Keyera Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 12 speakers on the call.

Operator

Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera Court's Second Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the call over to Calvin Locke, Manager of Investor Relations. You may go ahead, sir.

Speaker 1

Thank you, and good morning. Joining me today will be Dean Setiguchi, President and CEO Eileen Maricar, Senior Vice President and CFO Jamie Urquhart, Senior Vice President and Chief Commercial Officer and Jared Bustillini, Senior Vice President, Operations and Engineering. We will begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions. I would like to remind listeners that some of the comments and answers that we will give you today relate to future events. To the operator.

Speaker 1

These forward looking statements are given as of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non GAAP financial measures. For additional information on non GAAP measures In forward looking statements, please refer to Keyera's public filings available on SEDAR and on our website. With that, I'll turn the call over to Dean.

Speaker 2

Thanks, Calvin, and good morning, everyone. I'm pleased to announce that our Board of Directors Have approved a 4.2 percent dividend increase, returning Keyera to its long history of sustainable dividend growth. The increase is supported by the growth of Keyera's fee for service business segments. Over the last 5 years, we've been investing significantly to create a fully integrated service offering from the Montney and Duvernay place through to our core liquids infrastructure in Edmonton and Fort Saskatchewan. These strategic investments continue to deliver volume and cash flow growth.

Speaker 2

We remain on track to reach our targeted annual 6% to 7% to Fee for service EBITDA growth out to 2025. Our Liquid Infrastructure segment delivered 21% year over year growth Reaching a new quarterly record of $119,000,000 TAPS is now fully in service with the second of 2 pipelines Shipping its first volumes in June. Apps integrates our value chain making us more competitive and enhances our ability to track new volumes. Our platform offers customers a much needed competitive alternative from wellhead to end market. In our G and P segment, we delivered $84,000,000 in realized margin.

Speaker 2

This result was achieved Despite the impact of Alberta's wildfires, again, we'd like to thank all emergency responders and care personnel to ensure that everyone remains safe and that our assets were largely unimpacted. The outlook remains strong for our G and P business. We foresee continued filling of available capacity, particularly at Wapiti and Simonette as producer activity ramps up. Expansion of the Pipestone Gas Plant is on track for completion in the Q1 of 2024. Our G and P customers are in a strong financial position and have multiyear growth plans.

Speaker 2

This is driving continued growth of the segment, While at the same time increasing the length of contracts and improving cash flow stability. Our marketing segment had another strong quarter Supported by the strength of our iso octane and condsafe businesses. This segment delivered $134,000,000 of realized margin in the quarter And $251,000,000 year to date. We're increasing our 2023 guidance for this segment to range between 380 to $410,000,000 of realized margin. With the major investments of the last 5 years behind us, We expect gross spending to be lower going forward.

Speaker 2

This means we'll have more free cash flow to allocate. Our capital allocation priorities are unchanged. They are first to ensure financial strength And then the balance between increasing returns to shareholders and disciplined capital investments. Our debt leverage metrics are well within our targeted range And now we increased our dividend. In terms of future growth investments, they will be primarily focused on projects That leverage and enhance our existing core asset position in Western Canada.

Speaker 2

This could include a debottleneck of existing frac, to a new frac expansion and a potential CAPS Zone 4 extension. Any incremental investments to generate a strong return underpinned by long term contracts. I'll now turn over to Eileen to provide an update on Keyera's financial performance for the quarter.

Speaker 3

Thanks, Dean. Adjusted EBITDA for the quarter was $293,000,000 compared to $316,000,000 The same period last year. Distributable cash flow was $207,000,000 or $0.90 per share compared to $209,000,000 or $0.94 per share for the same period in 2022. To the operator. Net earnings were $159,000,000 compared to $173,000,000 for the same period last year.

Speaker 3

These results were driven by record performance from our Liquids Infrastructure segment and the 3rd best ever quarterly marketing segment margin. To share continues to maintain a strong financial position ending the quarter with net debt to adjusted EBITDA at 2.6 times at the lower end of our targeted range of 2.5 times to 3 times. Moving to our guidance for 2023.

