AltaGas Q2 2026 Earnings Report

AltaGas EPS Results

• Actual EPS: C$0.31
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

AltaGas Revenue Results

• Actual Revenue: $3.80 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

AltaGas Announcement Details

• Quarter: Q2 2026
• Date: 7/30/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, July 30, 2026
• Conference Call Time: 11:00AM ET

AltaGas (TSE:ALA) Ltd owns and operates a diversified basket of energy infrastructure businesses. Business is conducted through four segments: Midstream, power, utilities and corporate. Utility business owns and operates rate-regulated natural gas distribution assets across North America. Midstream business subsequent to the sale of non-core midstream assets in Canada and also engaged in the natural gas liquid processing and extraction, transportation, and storage. Natural gas is sold and purchased for both commercial and industrial users. The Power business includes power generation assets such as natural gas-fired, wind, biomass, and hydro power assets. Revenue is derived from customers in both Canada and the United States, with United States customers contributing the most.

AltaGas Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: AltaGas raised its 2026 guidance, increasing normalized EBITDA to CAD 2.0–2.1 billion and normalized EPS to CAD 2.35–2.60 per share, reflecting strong first-half performance and expected year-over-year EBITDA growth of about 10%.
• Negative Sentiment: REEF is now expected to enter service before the end of Q1 2027, later than previously planned, while its capital cost estimate increased 12% to approximately CAD 1.5 billion due to weather, ocean conditions, and marine mammal-related construction delays.
• Positive Sentiment: Midstream performance was especially strong, with normalized EBITDA up 33% year over year to CAD 285 million and record LPG exports of 144,000 barrels per day. AltaGas said Middle East supply disruptions are supporting physical premiums and strengthening demand for Canadian LPG.
• Positive Sentiment: Utilities continue to provide visible growth through modernization spending, regulatory rate increases, and demand from data centers and other large-load customers; the company expects approximately 10% rate-base growth in 2026 and 8% long-term growth through 2030.
• Neutral Sentiment: AltaGas increased its 2026 capital budget to CAD 1.8 billion while maintaining leverage at 4.4 times, below its 4.5–5.0 times target range. Management expects leverage to move toward the midpoint of that range as capital spending and seasonal business requirements increase.

Presentation

[Operator]

Morning, ladies and gentlemen. Thank you for standing by, welcome to the AltaGas Second Quarter 2026 Financial Results Conference Call. My name is John, I'll be your operator for today's call. All lines have been placed on mute to prevent any background noise. If you have any difficulties hearing the conference, please press star then zero for the operator assistance at any time. After the speaker's remarks, there will be a question and answer session.

[Operator]

As a reminder, this conference call is being broadcast live on the internet recorded. I would now like to turn the conference call over to Aaron Swanson, Vice President, Investor Relations. Please go ahead, Mr. Swanson.

[Aaron Swanson, VP of Investor Relations at AltaGas]

Good morning, thank you for joining AltaGas's second quarter 2026 results conference call. This call is being webcast, we encourage following along with the supporting slides that can be found on our website. Speaking this morning will be Vern Yu, President and Chief Executive Officer, Sean Brown, Executive Vice President and Chief Financial Officer.

[Aaron Swanson, VP of Investor Relations at AltaGas]

We are also joined by Randy Toone, President of Midstream, Corine Bushfield, President of Utilities, Jon Morrison, Senior Vice President of Corporate Development and Investor Relations. We will refer to forward-looking information on today's call. This information is subject to certain risks and uncertainties as outlined in the forward-looking information disclosure on slide two in the presentation. Prepared remarks will be followed by a question and answer session. I'll now turn the call over to Vern.

[Vern Yu, President and CEO at AltaGas]

Thanks, Aaron. Good morning. I'm going to start by reviewing highlights from the quarter, including our strong financial and operating performance. I'll walk through progress on our growth projects in midstream and utilities. I'll finish by reviewing the state of the global LPG market and how that is creating growth opportunities for AltaGas. After that, Sean will cover our segmented financial results and provide more details on our increased 2026 guidance.

[Vern Yu, President and CEO at AltaGas]

I'd like to start by introducing Corine, who's now leading our utilities business. Corine has been with AltaGas for more than a decade is a valued member of our executive team. We're excited to have Corine step into this role, given her proven track record of operational excellence and strong financial leadership. Let's begin on slide four. We delivered record financial results in Q2, reflecting strong performance from both Midstream and Utilities.

[Vern Yu, President and CEO at AltaGas]

I should note that Midstream's financial results in Q2 benefited from historically high global export spreads and physical sale premiums. We generated normalized EBITDA of CAD 391 million normalized EPS of CAD 0.31, increases of 14% and 15% over Q2 2025. Our strong first half gives us the confidence to raise our 2026 guidance.

[Vern Yu, President and CEO at AltaGas]

We've increased normalized EBITDA guidance by 4% to a new range of CAD 2.0 billion-CAD 2.1 billion, normalized EPS by 6% to a range of CAD 2.35-CAD 2.60 per share. Our balance sheet remains strong throughout the quarter, with leverage closing at 4.4x, below the low end of our 4.5x to 5x target range. Operationally, we exported a record 144,000 bpd of LPG, a 13% increase over Q2 2025.

[Vern Yu, President and CEO at AltaGas]

Midstream throughput continued to grow, with Montney volumes up 8% year-over-year, and we added two high-quality partnerships to our platform, the Groundbirch Rail Terminal with Tourmaline and the ACE Rail Terminal in Fort Saskatchewan with Keyera and CN Rail. In utilities, we continued to advance our system modernization programs. Year-to-date, we have deployed over CAD 200 million of capital and replaced 21 mi of pipe.

