Q4 2019 Earnings Call
[music], ladies and gentlemen, thank you for standing by and welcome to tear is 2019 yearend results conference call and webcast.
Well at this time all lines are going to listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. Please press Star then one on your telephone keypad. Please be advised todays conference is being recorded if you require further assistance. Please press star zero.
I would like to hadn't conference over to your speaker today, the phones to do this director of Investor Relations. Please go ahead.
Good morning, everyone. Thank you for joining carries yearend conference call.
Our speakers today well be deemed setoguchi.
Who is going to be promoted to president and Chief commercial officer, and just a few days Steven Craker Senior Vice President and CFO, Brad Block Senior Vice President and COO also joining the call pretty queuing. They section at the end will be Jamie Urquhart, our VP of marketing, Brian Martin B P.
Business developments and Arlene Merrick Park, our VP of finance.
Unfortunately, David Smith, our CEO will not be on the call today due to the passing of the family member David Our condolences to you in your family.
As we released our financial results yesterday that focus on our call. This morning, well beyond our business strategy operation business development opportunities and financing.
After our prepared comments, we will open the call to question.
I would like to remind listeners that some other comments and answers that we will provide speakers.
We will provide speak to future events. These forward looking statements are given as of today's date and reflect events or outcomes that management. Currently expects. In addition, we will also referred to some non-GAAP financial.
Measures for additional information on non-GAAP measures and forward looking statements. Please refer to our public filings available on SEDAR and our website with that I will turn it over to Dean.
Thanks for born and good morning, everyone.
2019, not only marks the end of another strong year for Keiro.
But also the conclusion of a transformational decade.
Wait numerous challenges in the last five years, our industry has grown stronger and it's now even more financially operationally and socially responsible.
Sure. Its foundation is strong and we're well positioned to capitalize on the long term growth opportunities within the Western Canada sedimentary basin.
In 2019, we delivered impressive financial results.
Each of our three business segments generated record results and on a combined basis delivered 1 billion in realized margin.
We also achieved record adjusted EBITDA and net earnings deliver distributable cash flow up to 77 per share.
On an impressive return on total in service capital of approximately 14%.
These results reflect the value over integrated services and the new capital projects completed over the last 12 month.
With confidence in our business, we maintain or dividend track record with a 7% increase last.
August.
Chira, we remain committed to responsible growth, including achieving the highest standard of operational excellence throughout the organization.
During 2019, we continue to reinforce this commitment achieving important performance milestones and safety reliability and environmental stewardship.
As I look forward I'm very confident in cares future.
We haven't significant capital program underway that remote remains on schedule and on budget.
Our midstream services remain in high demand.
Our fractionators that ports. This catch wouldn't have operated at capacity for the past two years.
And each year, we continue to handle more volumes through a condensate help.
Our two new gas plants, I want the and pipestone along with their caps NGL pipeline project are all highly contracted with long term agreements.
I'll now turn over to Brad to discuss our operations.
Thank you deem.
During the year, we continue to safely operate our facilities and advance our capital program.
We completed several capital projects to service the needs of customers active in the liquids rich montney and duvernay, including phase one of our was pretty gas plant the north won't be pipeline system, and an expansion and other enhancements at our Simon that gas plant.
Phase one of the wobbly gas plant continues to ramp up with phase two on schedule to be completed mid year.
In 2019, we invested almost a billion dollars in capital projects, which also included workouts plant turnaround and maintenance outages at AIU and Kfs.
Pleased to report the all of our turnaround and maintenance work was completed according to plan and without a lost time injury.
In addition, we manage the six week unplanned outage at one of our fractionator units <unk> without interrupting the critical services that we provide to our customers.
I'll now pass it back to Dean to talk about our business development opportunities.
Brett.
This is an exciting time procure.
We continue to execute under significant growth capital program for the second phase for walk the gas plant Pipestone gas plant camps pipeline project and a wild horse terminal at Cushing, Oklahoma.
Got it is on schedule the start up in the first half for 2022.