Operator

To the operator today. At this time, I would like to welcome everyone.

Speaker 3

As Dean mentioned, we now expect our marketing segment to contribute between $380,000,000 $410,000,000 of realized margin in 2023. 3. This is up from our previous guidance of $330,000,000 to $370,000,000 The revised guidance Takes into account financial hedges currently in place and assumes AEF runs at capacity. There are no significant logistics for transportation curtailments and current forward commodity pricing for any unhedged volumes for the remainder of the year. To the operator today.

Speaker 3

Growth capital guidance remains unchanged at between $200,000,000 to $240,000,000 Maintenance capital guidance is now expected to be between to $95,000,000 $105,000,000 up from the previous range of $75,000,000 to 85,000,000 About half the increase is due to the completion of work that was already prepaid. The balance of the increase includes additional maintenance cost to the Pipestone Gas Plant, which is expected to be recovered through increased future revenue. Cash tax expense is expected to be

Speaker 2

Thanks, Eileen. Macro outlook for our business environment remains very positive. Canada's energy resources will be essential in meeting the world's growing energy demand. Our basin continues to grow and set new records for both natural gas and crude oil production. LNG Canada and the Trans Mountain pipeline expansion will unlock future growth.

Speaker 2

We're excited to contribute to this growth by being an essential infrastructure service provider. On behalf of Keyera's Board of Directors and management team, I want to thank our employees, contractors, indigenous rights holders and other stakeholders for their continued support. With that, I'll turn it back to the operator for Q and A.

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer Your first question comes from the line of Rob Hope from Scotiabank. Please go ahead.

Speaker 4

Good morning, everyone. Thanks for taking my questions. First off, I want to maybe get a little bit of an update on caps. How have volumes ramped relative to your kind of base expectations just given, I guess it's early days, but just given some dynamics out in the basin as well as now that the pipeline is in service, have discussions with customers accelerated? Have any

Speaker 2

to Hey, good morning, Rob. It's Dean Setoguchi and Glad you're participating here in our call in the middle of August. So hopefully that didn't defer your vacation. Listen, it's a great question that you have on caps and I would have expected that. First of all, we're very pleased that The pipeline is fully in service with the 2nd pipeline again delivering volumes in June.

Speaker 2

So again, it's like any asset when you bring it up. To everything doesn't just turn on all at once. But I would say that that process works very, very smoothly. We work very closely with our customers. And now that it's in service and certainly there's a lot more visibility to growth in the basin, we have a lot of great discussions with our producers.

Speaker 2

And again, I want to emphasize that, first of all, we have a fully integrated system now, so we can offer that bundled service. Again, I always like to use analogy of your Internet cable and cell phone and security home security provider. I'd say almost everybody uses a bundled service because it's more efficient and obviously our bundle package is the same way. So I think that's a great advantage. What we're seeing is that our volumes are a little bit ahead of where we would have expected to start up.

Speaker 2

But again, it's still early days yet. We've always got into the market that this would be a slow ramp up and we still expect that. But as of where we are today, we're a bit ahead of schedule. But I would reiterate that as a final note that we did guide 6% to 7% to the EBITDA growth out to 2025. A lot of that is coming from our G and P business and filling our white space there.

Speaker 2

But part of it as well is CAPS and the CAPS ramp up to 2025. The great thing about CAPS is that Especially with the pace in growth that we're seeing, we expected to continue to grow in terms of volumes and cash flow right through the end of the decade.

Speaker 4

I appreciate that. And then as a follow-up, just take I want to dive a little bit deeper into the comments you made on capital allocation, specifically with how you'll take a look at outperformance in marketing. So good to see another Sustainable dividend increase. But when you take a look at moving forward, how do you balance Dividend increases versus growth capital. And in an environment where you could see outside marketing Margins like 2023, could you look to return those to shareholders via buybacks?

