Behind Methanex’s Long-Term Agreement with Painted Pony Energy
Methanex signs long-term contract for natural gas
On November 8, 2017, Methanex (MEOH) announced that it had entered into a 14-year agreement with Painted Pony Energy, which will supply natural gas to MEOH’s 600,000-ton methanol plant in Medicine Hat, Alberta. The contract will be effective from 2018.
MEOH did not provide any information related to financial aspects of the deal. The long-term contract helps Methanex obtain natural gas at a better price, which could help Methanex bring down its cost of goods sold.
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Methanex CEO (chief executive officer) John Floren stated: “Having a long-term agreement in place to support our Medicine Hat facility underpins a competitive cost position for years to come. We are delighted to have entered into this agreement with Painted Pony, a company with a very competitive cost position in the prolific Montney play in Western Canada. This agreement, combined with the 2015 refurbishment of our Medicine Hat plant, solidifies the long-term future of Methanex’s methanol operation in Canada.”
Methanex’s stock performance
Methanex stock price gained 2.5% in the week ended November 10 and closed at $51.60, outperforming the PowerShares International Dividend Achievers Portfolio (PID), which returned 0.40% during the same period. PID has 1.0% of its portfolio in Methanex.
The rise in MEOH has caused the stock to trade 8.0% above its 100-day moving average price of $47.77. On a YTD (year-to-date) basis, the stock has returned 17.8%. Analysts foresee a further upside in the stock over the next 12 months and have provided a target price of $56.12. MEOH’s relative strength index score of 57 indicates that the stock is neither overbought nor oversold.
Investors looking to hold Methanex indirectly can invest in PID. The fund also provides exposure to Seaspan (SSW), Teva Pharmaceutical (TEVA), and Suncor Energy (SU), which had weights of 3.5%, 2.3%, and 1.9%, respectively, as of November 10.