We recently ordered the mainline pipe for the project all of which will be sourced and manufactured right here in Alberta.
Our project team is focused on finding the most cost effective and timely solutions.
And it does a tour excitements winter capital projects are providing direct benefits to the British economy.
Caps is a strategic acid for care as it enhances our portfolio of infrastructure assets.
Integrates or upstream and downstream operations and establishes a platform for growth beyond 2022.
With Janssen service, we expect to attract additional volumes to our liquids infrastructure segment.
We will continue to focus on long term growth opportunities.
We also continued to review our portfolio of assets to ensure we're maximizing or returns.
For southern portfolio of 14 gas plants.
We're currently reviewing various optimization strategies in order to reduce redundant costs, a truck volumes to our most efficient facilities increased liquids recoveries.
And ultimately increased customer netbacks and profitability for Kara.
As an example in the fourth quarter, we suspended operations at the Gilbey gas plant and redirected substantially all the volume to really be gas plant with existing pipe.
We expect to realize the cost savings associated with the gilbey turned down over the next year.
As we finalize optimization plan will provide updates.
With that I'll turn it over to Stephen to talk about a financial results.
Thanks, Steve.
As Dean mentioned here had a record year in 2019, achieving realized margin at more than 1 billion.
This amount the fee for service realized margin increased 74 million or 12% to 670 million in 2019.
This fee for service growth largely resulted from full year results at baseline tank terminal and the pipestone liquids hub.
Partial year results from newly commissioned assets such as the walk you plant continued growth in demand for Chirs condensate services and higher NGL fractionation fees.
The marketing segment generated record realized margin of 373 million, surpassing our revised marketing guidance of 320 million to 350 million.
The record results were largely due to strong realized margin from the sale of isooctane, which benefited from strong product premiums and lower market costs from butane feedstock.
Demand for Isooctane remains strong as it is a low vapor pressure high octane clean burning gasoline additive, making it very attractive to refineries to help meet new gasoline specifications.
We expect to release I paid marketing guidance with the release of our first quarter results.
Our growth capital program at 2.9 billion is almost 60% complete with 1.2 billion remaining to be funded over the next two years.
We continue to forecast growth capital investments of 700 million to 800 million in 2020.
We expect to fund the remainder of our current program without issuing common equity aside from the existing drip program.
Our simplify net debt to EBITDA ratio at the ended the year. It was 2.7 times and as a reminder for this calculation. We include in net debt, 50% of our existing hybrid debt.
Our financial strategies continue to focus on allocating capital in a disciplined manner.
Serving financial flexibility and growing shareholder value.
Looking forward to 2020, our distributable cash flow per share is expected to benefit from a ramp up of volumes were new assets and from significantly lower cash taxes and maintenance capital.
We now expect to current income tax recovery of between 15 million and 25 million for 2020.
Paired to a $98 million current income tax expense in 2019.
Finally, we expect maintenance capital in 2020 of between 35 million and 45 million, which is significantly lower than 105 million incurred in 2019.
As we only have two smaller gas plant turnarounds planned in 2020.
With that I'll turn it over to date.
Thanks Steven.
Looking ahead here will be who continue to be a safe reliable and environmentally conscious operator.
Well generating long term value for shareholders.
We're focused on successfully executing our growth capital program, including the caps pipeline system.
We have plans in motion to maximize utilization and increase the competitiveness and profitability ever gathering processing processing segment.
We're continuing to look at opportunities within our liquids infrastructure segment for future growth, where we have significant competitive advantages.
[noise] on behalf of cares board of directors and management team.
I'd like to thank our employees customers shareholders and other stakeholders for the continued support.
With that I'll turn it back to the operator. Please go ahead with questions.
At this time, if you'd like to ask your question over the phone lines. Please press Star then one on your telephone keypad, you will now pause for a moment to compile that you a day roster.
[noise]. Your first question comes from Matt Taylor of Tudor Pickering Holt Your line is open.
I think.
Here.
You mentioned they.
Return on instruments capital there in 2019, which.