Speaker 2

Yes. Listen, that's a great question. And before I turn that over to Eileen, I'd just say that we're very pleased with the position that we're in today. We've undergone a number of years of very significant capital over the last 5, 6 years And we built a very strong Montney position, fully integrated Montney position over that period of time. And we have those expenditures behind us.

Speaker 2

We have a very strong balance sheet and we have growing cash flow. So that puts us in a great spot where now we have options as to where we allocate capital to add the most value for our investors. But with that, I'll turn it over to Eileen.

Speaker 3

Thanks, Steve. Hi, Rob. Yes, that is a great question. I think it is important to take it back to our overall priorities. Our first priority will always be to maintain our balance sheet strength and we're certainly there today.

Speaker 3

For this year, we are prioritizing paying down short term debt from the higher marketing contribution. But beyond the balance sheet, Our objective really is to grow distributable cash flow on a per share basis so that we can continue to grow the dividend. And this can really be achieved in 2 ways. 1, buying back shares or reinvesting in the business. As we look out to next year, it will be a competition for between these two options.

Speaker 3

Our preference would be to do smaller size, but impactful growth projects That meet our investment criteria. And really by small, I mean smaller relative to the large scale projects that we've undertaken over the past few years.

Speaker 5

Thank you.

Operator

Thank you. Your next question comes from the line of Robert Kwan from RBC Capital Markets. Please go ahead.

Speaker 6

Great. Thank you. If I can maybe just continue on the capital allocation topic. And Eileen, Clearly, you're prioritizing the balance sheet. I'm just kind of wondering, the low debt to EBITDA is partly a function here of strong marketing.

Speaker 6

So do you introduce a 3rd priority, and even just the fiscal dividend of reducing leverage? Like How are you looking at that leverage range? Is it on the long term marketing number? Are you even though you have a long term number, are you kind of just planning for something That's closer to what you're doing, because the other way you can grow DCF per share is to just continue to repay debt and save the interest as well.

Speaker 3

Thanks, Robert. Yes, that's a great question. And when we planned leverage, I mean that 2.5 to 3 times Is very conservative and certainly through various cycles, it has protected us from taking any drastic measures like, For example, cutting the dividend during COVID, we never had to do that. So we're very, very much, we want to Stick to those principles. And when it comes to those marketing cash flows, you're absolutely right.

Speaker 3

We don't take into account nor plan for outsized marketing as we think about leverage going forward. We're really more to that base marketing guidance.

Speaker 6

Okay. So is the bias then whether if you can get the growth CapEx, that's great, But is the bias into 2024 to maybe continue to repay debt versus direct share buybacks?

Speaker 3

I think this year, like I said, that it really is to repay, use those strong marketing cash flows to reduce our short term debt. In terms of the rest of our debt profile, we don't have anything material that's coming due for the next until 2025. And so as we look at next year, it is when if we have some great projects or if it's returning cash through buybacks, we will look at to both options going into next year.

Speaker 6

Okay. That's great. If I can just finish with a couple of questions here on caps. The first is, Are you able to disclose what the actual contribution was in the quarter and also confirm that what was booked in the liquids infrastructure was all 3rd party margin. The second is just with your new partner here, has there been anything just Stonepeak, having a fresh set of eyes on CAPS, whether it's the contracting Or expansion potential that you've been able to get out of the partnership so far.

Speaker 2

Yes, maybe Thanks for the questions, Robert. Maybe just a last question with a new partner, they've been really great to work with. They're very engaged And our team has worked Jamie's team has worked very closely with them. So yes, we think that they've been very positive in terms of attracting new business. So we're going to continue to build that relationship and we're very aligned in terms of what we want to accomplish with to this pipeline.

Speaker 2

So that's all been great. Your first question, So disclosing amount. Yes, we're not going to disclose amount of how much caps contributed in the second quarter. I would say it was pretty modest just because again, it came on middle of the sort of mid quarter, But also, there's a wrap up profile, like each customer sort of come on sequentially. So it wasn't like everything came on at once, The volumes that we do have, so I would say it was modest in the second quarter.

