Q3 2019 Earnings Call
Actual results conference.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question answer session. If you'd like to ask a question during that time simply press Star then the number one I used telephone keypad, if he would like to withdraw your question. That's the punky. If you have any difficulties hearing the conference. Please press Star then Gerald operator systems that anytime.
As a reminder, this conference call is being bought fastest life on the Internet in Florida, I would now like turn the conference call over to adamant night director of Investor Relations. Please go ahead Mr. Mcknight.
Thanks Julien.
Good morning, everyone and thank you for joining us for the Ulta gas third quarter 2019 financial results Conference call.
Speaking on the call. This morning, we'll be Randy Crawford, President and Chief Executive Officer.
James Herbalists, Executive Vice President and Chief Financial Officer.
We're also joined here this morning by several additional members of our executive team.
As always today's prepared remarks will be followed by an analyst question and answer period, and I'll remind everyone that the investor relations team will be available after the call for any follow up questions already detailed modeling questions that you might have.
A replay of the call will be available later today and the transcript will be posted to the website. Shortly thereafter.
I'd like to point out.
We have a slight change in the format for todays call presentation slides have been made available and can be accessed through our events and presentations web page. However, the prepared remarks, well not follow directly along with the slides provided.
Before we begin I'll remind everyone that 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 of the presentation slides and more fully within or public disclosure filings on both the SEDAR and Edgar.
Systems.
With that.
I'll now turn the call over to James Herbalists.
Thank you Adam and good morning, everyone.
My pleasure to welcome you to our 2019 third quarter results call.
As we move through our third quarter, we continued to execute execute against our near term operational and financial priorities. The success of which I will touch on throughout my prepared remarks.
Our utilities in midstream groups delivered solid operational results. This quarter. However, given the number of moving parts I thought it was important to begin this call by providing appropriate context around our third quarter.
As you can see from our financials, we recorded normalized EBITDA of 178 million compared to 226 million in the prior year.
On the surface that obviously shows a steep decline in EBITDA.
As you're well aware, we've been very successful in monetizing assets to Delever, The company, which has a corresponding impact on lost EBITDA.
But lost EBITDA due to asset sales in Q3 was $93 million.
This quarter, we also recorded a onetime adjustment of $30 million related to the hearing Examiners report in Virginia.
We don't adjustment of the T.C.J.P.C.J.A. liability, which includes a change in excess of deferrals amortization period.
Reduction in allow orally and a disallowance of cap.
Capital associated with our didn't program.
When I look at the underlying performance of our base business, removing these impacts our normalized EBITDA grew by $75 million quarter over quarter $278 million.
For more information on this you can refer to our slide deck posted on our website.
This impact this impact flows through to normalized funds from operations or ethical which were $67 million compared to $117 million in the third quarter of 2018.
Excluding the impact of the Virginia hearing Examiners report and lost AFFO from asset sales.
I would have increased by approximately $39 million for the quarter as compared to the same quarter last year.
In Q3 weeks suited we exceeded our asset sale target of 1.5 to 2 billion with the announcement for the sale of the Central Penn pipeline.
We have now announced or completed approximately 2.2 billion an asset sales in 2019 with funds being used to delever, our balance sheet and fund organic growth.
In addition to this subsequent to the quarter end AC I announced it entered into definitive agreement for the acquisition of <unk> in an all cash transaction for 30 350 per share, which if approved by shareholders will generate proceeds of $370 million altogether.
Normalized net loss was $58 million.21 per share for the quarter compared to normalized net loss of $17 million.
Seven cents per share for the same quarter in 2019.
Factors negatively impacting normalized net loss included lower income tax recovery and the same previously referenced factors impacting normalized EBITDA, partially offset by lower interest expense and lower depreciation and amortization expense.
They get slightly deeper into our segments. Our midstream segment reported very strong Q3 results with EBITDA up almost 100% over the same period in 2018.
Our energy export strategy was a significant contributor to the quarter with strong volumes at both rip it and it Ferndale from an equity investment in Petro guess.
Results in our base midstream business remains strong and we're seeing healthy volumes at our plants.
This is a direct result of the work we have done with respect to their northeast BC and energy exports strategies that have created integrated value chain connecting our customers from wellhead to export markets in Asia.
This quarter represented our first full quarter rip it the cornerstone assets of our Canadian midstream strategy.
Rip it generated approximately $37 million an EBITDA in the third quarter was slightly greater than 3 million barrels or six ships the propane export into Asia.
Third quarter EBITDA from Rip it benefited from a higher average FDIC Mount Belvieu hedge rate of $14 per barrel that included second quarter supply hedges that were rolled forward to the third quarter.
The resulting impact the third quarter EBITDA as a onetime benefit of approximately $5 million.
