The SemCAMS investor presentation from September 2018 is a highly technical, asset-heavy deck designed for institutional investors at the Alta Corp Capital Conference. As a business unit of the NYSE-listed SemGroup (SEMG), the deck focuses on 'hard' competitive advantages: physical infrastructure, regulatory barriers, and long-term contracts. The company highlights that 97% of its LTM gross margin comes from fee-based cash flows, with 72% of revenue derived from investment-grade counterparties. The core value proposition lies in their unique footprint in Alberta, specifically their specialize…
Key takeaways
- The company maintains a highly stable financial profile, with 97% of LTM gross margin derived from fee-based cash flows as of June 30, 2018 (Slide 5).
- Counterparty risk is mitigated by the fact that 72% of pro forma revenue comes from investment-grade entities (Slide 5).
- SemCAMS operates a vast network including 600 miles of pipelines and a licensed capacity of 1.5 bcf/d in the Montney and Duvernay plays (Slide 9).
- Market demand is supported by a growing shortfall in local condensate supply, necessitating increased imports and production growth (Slide 13).
- The 'Montney to Market' (M2M) pipeline project, a joint venture with Plains Midstream Canada, targets an initial capacity of 100,000 bbl/d by Q4 2020 (Slide 21).
- Sour gas processing serves as a significant moat, with capital costs for new plants ranging from $1.5M to $2.5M per mmcf/d compared to $1M for sweet gas (Slide 25).
- The company reported a Non-GAAP Adjusted EBITDA of $192.38 million for the first half of 2018 (Slide 29).
- Safety and regulatory compliance are positioned as competitive advantages, citing 45 years of safe sour gas processing (Slide 25).
Introduction: The Infrastructure Powerhouse
The SemCAMS investor presentation from September 2018, delivered at the Alta Corp Capital Conference, is a comprehensive look at a mature midstream energy business. Unlike early-stage venture decks that sell a vision, this deck sells assets, cash flow stability, and geographical dominance. SemCAMS, a business unit of SemGroup Corporation (NYSE: SEMG), focuses on the 'plumbing' of the energy sector in Western Canada.
Slide 1: Title and Context
The cover slide establishes the professional, corporate tone of the presentation. It identifies the event (Alta Corp Capital Conference) and the date (September 2018). The imagery of industrial towers reinforces the asset-heavy nature of the business. Crucially, it identifies SemCAMS as a business unit of SemGroup Corporation, signaling to investors that this is part of a larger, publicly traded entity.
Slide 5: Financial Stability and Counterparty Strength
This is a foundational slide for any infrastructure investment. It breaks down the 'SemGroup Strengths' into two categories: Stable Cash Flows and Counterparty Strength. Slide 5 states that 97% of total LTM gross margin comes from fee-based cash flows. A bar chart shows the evolution from 2014 to 2018, showing a shift toward 'Take-or-Pay' (57% in 2018) and 'Fixed Fee' (40% in 2018) structures, with 'POP/Marketing' shrinking to just 3%. The right side of the slide features a pie chart showing that 72% of revenue comes from investment-grade counterparties, which is a critical metric for de-risking the investment for debt and equity holders.
Slide 9: The Geographic Moat
Titled 'Unique Footprint Difficult to Replicate,' this slide focuses on the physical assets in Alberta. The company claims a total combined operating capacity of ~1 bcf/d and a licensed capacity of 1.5 bcf/d. It lists four major gas plants: Kaybob South #3, Kaybob Amalgamated, West Fox Creek, and West Whitecourt. The slide also mentions 600 miles of gathering pipelines. The map on the right visualizes these assets within the Montney and Duvernay plays, showing how their infrastructure connects producers to major takeaway options like TransCanada and Alliance.
Slide 13: Market Dynamics and Condensate Demand
This slide addresses the 'Why Now?' and the macro tailwinds. It uses data from RBC Capital Markets to show a widening gap between condensate demand and local production in Western Canada. The chart shows 'Implied Condensate Imports' growing significantly through 2020. By highlighting that 'Western Canada will likely remain short condensate for the foreseeable future,' SemCAMS justifies its investment in takeaway and processing infrastructure to bridge this gap.
Slide 17 & 21: Growth Strategy and the M2M Pipeline
Slide 17 serves as a transition to 'Announced Growth Projects.' Slide 21 provides specifics on the 'Montney to Market Pipeline (M2M).' This is a joint venture with Plains Midstream Canada, announced in August 2018. Key metrics include an initial capacity of 100,000 bbl/d (expandable to 200,000 bbl/d) and a proposed completion date of ~4Q 2020. This slide is vital for showing investors where the next leg of revenue growth will come from.