Speaker 6

Okay. And was it all third party Revenue or are you booking

Speaker 2

Intercorporate as well? 3rd party. And as you know, we have a note. I can't remember off the top of my head of any sort of intercompany allocations, but I can't confirm it was 3rd party revenue in the Q2.

Speaker 5

That's great. Thank you.

Operator

Thank you. Your next Question comes from the line of Robert Chatlier from CIBC Capital Markets. Please go ahead.

Speaker 7

Hey, I'd have some interest in knowing what the contribution is and also the schedule of the ramp up over the next couple of years, but looks like that might not be forthcoming today. So Maybe, Dean, you can talk about the actual physical operating performance of the asset since it's been placed into service. And second, they just the Zone 4, where you stand with that today and what's your vision for A reasonable timeline for making a decision there.

Speaker 2

Yes. Thanks for the question, Rob. It's It's great to get the 3 Rob questions right off the bat in sequence. You know what, first of all, just maybe add on more color to the ramp Of CAHPS is that obviously a lot of the discussions we have with customers is very commercially sensitive. So We have to be mindful of that.

Speaker 2

There are confidentiality provisions put in place and we'll update at the right time When it's good for our shareholders, but also respecting the confidentiality and sensitivity of those discussions. With respect to Zone 4, You know what, we remain optimistic on Zone 4, especially as we see Canada LNG, It's not that far away now. And once that gets put into service, that's going to be another couple of Bcf of demand. And we certainly see our basin growing to So I think that's going to be great for our whole NGL value chain. So with that, some of that's going to be in BC.

Speaker 2

We've obviously seen a lot of progress With the Blueberry First Nations Group and also the Treaty Aid. So with that, there's more overall optimism in BC. And so we continue to have a lot of engaging discussions with customers in Zone 4 in Alberta and also into BC to track their volumes right through the caps and into Fort Saskatchewan. So timing on that, I think that we We'd probably expect more in the first half of next year, but we do have really great conversations on that perspective. And again, the whole rationale for why producers are really interested is, A, they want to have a competitive alternative.

Speaker 2

They're investing 1,000,000,000 of dollars along that Montney Fairway. And From a reliability perspective, it's nice to have 2 systems to get your volumes into Fort Saskatchewan where the market hub is. And second of all, commercially, it's always nice to have 2 parties that you can negotiate with for your service. So, we're happy to be that competitive alternative. And I'd also maybe say the third point is that we have a brand new pipe.

Speaker 2

So from a reliability perspective, we think we will have really stellar run performance over the next several years. Maybe just on the operating performance on Capsule, I'll turn that over to Jared here. But I do commend the group for the great job they did in commissioning and bringing that project up. It went as seamless as one could hope for.

Speaker 8

Yeah. Good morning, Robert. It's Gerard here. Yes, we're really pleased with how that project came online and ramped up. And as Dean described, it was really a staged approach with the various customers and really on both to the lines rather than kind of one shot at a time and really pleased with how our ops and business teams worked with the customers and worked with each other to really bring all those up smoothly and we've been very pleased with the operational performance of that to the performance of that line so far.

Speaker 8

So it's allowed us to be a bit ahead of volumes as you heard, but it's early days in that ramp up. And That operational performance is really key for us in giving our existing customers confidence and our ability to attract new customers. And again, really, really pleased out of the gate.

Speaker 7

Okay. Thanks for that answer. I have a similar question on frac capacity. It looks like You're pretty high in terms of your utilization and that's not uncommon in the industry right now. So It leads me to believe that maybe the debottlenecking, although it's capital efficient, I'm just curious if it's really enough capacity.

Speaker 7

And related to that, I'm curious about your appetite for being in the market for a new frac, more Significant expansion at the same time that I'm going to use in the market with theirs.

Speaker 2

Yes, it's a great question. I mean, obviously frac capacity is And when you look at the forecast for nat gas volume growth in the basin over the next 3 or 4 years, it's very significant. And with that, we're We're going to see a lot more liquids that get stripped out of the gas stream as well. So we think that's a great opportunity for our frac complex at KFS. Again, we're very pleased that we're able to add capacity in a very tight market with our acquisition, 21% acquisition of interested in KFS earlier this year.