Overall, we're pleased with performance of the facility to date volumes of steadily increased to its current $40000.
Took 40000 barrels per day capacity and we continue to improve operational efficiencies.
The third quarter at our utilities with similar to the second quarter, where we saw a decline in earnings driven by the warmer weather experienced in the summer months.
This seasonality in our earnings is expected and consistent with historical results.
Overall at the utilities, we saw a decrease in normalized EBITDA as compared to last year.
This is largely attributed to the hearing examiners report into Virginia rate case, the impact of the <unk> IPO.
Higher operating expenses, partially offset by higher revenues from a full quarter WGS ownership and the impact of the stronger U.S. dollar.
One final word on the Virginia hearing Examiners report, we were disappointed with the recommendations and we have filed a rebuttal appealing certain aspects of the hearing Examiners report on October 20, Onest and are hopeful of final order will be issued in late 2019 or early first quarter 2020.
Lastly, the power segment normalized EBITDA decreased to $70 million, primarily result of asset sales, partially offset by strong contributions from me retail marketing as margins widen as expected with the change in P.J.M. capacity pricing that occurred this past June .
Turning to our capital program and balanced funding plan for 2019, we continue to improve our financial flexibility, particularly given the success of our 2019 asset sale program.
We remain comfortable with our 2019 funding plan.
Our funding plan for 2019 was designed to de lever and stabilize the balance sheet through a combination of axis asset sales disciplined capital allocation and a repositioning of our dividend.
The funding plan includes 1.3 to 1.36 billion in capital projects, where we have a clear line of sight to a significant number of high quality organic growth opportunities.
The slight increase in expected capital compared to the 1.3 billion previously disclosed is primarily due to the timing of the closing of certain asset sales relative to our original budget.
We continue to execute on our capital projects, both on time and on budget year to date. We have spent approximately 1.2 billion focused on the expansion of our midstream value chain with the completion of rip It and the need Creek facility and continued work at the Townsend and north find expansions the market connector pipeline.
And improving safety and reliability of our systems with the accelerated replacement programs at our utilities.
These opportunities reflect the underlying strength of our utilities in midstream business.
In addition, we have approximately $3 billion in debt repayments plan.
This includes 900 million a fixed term debt maturities.
The balance reducing short term borrowings on our facility.
To date in 2019, we have already achieved a reduction in net debt of $2.4 billion and expect net debt to decrease further as we closed the sale of.
Of the central Penn pipeline in the fourth quarter.
Our investment grade credit ratings continues to be fundamental to our strategy.
As you know it provides us with greater financial flexibility and a lower cost of capital, which in turn supports growth going forward.
We designed our 2019 capital in funding plan with the very clear goal of maintaining an investment grade credit rating.
We expect our capital and funding plan, along with the lower risk profile of our overall business mix and a dividend reduction will all contribute to improving investment grade credit metrics overtime.
As we have discussed in the past, we expect our credit profile to improve as we execute our growth capital program and new capital projects enter service.
Given the significant progress we've made this year on our balance funding plan. Our focus is shifting towards executing on organic growth opportunities that drive meaningful contributions in 2020 and beyond.
Supported by strong operational results from the first nine months of this year, we're maintaining our guidance range for normalized EBITDA of 1.2 to 1.3 billion.
The success of our 2019 asset sales program will result in an additional EBITDA last year over year in 2020 of approximately $170 million, which we anticipate replacing with investments in our energy export strategy, including a full year of rip it increased gas processing volumes from the new.
Creek facility that came on in the fourth quarter of 2019 pounds into expansion and contributions from the expansion of our north find fractionator that are expected to come online in the first quarter 2020.
As well as growth in our utilities, where we expect to benefit from the investment in the market connector pipeline customer growth as well as improvements in our earned returns from Maryland settlement.
Announced subsequent to the quarter and new rates at Stemco following completion of the rate case.
While we expect to see some growth in EBITDA.
2020 over 2019, adjusting for the impact of asset sales we.
We expect normalized earnings per share growth to outpace EBITDA growth as a result into significant reduction in death, and the resulting decrease in interest expense.
We plan to provide the market a fuller view of 2020 outlook capital and funding following the completion of our normal planning cycle later this year.
In conclusion altogether has made tremendous program progress in reshaping its business and creating greater financial flexibility over the past several months looking to the future I believe that the combination of appropriate capital discipline.
No rates business optimization, and operational excellence will position us to deliver strong performance.
With that I will turn the call over to Randy to review, our progress on or near term goals and our next steps as we focus on future growth in our midstream and utility segment.
Thank you James and good morning, everyone. When I first spoke to you with you in December I laid out a plan that would refocused the company capture the intrinsic value of our core assets and regain our financial footing, providing us the flexibility to capitalize on the significant investment opportunities.