[Vern Yu, President and CEO at AltaGas]

Let's move to our growth projects, starting with REEF on slide five. Construction on REEF continues to advance, and the project is now 85% complete. Onshore execution has been strong and ahead of plan. On the uplands, all major equipment is installed and commissioning should begin in late August. The railroad corridor is entering its final construction phase and will be completed before year-end.

[Vern Yu, President and CEO at AltaGas]

While onshore execution has been ahead of plan, in-water construction has proven more challenging due to maritime conditions and weather delays. Since we started in-water construction at REEF in the fall of 2024, we have lost over 450 rig days due to extreme weather, extreme ocean swells, and marine mammal activity. These lost rig days significantly exceeded any normal contingency plans. As a result, onshore efficiencies are no longer expected to fully offset higher in-water construction costs.

[Vern Yu, President and CEO at AltaGas]

We now expect REEF to come online before the end of Q1 2027 and have increased REEF's capital cost estimate by 12% to approximately CAD 1.5 billion. With the jetty and loading platform now 80% complete, most in-water construction is set to be completed over the next six weeks. We view the revised schedule and cost as highly achievable, and we'll get into those details shortly.

[Vern Yu, President and CEO at AltaGas]

REEF Optimization I remains on schedule for an in-service date in the second half of 2027. It will add 30,000 bpdof incremental propane export capacity. We're also advancing REEF Optimization II, with key regulatory permits secure and engineering progressing towards final Class 3 cost estimates before the end of the year. On slide six, we outline REEF's remaining major work streams and highlight what has been completed to date.

[Vern Yu, President and CEO at AltaGas]

The in-water works have been the most challenging, but we're almost done. All 48 of the piles for the jetty piers have been drilled and completed. Only five piles remain to be drilled for the loading platform, and that should be completed by the end of August. All the jetty trestles that span 1.2 km have been installed. The transition platform has been delivered and set.

[Vern Yu, President and CEO at AltaGas]

Fabrication of the main loading platform is complete and is about ready to be loaded for an August delivery. The mooring system fabrication is nearing completion and is set to be delivered in November and installed in December. With the in-water phase of construction, the most complex and challenging part of REEF, nearing completion, we're highly confident that we'll be able to meet our revised cost estimate and schedule.

[Vern Yu, President and CEO at AltaGas]

Slide six shows how the platform and mooring system will be installed on the jetty, which is a low-risk installation and part of our modular design. Turning to slide seven, you will see the progress on onshore construction activity. All modules have been received, and all equipment has been set. Mechanical completion is now 90%, and we expect to commence uplands commissioning by the end of August.

[Vern Yu, President and CEO at AltaGas]

The rail loop and utility corridor are now 70% finished and are on track to be completed by mid-November. Slide eight shows the progress on our other growth projects. At RIPET, our methanol removal project remains on track for completion by year-end. Our Dimsdale storage expansions are now more than 50% complete, with pipeline tie-ins completed. We are on track to start the drilling of the injection wells in the third quarter.

[Vern Yu, President and CEO at AltaGas]

Phase I will add 6 Bcf of storage by year-end 2026, and phase II will add another 30 Bcf of storage by mid-2027. At the Mountain Valley Pipeline, Southgate construction is underway. Pipeline welding began in early July, and the project is on track to be in service by year-end 2026, ahead of schedule. MVP Boost continues to advance through its regulatory steps and is expected to be in service by the middle of 2028.

[Vern Yu, President and CEO at AltaGas]

During the quarter, we reached a positive FID on a debottlenecking project at Townsend, which will add 6,000 bpd of fractionation capacity. Within utilities, we have more than 5,000 mi of pre-1970s pipe that needs to be replaced to enhance safety and reliability. To support that, we have $1.5 billion of modernization programs approved by regulators across our four jurisdictions. Modernization capital, system expansion, and customer adds are expected to drive 10% rate base growth in 2026. This rate base will improve the safety and reliability of our system.

[Vern Yu, President and CEO at AltaGas]

Every mile we replace reduces the risk of leaks and safety incidents, service disruptions, and operating costs for our customers. Despite these large increases in rate base, we have been able to keep customer bill increases around 4% per year based on operating cost savings from these modernization investments and other O&M cost management initiatives.

[Vern Yu, President and CEO at AltaGas]

Demand for natural gas across the U.S. continues to rise, driven by heightened commercial and industrial activity, data center and large load development, and ongoing population growth. The Mid-Atlantic sits in the center of this expansion. For example, PJM data center load is forecast to increase by four-fold over the next eight years. Turning to slide nine, I want to touch on the disruption in the Middle East and what this means for the global LPG market and our global export business.

[Vern Yu, President and CEO at AltaGas]

LPG exports through the Strait of Hormuz are more than 70% below pre-conflict levels. Since their disruption began, more than 160 million barrels of LPGs have been displaced from global trades. That has tightened market balances and reinforced the value of stable Canadian LPG supply. We are seeing very strong demand across our traditional markets of Japan and South Korea and growing demand from China.

[Vern Yu, President and CEO at AltaGas]

We are also seeing incremental demand from other Asian markets that have historically relied on Middle Eastern supply. Given the favorable market dynamics, we continue to advance REEF Offtake Two and see the need for an additional REEF phase every two to three years to meet the market demand in Western Canada. We are also seeing significant interest from China for Canadian ethane exports as a way to diversify its long-term ethane needs.

