OK, so now I’m not so positive about PDH any longer. I ran a model that tied into the Q1 CAD, and then adjusted the benchmark spread down to 36.4 cents per pound which is where management said the spread was currently. Using a 92% plant utilization, which is higher than PDH has been doing, and throwing in some estimates/guesses about other cash expenses, I come up with a distribution of 43 cents. If I use a spread of 40 cents, and 90% utilization, I get a 50 cents distribution. These spreads aren’t much different from Spring 2012, before prices went haywire so I guess they’re pretty normal.
So my point/question is this: Q1 had lots of favorable things fall in place – high PGP prices for 2/3 of the Q, low propane prices and the highest P2P spread that PDH has had, and we get 67 cents. So I figure that’s about as good as it gets – maybe a few cents more since PDH was building inventory for the turnaround later this year. If PGP and propane prices go back to some sort of a normal range, we’re probably looking at 40 cents to 50 cents per Q, still pretty good. But the other problem that PDH has had is utilization. The plant was closed for 9 days at the start of Q1 for an unplanned outage, which seems to have dropped utilization down to 85% or a bit lower. The overall outage, including part of Q4, lasted 3 weeks. They said on the call that the plant was down again this week for a problem that wasn’t disclosed except on the call. So maybe the plant ot the technology, still has some bugs to be worked out, and maybe the average distribution is closer to 40 cents in decent times. And then every once in a while you have a pricing roller coaster up or down.
On the other hand, it looks like 2012 was as bad as it gets with PGP pricing, and distributions were basically at a $ 1.00 run rate.
So maybe we’re looking at $ 1.50 to $ 1.75 in an average year, with a floor of $ 1.00 and a bunch of risks. That gets me to maybe $ 15. Could someone tell me where I'm wrong?
i think one can use a 35-40c dist as a reasonable average so $15 is about right? The fact that there was an inside seller at + 16 will cap it IMO. Still decent optionality here and nice hedge vs some liquid plays. The big issue is how propane behaves through the injections season and with EPD exporting more. I tend to thing the new NGL plays (remember every one went "wet" last year) are going to be more than enuf to supply export capacity and propane will not do much.....
I agree - this will probably be the highest distribution by far for the balance of '13. Propylene will probably trade flat to down but increase again in 4Q but depends on several factors. Any entry below/near $13 will be good for long term/value investors.