Ahead of Us I'm pleased to share that we have made tremendous progress against these goals and that that progress is clearly evident in our Q3 results and accomplishments.
Turning to our near term priorities.
We move swiftly and decisively in recent months to execute our asset sale program designed to Delever, our balance sheet Thunder capital program and maintain our investment grade rating.
With the announcement a central Penn asset sale, we have completed or announced 2.2 billion an asset sales to date in 2019 and have exceeded our target of $1.5 billion to $2 billion.
Most recently, we announced the sale of Central Penn pipeline at the end of September for approximately 870 million or U.S. dollar 657 million, representing a strong multiple I've just over 13 times, which is accretive to our credit metrics.
The proceeds from this transaction will be used to both pay off a portion of our debt, which James addressed as well as fun profitable growth initiatives in our core business.
In addition to the asset sales, we have announced to date.
I mentioned to you on the last call we have remaining asset sale liquidity with mountain Valley pipeline <unk> and blight.
With respect to blight I'm pleased to inform you that we have successfully re contracted this facility with southern California Edison a direct result of blights competitive advantage.
California Public Utilities Commission approval is required and expected to occur in the first half the 2020.
The extension of this agreement preserves the current annualized EBITDA of approximately 40 million through 2023.
Also as you are well aware and as James mentioned out the gas Kennedy received an all cash offer to purchase the company.
We are supportive of unlocking the value we have invested in SASSA and we'll act in the best interest of all the gas shareholders.
Our work over the past several months.
We.
So we're supposed to pass settlements enough focus on asset sales alone. However.
We have been laying the groundwork to implement our operational excellence model throughout our business. We expect this model will not only allow us to be more efficient and effective.
Well, we will also expect to drive significant cost savings.
Turning to strategy.
We believe that the combination of our higher growth midstream assets with strong and predictable cash flows of our utility businesses is the right what.
We continue to work on the unique structural advantage, we have created with our integrated platform in the month.
It is underpinned by rip it and our LPG export strategy.
At our utilities the rate base growth, we expect combined with performance based culture, we are implementing.
And proactive and thoughtful approach to our rate cases.
All contribute to our <unk> Ari or are we expansion and earnings growth.
Looking a little deeper at our midstream business, we have a unique value proposition and a distinctive competency that centers around or rip it asset.
Our ability to access premium price global markets in Asia, where demand for cleaner burning fuel sources is increasing is a competitive advantage that we will build upon.
Increasing throughput at our facilities.
Optimizing our existing rail infrastructure rip it to gain scale inefficiencies and honing our in growing our export capabilities.
Our fundamental assumptions underlying or midstream strategy is that the marginal molecule of natural gas and natural gas liquids in Canada will need to be exported not to the U.S., but the Asia.
The growing demand for energy in Asia will be a driving force behind our Canadian midstream business.
Leveraging our first mover advantage as the first and only company, but the capability to export LPG from Canada Asia is paramount to attracting more volumes to our system and ultimately driving growth across our integrated platform.
At Rabbit, we saw significant contributions to the business with our first full quarter of operations completed.
Volumes is steadily increase to our target capacity.
In the quarter six ships were loaded exporting over 3 million barrels of LPG referred to Asia.
As generated approximately 37 million EBITDA or $11 per barrel.
Well I'm excited but these results they were not unexpected due to rip it structural advantage in the increasing trading premium that the far East index has to Mount Belvieu.
Going forward, we expected continued pricing premium to be maintain due to the structural shipping and then its rip it has compared to the U.S. and the growing U.S. supply.
This pricing premium is certainly benefited us.
But it is also materially benefiting our customers the producers who have tolling contracts through rip it as they realize the benefits of the global market premium.
Looking forward into the fourth quarter, we expect to sell approximately 40000 barrels per day to Asia.
Through a combination of our tolling volumes and our active merchant hedging program, we've locked in our base load margin on approximately 85% of our remaining 2019 volumes.
For the remaining 15% of barrels we pay admits in prices plus transportation fees and return we realize FDIC premiums.
With only five four months of operation, we've made tremendous financial and operational headway.
As we continue to improve the efficiencies and logistics surrounding rip it we will gradually ramp the volume towards nameplate capacity.
Terrific advantage also increases the utilization of our existing processing and fractionation asset and position us for additional investment in the Montney.
This value added approach to our customers is the foundation of our northeast BC growth program, which includes the New Creek gas plant that we co own with Black Swan, which came online in September .
Quarter earlier than expected as well as expenses, north pine and Townsend anticipated come into service in the first quarter of 2020.