Top into your 10% to 15% Guy there can you just speak to what went well there in 2019, and what you need to see to hit that that guidance range sooner than what you talked about in 2022.
Sure, Matt Steven here again that would be a sort of a carry on discussion from our messaging that we had at the Investor day, where we are back then we as well showed.
Participants in that second that date, what our historical return on capital has been and and again, it's just in line with that same messaging.
The.
The reality is as we continue to spend capital. It continues to put a fresh capital into the denominator of that calculation compared to no. The historical capital that's been in the into calculation and what carriers invested over the years.
But even the day it really is just continued strong.
Projects that we have implemented in terms of the GMP side as well as liquids infrastructure side.
So it's a weighted average capital for the year.
And so again just continues to give you a real look as to what the returns are as we go forward and we would expect that as as volumes continued to ramp up in our new facilities that we would continue to have.
Strong strong performance in that area.
Yeah. Thanks Steven.
2020, marketing earnings being above the base and all of their so commentary in the M&A suggests you're baking in significantly higher between cost, but what do you sort of assumptions, you're making them product premiums in crude pricing given that we're seeing huh massacre in oil pricing here over the last a couple of weeks.
Maybe I'll talk to that first and then and then Jamie might have a couple of comments on that as well so.
No doubt in 2019, we did benefit from a very favorable market values for butane in terms of as a feedstock being lower than what it typically is oh, we are expecting as we go forward into 2020, and we are seeing it that butane will as a percentage of W.G. I will return more.
Historical levels, what I would point out is when that relationship is is more like the historical level.
Swings in W.G. I don't tend to be the primary driver for free cash flow out of out of that asset because butane is also price off of WT. So the so the the strength of that asset really does come from the premiums that we collect up for that asset and we continue.
Thank you very strong demand for off team in the U.S. and may be Jamie you might have a comment and then yeah. The only thing I'd add Stephen is is that we continue to follow a disciplined risk management program and as such.
We're quite confident 2020 that we've set ourselves up well for the calendar year.
Great. That's really helpful and last one if I may just you mentioned, both your fracs or.
Operator.
2020 outlook there for utilization of the facilities and and then just fees when they get re contracting in April.
Matt Dean its a.
It's a little bit premature to discuss that I mean, we have or annual contracting. So some of our frac contracts are long term and some of them or short term that that are year to year. So in the year to year portion those are the ones that we sign up starting from April through March of the following year, that's a contract season.
Overall, we think that the our frac business continues to be pretty strong, but can give you a lot more detail at this point.
Okay. That's helpful. Thanks, guys.
Thank you.
Your next question comes from the line of Linda Ezergailis of TD Securities. Your line is open.
Thank you I'm wondering.
If you can give us a sense of what sort of impact.
The rail disruptions have had on your business, so far and what are the bookends of what impacts there might be over the next couple of months as some of these.
Disruptions unwind themselves and is there risk also Furthermore to some of your physical hedging in place that there might be a mismatch in terms of of timing of deliveries et cetera.
That might compound the physical real disruption beyond.
Just the a that the length of a transit.
[noise] Linda its Jamie so thanks for the question today.
The the rail disruptions have had not immaterial impact on our business. The only commodity that would be impacted frankly is propane and those would be shipments whether it be to the west coast to the east coast, we're confident that although it's going to have some impact on sales in Q1.
No.
I'm, assuming that goes disruptions those rail disruptions.
Our resolved we fully expect that those volumes will be delivered within the calendar year. So we don't expect that there will be any material impact to our business as a result of the rail disruptions.
Blended it's Dean <unk>, maybe I'd just add on top of that they get also benefits us that we have four terminals that our pipeline connected that would be rimbey.
It's in terminal or 80 terminal and also to spur terminal in Fort Saskatchewan, almost terminals have a tremendous amount of flexibility and again with our pipeline connectivity and our access to both rail lines between the that mix of terminals.
Gives us tremendous flexibility to make sure that we can move our product is officially as possible.
