EPX - Ethane Pipeline Income Fund

[System]

The Ethane Pipeline Income Fund (EPX) has been established to provide investors with predictable cash flows with a moderate investment risk profile.

The Fund's principal asset is a 1,375km high pressure ethane pipeline, purpose build to transport ethane from the gas processing facility at Moomba in South Australia to Sydney, New South Wales.

http://www.ethanepipeline.com.au

 

[kr1zh]

Ethane Pipeline Income Fund (ASX: EPX)

• Share price: $1.64
• Yield: 12% (unfranked) in 2012.

The Ethane Pipeline Income Fund owns a 1375-kilometre high-pressure gas pipeline, which was purpose built to carry ethane gas from a gas-processing facility at Moomba, in South Australia's Cooper Basin, to a petrochemical plant at Botany Bay in Sydney. The pipeline was commissioned in 1996 and its technical life was estimated in the 2006 prospectus to be more than 60 years.
Its return on equity is forecast to rise, as are its dividends, with the fund free of debt by the end of 2012.

Source: http://www.asx.com.au/resources/investor-update-newsletter/201201-best-dividend-stocks-for-2012.htm

 

[Huskar]

Ethane Pipeline Income Fund (ASX: EPX)

• Share price: $1.64
• Yield: 12% (unfranked) in 2012.

The Ethane Pipeline Income Fund owns a 1375-kilometre high-pressure gas pipeline, which was purpose built to carry ethane gas from a gas-processing facility at Moomba, in South Australia's Cooper Basin, to a petrochemical plant at Botany Bay in Sydney. The pipeline was commissioned in 1996 and its technical life was estimated in the 2006 prospectus to be more than 60 years.
Its return on equity is forecast to rise, as are its dividends, with the fund free of debt by the end of 2012.

Source: http://www.asx.com.au/resources/investor-update-newsletter/201201-best-dividend-stocks-for-2012.htm

Yes a great little company with one asset which just keeps paying out those dividends. The recent rerating indicates it is not such an unknown stock as it used to be!

Happy investing

 

[pavilion103]

Potential breakout?

 

[sydboy007]

EPX - Ethane Pipe Trust

have had this on my radar for a while as a yield play in my SMSF

Recently the price has drop from 1.9X to bouncing around 1.76-1.80 which seems to provide a yield of around 10% based on past distributions - quidance is for the June distribution to be similar for the previous qtr.

I've been doing some digging around and can't find any news to explain the sudden drop. I know they are still waiting for Quenos to finalise their ethane supplies post 2014, but Quenos seems to be the only supplier of particular types of plastics in Australia so I'd assume they're relatively safe.

EPX is a one trick pony in that they only have one customer, but the supply contract does run till 2030, though moves from a capacity based pricing to capacity & volume based from 2015 so there is some downside risk should Quenos move some production from Botany to Victoria.

Just keep getting mesmerised by the 10% yield at the current price

 

[So_Cynical]

Re: EPX - Ethane Pipe Trust

have had this on my radar for a while as a yield play in my SMSF

Recently the price has drop from 1.9X to bouncing around 1.76-1.80 which seems to provide a yield of around 10% based on past distributions - quidance is for the June distribution to be similar for the previous qtr.

I've been doing some digging around and can't find any news to explain the sudden drop. I know they are still waiting for Quenos to finalise their ethane supplies post 2014, but Quenos seems to be the only supplier of particular types of plastics in Australia so I'd assume they're relatively safe.

EPX is a one trick pony in that they only have one customer, but the supply contract does run till 2030, though moves from a capacity based pricing to capacity & volume based from 2015 so there is some downside risk should Quenos move some production from Botany to Victoria.

Just keep getting mesmerised by the 10% yield at the current price

Been watching since 2007, could of got em crazy cheap in the GFC but didn't.

Anyway as you say the business is a one trick pony and its an all or nothing trick at that...still for anyone that bough EPX cheap the yield has been brilliant.

 

[jjbinks]

does anybody know why the price fell from 1.9-->1.7 in march.

 

[galumay]

does anybody know why the price fell from 1.9-->1.7 in march.

It went ex-div in late march??

 

[jjbinks]

It went ex-div in late march??