[Vern Yu, President and CEO at AltaGas]

Today, roughly 500,000 bpd of ethane is left in the natural gas stream in Western Canada while Asian demand keeps growing. We are actively working through the complexity of connecting these markets as we see this as another opportunity to provide Canadian energy to the best global markets. Finally, let me close on the progress we have made on our strategic priorities in 2026. AltaGas's future is very bright.

[Vern Yu, President and CEO at AltaGas]

We've executed consistently, growing, de-risking, and strengthening the enterprise through the first half of the year. In the second quarter, we delivered record volumes from our global export platform and higher throughput across our midstream value chain. We continue to actively manage risk through hedging, commercial contracting, and diversifying our downstream markets. We're advancing multiple rate cases in our utilities to earn appropriate returns on our capital investments and minimize rate lag.

[Vern Yu, President and CEO at AltaGas]

Our balance sheet is strong, with leverage below our target range, which has allowed us to advance multiple projects that will drive long-term growth. Taken together, we're extending our competitive advantages, improving the quality and visibility of our cash flows, and creating a longer runway for disciplined expansion across AltaGas. I'll now turn it over to Sean to walk through our segmented results and increased 2026 guidance.

[Sean Brown, EVP and CFO at AltaGas]

Thanks, Vern, good morning, everyone. As mentioned, we are very pleased with our record second quarter performance. The continued execution across our platform has enabled us to increase our guidance and positions us to deliver over 10% year-over-year EBITDA growth. For today's call, I'll start by walking through our segmented financial results, I'll discuss our updated 2026 guidance and capital budget and close with our balance sheet strength and investment proposition.

[Sean Brown, EVP and CFO at AltaGas]

Turning to slide 12, in the quarter, the utility segment delivered normalized EBITDA of CAD 142 million, a 6% increase year-over-year. This increase was driven by higher revenue from continued system modernization investments, new rates in DC, and interim rates in Virginia, as well as stronger retail performance. Compared to the same quarter last year, results were partially offset by higher G&A expenses and lower asset optimization activity at Washington Gas.

[Sean Brown, EVP and CFO at AltaGas]

From a capital perspective, during the quarter, we deployed approximately CAD 240 million in the Utilities segment, including CAD 130 million toward modernization programs, CAD 21 million on new growth initiatives, and CAD 86 million on system betterment programs. Of note, our modernization spending has resulted in us replacing over 20 mi of vulnerable pipe year-to-date. These investments are focused on delivering long-term safety and reliability while extending our network to serve our expanding customer base.

[Sean Brown, EVP and CFO at AltaGas]

In addition, in June, we officially kicked off construction of the Keweenaw Connector pipeline. The majority of the materials are now on-site, with pipe welding, bending, and placement ongoing. We continue to expect construction to be completed by year-end 2026. We are also making solid progress on our two data center pipeline connection projects in Virginia and Maryland, both of which remain on schedule for completion in the fourth quarter of 2026.

[Sean Brown, EVP and CFO at AltaGas]

Though individually not material in size, these projects underscore the increasing importance of our gas utility infrastructure in enabling reliable energy delivery for large load customers. Looking forward, we continue to see a robust pipeline of opportunities with sustained interest from data center and large load industrial customers seeking reliable, scalable, and cost-effective energy solutions. Turning to slide 13, we highlight our ongoing regulatory initiatives.

[Sean Brown, EVP and CFO at AltaGas]

This week, we received a final order in Maryland, where the commission approved $38 million in new revenue, including certain costs currently recovered through the STRIDE surcharge based on an allowed ROE of 9.4%. Active rate cases in Virginia and Michigan are ongoing. In Virginia, interim rates remain in effect, with WGL seeking $65 million of incremental revenue, net of a $39 million ARP surcharge.

[Sean Brown, EVP and CFO at AltaGas]

In Michigan, we are seeking new rates and an extension to the modernization program, requesting $61 million in revenue and $284 million of proposed spending for Michigan's modernization programs through 2031. We expect final orders in Virginia by the end of Q3 and in Michigan before year-end. Late in the second quarter, the Public Service Commission of the DC approved a six-month $18 million extension of the existing PROJECTpipes phase II modernization program through the end of 2026.

[Sean Brown, EVP and CFO at AltaGas]

This came after our $150 million District SAFE ARP program was approved but subsequently reopened as the commission determined a further hearing was necessary. The hearing was held this week, and we expect resolution by the fourth quarter. Importantly, our utilities investments are expected to drive 8% long-term rate base growth through 2030, supporting stable cash flows, earnings growth, dividend durability, and shareholder value.

[Sean Brown, EVP and CFO at AltaGas]

Turning to slide 14, the strength in our midstream business continued, delivering CAD 285 million of normalized EBITDA. Up 33% year-over-year and above our expectations. The segment's outperformance was driven by our exports platform, which exported record volumes and delivered strong merchant margins. The segment also benefited from continued strong performance across the balance of our midstream assets, particularly in the Montney, where producer activity remains strong and continues to drive basin growth.

[Sean Brown, EVP and CFO at AltaGas]

From an operational perspective, we exported a record 144,000 bpd of LPGs across 23 VLGCs at our Ferndale and RIPET terminals, with volumes up 13% year-over-year. Strong terminal execution and logistics supported record Ferndale exports of nearly 60,000 bpd, driven by improved rail switching efficiency along with higher rail, refinery, and truck-in volumes. RIPET exported roughly 84,000 bpd of propane and continued to operate near capacity.

[Sean Brown, EVP and CFO at AltaGas]

In the rest of our midstream platform, Harmattan utilization remained strong in the quarter, although margins were tempered by lower realized frac spreads due to the impact of hedging. Our Harmattan was offline for 32 days for planned maintenance. Excluding the impacts of the Harmattan turnaround, throughput volumes were 9% higher year-over-year.