The other thing would be lender would be the fact that we've got storage to be able to accommodate being able to you get those that product delivered him later in the calendar year.
Okay, but despite the flexibility and your storage it sounds like a you're not going be able to capitalize on the unfortunate circumstances, but instead it would be viewed as a headwind for Q1.
It would be a minor he would be a minor headwind if and any headwind at all.
Okay.
Helpful.
Maybe just stopped moving onto your gathering and processing business.
Yes, accommodating to customers to date in terms of reducing their fees and extend it in exchange for extending the duration of their commitments of volume are you in discussions with any other customers in that regard and do you expect maybe to be approached prospectively.
Well I was more requests for those types of than that.
Linda Dean.
We have oh, we have to be competitive so in some circumstances, we have to you know sometimes.
Give some accommodation to extend a term for our contracts.
But but overall I mean, I wouldn't see that there's anything significant other than what we've already disclosed.
Okay. That's a that's helpful and maybe just maybe on the financial side.
Can you give us a sense of how we might think of your cash tax outlook beyond 2020, you've got a recovery. This year a is it reasonable to expect modest cash taxes for the medium term and I guess part B of that question is your maintenance cap.
And all the 2020 be a reasonable run rate going forward or should we expect to step up in 2021, a with some of your planned maintenance there.
You know it's a it's a good question went in and we appreciate it's a it's a little bit more difficult when when we go from expense to recovery. Obviously, we brought in a lot of capital in 2019 into service and so I'm using that that helped US a obtained a tax recovery in 2020.
I think it's a reasonable assumption, we we can't really comment just yet on on future tax, but I think it's a reasonable assumption to to believe that there's a there's an ongoing benefit of bringing that much capital into service and we will continue to be bringing projects this year into service as well so.
The only thing to companies say right now.
[laughter] maintenance capital would be a step up again in 2021 or you think isn't yeah, I mean, yeah, sorry, a maintenance capital in 2021 would start to reflect the F. At turned around as it was deferred from this year into 2021, because we had done some work back in 2019 already.
Thank you.
Linda.
Thank you Linda just maybe to go back to your other comments regarding your GPU business and we just we did have a a an update yesterday from one of our customers and Steven maybe you can just provide a little bit yes, yes. It wasn't a direct fee reduction question, there, but we did get notice yesterday that a that bellatrix.
I had disclaimed its commercial arrangements with us at a alder flats and so that was late in the day yesterday I'm just just for some background bellatrix has a 25% owner.
In the Alder flats plans and the operator currently of that plant.
And we have about 70% interest in that its still early days trying to fully understand there a their commercial needs, but that's our goal is to continue to work with them to understand their commercial needs others in our in our view, we still believe there's a high incentive for them to bring volumes to their own facility that they have a material interest in.
But we do have to work through what replacement type of arrangements will be put in place for that production for the one continue bringing production to that facility. So while we do expect a decrease in the future revenue.
From Bellatrix due to this event, we do not believe it'll be a material.
Number two Kara as a whole.
In our business, but we thought we should just give that update.
Thank you.
Your next question comes from the line of Rob Hope of Scotiabank. Your line is open.
Good morning, everyone I'm just in regards to the Bellatrix can you give a ballpark how much volume is occurring to you.
Oh, yes, we're going to Brad we talk little about a 140 million today of gas to that plant.
Over the last few months and we would expect that too.
[noise] to continue the a they still have a need to flow their volumes and this is a a preferred plant for them. So we don't expect to see those volumes move too much in the near term.
All right and that 140, where that would include some third party wasn't it. So you know how much yeah. This theres. Some there's some associated third party with that but it is it is predominantly bellatrix production.
Okay.
And then just moving forward into the marketing and look for 2020, you with the outages that we saw and a half in 29 team. You know is it reasonable to assume that we should be able to get that low cost butane into a good portion of Q2 as well.
[noise] Robbins, Jamie Yes, those still certainly we've got some inventory that we would.
Associated with the lower cost butane that will will benefit our.
Our results in Q2.