Speaker 2

So that helps us out. You're right. I mean, we've been Telling everyone that we've certainly been doing engineering on a debottleneck, which is I think likely going to be a great opportunity for us. But we certainly have our eyes set on a potential frac expansion in the future as well because more capacity will be required. And you know what, we provide a great service out of our CFS site.

Speaker 2

It's very, very well connected from a pipe perspective and for all commodities, But also for rail and truck egress as well. Jamie, is there anything else you wanted to add on that?

Speaker 9

Yes. Dean, I think you hit the high points. I think the only thing I'd add as well The opportunity exists and that we're making really good progress on actually recontracting our existing frac as well. So you made note that we've Sept into the other 21% at KFS, but the opportunity is now to be able to recontract and extend Existing agreements out into the future and that's been our first focus. We've been very happy with the success on that front.

Speaker 9

And then as Dean alluded to, we're looking at opportunities to either debottleneck or expand on our site.

Speaker 2

I think, I mean, obviously with the fully integrated system out of the Montney with caps in place, we're looking for those Full bundled package deals where we can offer G and P services, to NGL Transportation, Fractionation and Marketing Services. So trying to provide that full service and obviously that helps to boost our corporate profits overall.

Speaker 7

Okay. Last question for me is related I'm happy to see the 2023 marketing guidance increase, but as you've heard me say before, I've been expecting directionally a long term increase at some point. Is frac capacity the bottleneck For being able to do that or is there something else you need to see to take a second look at the long term marketing guidance? Thank you.

Speaker 2

Yes. I mean, that's a great question regarding our marketing guidance. Obviously, we have a very good track record with our marketing business. And I do want to emphasize that our marketing business is really leveraging off of the physical assets that we own and the volumes that we have in our system. So It's a way to really maximize profitability across our entire value chain.

Speaker 2

But maybe with respect to the guidance And a potential increase. I'll turn that over to Eileen.

Speaker 3

Sure. Thanks, Robert. Yes, I know this is a great question because we have consistently outperformed that guidance. Maybe just a little context on the base guidance. It's meant to represent a level of contribution that we have a high degree of achieving within like certain normal or typical assumptions.

Speaker 3

So and those are laid out in the MD and A, but the record margins that we saw last year and the increase in guidance this year is largely driven by exceptionally strong isooctane premium that cannot be hedged as well as our BOP pricing that's well above the 5 year average. But that said, we do plan to revisit our base guidance later this year in light of having access to more volumes now that Cas is online and with the additional frac capacity that we just acquired. So more to come on

Speaker 7

Okay. Thanks, everyone.

Speaker 6

Thank you.

Operator

Thank you. Your next question comes from the line of Linda Ezergailis from TD Securities. Please go ahead.

Speaker 10

Thank you. Recognizing that it's a Board decision on a dividend increase, beyond your 50% to 70% payout ratio guardrails, how might we think of the frequency and growth rate of future dividend increases, would kind of the default be typically once a year or maybe Prospectively, we might see, as new accretive assets, whether they're built or acquired, come in and contribute maybe a bit more of a bump then.

Speaker 2

Hey, good morning, Linda, and great question on the dividend. First of all, I want to reiterate that we're very pleased to return to dividend growth again. And You would know as well as anybody that that's really the legacy of our company. We started out as a trust 20 years ago, this is our 20th year as a public company, and we've distributed and dividend out a lot of money over that period of time. We took a bit of a hiatus after 2019 and part of that was we hit the COVID period, but We also had a heavy capital spend with caps.

Speaker 2

And so but I do want to reiterate though during that time, we shut off our DRIP. So we actually self funded caps during that period of time. We didn't increase our dividend, but now the cap is behind us, we're able to do that now. And we've never had a we've never reduced our dividend. So anytime we increase our dividend, it's got to be sustainable.

Speaker 2

But let me just turn it over to Eileen and she can maybe speak about our philosophy on dividends going forward.