Slide 25: The Technical Moat - Sour Gas Processing
This is perhaps the most important slide for understanding the company's competitive advantage. It compares 'Sweet' vs. 'Sour' gas processing. Sour gas contains H2S, which is toxic and corrosive. Slide 25 notes that SemCAMS has been safely processing sour gas for over 45 years. The table shows that sour gas processing requires significantly higher capital costs ($1.5MM to $2.5MM per mmcf/d vs. $1MM for sweet gas) and involves complex regulatory and safety requirements. This high barrier to entry prevents new competitors from easily entering the market.
Slide 29: Financial Reconciliation
The final slide provided is a detailed 'Non-GAAP Adjusted EBITDA Calculation.' It provides a quarter-by-quarter breakdown for 2017 and the first half of 2018. For YTD 2018, the company shows an Adjusted EBITDA of $192,381 (in thousands). This slide is essential for institutional analysts to understand the underlying cash-generating power of the business, stripping away non-cash items like depreciation ($102,291 YTD) and unrealized losses on derivatives.
What Works in This Deck
Clarity of Revenue Quality: By emphasizing the 97% fee-based margin, the deck speaks directly to the primary concern of infrastructure investors: predictability. · Asset Mapping: The use of maps to show the proximity of plants to the 'prolific Montney and Duvernay plays' makes the geographic moat tangible. · Technical Differentiation: The detailed comparison of sour vs. sweet gas processing (Slide 25) clearly articulates why a competitor cannot simply build a plant next door and steal market share. · Third-Party Validation: Citing RBC Capital Markets for market demand forecasts adds credibility to the growth thesis.
What Is Missing
Team Slide: While this is a corporate presentation for a business unit, there is no mention of the specific management team leading SemCAMS. Investors in these units often want to know who is executing the local strategy. · Unit Economics: While EBITDA is provided at a high level, the deck lacks a breakdown of margins per plant or per mile of pipeline, which would allow for deeper benchmarking. · ESG Metrics: Given the focus on sour gas and toxic H2S, modern investors would expect more detailed environmental and social governance metrics, though this was less standard in 2018. · Specific 'Ask': As a conference presentation, it lacks a specific funding request, though the growth projects imply a need for ongoing capital expenditure.
What Founders Should Copy
The 'Moat' Slide: Every founder should have a slide like Slide 25 that explains the technical or regulatory barriers that prevent others from doing what they do. · Counterparty Analysis: If you sell to businesses, showing the 'credit-worthiness' or 'brand name' of your customers (as seen on Slide 5) is a powerful way to de-risk your revenue. · Macro-to-Micro Logic: The deck moves from broad market demand (Slide 13) to specific geographic assets (Slide 9) to specific growth projects (Slide 21). This logical flow is highly effective for building a narrative.
Frequently asked questions
- What is the primary revenue model for SemCAMS?
- SemCAMS operates primarily on a fee-based model. According to slide 5, 97% of their total Last Twelve Months (LTM) gross margin comes from fee-based cash flows, including 'Take-or-Pay' and 'Fixed Fee' arrangements. This provides significant insulation from commodity price volatility, which is a critical selling point for infrastructure investors seeking predictable returns.
- How does SemCAMS differentiate itself from other midstream providers?
- Their primary differentiator is the ability to process sour gas (gas containing H2S). Slide 25 explains that this is a major barrier to entry due to the toxic nature of H2S, requiring specialized materials, direct-to-flare emergency systems, and underground injection for acid gas handling. They cite 45 years of experience and top-quartile safety performance as proof of their operational moat.
- What are the key growth projects mentioned in the deck?
- The deck highlights several major initiatives, most notably the 'Montney to Market' (M2M) Pipeline. Slide 21 details this as a joint project with Plains Midstream Canada, aiming for an initial capacity of 100,000 bbl/d with a completion target of Q4 2020. Other projects include the Wapiti and Smoke Lake plants, which were under construction at the time of the presentation.
- Who are the typical customers for SemCAMS?
- While specific names aren't listed on the provided slides, slide 5 notes that 72% of their pro forma revenue is derived from investment-grade counterparties. These are typically large exploration and production (E&P) companies operating in the Montney and Duvernay plays who require reliable processing and takeaway capacity for their gas and liquids.
- What is the financial health of the parent company, SemGroup?
- Slide 29 provides a detailed Non-GAAP Adjusted EBITDA reconciliation. For the year-to-date (YTD) period ending in 2018, SemGroup reported an Adjusted EBITDA of $192.38 million. Despite a net loss of $35.76 million in the same period, the high depreciation ($102.29M) and interest expenses ($78.36M) are typical for capital-intensive infrastructure firms.