This is exactly how our business model. This design leverage our export strategy to provide higher netbacks to our customers increased throughput and utilization of our assets provide more organic growth opportunities and grow our export capabilities.
I commend the team for the successful execution of our strategy.
As it has added significant value to our midstream business.
At our utilities, we reported earnings after adjusted for one time regulatory impacts and asset sales that were essentially flat compared to the third quarter 2018.
Seasonality in our utility business mask, the underlying structural improvements we've made them on updating our rates to reflect <unk> current rate base and operating cost levels in 2018.
The recent Marilyn rig K settlement, our accelerated replacement programs and the pending Simco rate case, a recent examples of that progress.
Where are you will see the full impact of these efforts is in the fourth and first quarters due to the seasonal nature associated with the volume metric rate recovery.
As we continue to close the gap between their current rates and our allowed return we expect to improve our return on invested capital equity capital by over 200 basis points.
Which will represent an increase in after tax earnings of up to U.S. $50 million.
Upon achieving these results we expect an increase in earnings per share of approximately 25 cents.
This is going to take some time, but I'm confident we're going to get there by the end of 2021.
This is one of our greatest financial growth opportunities as the capital has already been invested.
We will accomplish this R&D expansion in the following ways.
First continue to update our rates to reflect our growing rate base and most current cost structure to close the gap and earning our allowed return.
Currently we have active and planned rate cases in three of our five operating jurisdictions and applications under review for accelerated replacement programs to renew aging infrastructure in the district of Columbia and in Michigan.
Maryland is a solid example of our efforts to enhance our returns.
Posture positive relationships with our regulators, where our recent rate case saw an increase in revenue.
Yes $27 million.
We are awaiting a decision that simco expected no later than March 2020.
And we also anticipate filing rate cases in the district of Columbia, and 2020, where we have the largest gap between a earned return and are allowed return.
Secondly.
We are enhancing our operational performance updating aging infrastructure and continuously improving our service offering for our utility customers. This is where our team will be laser focus for the balance of this year and into next.
Finally, we must aggressively lower operating costs.
The main area of focus is the continued replacement of our aging infrastructure.
We will continue to approve our predictive modeling to identify and prioritize the chronic pipe.
Creek, the right plan to address it.
And ensure we continue maximizing every dollar we spent on repairing and replacing aging pipe across our jurisdiction.
When we do this our cost will come down freeing up dollars to invest in improving our customer experience.
With one of the higher rate base growth rates in the U.S. at 8% to 10%.
We have clear sight on ample earnings growth at our utilities well into the future as we monitor not modernized and expand our distribution footprint.
We will continue to utilize accelerated rate recovery to ensure the timely recovery of this growth opportunity.
This combination of higher overall returns combined with rate base growth presents us with an opportunity to drive significant earnings growth within our utility businesses into the future.
The visible near term growth opportunities for the company and the potential for growth Dicey today.
Exceeds any notion of what we thought even a year ago.
Our base business is healthy and performing as it should be and we remain on track to meet our guidance for 2019 and are well positioned to enter 2020 in a much stronger position.
In the longer term I believe the strategy I've outlined today will result in consistent and attractive earnings and earnings and dividend growth.
In our midstream segment. This includes expanding our integrated value chain with a full year of operations and expanded throughput at Rip It and then it creek facility and increasing gas processing volumes and the Townsend expansion and contributions from the expansion of our north Pine fractionator.
At our utilities, we expect to see significant growth in this segment in the future driven by.
Projects like our market connector pipeline and improve system reliability and supports new customer additions.
Our accelerated replacement programs, which replaces aging infrastructure and improved reliability and safety of our systems.
And updating our rates and improving our return on invested capital.
In summary, we continue to reposition off the gas as a low risk high growth utility of midstream company.
We have exceeded our asset sale goes target and significantly improved our balance sheet.
Executed on our midstream strategy, including successful commissioning a rip it.
And continue to improve our returns that are utilities through updated rates and accelerated replacement.
And with that I will turn the call over to the operator to facilitate the QNX session.
Thank you, ladies and gentlemen, we will now connect to conduct the analyst question answer session.
Like to ask a question press Star then the number one on your telephone keypad. If he would like to withdraw your question press that alky, there will be a pretty brief pause, while we compile the culinary roster.
[noise].
Your first question comes from Rob help from Scotiabank. Your line is open.
Morning, everyone. Thanks for taking my call.
Morning, Rob.
Maybe to start off on the utilities I appreciate the a additional color on slide 13 of the a of the deck. There you know it looks like Maryland will give you a nice bump up in kind of income and 2020, but the rest of the items seem to be kind of spread in between 2021 in late 2021.
Just want to get a sense of where you think the path to improving the are always a on the utilities are it will it be more back end loaded or kind of a more spread evenly through the years.
