Nova Chems Company Of The Year

By Nigel Davis

The ICIS Company of the year award goes to NOVA Chemicals, a company that has risen phoenix-like from near bankruptcy to produce a healthy set of financial results in 2011.

Underlying its performance is the backing of a strong investor – the Abu Dhabi International Petroleum Investment Company (IPIC) – canny management and a clear strategic drive.

But NOVA is also catching a wave that in North America is seeing an almost gold rush-like swing to ethane cracking as more ethane supply opportunities come into play and ethane prices are pushed down.

NOVA benefitted in 2011 from a combination of factors including the low ethane price, the tightness and price volatility in liquid cracker co-products, and what it called a “virtually sold out” North American polyethylene industry. It could have a relatively good few years if ethane prices stay low and its new ethane supplies come on-stream as planned.

It has re-vamped its Corunna, Ontario, largely liquids-fed cracker to take more natural gas liquids (NGLs) and has first mover advantage on a number of deals to supply feedstocks to its plants that may prove critical in the years to come.

It has also been pushing the ethane advantage hard downstream into the North American polyethylene industry.

Supply/demand balances for ethylene and polyethylene were tight in 2011 which helped lift profit margins and while the first half of 2012 has not been great, with pricing pressure in the second quarter, there are some signs of a recovery.

The company posted record net profits of $615m (€474m) from $263m in 2010, on 15% higher sales of $5.2bn. It managed to produce first-half 2012 net income of $380m, almost at the record level of $388m earned in the first half of 2011.

NOVA is driving its feedstock advantage directly into polyethylene and, according to CEO Randy Woelfel, wants to keep the focus on the North American market.

The company will be one of the first chemical players to start drawing on ethane associated with shale gas drilling in North Dakota in the US. It also has an agreement in place to take ethane from shale gas exploitation in the important Marcellus deposit in the northeast of the US.

It has been troubled by dwindling ethane supplies to its cracking furnaces in Joffre, Alberta, but an agreement with Williams Energy will see it take a mixed ethane and ethylene stream from the oil sands off gases that Williams pipes out of Canada.

NOVA has spent money on its cracker at Corunna, where it also has a refinery, to enable it to crack more NGLs. It is buying more WTI (West Texas Intermediate) marker crude price-linked barrels of oil for the refinery, moving away from an historic tie to crude from the Mediterranean.

Driving this advantage downstream into polyethylene is clearly the name of the game and NOVA has planned two significant polyethylene additions using its proprietary Novapol and Sclairtech technologies. Woelfel wants NOVA to concentrate on the North American polyethylene market which has been tight for some years now.

Having re-aligned the company since he took over in 2009, the year that IPIC made the astute move to buy at NOVA’s lowest ebb, Woelfel has, with IPIC’s help, restored confidence in the firm.

The 2020 strategic plan is being put into effect now but the CEO is already talking about NOVA 2030 and where the company goes next. The challenge is to put real meat on the bones of those ideas.

There is a great deal of money to spend in the interim – NOVA has identified a total of $1.75bn of potential capital expenditures in its filings to the US Securities and Exchange Commission (SEC).

The good thing, however, is that the company and its owners are building on existing infrastructure and not striking out on green field investments – with their accompanying costs. The trick when additional supplies of ethylene, polyethylene and other ethylene derivatives come on-stream in North America in a few years time will have been to have made the investments in new assets economically and quickly.

The ICIS Company of the Year award is described in this week’s edition of ICIS Chemical Business, published on Monday.

And while NOVA was a clear winner in the analysis, it was by no means alone in reaping the benefits of lower priced ethane in North America and an improved feedstock mix.

The average gain in operating profit or EBIT (earnings before interest and tax) across the ICIS Top 100 Chemical Companies of 8.4% shows that 2011 was a good year for the sector as a whole.

The strongest performers in 2011 in the diverse group of companies that make up the Top 100 ICIS chemical players were those that were able to capitalise on low-priced gas feedstock, in some on cases emerging market growth and in the case of the dominant fertilizer producers, strong agricultural demand.

It is not only petrochemical players that stand out in the analysis but also some of the major fertilizer producers and certain companies focused on products that rose sharply in price on supply tightness or other factors, such as the white pigment, titanium dioxide.

The top five players in the ICIS analysis were NOVA Chemicals, US-based Praxair, Saudi Arabia’s SABIC, Canada’s Potash Corp of Saskatchewan and US-based Eastman Chemical.

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