[Sean Brown, EVP and CFO at AltaGas]

Montney growth remained a key driver, supported by our strategic footprint across liquids-rich areas of the basin and continued producer activity. In the Alberta Montney, our Pipestone II complex continued to perform well, averaging roughly 90% utilization through the quarter as area volumes continued to increase. In NEBC, strong volumes continued across our Montney assets, with North Pine throughput up 23% year-over-year, continuing to operate near its 25,000 bpd capacity.

[Sean Brown, EVP and CFO at AltaGas]

Looking across our system, the underlying growth we are seeing reinforces the value of our NEBC liquids expansion projects, which are designed to unlock additional value from Townsend and North Pine while deepening our strategic producer relationships.

[Sean Brown, EVP and CFO at AltaGas]

Looking ahead, we are well-hedged for the balance of 2026 and have de-risked much of our Q4 exposure with approximately 91% of expected remaining 2026 global export volumes either tolled or financially hedged, with an average FEI to North America spread of approximately $21.81 per barrel on non-tolled volumes, while 9% of volumes remain open to market pricing.

[Sean Brown, EVP and CFO at AltaGas]

In addition, our entire 2026 Baltic Freight exposure is hedged through a combination of time charters, financial instruments, and tolling arrangements. We also continue to manage frac spread exposure and have 84% of expected volumes hedged at an average price of CAD 22 a barrel.

[Sean Brown, EVP and CFO at AltaGas]

To close out the discussion on our financial results, the corporate and other segment was lower year-over-year, primarily due to higher employee incentive costs tied to our rising share price. Turning to slide 15, year to date, we have seen outperformance from both business segments, with significant strength in our LPG export business driving an increase to our guidance.

[Sean Brown, EVP and CFO at AltaGas]

We have raised our EBITDA guidance to a range of CAD 2 billion-CAD 2.1 billion, representing a 4% increase over the original guidance midpoint and 10% growth year-over-year. At the same time, we are raising our EPS guidance to a range of CAD 2.35-CAD 2.60 per share, a 6% increase over the original guidance midpoint and 11% above last year's levels.

[Sean Brown, EVP and CFO at AltaGas]

As outperformance is more weighted to our midstream business, we've adjusted our estimated year-end 2026 segment EBITDA mix, with midstream now expected to contribute approximately half of normalized EBITDA, resulting in a range of 48%-52% for both segments. As shown on slide 16, we've also increased our 2026 capital budget, which now sits at CAD 1.8 billion, up from CAD 1.7 billion previously.

[Sean Brown, EVP and CFO at AltaGas]

This increase reflects higher capital expenditures to the construction of REEF as well as capital associated with the positive FIDs of the Northeast BC liquids expansion project and the Groundbirch Rail Terminal. 61% of 2026 capital is now expected to be allocated to the Utility segment, 36% to the Midstream segment, with the balance to the corporate segment. Utility capital is primarily directed towards modernization and system betterment initiatives, which are expected to drive 10% year-over-year rate base growth.

[Sean Brown, EVP and CFO at AltaGas]

Midstream capital remains focused on REEF, including REEF Opti I, Dimsdale, and our new Northeast BC project announcements, all of which underpin the segment's robust growth outlook. As shown on slide 17, our CAD 1.8 billion capital program remains well within our investment capacity. Our relatively low dividend payout ratio, along with our strong business performance, has allowed us to increase our 2026 capital program while remaining within our debt target ranges and deliver on our 5%-7% EBITDA and EPS CAGR.

[Sean Brown, EVP and CFO at AltaGas]

Looking forward, our capital allocation priorities remain the same as we look to cover maintenance spending and advance key growth projects that position the business to deliver on its long-term growth guidance. As shown on slide 18, we exited the quarter with a trailing 12-month adjusted net debt to normalized EBITDA ratio of 4.4x, modestly below our target range.

[Sean Brown, EVP and CFO at AltaGas]

With the increase in shape of our 2026 capital program and considering the seasonality of our business, we expect our leverage metric to trend towards the midpoint of our 4.5x to 5x target range as we progress through the year. On slide 19, we highlight AltaGas's consistent track record of delivering per share growth in earnings, EBITDA, and dividends, which has translated into sustained share price outperformance.

[Sean Brown, EVP and CFO at AltaGas]

The updated 2026 expectations have driven an increase to our five-year EPS CAGR to 8% and our five-year EBITDA CAGR to 7%, from 6% previously. Our investment proposition, which has remained the same, is highlighted on slide 20. A resilient low-risk infrastructure platform underpins stable and growing cash flows and a diversified business mix that provides earnings visibility and capital allocation flexibility.

[Sean Brown, EVP and CFO at AltaGas]

Visible organic growth opportunities position the company to grow earnings and cash flow per share while maintaining financial flexibility and drive sustainable dividend growth. With that, I'll turn the call back to the operator and open the line for questions.

[Jon Morrison, SVP of Corporate Development and Investor Relations at AltaGas]

Operator, we're ready for questions, if there's any in the queue.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star one on your telephone keypad. If you would like to withdraw your question, please press the pound key. There will be a brief pause while we compile the Q&A roster. Your first question comes from the line of Rob Hope from Scotiabank. Please go ahead.

[Rob Hope, Analyst at Scotiabank]

Morning, everyone. I want to dive a little bit deeper into the potential for further producer partnerships up in Northeast BC. Are you having conversations up there to support incremental infrastructure build that could be a header, in essence, for your global export business?