But its fallen much more than just dividends amount and hasn't really recovered considering the frequency of dividends

 

[So_Cynical]

Been watching EPX since 2007, in today at 0.745 and hoping for the best as always...as mentioned previously EPX is a one trick pony, 1 suppler 1 customer and just the 1 asset and not even 1 employee.

EPX trading today at a new 5 year low down over 12% again, Market cap today of about 51 million values their 1400 km pipeline at just 36K per kilometre, i imagine the cost to replace the pipeline could be perhaps 5 times that figure. Even with the new contract pricing and the reduced flow, a 25% + divided cut would still see a gross yield of over 11%

10 year chart below
~

 

[Ves]

Without knowing a great deal, hasn't Qenos (the sole customer) come out and said that they are in talks with other suppliers of ethane and have not yet decided whether to renew the contract with the Ethane Pipeline after 31 December 2014? It is a long-term agreement, but it is cancellable with 12 months notice.

Also noting that from October 2013 the supply agreement charges changed to be based on volume transported through the pipeline, and this means that revenue will be more volatile (see 8% decrease in volume announced last week).

Market increasingly more and more fearful about the customer concentration risk and higher volatility in earnings.

 

[skc]

Without knowing a great deal, hasn't Qenos (the sole customer) come out and said that they are in talks with other suppliers of ethane and have not yet decided whether to renew the contract with the Ethane Pipeline after 31 December 2014? It is a long-term agreement, but it is cancellable with 12 months notice.

Also noting that from October 2013 the supply agreement charges changed to be based on volume transported through the pipeline, and this means that revenue will be more volatile (see 8% decrease in volume announced last week).

Market increasingly more and more fearful about the customer concentration risk and higher volatility in earnings.

Just goes to highlight how short sighted the market was for a long time when it traded at $2.40. That was 7% yield which you could have got in any number of infrastructure / utility stock... yet people piled into something that has a single asset serving a single customer.

Anyway... if Qenos walks away, does revenue and profit fall to $0? What's their plan B? What if they just dig up the pipe and sell it as scrap... would that worth anything?

And if... Qenos say sign on for another 3 years. How much would the future cash flow worth then?

It's a problem that I can't even frame around, let alone calcuate a value. Any reference to historical prices should be thrown out of the window imo.

 

[Ves]

Just goes to highlight how short sighted the market was for a long time when it traded at $2.40. That was 7% yield which you could have got in any number of infrastructure / utility stock... yet people piled into something that has a single asset serving a single customer.

Anyway... if Qenos walks away, does revenue and profit fall to $0? What's their plan B? What if they just dig up the pipe and sell it as scrap... would that worth anything?

And if... Qenos say sign on for another 3 years. How much would the future cash flow worth then?

It's a problem that I can't even frame around, let alone calcuate a value. Any reference to historical prices should be thrown out of the window imo.

It’s not just Qenos walking away voluntarily, it is also the fact that if Qenos cannot negotiate reasonable prices on ethane then will not transport as much volume wise, and if it gets really bad, considering the way that manufacturing in Australia is going there is no guarantee of any longevity, closure of the plant in Botany Bay etc.
This is called not being able to control your own destiny – and it investors should demand higher returns to compensate for the higher risk!

That’s the rub with stocks like this that own one piece of infrastructure and have very limited, or sole customers, you cannot expect it to bear fruit, completely risk-free forever. And if you cannot make reasonable estimates on the life-span, and any fluctuations in between, it’s really hard to value at all as you said. Qenos have also said the Botany Bay plant will be shut for major maintenance in 2015, so throughput will be much lower than the minor disturbance from maintenance this year.

After briefly reading the 2013 annual report, it says that they could use the pipe as a form of natural gas storage as the most likely alternative, but there appears to be no other companies like Qenos who would utilize it in its most profitable fashion. EPX directors then go on to say “This will be a matter that would be addressed in detail in Qenos exercises its right to terminate.”

That is what I could find after half an hour. Wonder what the high volumes selling out in the past six months found on top of this?

 

[Smurf1976]

If the customer wants ethane then there aren't too many options for supply. Either get it from SA (via EPX) or build a new pipeline and get it from Victoria. Those are the realistic options, short of a pipeline all the way to the NT or WA, which would make no real sense at all.

But EPX is definitely hugely exposed to a single source of supply and a single user of the product.

