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Important new
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BrianB_Australia
Sep 13 1998
6:31AM EDT
I have recently un-earthed new information
(for me) relating to world-wide refinery
capacity. I never had this particular number
before and, armed with the info, I can now
generate a valuation for Rentech that will
cross validate the prior assumptions. At
face value, my lower level $3 figure may
look a tad conservative (assuming the Tx
deal is signed). I will crunch the numbers
and post the results within a couple of days
I also discovered a significant inaccuracy in
the original financial model. Cougar had
developed a model which assumed capital
requirements of US$15,000 per barrel per
day. I now believe this number to be less -
around $5,000 /bpd.
Needless to say, this is a highly significant
difference, but only applies to refineries
that already have gasification.
Nevertheless, for the 60 or so Texaco
refineries that do have gasification, the
capital commitment has just dropped by
2/3, and the IRR on the incremental
investment has just sky-rocketed from 20%
p.a. to 61% p.a.
Bottom line: The probability of Texaco
commiting to GTL technology just went up
(in my thought processes) to a virtual
certainty. Where else can anyone get a
60% p.a. return on their investment?
Outstanding questions from Texaco's
perspective:
1. Does RNTK's GTL technology work?
2. Can it do the job we need? (There may
be technical problems in handling refinery
bottoms that go beyond gasification, eg:
How do you get the gunk out of the tank?
It can't be pumped all that easily)
3. Can we do it without Rentech - i.e.
break their patents and bypass them?
My guess is that 1-3 are all addressable,
but from Texaco's perspective they
presumably need to be validated fully
before any contract is signed.
It is conceivable that Texaco could be
looking at other technologies for reclaiming
refinery bottoms that do not involve GTL
at all - eg Microwave or Ultrasonic
separation. In the event that the capital
costs of these technolpogies is lower than
GTL, and assuming they work, an IRR of
greater than 60% may be possible.
This issue may turn out to be a wild card
that could blind side the Rentech/Texaco
negotiations, but one important fact is that
Rentech has actually built a commercial
scale working plant. To my knowledge, the
other new technologies are still in the
emerging stage.
I remain relaxed. |
