PHOENIX PARK Gas Processors Ltd (PPGPL), a company which was bought at billions of dollars above its fair value price, is now, a little more than ten years later, recorded to have lost more than a billion dollars in value.
The depreciation is contributing to challenges for its parent company, NGC, whose executive team, in a closed-door session with reporters at the Brix Hotel on December 12, admitted it was part of the reason it saw losses in 2023.
But, Narinejit Pariag, vice-president of finance; president Edmund Subryan; chairman Dr Joseph Ishmael Khan and vice president of commercial, Verlier Quan-Vie, assured that the valuation of the company is not a reflection of the performance of PPGPL, but rather, a snapshot of its overall value given the current global circumstances.
What happened to PPGPL?
PPGPL is a TT-based gas processing company formed in 1989. The company is split into three major parts, NGC NGL, which owns 51 per cent, TT NGL, which owns 39 per cent and Pan West Engineers and Constructors LLC, which has a ten-per-cent share.
In 2020, the company acquired the marketing assets of Twin Eagle Liquids Marketing LLC, a Texas company that markets, trades and transports natural gas to Canada, the US and Mexico.
In 2013, NGC acquired PPGPL at a goodwill of $2.3 billion. What this means is, NGC bought its 39-per-cent share from ConoccoPhilips at $2.3 billion more than its fair price, according to accounting standards.
The acquisition meant that NGC would have an overall 90-per-cent stake in the gas processing company.
Pariag explained, goodwill is the premium a company pays for assets based on a forecast of its value. It is calculated by the purchase price of a company and subtracting it from the fair value of its assets and liabilities.
“So if there is a company that is valued at $5 million and you acquire it for $7 million that excess is deemed goodwill. There has to be something in that organisation that would interest a company that would make it pay a higher price.”
Quan-Vie added, “When you are doing business, you look at an asset and you look at what you think in terms of that outlook for the utilisation of that asset. So in terms of purchasing the asset the company would have made assumptions around the pricing, the richness of the gas, the quantity of gas and quite a number of other factors in determining what is the purchase price for the asset.”
Goodwill is tested for impairment, a depreciation in the value comparable to the price at which it was bought, on an annual basis. In 2023 the assessment, which took into accounts cash flows that are supportable, resulted in a $1.5 billion diminishing in the value of goodwill for PPGPL.
The valuation of PPGPL for the impairment test was based on production, price and values of the goodwill.
[caption id="attachment_1126751" align="alignnone" width="1024"] NGC Group chairman Dr Joseph Ishmael Khan - Photo courtesy TTNGL[/caption]
Another impairment cost came from Caribbean Gas Chemicals, a company in which NGC has a 20 per cent s