Overall, but you know I think that you highlight the Maryland rate case, which was a was a real positive animal having strong contribution in 2020, clearly you were focusing on on updating our rates in our DC rate case, we're focused a currently we have an integration team now.
Place, that's laying the foundation to optimize our ER.
Our structure to align the business overtime, and so we're aggressively managing our own them in our leak mitigation I think you'll see significant progress next year and so difficult to say that will be it evenly spread.
But I think that the overall you know I think that well, we'll probably get half of that through 2020, and then we'll manage the rest through through the rest of that yourself, maybe not smoothly, but but overall targeting the under 2021.
Okay. Appreciate that color and then just moving over the balance sheet now your surpassed our assets held go ahead goal for 29 team, which has accelerated some de levering you know looking forward what metrics are you targeting and is the expectation there that you're going to get there through you know just increasing EBITDA enough AFFO or is.
As asset sales still something that you have a number of processes going on in something that we could see continuing on into 2020.
Yes, sure Roberts so the goals for the metrics that we've obviously set for ourselves is a very closely aligned with what the rating agencies of has outlined for goals that we need to achieve to maintain strong strong investment grade credit ratings. So we have a focus on.
FOTA AFFO to debt of above 10% going forward, probably in the 10% to 12% range. We feel that we can get there I just with organic growth in EBITDA based on some of the assets that are going to be coming online, but we can continue to improve those credit metrics, what some of the the auctions that Randy mentioned in.
His prepared remarks on additional assets that we can we can monetize will power continues to be noncore to us and blights would be available to monetize and take more debt off the balance sheet. In 2020, you know the ideal if approved by shareholders will close at some point in 2020 that a that can also help us de lever and then MVP at some point will.
I need to decide what we do with that.
And Rob I'll, just add to that that I think we're in.
An enviable position from the standpoint that we have executed to above our target and then we'll be opportunistic going forward or not but I think thats essentially a a strong position for us to be and that we can drive it as James said through organic growth and some of the initiatives and we'll be opportunistic with some of the other asset sale liquidity.
Thank you I'll hop back in the Q.
Your next question comes from Julien <unk> <unk> Smith from Bank of America. Your line is open.
Hey, good morning team.
Good morning too.
Hey, Doug so, perhaps just that lets start with utilities and lets move onto the asset sales quickly first with respect to utilities have you think about the sustainability of some of these cost reductions you talk about right. So you can reduce costs in one year, but how do you persistently earn at that return and how do you think about rate lag and I suppose within that how do you also thinking about trackers in some of the path.
Pathway that at least on the electric side that Axlon did via Pepco tends to be able to enable more concurrent recovery on capital spend so I had perhaps a two part question there.
To start with.
Sure. Thanks to close look I think we've got.
In terms of our accelerated rate recovery a infrastructure mechanisms that we haven't all of our jurisdictions you clearly provide timely rate recovery going forward and it has another benefit as we deploy those dollars through the.
And replacing the chronic pipe that provides lower operating cost prospectively into the future, which again is sustainable over the long run and so we think that as we as we increased the amount of dollars that we put into that recovery mechanism that will help us with more timely returns.
And in terms of you know the I think that will address and I've talked about that on the call really at the regulatory lag aspect of this on a going forward basis.
And so I think that we're looking at it really our focus is to execute the cost initiatives. The capital all focused on improving the customer value proposition and that will lower cost improve high higher reliability outstanding services and those are frankly, the model that we're going to implement a that will provide sustainable long term growth for the utility.
Ultimately cost reduction so I think thats, the culture that we're driving and our utility.
Got it actually and then quickly if I can follow up.
On Blaze certainly is some interesting updates here very constructive price data points in the market can you talk to some of the.
Pricing that you've been able to confirm on that sale or that asset that you're holding there and then in tandem with that a very quick question. How do you think about 20 volume growth on the.
On the record side just to clarify.
Sure I'm you know on the asset sale don't.
I'll blades I think it's an excellent news as you point out in doesn't demonstrates the value of that asset I don't think it's appropriate right now that the comment on any types of evaluation or offers that we have had in but but really we're not as they set a flexible position to the extent that the that the value that we receive if we if we ultimately monetize Blake is in the shareholder.
As best interests, we move forward and but we have the option to maintain from instead EBITDA with that asset so.
It's an encore, but we'll continue to evaluate the offers.
With respect to your question on Rip It I mean, the facility itself was built to accommodate 8000 barrels with minimal capital expenditures to get there we are expecting to gradually increase that volume through 2020, and we've continued to procure supply I'm. So yeah, we're forecasting and we'll come out with exact numbers, but we wish.