But given the fact that we have had very good run time in in since our scheduled outage in late 2019, our inventory would be probably more historical level.
Of the butane that we would have that we carry over into Q2.
Okay and then just finally just on the drip I'm you know if what you do have a good marketing contribution in 2020 remained let's call. It in the range of your debt to EBITDA metrics and you do see a decline in Capex profile moving forward. You know how are you looking at a the drip longer terms you want to keep it on or could we see it shut off into.
20.
Good question, Rob I would I would suggest that our answer is not really in our messaging around this not really any different than we had at investor day at an Investor day, We tried to show that at the end of 2021, they're up or you know obviously different scenarios that could unfold and we indicated that.
If you living within cash flow without the drip on.
It would be that 500 to 600 million a capital and if we had the drip on it would be 800 to 900. So it's really a function of what I'm capital program continues to get developed or looked at now obviously, we want to grow shareholder value. We're obviously trying to be sensitive to different questions that people might have where invest.
As might have on things like the drip, but at this point.
I think we just want to continue to be a flexible in how we look at things that don't and as you point out it really does depend on.
Are there different shifts in cashel that the company's generating in terms of fee for service or marketing so.
It goes just leave it then.
Alright, thank you.
Your next question comes from the line of Ben.
Path of BMO Your line is open.
Okay. Thanks, Good morning, I, just had a couple of questions on.
Optimization.
Valuations that that's ongoing and it may just using guilty as an example, you moving close to a different plants saving maintenance and costs and it is a net impact of that or are you expecting absolutely, but I'd have to generally be consistent with what a good Lewis with generating before.
Feminists Brad I think.
What we hope is going to happen with the with consolidations like others is that we're going to be able to preserve as much about EBITDA.
In some cases, we certainly hope that we can we can increase that through adding incremental services or reducing our operating cost, but the producers paid that makes their economics look more attractive and also provide incremental to us, but I think our target. Initially is two to enhance our business and just continue to too.
Create a more efficient business in the long term preserving as much of that values we kept.
Okay, and then I mean, I mean, I guess, there's situations, where EBITDA might see some pressure beneath free cash flow.
He is a nice bump because I made sense.
Capex savings and then maybe just comment on it and how do you guys look at.
Just diversion of flows versus monetizing assets, I mean, what or whatever what are some I think she has to look at pros and cons.
Well I think you know the advantage we have in our central Fort Hills region, though is that over the last 20 years, we've built a high degree of Interconnectivity between those assets what that allows us to do is hopefully move gas to the most efficient plants with the with the minimum about our capital thus preserving that in time.
So.
I would hope that we're going to continue by doing that we're going to continue to reduce our maintenance capital opportunities that go with that.
So I think there's there's positives behind for both ourselves as well as a as the customers a flow to us.
Yeah I, maybe Ben this is deemed just just to add to that I mean, obviously, we think that their financial benefits for a you know not operating as many plants in providing real to the same level of service. So again, there is some opportunities to in some circumstances pass that some value onto our customer, but we think a lot of that can be a routine.
And by our company and for our shareholders as well.
On top of that we see some very good opportunities to reduce overall greenhouse gas emissions because again, it's a it's a lot.
Less energy intensive to operate a if your gas plants. So we think that's a positive from a from at U.S. cheap perspective, and overall, our hope optimization program I mean, we're looking at a variety of different alternatives, but at this point we can provide.
More clarity than what we're providing now but we think we'll have more updates sort of towards the mid and later part of this year.
Okay. So sounds like I know you mentioned asset sales in that the packaging, but that doesn't seem to be a likely route at this stage, especially seven gen. Upon their package.
Yeah, I can say I mean, you know we're considering.
Lots of different alternatives, but I can't comment any further at this point.
Okay, I'm going to just as a loss at an age steep <unk> detailed question that 14% return that's why I clarify your.
Your including Capex that on projects that are in service yet and so.
I mean, I guess is that is that correct and then how do you guys think about the marketing EBITDA.
That number.
