TerraVest & the Propane Tank Market: Unit Costs and Legacy Tanks Conversion

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Could you explain again how Borealis is disrupting the market due to Superior's bad customer service?

Borealis decided to improve where their service was weak and also started expanding where the service was available. For example, they put two 90,000-gallon bullets at Sunshine Village, a huge ski hill in Alberta. They will now supply all the energy at Sunshine, so it will no longer consume energy from outside the park. They are offering customers a cheaper solution for their energy needs, especially with the government's CO2 requirements and the high cost of carbon tax. This ends up being a cheaper solution.

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And what does that mean for a company like Maxfield?

When we started in the eighties, you might have had one 30,000-gallon or one 60,000-gallon bullet. Now, these sites, because they are producing and making the propane, will put in 10 or 15 90,000-gallon bullets and get rid of the old 30,000 and 60,000-gallon ones. These old bullets are now being converted into what we call process equipment, treaters, and separators because they are an inch thick and have higher pressure than needed for that part of the business. So, you de-rate them and reuse them. Now, these 30,000-gallon bullets have somewhere to go, and I can replace them with a 90,000-gallon bullet. If I have a 30,000-gallon bullet on my site, the truck has to show up every week. With a 90,000-gallon bullet, I see them once a month, saving money on deliveries. This change in size has gone so far that there was a project where they tried to talk me into making a 250,000-gallon bullet. The only reason I couldn't do it was that we couldn't get it to the location due to too many turns and not enough straightaways.

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Could you estimate the cost difference? We are numbers guys, right? So I try to get some kind of dollar percentage advantage on those things you explained to us.

This is based on the margins I would usually sell my product at when I was with Maxfield. I was going for a minimum of 18% on any bullet larger than 60,000 gallons. If I was doing a 120,000-gallon bullet, then I aimed for a 25% margin. Part of this allows you to grab a bigger margin because others can't compete on delivery. The second part is that they can't compete on my cost, so I can add more margin. It wasn't unusual for customers to say, "I'm giving you the PO, but you're 10% higher than somebody else."

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