Expect us to be above our 40000 barrel level in throughout 2020, and then the next month, we'll give you some clear guidance on what that is as we walk through our business plan.
Excellent congratulations on everything truly impressive.
Got it.
Thank you for that.
Your next question comes from Robert Kwan from RBC capital markets. Your line is open.
Good morning.
If I can come back to the utility spending and Randy you've talked historically and again today about making sure that you're very efficient with the capital I'm trying to get in on the trackers and timely recovery.
But then again, you're also talking about the rate based growth in that 8% to 10% as being and that's pretty similar to what you've talked about in the past. So are we seeing a pickup in the amount of spending that you think you can direct.
Into the trackers or.
Is that just a shift between kind of where the capex was before between what you can get immediate recovery and what might have like on it.
No I. Thank you Robert.
A question as I've said in previous calls you know our target is to to anything above our depreciation expense until we covered through our accelerated pipeline replacement programs, which will eliminate the regulatory lag on a going forward basis, and so we're making progress. There I think you should expect us to continue to increase the spend that we have in that mechanism as we target.
The 8% to 10% growth.
And I think Thats really where were we were targeting we have the ability to make the filings. We've made a couple were working in Washington, D.C. District, right now with the filing so expect us to increase the spend there which will I think provides a win win to both our customers are shareholders.
By providing a safe reliable system driving down cost and improving the service levels for all of my customers. So.
That's our strategy in we're laser focused on executing on.
Got it so its total spending up or is it just the shifts between kind of activities that might have a lag and where you've got recovery into the trackers.
You think right now were primarily looking at a shift but when we get through into the next into our business plan and we you lay out our plan for 2020.
You will see a modest growth in overall rate base like I targeted to the 8% to 10%, but there's the persist as shipped in the accelerate didn't have the incremental run through that as well.
Got it.
Turning to Sci you didn't sign a support agreement and you effectively have a blocking or control position as it relates to the vote. Just wondering are you actively working your stake as part of this.
We are obviously as I made at the Robert in my prepared comments that and we are.
We are working in the best interest of both the gas shareholders, we commend the AC I team.
But what they process in the prices they ran but but certainly we are oh, we are open to offers.
We stand ready.
If if theres a and so it was certainly focused on that.
And we'll see how the process goes.
So do I take that as is your passively kind of.
Fair enough something happens, that's great or versus actually yeah, I would seeing out yeah brought with any luck.
Yeah, we think that's a it's it's a good price and that I've always said that that asset is noncore to us and so absent something that is better.
In two are to shareholders, Yeah, we would certainly move forward with the sale.
Great I can just finished with life on the 40 million Randy that you.
Noted is at U.S. dollars or Canadian dollars.
That's U.S. right, Yeah us dollars.
Okay, sorry [noise].
Like reduction, but nothing.
Massive yeah, I did where you are.
Yeah, there's a little yeah no. It's it I look at is pretty consistent to where we'd been yeah. Okay, and then just with that.
The Siemens service contract yes.
Where to shut down post this contract or do you want to hook for the remaining payment or can you terminate without.
The further obligation.
Yes.
Yes, it could you repeat that Robert I'm, sorry, I Didnt put the question I think I think you've got a service contract applies with Siemens.
Oh runs a lot longer than 2023.
Oh, that's what the maintenance contract right right I you know what I believe that continues but let me check that okay, just to make 100% sure.
Okay.
I believe that's a longer term contract, we can get to the specifics on that.
Thats great thank very much.
Your next question comes from Linda Ezergailis from TD Securities. Your line is open.
Thank you.
I'm wondering if you give us some more color on leveraging up regulatory situation.
Can you give us a sense of the ongoing run rate.
On the effect of this decision to EBITDA earnings and AFFO and then.
Further to that if Youre appeal is successful what would be the upside related to that can you comment on a the nature of the elements appealing that decision.
So Linda we've we've fully reflected the downside of the Virginia hearing examiners reporting in Q3. So we wouldn't anticipate that this will have an ongoing impact in 2020 relative to 2019 ultimately the hearing Examiners report was no increase to base rate. So we feel that we've fully reflect.
Good.
The true up and the accelerated refund of the TCG amounts of reflecting the lower the lower tax rate. You are correct. We have we have appealed that decision and perhaps Adrian our president of double NGL could comment on some of the areas that we are appealing, but what I can say.
It's hard for us to speculate on what the ultimate decision will be but to the extent that we are successful in overturning certain aspects of the hearing examiners report that'll all be upside that we reflect in 2020.
Good morning. This is Adrian Chapman, Yeah, I'll comment on a couple of items in the appeal.
We focused on some items specific to the language of our Virginia save accelerated replacement program and how that surcharge should be included in an assessment of whether we are earning.