Speaker 3

Thanks, Steve. Yes, Linda, it's really tied to growing that distributable cash on a per share basis. So EBITDA, but after taking into account interest taxes and maintenance expenses. And it has to be supported by Growth in our fee for service business. So we're on track to achieve that 6% to 7% EBITDA growth out to 2025 that comes from our fee for service business And that does support then growth in a DCF per share.

Speaker 3

But ultimately, the timing and the amount of future increases will be a Board decision. But that's the framework that we use.

Speaker 10

Okay. Thank you. And just as a follow-up, the 6% to 7% growth, What is I mean, I'm assuming it's a high confidence that you can achieve that, but what element of that, If any might be coming from future capital investments, even if they're small bolt on projects versus the white space that you already have or the projects that are under construction.

Speaker 2

Yes, that's a great question. The great thing is that most of that 6% to 7% increase is capital that has already been invested already and We've spent the money. So it's really our G and P business and filling up white space there. There is some capital associated with the to So that's in the $50,000,000 to $60,000,000 range, but we've disclosed that. Some of that is tied to our to the 21% acquisition of KFS.

Speaker 2

And then obviously, we see contribution from our CAHPS pipeline that's going to wrap up over time. And as I said, that's going to contribute to our EBITDA growth Well, well into the end of the decade, so that will continue to grow. So, we'll enhance that. I mean, obviously, new projects will have a lead time in terms of build and being able to generate a return off of that. But we do see some good projects to build to add future growth for the future as well.

Speaker 10

Thank you. And just as another quick follow-up, as it relates to cash flows, recognizing that there is some below the line moving parts below EBITDA. Can you talk about the current medium and longer term outlook for your to cash taxes as your capital expenditures kind of lighten up in terms of your tax Schools and how they're depleting and how we might think of the cash taxes ramping up over the next 5 years.

Speaker 3

Thanks, Linda. Yes, cash taxes, I mean, really, we don't provide We will in the Q3 for next year. But as you think about our pools, certainly the KFS acquisition gave us Significant pools, as well as the large capital projects that we've undertaken that will help for certainly a period of time. But you're absolutely right that there comes a point where tax is something that is definite and will come. And so That's just something that we will continue to manage.

Speaker 3

Thank you.

Operator

To the operator. Your next question comes from the line of Patrick Kenny from National Bank Financial. Please go ahead.

Speaker 11

Thank you. Good morning. Just to follow-up on the Liquids Infrastructure segment. Just wanted to confirm that You see this higher demand for your storage and fractionation services is being repeatable, I guess, under current commodity prices. And if so, What opportunities there might be to exceed that 6% to 7% adjusted EBITDA growth outlook Simply from sweating the assets either through optimizing your commercial framework at KFS or Perhaps looking at new ways to maximize throughput and NGL handling capacity at Rimbey.

Speaker 2

Well, listen, I mean, we still have white space in our system, so we're not forecasting 100% utilization of all of our assets. So, is there So is there possibilities to exceed our 6% to 7% growth? I would say that the best opportunities are still their G and P business And also in our caps pipeline, where we'd have the most capacity to do that. But We'll have to see in timing of when those volumes show up, but we do believe that we're going to help enable the basin to grow And we'll see more volumes in their system over time. In terms of higher demand for liquids infrastructure assets, Maybe I can turn that over to Jamie and he can provide a bit more color on that.

Speaker 9

Yes. So thanks for the question, Pat. Like I mean, I think What your question points to is something that we've always done in our organization is trying to either Optimize our existing assets physically, and we've been able to do that over the years and continue to look to do that around our KFS asset, but also with AEF as well. We've gotten a few extra percent of I see coming on over turnaround last fall, and we've got other ideas to increment up the capacity at AEF, not in Tens of percent, but in single digit percent, so over the next few years. And then As you were alluding to at KFS.

