoing interest in our company, and have a good day.

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