Yes, so thanks to the question there. So yes, no that is meant to capture in service capital. So that people can have a true reflection of when they see EBITDA being generated what does that being where's that coming from and so we use in service capital projects that are not yet in service and capital associated with those.
These projects are not in there.
And then it so it's a weighted average through the year in terms of how you're spending your capital in order to try and get again as tolson number as possible to reality.
And then the EBITDA the numerator and that does include a whatever commercial a cash flows come in as well from from marketing.
So we certainly believe we believe that that's right way to calculated I mean, we have to remind ourselves that our marketing business is a physical business and we generate that margin based on the assets that we have and utilizing own assets. So.
I think that's the right way to look at it.
Okay, Alright, thanks, guys.
Thanks.
Your next question comes from line of Robert Catellier of see IVC capital markets. Your line is open.
Hey, good morning, I wondered if we could just follow up in the marketing for a second with what's going on in a.
Marketplace for.
And watching.
And our above how long do you expect to be able to maintain the relatively strong premiums.
[noise], Robert as Jamie So from a from a up I so premium off of our Bob We continued to see.
The strength that we've seen over the last year or so so we're confident based on the fundamentals of the demand for our teams within North America for that premium to be intact.
Recently as with W.G.I.R. Bob has.
Fallen off in affords I just reinforce the fact that we have a very disciplined risk management program that has set us up we consist we continued to be very disciplined as we have in past years and very confident that 2020 is shaping up to be.
Strong year.
Okay, then I'm just on a caps.
The commentary was that you've you've ordered the pipe is there any color you can provide and how you've scope the project.
Believed it was consideration of you know there was.
Some scope as to what you might put in the trench one Piper too or is there any update you can provide there.
So Brian Martin here.
The projects being advanced at this point in time as the two pipes, one for a C plus and one for a condensate and so that holds to be the case, we continue to have.
Discussions with parties and we would.
Trying to create the business to to help enable and maybe put a third line.
Oh, there for C plus but at this point in time. It remains a just to see three bus and see but bus system that will be building initially.
Okay, and then just finally.
I'm curious as to what causes a they did twentytwenty expectation for tax recoveries. It really just the cavaliers or something else there like the.
The impairment or something else.
Hi, This is I lean here, it's basically that we have a billion dollars of capital projects largely from the GNP segment that came into service and 2019 cities have very attractive Tc rates. So we were able to basically create a tax loss that we could carry back to last year and recover some of the taxes.
We paid in 2019.
Okay. Thank you.
Okay.
Your next question comes from line of Robert Kwan of RBC capital markets. Your line is open.
Morning.
I can start on GNP, just wondering when you take the fee reductions to extend term or their extra protections within the contract to protect the future cash flows any form of security.
There's no usually there's no additional kind of securities put in place, but we have usually been successful in putting letters of credit in place.
And as well netting arrangements.
Where lot of times, we're buying NGL mix off the producers coming through a plant and so we can in certain circumstances net off a portion of what we.
We connected to the processing fees versus what we owe them for the NGL and so those are the kind of protections we put in place there.
Got it so do you get a step up in the Lcs when you take the fee reduction or is that just having the l. season, the netting agreements in place.
Yeah, and I wouldn't say, it's a driver in terms of a material change and how its approach.
Okay.
Turning to marketing you've got the guidance that you expect 2020 better than your base plan not as good as the 2019 results.
If you're able to kind of just talk about the major drivers like is it pretty much all HF, that's driving about the base plan, but just not having is going to the year on 2019 are there other.
Factors, whether that's propane or Connie that we should be thinking about as well.
Maybe I'll take the a the first or how does that answer I think we've always benefited in our marketing segment by having a diverse set of products and as well as the liquids blending business in that segment and I know I know a I used to walk team gets a lot of the air time and entity is a very large contributor.
Her Oh, we are very happy that we do have multiple products like condensate and propane and liquids blending that contribute to that as well.
I would say that in terms of the be outperformance in 2019, a lot of that is led by ice watching but again, a very Pacific year. This year in terms of favorable market pricing for butane at least for feedstock point of view.