In the allowed range or not we think the commission through the hearing examiners order have has in appropriately calculated what our earnings are by adding in the Virginia save surcharge revenues and we believe that if those are excluded them. We fall below the allowed earnings range and it triggers an opportunity for.
The increase to take place I think thats very specifically going to be focused on her review with a legislative language and I think there's an opportunity for upside as a result to that.
Can you just quantify what the upside would be if you're fully successful.
Yeah.
I think Oh, we certainly see that that is I'm going to trigger or be triggered by the Commission's review of some of them some expenditure.
Adams that a the hearing examiner is also disallowed as nonrecurring and so it's really going to be triggered by those decisions and I think those amounts are laid out in the appeal.
Right.
Appeal language that is in what we filed with the commission so that could be variable and the range could be.
In the amounts of several million dollars.
Thank you and just a follow up on the midstream business in your Q3 results there were some mention of lower volumes.
At town center due to producer activity can you comment on what the outlook is in terms of producer activity in the regions in which you operate a in western Canada, and how you're managing maybe some of the counterparty risk with existing customers on that front.
So I'll, let Randy tuner prison midstream Linda address your volume issue and the ramp up at Townsend James can talk about the credit as well.
Hi, Linda.
The areas of commodity that we are with towns and we do see growth.
As we were doing expansion so we do have.
Calcs volumes, increasing the volume decline that you as we saw in Q3 was really a one of our key customers. They started up their own facility and so they did remove some volumes, but we are we think that's going to be offset by quite a new volumes coming in from killed.
So they are drilling enough at this part of the Montney for for condensate and that's really good value driver. There. So we do think volumes are gonna grow in or Intermonte assets.
Yeah, Hi, Linda it's James here on the credit side, obviously, it's not a phenomenon that's unique to altogether.
We see all midstream as they're doing business in Western Canada are concerned with that but we we actively monitor financial health of all our Counterparties. We obviously are providing working with producers to provide access to premium markets in Asia for them to increase their net backs.
We've been very very active over the last 12 months in terms of diversifying our customer base within our northeastern BC footprint. So that we're not overly reliant on anyone customer.
And obviously, we continue to invest in a very strong basin that has a lot of liquid so we feel that liquids and we'll continue to flow in in Western Canada and continues to generate some pretty strong economics and the last thing I'll say is if you look at our midstream business.
You obviously the repeated ribbon terminal has counterparty exposure is to Asia, where we are the marketer of those barrels and those are strong investment grade credits and then on the tolling side is where we're dealing with with local customers and monitoring credit profiles actively.
Thank you I wouldn't mind, just coming back to the question you asked on the potential upside and again I wanted to have the Virginia appeal and again I want to say, we're not going to speculate on.
How about goes but if we're successful on all fronts. We expect that we can actually recover about $10 million to $12 million U.S. of that are of that amount.
All right is that revenue, earning.
It would be revenue that flows to EBITDA.
Thank you.
Your next question comes from Robert Kelly, FMC, Ibcs well markets. Your line is open.
Hi, good morning.
I just wanted to dig into ribbit, a little bit further.
It looks like.
<unk>.
That does that include the volumes from the Knick facility.
Yeah.
And then yeah.
Yeah, but there's a there's a bit of ones coming into the knick, because we put that pipe in the service earlier. This year and then do you want to comment on that any.
The Niska Creek volumes are they coming onto the system this quarter.
Yes, They did creek facility or Black Swan brought on in September .
And they're flowing into its 100 million today facility, and they're flowing probably 80% or more.
Through the facility so that would be the growth in volumes there.
Okay and just.
What does the commercial strategy to increase tolling volumes and is it really tied to the NGL new year or can you increase them in the interim period.
Basically the the gating item to to expand the facility in other words.
Do you have to contract up the based facility before you consider expanding.
Well Robert this is Randy not not exactly but to your first part of your question that we can absolutely do tolling as we move forward and we we have a agreements that are on the existing facilities that are and that will ramp up over overtime.
But that's not the expansion of the a rip it.
Requires very minimal capital, it's more of the logistics and such and procuring a more of the supply. So we expect to be able to ramp that up at the same time, we would expect tolling to ramp up consistently with that.
Volume curve, because there's there's robust demand to access the at the end markets and so you should expect us to increase tolling, but the same time I'll move additional volumes into rip it.
Okay, and then finally, just a clarification here in the.
The normalized EBITDA variance for midstream on page 19.
There's number of items that are.
Indicated their rip it WGCL.
Patrick gas, but also higher NGL marketing margins.
That's an addition to rip it in Petro Gosh I Wonder if you can that's sort of describe whats impacting those margins.
Smith.
Yeah, Hey, Robert it's a Randy tune.
