Can Sweetwater Sweet-talk Investors?


Syntroleum Corp. has secured all major contracts necessary for construction of its gas-to-liquids specialties plant in Western Australia. But the project still must clear a big hurdle: securing financing during a skittish investment environment.

Its going to be tough to finance this project right now, Global Sales and Marketing Manager Michael DOnofrio said during a telephone interview last week. Between the recession, the hit that crude prices have taken and now the [bankruptcy of energy giant Enron], this thing could sit for awhile.

The project, dubbed Sweetwater, is supposed to become the first commercial facility to produce synthetic base oils from GTL technology. Industry insiders say GTL base stocks will have performance characteristics comparable to Group III mineral base oils and poly alphaolefins and price advantages over both.

Syntroleum, of Tulsa, Okla., recently increased the planned capacity of the plant from 10,000 barrels per day to 11,500 b/d of specialty products. Half of that total would be base oils.

Last month the company announced that it had completed the last two contracts needed before it obtains financing. One was a two-year option to lease a 180-acre site on the Burrup Peninsula from the state of Western Australia. The other commits the Water Corp. of Western Australia to provide more than 1.4 million gallons of water a day. That supply will supplement water produced as a by-product of the gas-to-liquids conversion process and be used for process cooling.

Two months earlier, Syntroleum inked a $600 million engineering, procurement and construction contract with RWE Industrie-Losungen GmbH, of Frankfurt, Germany. That price was significantly higher than the $506 million cost the company was projecting as late as February. Officials attributed the cost hike to an increase in RWEs contingency and margin; plant upgrade and expansion; and wage inflation in Western Australia.

“The per-barrel cost of this project is more than we anticipate for subsequent specialty plants, since this is our first commercial plant and it must bear substantial additional costs associated with the performance guarantees necessary to obtain non-recourse financing, President and Chief Operating Officer Mark Agee said. However, the economics are still sound.

Two years ago, Syntroleum projected that Sweetwater would open in 2002. That date has now been pushed back at least to 2005, as construction is expected to take approximately three years.

But before construction begins, the company must obtain financing. Syntroleum has retained Merrill Lynch, which has already circulated a prospectus.

There are some people that are very interested in financing, DOnofrio said. But its hard to say how long it will take. The drop in [crude] oil prices hurt because it dried up cash flows. If cash flows had stayed where they were, I think it would have been a lot easier.

Related Topics

Market Topics