Refinery investors seek early exit

NWR STURGEON

Northleaf Capital.

“I think it gets sold,” Lever said in an interview, adding the business and its tolling is uniquely structured like a midstream or pipeline operation rather than a downstream refinery.

Canadian Natural declined a request for comment on whether it would consider purchasing NWR’s half of the Sturgeon Refinery.

Though the North West Redwater Partnership is private, Lever has a $5 price target on the venture’s 187.2 million shares, but notes “for the right buyer, the price could be higher.”

The company’s earnings for 2018, when the Sturgeon Refinery begins operations, would total $37 million and rise to $215 million by 2020, according to AltaCorp estimates.

Lever expects a corporation interested in the aftertax cash flows and significant tax pools or a pension fund would be likely bidders for the stake.

The AltaCorp report also shows the capital cost of the 50,000-barrel-per-day Sturgeon Refinery have now climbed to $9.3 billion, from a previous estimate of $8.5 billion in 2014. Additional phases, which would add 100,000 bpd of refining capacity, have been proposed but not commissioned for construction.

“If you look over the last 30 years, refineries have been shutting down, they haven’t opened up,” Lever said, adding the Sturgeon Refinery will also be the first built under the public-private partnership model.

The Alberta government and Canadian Natural backstopped an $860-million subordinated debt loan to help finance the project and the province has agreed to supply the refinery with 37,500 barrels of bitumen per day, which it collects as royalty in kind from producers. The remainder of the project is funded through $6.35 billion in bonds and $1.77 billion in bank facilities.

The project has also attracted controversy for its high price tag and use of public royalty barrels. Former Alberta finance minister Ted Morton published a study in April 2015 that called it an “economic boondoggle with high risks for Alberta taxpayers.”

Morton said soaring project costs and liabilities for the government, which will pay $26 billion in processing payments over 30 years, would make it difficult for the province to break even on the project.

North West has previously said the refinery will produce only low-sulphur diesel fuel, not gasoline, so the spread between bitumen and diesel prices is expected to be wide enough for all parties to earn money through the project.