Gre­go­ry McGuire

Any­one in busi­ness would do well to re­flect on the words of William Arthur Ward: “The pes­simist com­plains about the wind; the op­ti­mist ex­pects it to change; the re­al­ist ad­justs the sails.” For NGC, a com­pa­ny with 49 years of ex­pe­ri­ence in the en­er­gy sec­tor, ad­just­ing the sails in re­sponse to mar­ket con­di­tions is sec­ond na­ture.

Al­though the $1.3 bil­lion loss re­port­ed for 2023 has gar­nered sig­nif­i­cant at­ten­tion, it is im­por­tant to con­sid­er the over­all con­text, and the sub­stan­tial progress achieved in the first three quar­ters of 2024. The loss­es are main­ly at­trib­uted to two fac­tors: as­set good­will im­pair­ment and a de­crease in com­mod­i­ty prices.

Good­will im­pair­ment oc­curs when the val­ue of good­will on the bal­ance sheet ex­ceeds its fair val­ue, in­di­cat­ing that the ac­quired busi­ness is no longer ex­pect­ed to gen­er­ate fu­ture cash flows as ini­tial­ly an­tic­i­pat­ed.

This ad­just­ment can arise from var­i­ous fac­tors, in­clud­ing changes in mar­ket con­di­tions, in­creased com­pe­ti­tion, reg­u­la­to­ry shifts, or over­all eco­nom­ic down­turns. It is a com­mon oc­cur­rence in volatile mar­ket con­di­tions. Even in­dus­try gi­ants like Ama­zon, Ap­ple, and Mi­crosoft have not es­caped im­pair­ment chal­lenges.

When good­will is im­paired, the com­pa­ny must write down the ex­cess val­ue, lead­ing to a non-cash charge on the in­come state­ment. This re­duces the over­all val­ue of the com­pa­ny’s as­sets and af­fects net in­come, of­ten lead­ing to re­port­ed loss­es, as ob­served in NGC’s 2023 fi­nan­cial per­for­mance. NGC’s good­will im­pair­ment, val­ued at $1.8 bil­lion, is re­lat­ed to two in­vest­ments: the ac­qui­si­tion of Cono­coPhillips’s shares in Phoenix Park Gas Proces­sors Ltd (PPG­PL and its in­vest­ment in Caribbean Gas Chem­i­cals Ltd (CG­CL).

In­ter­est­ing­ly, both in­vest­ments were made be­tween 2012 and 2015 by the for­mer Unit­ed Na­tion­al Con­gress ad­min­is­tra­tion.

How­ev­er, PPG­PL re­mains a com­pa­ny dis­tin­guished by its his­to­ry of in­no­va­tion, con­tin­u­ous process im­prove­ment, and com­mit­ment to safe op­er­a­tions while sub­stan­tial­ly con­tribut­ing to the gen­er­a­tion of for­eign ex­change. Its re­cent per­for­mance has been ad­verse­ly af­fect­ed by the fall in gas sup­ply from which its prod­ucts are ex­tract­ed.

Op­er­a­tions should re­turn to near full ca­pac­i­ty when the sup­ply sit­u­a­tion im­proves. On the oth­er hand, CG­CL was ini­tial­ly en­vi­sioned as a full-fledged petro­chem­i­cal com­plex pro­duc­ing methanol and its down­stream de­riv­a­tive di­methyl ether (DME), a clean sub­sti­tute for diesel fu­el in com­pres­sion en­gines. Thus far, the DME vi­sion has yet to be re­alised, and it seems un­like­ly to hap­pen short­ly.

The sec­ond fac­tor af­fect­ing rev­enues was the en­er­gy and com­mod­i­ty price shock af­ter the 2022 price spike in­duced by the Rus­sia-Ukraine con­flict.

Am­mo­nia and methanol prices dropped by 58 per cent and 16 per cent, re­spec­tive­ly, while net­back prices from LNG and NGL sales al­so fell sig­nif­i­cant­ly. Gas sales to the petro­chem­i­cal sec­tor made up over 60 per cent of the com­pa­ny’s to­tal sales in 2023. NGC’s gas pric­ing for­mu­la gen­er­at­ed sig­nif­i­cant sur­plus­es dur­ing pe­ri­ods of high prices, but is vul­ner­a­ble to mar­ket down­turns. His­tor­i­cal­ly, NGC has shown re­silience and adapt­abil­i­ty in its re­cov­ery ef­forts and strate­gic ini­tia­tives as mar­kets ad­just.

Giv­en the con­text, the 2024 re­bound is not un­ex­pect­ed. The fi­nan­cial state­ments for the nine months end­ing Sep­tem­ber 2024 high­light NGC’s strong cash po­si­tion, which en­sures con­tin­ued in­vest­ment and growth.

Group prof­it as of Sep­tem­ber 2024 was $500 mil­lion, an im­prove­ment of $1.8 bil­lion from the loss of 2023.

