24 September 2012 10:00 [Source: ICB]
An aggressive feedstock policy and a laser-like focus on customers and markets helped Canada-based NOVA Chemicals achieve record financial performance in 2011, despite major operational challenges throughout the year, says CEO Randy Woelfel.
This performance and commitment to financial integrity positions us well to move forward with our ambitious growth plans"
This year's winner gained record earnings in 2011 and strong cash generation helped it to pay down debt.
"This performance and commitment to financial integrity positions us well to move forward with our ambitious growth plans based on a solid balance sheet and strong liquidity," the CEO told financial analysts in March.
Woelfel has led NOVA since November 2009, overseeing a transformation that involved realigning the company's portfolio and grasping new opportunities in feedstock supply.
Under the NOVA 2020 strategy, launched last year, ethylene capacity will grow as new sources of primarily ethane feedstock become available to the NOVA crackers in Canada. Additional polyethylene (PE) capacity utilising NOVA's propriety Novapol and Sclairtech technologies is planned.
NOVA has come a long way since 2009 when, facing almost certain bankruptcy, it was acquired by Abu Dhabi's International Petroleum Investment Company (IPIC).
IPIC's influence and its support - both financial and at an operational and planning level - since then has been considerable. The fund owns a majority stake in polyolefins producer Borealis and acquired 100% of Spanish energy and petrochemical group CEPSA in 2011.
"IPIC really saw in NOVA significant potential," Woelfel said.
"They had a vision of the opportunity and also the courage, where others did not, to build value at the company. It's by far the most holistic transformational process that I've had the privilege to be involved with."
That transformational process has seen NOVA step away from styrenics - just this month PFB agreed to acquire its Performance Styrenics business, which makes expandable polystyrene (EPS) - to focus primarily on ethylene and PE. Employees and the company's leadership have been given new confidence, Woelfel said.
New feedstock opportunities have been grasped and the NOVA 2020 strategic plan - and the ideas Woelfel and his team have for NOVA 2030 - will lead to further step changes for the company.
To put the NOVA 2020 plans into perspective, in the middle of next year the first barrels of ethane will flow from the Marcellus shale in the northeast of the US into Canada's Sarnia valley and NOVA's revamped Corunna cracker. Also in 2013, ethane supplies to its plants in Joffre, Alberta, will be drawn from the gas associated with Bakken shale oil drilling in North Dakota.
Meanwhile, NOVA will begin to take supplies of a mixed ethane and ethylene feed from Canada's oil sands processing through an agreement with Williams Energy.
In a few short years, the world will have turned upside down for NOVA. Its feedstock flows all but reversed, the company is set on a growth track that will markedly raise ethylene and PE output.
The new supplies of ethane from shale oil, shale gas and Canadian oil sands plays will diversify the firm's feedstock mix and allow for significant capacity creep as well as expected new builds, Woelfel said.
PE capacity is likely to rise in Alberta and Ontario, home to the company's two main production sites. The earnings potential of the new NOVA will be significant.
NOVA's turnaround has been influenced greatly by the "dramatic evolution of North America natural gas and oil," Woelfel said.
Yet he says it all starts with executional and health and safety excellence. "We've had a tremendous focus and commitment in this area," Woelfel said, the aim being to plan and to execute against plan effectively.
NOVA's plant in Joffre, Alberta, will consume ethane from shale oil drilling in 2013
In 2009 and 2010, NOVA took steps to cut its reliance on crude oil from the Mediterranean for its Corunna refinery and moved to take West Texas Intermediate (WTI) price-based barrels.
The shift from Brent to WTI reference prices alone produced a $100m EBITDA (earnings before interest, tax, depreciation and amortisation) gain relative to 2010, Woelfel said.
The declining supply of ethane in gas being produced from western Canada was constricting output from Joffre, which has a nameplate capacity of 2.8m tonnes/year of ethylene, including some allocated to a 50% joint venture with Dow Chemical.
But that decline has been reversed and the new supply agreements will mean that the Joffre ethylene output will be able to be ramped up.
NOVA's aggressive feedstock acquisition policy was a feature of 2011, Woelfel said.
Operating rates at Joffre were stepped up as ethane supplies rose by 6-7%.
Woelfel talked of some "very assertive sourcing management" and "some very creative, very breakthrough work on the feedstock front".
CORUNNA EXPANSION OPTION
Work on the feedstock front continues and characterises the NOVA 2020 plans.
The Corunna cracker feedstock slate has been switched from predominantly heavy to light and by the end of next year the facility will be mainly natural gas liquids (NGLs) fed with some heavy flexibility.
Before the switch, the cracker had a nameplate ethylene capacity of 820,000 tonnes/year and a 2.1m tonne/year capacity for co-products. Woelfel said that Corunna could be expanded by 40-50% - although this is a stretch goal in engineering terms.
New ethylene supplies from Corunna in the east and Joffre in the west are likely to be utilised in two new PE plants. The proposed 450,000-475,000 tonne/year R3 plant at Joffre would use Novapol technology and represent a 40% PE capacity increase at the site. An Advanced Sclairtech (AST) plant with capacity of approximately 475,000 tonnes/year planned for Ontario is in the early phase of project engineering.
Woelfel describes the shift from the old NOVA to the new as a very holistic change driven by a clear market approach.
NOVA's capacity expansions have to be aligned to a "laser-like focus on customers and markets," he said.
"We are convinced that there is an appetite in North America for value-added product [such as AST PE]," he added. NOVA is, he said, consciously focused on North America.
And that focus extends to what the company might look like - not just in 2020, but also in 18 years' time.
Woelfel is conscious that NOVA has to take advantage now of what he calls "the opportunity of a lifetime".
The company is working hard on the NOVA 2020 feedstock supply and production expansion projects.
Coupled with the work done to shift Corunna feed capability, the production expansions will cost in the region of $1.75bn over the next seven years, according to estimates filed with the US Securities and Exchange Commission (SEC).
"We are trying to challenge ourselves on - what is NOVA able to become in 2030," the CEO says.
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