[Vern Yu, President and CEO at AltaGas]

Hey, Rob, it's Vern. I'll start that off and then hand it over to Randy. I think in Northeast BC, we're in a great position. I think, as you know, it's sometimes challenging to build infrastructure up there, given the precedents with the First Nations. The good news is we're well-situated with our Townsend and North Pine assets to add significantly more volumes up there.

[Vern Yu, President and CEO at AltaGas]

Obviously, we've sized up our rail facility at North Pine to handle unit trains. This new partnership with Tourmaline gives us a second and significant loading opportunity where if other volumes come in, we're able to capture those as well. I'll turn it over to Randy. He can just fill in a little bit more color.

[Randy Toone, President of Midstream at AltaGas]

Yeah, thanks, Vern. I would just add that we do think that LNG Canada phase II is likely going to be FID-ed here soon. The federal government's been very supportive of other LNG projects, that's just going to add more supply in the Montney, and we think that our assets are well-positioned to take advantage of that.

[Rob Hope, Analyst at Scotiabank]

Great. Appreciate that. Then maybe just moving over to the global export business. I understand that pricing is volatile, but we are hearing about physical premiums to the posted FEI pricing. Can you speak to how you are benefiting from this dynamic? Do you realize that even when you do hedge relative to FEI, as well as moving forward, how it is informing your hedging profile?

[Sean Brown, EVP and CFO at AltaGas]

I think the way to characterize that, Rob, is with this massive disruption in global supply and demand remaining relatively constant, is the fact that oftentimes people are not want to show their physical sales on the index. That's why there's particularly a disconnect between a physical sale and the index. Going forward on our merchant capacity, we're able to capture the actual physical sale premium over FEI, and we're seeing that continue as we work through this situation.

[Rob Hope, Analyst at Scotiabank]

Thank you. I'll hop back in the queue.

[Operator]

Your next question comes from the line of Patrick Kenny from National Bank Capital Markets. Please go ahead.

[Patrick Kenny, Analyst at National Bank Capital Markets]

Oh, thank you. Good morning. Maybe just on the new tolling agreement with Tourmaline, just wanted to get your initial thoughts here on their one-year pause on growth spending and any read-through to perhaps any broader temporary slowdown in activity across Northeast BC, and I guess what that could mean timing-wise for some of your unsanctioned growth opportunities, whether it's Opti-II or further upsizing at North Pine, Pipestone, or Dimsdale.

[Randy Toone, President of Midstream at AltaGas]

Hey, Patrick, it's Randy. Yeah, we totally understand why Tourmaline wanted to take a pause given where the natural gas prices are. When you look at what their phase II expansions, that was Conroy and Doe, and that's really not feeding our existing infrastructure, it doesn't change our plans. Obviously, we want to see that development, and we know it will be developed, it doesn't impact our long-term plans.

[Vern Yu, President and CEO at AltaGas]

Yeah, just jumping in here. I think obviously we're seeing heightened activity from other producers, which is really driving the Townsend debottlenecking that we announced today. I think the demand we're seeing for Opti-II is extremely high, Patrick. We expect to be concluded on commercial negotiations on incremental tolling arrangements within the next couple of months here.

[Patrick Kenny, Analyst at National Bank Capital Markets]

Okay. That's great. Appreciate that. I guess, Vern, as you think about your portfolio of tolling contracts, you've had good uptake from midstream peers as well as upstream customers, and now you're seeing increased demand from China. I guess, as you think about maximizing realized margins going forward, how are you thinking about the right mix in terms of customer type and maybe an update on where you're at today versus your longer-term target?

[Vern Yu, President and CEO at AltaGas]

Sure. Patrick, we're still targeting to be 60% tolled on a long-term basis. As we bring Opti-II to FID later this year, we're still wanting to have at least 60% of the total export capacity under tolling agreements. We're starting to see early signs of Asian demand for more Canadian product. We're in active discussions on all kinds of supply arrangements between Japan, Korea, China, and other jurisdictions.

[Vern Yu, President and CEO at AltaGas]

The disruption we're seeing in the Middle East obviously is highlighting how important it is to have a secure and reliable supply, and Canada's obviously a great place for that. As we approach the end of the decade and have 300,000 bpd of export capacity, we think there's going to be very high demand for tolling contracts, and we'll see that play out over the next couple of months.

[Patrick Kenny, Analyst at National Bank Capital Markets]

I guess as you look to potentially add ethane exports to the franchise, can you provide just a bit more color on maybe how those discussions are progressing to secure the off-take contracts and also along the value chain, how you're thinking about sourcing the ethane and securing the rail logistics and whatnot?

[Vern Yu, President and CEO at AltaGas]

Yeah. Ethane's obviously in an earlier stage than Opti-II and even Opti-III. We've made great progress, and one of the most critical elements, which is just the rail logistics, we recently received Transport Canada approval to use a pressurized car to move ethane.

[Vern Yu, President and CEO at AltaGas]

That removes a significant gating item. I think where we're at now is obviously to get a better line of sight on the capital cost involved and on all the logistics from loading, and then export facility-wise. The dynamic is China imports almost 100% of its ethane today from the U.S. Gulf Coast. With global trade tensions, China's extremely eager to get a variety of supply sources, and Canada is well-positioned for that.

[Vern Yu, President and CEO at AltaGas]

I think as we mentioned on our prepared remarks, there's 500,000 bpd of ethane in the gas stream, with lots of facilities across Alberta and BC for that ethane to be railed. We think a lot of the parts are already there. We just need to do a little bit more work on figuring out what is a competitive rate. With ethane, given that it's a new product with probably one buyer or a series of buyers in one location, we're going to look to target a much higher percentage of tolling on that kind of transaction.