Those those are really around butane sales, but we we we recently had planned for Q2 that we've moved into Q3. So dart was just it's more of a onetime.
It.
Okay. Thank you very much.
Well.
Your next question comes from Elias Boscolo, some industrial aligned Securities. Your line is open.
Good morning.
Good morning.
Got question related to the dividend that you alluded to a Randy.
From an investor or market perspective.
I mean, I think I have some ideas, but what would be the trigger point or trigger event or events that would prompt you to take a potential dividend increase to the board.
Well again, we would be we're working through our investment grade and S&P and the asset sales that were moving forward, but I think as we look at our business plan going into 2020 in the growth in net income will be looking at targeting a consistent with that growth a dividend policy that.
All those growth in net income so since we're focused on on on on growing E. P. S. In the next few years, we will take that to the board and discuss that in the context of all of our financing strategies, but philosophically, where we went ahead or is that raised the increase the dividend consistent with the growth in earnings.
But we'll be going through that in the detail here. We we built our foundation its strong financial position and now we're executing on our operations, which will allow us to.
Grow earnings and dividends going forward.
So I guess the way we can look at that is a confirmation of investment grade rating and a clear path to net income increase would would be the trigger points correct.
Correct because of the to catch triggers you correct.
So I, maybe I missed this but you definitely alluded to coming out with a a capital forecast and potentially an EBITDA and F.F. all forecast would that.
Come before year end or maybe some idea of the timing on that.
Yeah, I think that we're looking at and I'll, let James comment, but but certainly this year through our business planning and setting or capital budget and getting our board approved that would come before the year end.
In case, you want to add to that and I mean, that's that's part of our normal planning cycle Elias where we're meeting with the board at the end of November to review capital budgets for 2020, and obviously, a EBITDA targets and and net income and we will be updating the market's a once we get those approvals from the board.
Great.
One final question and focus on Rip it if if I break.
The potential increase in volumes rip it into.
Securing supply or working through logistics.
What do you see the the more critical factor in other words, if you could get the supply tomorrow.
Do you still have logistics issues that will take you a year to work out or is it the reverse visit a workout logistics and then try to get supply or get supply in place and then logistics will work itself through.
Well the last.
Both yeah, we're ever each and every day the team's doing an excellent job.
Building its core competency in improving the logistics a each and every day at the same time it is related to where we bring the supply from ultimately in how we manage the rail issues. So it's a combination of the two but we're actively managing that working with CNN and our producers so.
I think that you'll see you won't see you'll see throughout next year, a consistent steady increase going forward, but they're both related as to where we get the supply and then how we manage the logistics.
Great I'll leave it at that thank you very much for those answers.
Thank you.
Before we move on to the last question I would like from 9% participants that if you have any further questions simply press Star then the number one on your telephone.
The last question comes from Patrick Kenny from National Bank Financial Your line is open.
Yeah. Good morning, guys just to follow up again on repairs you're.
Clearly running full out and I'm sure the play already.
Over the near term is to maximize spec propane volumes spreads but.
Just curious if you're also looking at capitalizing on any butane or LPG export opportunities that the site or is there just you know not the same international demand or arbitrage opportunity for local butane.
[noise].
Patrick No there's there's opportunities in our business development team and Randy or looking at all the different options as I said, we believe the marginal molecule in Canada needs to be exported and that would be to the Asian not U.S.. So that applies to both butane as well as propane so well continue to look at those opportunities going.
Forward, but right now we're focused on.
Well move and propane specifically, but.
We definitely have a negotiations and thoughts going on all the products.
If I could just that even right now I mean, our platform. We are benefiting from a an increase in butane exports through our investment in Petro gas as well they've moved up a lot of volumes. This year of butane into into Asia had some some very strong margins and that's where our platform has benefited from from butane.
Got it thanks for that and then also on the business development front northeast BC.
You know there's been a new NGL pipeline and extraction plant proposed just wondering if a new straddle plant is something you guys would.
Lets compete for or you know is the north pine and.
Longer footprint that you have enough to backfill your goals are a bit.
Well I think [noise].
We believe the new straddle plant will add value to the basin, you know versus moving rich gas to to the U.S. market. It produce more LPG volumes and quite frankly, those volumes would need to be exported and that would be beneficial to rip it and we would like to handle those molecules in every aspect of the business.
Okay. That's great. That's that's it for me thanks, guys.
This concludes the Q and a portion of today's call I'll now turn the call back to Mr. Mcknight.
Thank you Julie Ann.
And thank you everyone. Once again for joining the call. This morning and for your interest in altogether as a reminder, the investor relations team will be available after the call for any follow up questions that you might have.
That concludes our call. This morning, and I hope that you all enjoy the rest of your day and you may now disconnect your phone lights.