Speaker 9

So physically, we can do it. And then, as you alluded to, my group's mandate is to obviously optimize commercially, how we can sweat the assets as you said. So I think There's opportunities, but as Dean says, I think the more impactful opportunities will lie in the Wapiti Pipestones, the caps to capacity that we have, that's what's driving our target around EBITDA growth.

Speaker 2

Maybe just add to what Jamie said, Pat, We always talk about the 21% interest that we acquired at KFS and we always talk about the frac, but With it also came storage capacity and also the pipeline capacity in our FSPL system between Edmonton and Fort Saskatchewan. As volumes grow, we think that there's going to be certainly more demand for that storage, our pipeline capacity And also more volumes also translates to likely more business through our terminals as well. So I think it's a pretty positive outlook.

Speaker 11

And then I guess with respect to throughput in the South region, you mentioned in the MD and A that You expect Deep Basin volumes to remain relatively strong just given the financial strength of producers. But Just curious if there's any other optimization or consolidation opportunities across the asset base in the South as you look into, Say 2024.

Speaker 2

Yes. You know what, we're we always talk about our Montney business, which that's where the majority of our G and P to margins are generated, but we shouldn't forget about the Deep Basin because the Deep Basin is still an attractive place. The geology is still very strong, not just with, some of the conventional plays that have been developed over time and applying better technologies to drilling and completing them. But we're seeing more emergence of the Duvernay that's starting to become an emerging play down there, which I think it could be exciting for us. So we see opportunities, but we still have a lot of we still have white space down in our South portfolio.

Speaker 2

So Our primary focus is going to be to fill that and make it as profitable as possible. But at the same time, maybe Jamie can comment I think we're starting to see opportunities to recontract some of the volumes that we have going through our facilities there, And that's been looking good as well.

Speaker 9

Yes, just to give a little bit more flavor. And I alluded to this, I can't remember who it was Last quarter or the quarter before is that we are seeing relatively high utilization in our Stracken, Nordic, Brazeau complex that's Connected with Pipe and as Dean alluded to is that we've been in the last 6 months in the process of Recontracting with customers around those assets and based on the fact that there is limited to capacity available. We're pleased with the results of that re contracting. The white space that Dean alludes to is probably more in the Rimbey area, but as Dean alluded to is that that is where we're starting to see some Pretty encouraging results from the Duvernay. And we have We're optimistic with respect to being able to support those producers' growth at the Rimbey gas plant.

Speaker 9

And that gas plant is fully integrated into our value chain, pipeline connected all the way into For Saskatchewan, so that's a key asset for us in the South GMP asset base.

Speaker 11

All right. That's great, guys. I'll leave it there. Thanks.

Speaker 2

Thanks, Pat.

Operator

Thank you. Your next question comes from the line of Fen Huang from BMO. Please go ahead.

Speaker 5

Hi, thanks. Good morning. A couple of questions on Keyera New Ventures. I'm wondering Perhaps maybe a commercial update on your key projects in new ventures and thinking more about potential sanctioning. I'm also curious around any thoughts around the draft legislation and tax credits last week and maybe comment on how you

Speaker 2

Good morning, Fin, and really great questions. And we're excited about our new ventures opportunities. Certainly, I would say they're more longer term, looking at the back half of the decade. But again, we think that we're very Well positioned to capture more opportunity there. As I said before, I mean, as an infrastructure company, we provide essential services to Conventional hydrocarbon business, mainly on the gases and NGL side.

Speaker 2

But for the enablement Of low carbon products, you need the same kind of services. You need pipelines, you need storage, above ground, below ground storage, you need to Truck and Rail Logistics. And you also need to have processing capabilities as well. All things that we have a lot of strength in. So We see a great opportunity there to maybe repurpose some of the assets that we have in the Greater Edmonton Fort Saskatchewan area.

Speaker 2

And specifically, we have a really great undeveloped land block there that we want to develop a low carbon industrial park. But With that, I mean, this is all under Jamie's group and maybe I'll turn it over to him to provide more color on that.