As for alternative uses, gas storage is one option (the gas pressure in such a long pipeline itself represents a significant amount of storage). Transporting natural gas is another option, although under most scenarios that just means competing against another underutilised pipeline that runs parallel to this one. That said, if shale gas turns out to be a huge winner at Moomba (SA), or if supply was fed in from the NT or WA, and if supply from Vic is depleted, then there could be a market for additional pipeline capacity from Moomba to NSW. There's an awful lot of "ifs" there however, and some of them are quite unlikely in practice.

 

[So_Cynical]

If the customer wants ethane then there aren't too many options for supply. Either get it from SA (via EPX) or build a new pipeline and get it from Victoria. Those are the realistic options, short of a pipeline all the way to the NT or WA, which would make no real sense at all.

But EPX is definitely hugely exposed to a single source of supply and a single user of the product.

As for alternative uses, gas storage is one option (the gas pressure in such a long pipeline itself represents a significant amount of storage). Transporting natural gas is another option, although under most scenarios that just means competing against another underutilised pipeline that runs parallel to this one. That said, if shale gas turns out to be a huge winner at Moomba (SA), or if supply was fed in from the NT or WA, and if supply from Vic is depleted, then there could be a market for additional pipeline capacity from Moomba to NSW. There's an awful lot of "ifs" there however, and some of them are quite unlikely in practice.

Exactly

Qenos is in the plastics business and needs Ethane to make their plastics, cant import it without a gas offloading and storage facility in Botany so if they continue to operate the Botany Plant they will be doing so with Moomba gas that has to travel down the EPX pipeline.

In the event that The Botany plant closes then the EPX pipeline becomes available for NG transport to Sydney, extra capacity to that other pipeline that runs down the same corridor..it will still be a valuable asset just not a profitable one for sometime into the near future.

I'm punting that Qenos wants to keep the Botany plant operational.

 

[Ves]

I'm punting that Qenos wants to keep the Botany plant operational.

Thanks So_C

Sounds like you know and have considered the risks and have factored them into your position exposure.

Smurf, do you know if ethane is transported by pipe because it is by far the most cost effective way of getting it from SA to Sydney? Or is there also a safety element and that is why it requires a giant pipe? I assume there are no other viable alternatives.

 

[McLovin]

Exactly

Qenos is in the plastics business and needs Ethane to make their plastics, cant import it without a gas offloading and storage facility in Botany so if they continue to operate the Botany Plant they will be doing so with Moomba gas that has to travel down the EPX pipeline.

In the event that The Botany plant closes then the EPX pipeline becomes available for NG transport to Sydney, extra capacity to that other pipeline that runs down the same corridor..it will still be a valuable asset just not a profitable one for sometime into the near future.

I'm punting that Qenos wants to keep the Botany plant operational.

Hey S_C

When I read the announcement it sounds as though there are multiple suppliers of ethane to Qenos. Are EPX the only suppliers?

 

[Ves]

Hey S_C

When I read the announcement it sounds as though there are multiple suppliers of ethane to Qenos. Are EPX the only suppliers?

I read it as saying that Qenos source the ethane from someone such as Santos who takes it from their resources projects, then EPX transports it via the pipes to Qenos.

So in effect EPX are an intermediary, who transports it to Qenos on behalf of someone else.

 

[McLovin]

I read it as saying that Qenos source the ethane from someone such as Santos who takes it from their resources projects, then EPX transports it via the pipes to Qenos.

So in effect EPX are an intermediary, who transports it to Qenos on behalf of someone else.

Ahhh...That makes sense. I was scratching my head wondering who these "suppliers" were!

Thanks

 

[skc]

Exactly

Qenos is in the plastics business and needs Ethane to make their plastics, cant import it without a gas offloading and storage facility in Botany so if they continue to operate the Botany Plant they will be doing so with Moomba gas that has to travel down the EPX pipeline.

In the event that The Botany plant closes then the EPX pipeline becomes available for NG transport to Sydney, extra capacity to that other pipeline that runs down the same corridor..it will still be a valuable asset just not a profitable one for sometime into the near future.

I'm punting that Qenos wants to keep the Botany plant operational.

I didn't know that Qenos is owned by the Chinese. They have less tendency to just cut and run when things get tough.

And what great timing on your entry. Trading at 90c today so you've probably sold already