[Patrick Kenny, Analyst at National Bank Capital Markets]

Okay. That's great color. I'll leave it there. Thanks.

[Operator]

Your next question comes from the line of Robert Catellier from CIBC. Please go ahead.

[Robert Catellier, Analyst at CIBC]

Yeah. Hey, good morning, everyone. Just wanted to clarify on the Groundbirch Rail Project that there is an ability to accommodate third-party volumes, and it is not exclusive to Tourmaline.

[Randy Toone, President of Midstream at AltaGas]

Hey, Rob. It is Randy Toone here. We do have rights to participate if there is any available space, but for the first initial phase, it is entirely Tourmaline. We do have rights to bring in third parties if there is a capacity available, and we also do have rights to potentially participate in an expansion.

[Robert Catellier, Analyst at CIBC]

Okay. Can you provide updates on, how do I say this, the aspirational Trigon LPG Project? I know there has been a couple of project filings from Trigon and also your reply. Maybe you could just summarize where we are at there. In your response, maybe you could touch on where you see First Nations support lying for your export assets versus some of the other projects.

[Vern Yu, President and CEO at AltaGas]

Hey, Rob. Maybe I will just comment on Trigon, and I will hand it over to Randy to talk about our stakeholder relations. At the end of the day, I think it is pretty clear that there is only one entity on Ridley Island that has the ability to develop LPG handling and export, and that is us.

[Vern Yu, President and CEO at AltaGas]

That has been reinforced several times by the Prince Rupert Port Authority, obviously there is a legal court case coming up here in the spring of 2027. I think our case is extremely strong, and we are not very worried about it. Just to reiterate, we will make sure that we protect our commercial rights in any possible way. Then finally, before Randy chimes in, our goal is to have all of our stakeholders aligned with us over the long term.

[Vern Yu, President and CEO at AltaGas]

We've done that over and over, and I think Northeast BC is a great example of how we have really positive relationships with our First Nations. With that, I'll let Randy talk about the particular situation with the Metlakatla.

[Randy Toone, President of Midstream at AltaGas]

Yeah. We've had a strong relationship with the Metlakatla for over a decade, since we've been in Prince Rupert. We see them as a long-term partner. We do think that we're making positive progress on the issues at hand, and we think we'll have a positive outcome in the end.

[Robert Catellier, Analyst at CIBC]

Okay. Thanks for that. My last question is for Corine. I know it's early days as you step into the role here, but I wondered if there was any thoughts on possible changes to regulatory strategy, especially as it relates to those building emissions performance standards or on the efforts to narrow the ROE gap.

[Corine Bushfield, President of Utilities at AltaGas]

Good morning, Rob. Thank you. Excited to be here today. Just want to say upfront, there really is no change in our Utility strategy. The team has done a great job making improvements in the Utility, and we're going to continue to build on that foundation. As we think about the regulatory strategy tied to what you were mentioning, I'm going to just maybe go right to gas bans, and we're going to continue to oppose gas bans as they limit customer choice and customer affordability.

[Corine Bushfield, President of Utilities at AltaGas]

The Mid-Atlantic, it needs natural gas to support reliability, long-term energy security, and customer affordability. Restrictive policies only increase regional energy challenges. We're going to continue with both our legal and our advocacy strategy that supports ultimately our regulatory strategy. At a high level, we have no change, and we're going to continue to close our ROE gap.

[Corine Bushfield, President of Utilities at AltaGas]

There's no change in our focus there. We're going to continue to put safe pipe into the ground to improve the safety and security of our system. Customer affordability is obviously top of mind, so we're going to double down on our operating costs and our capital cost efficiencies so that at the end of the day, it's more affordable for our customers.

[Vern Yu, President and CEO at AltaGas]

Hey, Rob, I was just going to add a little bit there on the gas bans. If you think about it, PJM is short energy and short energy in a big way. For a county or a city to think about limiting the available sources of energy and trying to ship that to the power grid is just nonsensical. You're making an energy shortage problem even worse.

[Vern Yu, President and CEO at AltaGas]

Finally, you've seen different outcomes on a legal basis at different district courts in the U.S. This obviously is leading to the Supreme Court, and we just recently see the DOJ and the DOE really weigh in on these items. We have a real positive lean that this will ultimately get resolved at the Supreme Court, in a fashion that makes sense for everybody.

[Robert Catellier, Analyst at CIBC]

Yeah, I agree. It just doesn't make sense for everybody to focus on affordability and then at the same time turn around and limit choice. Okay. Thank you.

[Operator]

Your next question comes from the line of Jeremy Tonet from JPMorgan. Please go ahead.

[Analyst at JPMorgan]

Hey, good morning. This is Eli on for Jeremy. Just wanted to touch on MVP quickly. I know that the pipe is flowing and there's some expansions in the works, but if you could just remind us on your broader strategy with that asset and how should we think about the opportunity for future monetizations there?

[Jon Morrison, SVP of Corporate Development and Investor Relations at AltaGas]

Yeah. Hey, Eli, it's just Jon. If we broke it into the three pieces, we would agree with your take. The main line continues to perform Very well. With each passing month, our investment thesis to retain that asset continues to be reiterated. We're very happy with the investment there. MVP Boost continues to push forward for a mid 2028 in service date. One permitting issue continues to get worked through and ultimately we think that's very resolvable.