Un­sur­pris­ing­ly, the 2023 out­come has raised doubts about NGC’s fu­ture vi­a­bil­i­ty, with com­par­isons be­ing made to Petrotrin, Ca­roni, and oth­er failed state en­ter­pris­es.

From my stand­point, while as­set im­pair­ment is an on­go­ing ex­er­cise in busi­ness­es to­day, this ad­just­ment should not sig­nif­i­cant­ly im­pact NGC’s fi­nan­cials in the near to medi­um term fu­ture.

NGC’s biggest threat lies in the avail­abil­i­ty of com­pet­i­tive­ly priced nat­ur­al gas sup­plies and the volatil­i­ty of petro­chem­i­cal mar­kets. En­cour­ag­ing cross-bor­der ini­tia­tives, along with the ag­gres­sive pur­suit of ex­plo­ration and de­vel­op­ment projects are pos­i­tives in the long-term out­look for gas sup­ply and the fu­ture of NGC.

Nat­ur­al gas con­tin­ues to be es­sen­tial in the glob­al en­er­gy tran­si­tion, and NGC is strate­gi­cal­ly po­si­tioned to cap­i­talise on op­por­tu­ni­ties in the LNG mar­ket. Re­cent­ly, the com­pa­ny suc­cess­ful­ly shipped its first LNG car­go pro­duced by At­lantic Trains 2 and 3 af­ter the re­struc­tur­ing ex­er­cis­es. Ad­di­tion­al­ly, NGC is seek­ing to di­ver­si­fy its port­fo­lio with in­vest­ments in clean en­er­gy projects, un­der­scor­ing its adapt­abil­i­ty and com­mit­ment to sus­tain­abil­i­ty.

Price volatil­i­ty is a stan­dard fea­ture of com­mod­i­ty mar­kets, in­clud­ing petro­chem­i­cals. His­tor­i­cal­ly, NGC has mit­i­gat­ed these risks by em­ploy­ing a com­bi­na­tion of tac­tics, in­clud­ing pru­dent pric­ing on both pur­chas­es and sales con­tracts, main­tain­ing a re­serve fund, and ju­di­cious­ly man­ag­ing the sup­ply port­fo­lio.

Over the last 15 years, NGC has con­tributed an es­ti­mat­ed $60 bil­lion ($33 bil­lion in tax­es and a fur­ther $27 bil­lion in div­i­dends) to the gov­ern­ment’s cof­fers, mak­ing it the most im­por­tant sin­gle lo­cal en­ter­prise. These fig­ures do not in­clude NGC’s bur­den to main­tain a sup­ply of nat­ur­al gas to TTEC for pow­er gen­er­a­tion. There­fore, the fu­ture of the lo­cal econ­o­my is in­ex­tri­ca­bly linked to a pos­i­tive fu­ture for NGC. Its con­tin­ued growth and sus­tain­abil­i­ty can­not be tak­en light­ly nor made a po­lit­i­cal is­sue.

It is heart­en­ing to see that NGC’s growth strat­e­gy pri­ori­tis­es sus­tain­abil­i­ty and in­cor­po­rates ESG prin­ci­ples es­sen­tial for mod­ern busi­ness suc­cess. Its an­nu­al re­ports record its in­vest­ments in or­gan­i­sa­tion­al sys­tems, process­es, and peo­ple, along with strate­gic ac­qui­si­tions and new busi­ness lines along the val­ue chain. The ex­per­tise and valu­able hu­man re­sources with­in NGC are piv­otal to dri­ving its suc­cess.

How­ev­er, while NGC has the lead­er­ship and ex­per­tise to ad­just sails and steer the ship along a safe course, I be­lieve the com­pa­ny’s strate­gic di­rec­tion should be sup­port­ed by two en­abling poli­cies:

First­ly, a div­i­dend pol­i­cy that places lim­its on the share of div­i­dends the share­hold­er can ex­tract from the com­pa­ny in any giv­en year. This would en­able the Com­pa­ny to re­tain funds to mit­i­gate price cy­cles and make in­vest­ments in its fu­ture.

Sec­ond­ly, an in­vest­ment pol­i­cy spec­i­fy­ing the risk ap­petite and con­di­tions for ma­jor eq­ui­ty in­vest­ments. The doc­u­men­ta­tion and ob­ser­vance of these poli­cies would go a long way to­ward mit­i­gat­ing the ex­cess­es of the past.

In sum­ma­ry, while the fi­nan­cial loss in 2023 is no­table, NGC’s strate­gic ad­just­ments and for­ward-look­ing ini­tia­tives paint a promis­ing pic­ture for the fu­ture. The com­pa­ny has con­sis­tent­ly demon­strat­ed re­silience and in­no­va­tion, po­si­tion­ing it­self for con­tin­ued suc­cess in a dy­nam­ic in­dus­try.