January 24, 2013 / 3:53 PM / 5 years ago

Methanex shares jump on 10-year gas supply deal with Chesapeake

Jan 24 (Reuters) - Shares of Methanex Corp touched a life high on Thursday after the world’s largest methanol supplier signed a 10-year natural gas supply deal with U.S. oil and gas company Chesapeake Energy Corp for its Louisiana plant, prompting at least one brokerage to upgrade the stock.

Methanex did not disclose the terms of the agreement announced late on Wednesday, but said deliveries will commence when the plant starts operating, likely in the end of 2014.

“The foremost benefit of this contract, in our view, is the ability to greatly enhance Louisiana’s margin and cash flow stability,” Raymond James analyst Steve Hansen said in a note, upgrading the stock to “outperform” from “market perform”.

Methanol, a liquid petrochemical produced mainly from natural gas and coal, is used in windscreen washer fluid, recyclable plastic bottles, plywood floors and synthetic fibers.

The agreement is structured to link natural gas price to the price of methanol, Chief Executive John Floren said in a statement.

“Having a 10-year contract in place for 1 million tonnes of methanol production per year reduces our exposure to short-term natural gas price fluctuations, which will lower the natural gas price risk for the site if we decide to relocate a second plant to Louisiana,” Floren said.

U.S. natural gas prices have bounced away from the decade lows of last April. They rose 2 percent to average $3.54 per million British thermal unit in the December quarter.

Methanex, with a market value of C$6.21 billion as of Wednesday’s close, expects to take a decision on the second relocation plant in the first half of this year.

The company said earlier this month it was temporarily shutting down its operations in Chile in March due to natural gas supply crunch.

Brokerages RBC and CIBC raised their price targets on the stock.

Methanex shares rose as much as 9 percent to a life high of C$35.27 on the Toronto Stock Exchange, making it one of the top percentage gainers on the exchange. The company’s U.S.-listed shares were up 8 percent at $35.

Chesapeake’s shares rose 2 percent to $18.82 on the New York Stock Exchange. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Sriraj Kalluvila)

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