[Jon Morrison, SVP of Corporate Development and Investor Relations at AltaGas]

In line with what we've talked about in the past, the build economics on that are very strong, around a 3x build multiple. Lastly, on Southgate, it's progressing very well. All the regulatory approvals are in place. Construction currently taking hold right now. Welded pipe started going in the ground in July, you would have seen this out of EQT's disclosures, but the partnership elected to accelerate capital spending and ultimately try to target an end of year in service date. Things are progressing along very well there.

[Jon Morrison, SVP of Corporate Development and Investor Relations at AltaGas]

From a long-term holding perspective, I think you should probably consider it as a perpetual investment. We're very happy with, obviously, how all those things are going, the EQT team is very strong and ultimately we think there is going to be incremental growth opportunities that come over the long term.

[Analyst at JPMorgan]

Awesome, thanks. I know there's been a lot of discussion on REEF and future optimization phases, and there is sort of the further expansions bucket on one of your slides. Maybe we can just dive into that a little bit and think about the size there and the cadence of future FIDs we might get across other projects that can kind of fit within your midstream portfolio. Just any color on that bucket would be great.

[Vern Yu, President and CEO at AltaGas]

I think, Eli, if you look at one of the slides we have in the deck, we show that there's significant growth potential coming out of our global export platform. That's on the back of incremental gas egress and the development of data centers in Alberta.

[Vern Yu, President and CEO at AltaGas]

For every incremental Bcf per day of gas that's needed or can get to export markets, we see somewhere in the range of 35,000 bpd-50,000 bpd of incremental LPG supply becoming available for export. If you work that through from 2030-2040, you kind of see that you need an incremental phase of REEF every two or three years. We're targeting Opti II to be in service in the late 2020s.

[Vern Yu, President and CEO at AltaGas]

That would point to an Opti III in the early 2030s and an Opti IV in the mid-2030s and so on and so forth. Ethane is an incremental opportunity on top of that, where the initial phase would be something in the range of 60,000 bpd, but that could grow substantially over time.

[Vern Yu, President and CEO at AltaGas]

The great news is that the REEF common facilities are able to handle 500,000+ bpd of exports, that gives us a tremendous growth platform over the next decade. As egress comes forward, as exports grow, there will be the need for incremental gas processing, fractionation, rail loading, and all these great things. We have irons in the fire across our footprint in Alberta and in Northeast BC.

[Vern Yu, President and CEO at AltaGas]

We see strong opportunities with further debottlenecking in Northeast BC plus a North Pine expansion, and then gas processing opportunities in the Alberta Montney. We're super excited about the potential growth outlook that we have in our midstream business.

[Analyst at JPMorgan]

Awesome. Appreciate the color.

[Operator]

Your next question comes from the line of Ben Pham from BMO. Please go ahead.

[Ben Pham, Analyst at BMO]

Hey, good morning. I just want to go back to the propane export position. You have a bridge there with respect to Opti II potential in service, Opti III, and then ethane phase I. I'm just curious, you think about sequencing those projects. Are you able to just think about your manpower and the site and your balance sheet? Are you able to build or start construction on more than one of those? Or you need to sequence it in a way to spread out those projects?

[Vern Yu, President and CEO at AltaGas]

With Opti II, Ben, we have our permits in hand, we're able to start construction any time now. The issues that we want to finalize before we go to FID is, number one, having a firm capital cost estimate at the Class 3 level. We should have that in the next few months. The second is what we talked a little bit earlier about, is making sure that we have sufficiently de-risked the cash flows for any expansion.

[Vern Yu, President and CEO at AltaGas]

We have line of sight, very strong line of sight for incremental tolling contracts, again, which we expect to have on hand within the next couple of months. That would lead, obviously, to an Opti II FID. With Ethane and Opti III and so forth, we would need to make regulatory filings to get the appropriate permits to start building. Those all can happen.

[Vern Yu, President and CEO at AltaGas]

If you have a good look at our REEF Plot plan on our website, there's lots of room for all of this to happen. Really, the gating items is the timing of the regulatory approvals. Remember that most of this equipment is, we don't need to build another wharf. We don't need to add any loading platforms or things like that. All the common infrastructure is completed, and we're just bringing in extra storage and compression that's predominantly being built off-site and can be transported to REEF. We're very well-positioned and risk-managed about how we continue to expand on the export platform, Ben.

[Sean Brown, EVP and CFO at AltaGas]

Yeah. I think the only other thing, Ben, is I think you had balance sheet in there as well. We are not concerned on the balance sheet perspective at all. I talked about it in my prepared remarks, we've got the capacity to deploy CAD 1.6 billion-CAD 1.8 billion a year. We certainly, from a funding capacity perspective, wouldn't have any concerns, and that's one of the real benefits of the balanced business model we have between utilities and midstream.

[Sean Brown, EVP and CFO at AltaGas]

You would've seen that over the last couple of years that if we have attractive projects in the midstream business, we can flex a bit more capital there. Then in periods like this year, when REEF is nearing completion, we flex more into utilities. From a financing and balance sheet perspective, not concerned.

[Ben Pham, Analyst at BMO]

Got it. Maybe another one on the utility side of the business. You mentioned the Maryland case was a constructive outcome. Can you unpack that a bit? Just maybe some of the things you liked, some of the things you didn't like. Then maybe just broader related to that, the 70 basis points looks like a nice improvement from what you've been highlighting before overall. What's been a key driver of the change?

[Corine Bushfield, President of Utilities at AltaGas]

Thanks, Ben. I would say that a key driver to the constructive outcome was our planning process and us working with the commission and the staff to better understand at the beginning of the process what they were looking for. As we were prepping and going into it, I think we were just better planned, to be blunt. We have seen positive movements with Maryland PSC, so we're encouraged with what we're seeing for results there.