Speaker 9

Yes. So, I think I can provide a little bit more flavor around some of the things that we've announced previously with respect to Relationships that we have with CN around rail. I can share with you that we've gotten a lot of interest in uptake with respect to Customers with respect to the unit train opportunity that we see with CN on our to joining lands up in the Port Saskatchewan area. So we are progressing with Understanding those opportunities a little bit more, we're spending some money on engineering to forward that opportunity. Similarly, we're in conversations with other entities around carbon capture, sequestration To really make our lands the preferred location for some of the opportunities That others are looking at.

Speaker 9

Specific with respect to tax credits, not exactly sure Where you're leaning with respect to that question and perhaps you can just reach out to our Investor Relations group to Maybe pose that question and get the answers you're looking for.

Speaker 5

Okay. Thanks for that. And I was more curious if The legislation is anything different than you were expecting. I'm probably not more checking on that. And can you also talk about, Are you is anything with these parties projects related to the ammonia value chain?

Speaker 5

And could you comment also, are these more in the context of multi $1,000,000,000 of capital opportunity?

Speaker 2

Maybe just from a general macro perspective, we are seeing general interest in ammonia. And I think Japan, they're expressing an interest for ammonia and they have incentive in place. How real that is? I guess, only time will tell, but there's certainly a lot of interest. You've heard different projects that have been out there.

Speaker 2

We've been approached for citing some opportunities on our lands. But again, it's still very early days. The great thing is that this is a real opportunity. We have, I'd say, one of the best locations, if not the best locations to develop ammonia project. And again, it's just because of our connectivity in the area where we have industrial zone land, We have cavern underground cavern capacity.

Speaker 2

We have the potential for our rail terminal with CN to egress ammonia to the West Coast. But again, it's still early days and I think there's got to be a lot of work even from a transportation perspective and the safety of transporting ammonia through communities all the way to the West Coast. So Maybe the last advantage we have is we're very close to where you would connect to carbon capture line. So again, all things that you would need for ammonia project, but early days, but we're seeing we're certainly seeing interest there.

Speaker 5

Okay. Maybe lastly, anything on WildHorse, changes on outlook there?

Speaker 9

Yes, great question. We haven't talked about WildHorse in a while. That asset, just based on where crude Was trading given the fact that backwardization that we've seen over the last couple of years. When it started up, we had an existing customer base contracted the facility. We haven't seen a ton of volumes moving through the terminal, but that has actually started to change in the last quarter.

Speaker 9

And We're really optimistic now based on the unique characteristics of that terminal and the capabilities of that terminal and getting familiar with The entities that do new commerce in Cushing, that asset is starting to perform the way we envisioned when we originally sanctioned to that asset. So a timely question. I would probably had a less rosy outlook to share if You'd pose that question a year ago or even 6 months ago.

Speaker 10

Okay, great. Thanks for the update.

Speaker 2

Thank you.

Operator

Thank you. There are no further questions at this time. I'd now like turn the call back over to Mr. Kelvin Locke for any closing remarks.

Speaker 1

Thank you all once again for joining us today, and Please feel free to reach out to Keyera's Investor Relations team with any additional questions you may have.

Speaker 5

Thank you.

Operator

Thank you, presenters. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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Key Takeaways

  • Keyera’s board approved a 4.2% dividend increase, marking a return to its long-term track of sustainable shareholder distributions amid strong fee-for-service growth.
  • The company remains on track to achieve its targeted 6% to 7% annual fee-for-service EBITDA growth through 2025, supported by integrated Montney-Duvernay investments and early ramp-up of the CAPS pipeline.
  • Its Liquids Infrastructure segment delivered a 21% year-over-year EBITDA increase, setting a new quarterly record as both TAPS pipelines entered full service in June.
  • The G&P business posted an $84 million realized margin despite Alberta wildfires, with the Pipestone plant expansion on schedule for Q1 2024 and contract extensions improving cash flow stability.
  • Marketing generated a $134 million quarterly margin and raised its full-year guidance to $380 million–$410 million, boosting distributable cash flow and enabling lower future gross spending.
AI Generated. May Contain Errors.
Earnings Conference Call
Keyera Q2 2023
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