[Ben Pham, Analyst at BMO]

I just wanted to check the previous messaging on the ROE was 100 basis points with plus or minus around that, you are doing about 70 basis points you are expecting this year. Is that somewhere of cost reductions that is driving the gap, moving the gap in more?

[Corine Bushfield, President of Utilities at AltaGas]

We are a little bit higher than that this year, Ben. Last year, we exited around 100 basis points. This year, we will narrow the gap a bit. You are right, though, on a target basis over the long term, we want to be to that 50 basis points-75 basis points because factoring in, as you well know, the historical test year lag. With optimization, we do have the ability to help fill that gap.

[Ben Pham, Analyst at BMO]

Okay, got it. Okay, thank you.

[Operator]

Your next question comes from the line of Maurice Choy from RBC. Please go ahead.

[Maurice Choy, Analyst at RBC]

Thank you, good morning, everyone. Just sticking with the ethane theme here. Can I confirm if ethane is covered under the exclusive right your JV has to export LPGs? If not, is there an opportunity to form partnerships locally, particularly if REEF is capped at 500,000 bpd of capacity?

[Vern Yu, President and CEO at AltaGas]

Well, I think I'm just going to kick that over to Randy. Thanks.

[Randy Toone, President of Midstream at AltaGas]

Yes. Ethane is included in that exclusivity. As far as we are looking at partnerships for ethane, we are looking at supply partnerships. We do, as Vern talked about, there is 500,000 bpd of ethane being reinjected into the gas stream, and there's straddle plants that can just cool down and capture that ethane. We don't think there's a lot of investment or significant investment upstream, and the ethane supply will be available. We need to look at the rail cars, we're looking at partnerships for that, and also, the offtake would likely be a partnership as well.

[Vern Yu, President and CEO at AltaGas]

I think, Maurice, ultimately, to get to the global export part of it, there is more land that we can acquire on Ridley Island should there be extremely robust demand for both LPGs and ethane.

[Maurice Choy, Analyst at RBC]

It's great to hear. If I could just quickly follow up with that. I think you mentioned earlier in the call that you're going to seek a higher level of tolling for these ethane exports. Just wondering what other aspects of commercial or even a return perspective of an ethane infrastructure differ from a LPG, propane butane infrastructure.

[Vern Yu, President and CEO at AltaGas]

I would think of it more as traditional energy infrastructure where you want to do it under a take or pay contract effectively, Maurice.

[Maurice Choy, Analyst at RBC]

Thank you. My congratulations to Corine on the new role. Thank you.

[Corine Bushfield, President of Utilities at AltaGas]

Thank you.

[Operator]

The last question comes from Sam Burwell from Jefferies. Please go ahead.

[Sam Burwell, Analyst at Jefferies]

Hey, guys. Thanks for squeezing me in. Apologies if you had addressed this before, but wanted to ask about the economics of the Groundbirch rail venture with Tourmaline. Looks like there is at least a minor amount of CapEx that got thrown into the budget this year curious what the quantum of CapEx might be, and then is the EBITDA contribution just simply the 10,000 bpd that's getting tolled, or is there other contributions? Just trying to frame the build multiple around this project.

[Randy Toone, President of Midstream at AltaGas]

Hi, it's Randy. Yeah, it's very minimal capital for us. It's less than CAD 20 million for us to participate in the rail yard. The benefits of that rail yard is that we see significant savings in the rail costs, both in our fleet, our rail costs getting to the export facility, our storage costs. That's why we want to make that investment. We also see that our North Pine facility and this Groundbirch facility, there's going to be some synergies between the two, we do see the additional rail savings. Of course, the export tolling is another benefit.

[Sam Burwell, Analyst at Jefferies]

Okay, great.

[Vern Yu, President and CEO at AltaGas]

It's an extremely lucrative transaction for us on a capital deployed basis, just because there's a huge opportunity for us to reduce our operating costs.

[Sam Burwell, Analyst at Jefferies]

Yeah. Okay. That makes total sense. Last one. On shipping costs, I understand that you guys have locked in the 2026 exposure already, so covered on that, but curious if all of 2027 remains open and just as things stand, is there any risk of upward pressure on cost and downward pressure on margins in the export business from shipping exposure next year?

[Sean Brown, EVP and CFO at AltaGas]

No, it's Sean here. I'd say the answer is essentially no. We have three time charters right now. We're getting another one delivered next year. We remain very comfortable with the exposure we have from a time charter perspective. We definitely are not open as we enter next year. We are taking on an additional time charter, so we'll have four next year and are comfortable with our position as we move into 2027.

[Sam Burwell, Analyst at Jefferies]

Okay, perfect. Thank you, guys.

[Operator]

This concludes the Q&A portion of today's call. I will turn the call over to Mr. Swanson. Please go ahead.

[Aaron Swanson, VP of Investor Relations at AltaGas]

Thanks everyone for joining the call this morning. The investor relations team is around if anyone has any further questions. Have a great day.

Participants

Executives

• Aaron Swanson, VP of Investor Relations
• Vern Yu, President and CEO
• Sean Brown, EVP and CFO
• Jon Morrison, SVP of Corporate Development and Investor Relations
• Randy Toone, President of Midstream
• Corine Bushfield, President of Utilities

Analysts

• Rob Hope, Analyst at Scotiabank
• Patrick Kenny, Analyst at National Bank Capital Markets
• Robert Catellier, Analyst at CIBC
• Analyst at JPMorgan
• Ben Pham, Analyst at BMO
• Maurice Choy, Analyst at RBC
• Sam Burwell, Analyst at Jefferies