For Us this is one of the key drivers and what this year. The there's just the overall demand for octane in North America. When at the same time octane supply was dropping off of that really did lead to strong premiums on the octane site.
And as Jim you mentioned before we continue to see that going into 2020.
Got it is there anything reasonable that could occur in 2020 for you to actually be 2019 or is that just pretty much completely out of the question.
Well, our commercial guys are pretty smart pretty bright and a they always buying things, but but I think have to remember that the the significant decrease in market value butane this past year and it coming back to more historical levels that is that was a significant temporary.
Event.
You know, we love to continue to see that again, but we also recognize that there is that produces behind our plans rely on strong butane pricing as well for there for their netbacks and so I think that's all I'm, saying that right now.
Okay, and I can just finished with them.
Within the GE in a line item there was a small formulate option termination I'm just wondering some background behind that just to clarify you paid $4 million determinate somebody else's option on that land.
Yeah that was that was simple we when we bought the 1200 acres in the forces catchment area as part of that arrangement, we had given the vendor.
An option to to use some of the land and we for $4 million, we were able to just by amount of that option and the and bring that land back to us.
So there is something that has kind of.
Come a little bit more to the front burner that you've got some big plans there maybe crystallized in a relatively near future to use that.
Yeah, and nothing nothing that we can really announce at this point in time, but as we've kinda percolate things so to speak a it's just clear in our minds. If we if we don't have that option outstanding and so the one thing. One thing is is a pipeline right of ways through the land as well and so we are connected.
The inner pipes or PDH facility and that helped enable us to do that little bit easier, but otherwise. It's just we continue to have discussions in its cleaner in our minds if that options not out there.
Got it great. Thanks very much.
Your next question comes from the line of battery Kenny of National thinking financial your line is open.
Hey, good morning, just wanted to clarify on the I just walked in business and zoning in on the positive pricing impact from Mimo 2020 can you just remind us if this tailwind is short term temporary phenomenon or.
Perhaps more structural in nature based on you know some of the discussions you may be having what's your refiner customers.
Oh, Patrick it's Jamie Yeah, I would characterize it more the ladder, we believe that it is a structural change based on tier three sulfur content in gasolines and also IMO 2020, the fundamentals of the demand for our teams for various reasons are.
Our view is is that this is a this is a sustainable phenomena in North America.
I think when talking about.
On top of that Uh huh.
I think what we're seeing as well is that the feedstocks are getting lighter because of the a light oil shale plays.
And those late feedstocks are sub walking so to two to actually get to gasoline spec you need more octane to blend into the they're fine prior to getting to spec.
That makes sense.
Got it okay. Thanks for that.
And then I know you guys will become when all was more formal marketing guidance in a few months, but perhaps comment or two on just how Q1 is shaping up.
Just directionally relative to Q4 from a a propane perspective, just given some of the rail distro disruptions and you know perhaps warmer weather so far.
You know about we can provide any further guidance from other than what we've we've put out there already gives you heard Jamie earlier, there the rail disruptions have an effect us in a material way at least at this point and so we think that it's going to be a reasonably good quarter.
Okay.
And then also on propane. So just wondering if there's been any update on landing on your West coast propane strategy I know what.
Yesterday mentioned, you're assessing both auctions in terms of.
Securing capacity of third party terminals versus potentially developing your own site. Just curious if there's been any change in how you're thinking about that strategy today versus a few months ago.
You know what that we continue to look at alternatives long term, we still fundamentally believe that the demand increasing demand for the long term, it's going to be in Asia, and there is certainly going to be a growing.
Supply that a lot of us more that supply will be delivered from the west coast of Canada, and it makes a lot of sense because of the bottlenecks or that are developing in the Panama Canal.
So we think that that makes a lot of sense long term, we're still evaluating different options and as we know there's a lot of different developments happening that they're going effect.
Propane demand in Western Canada, and some of that as exports. Some that solvent. Some of that is PDH facility. So we're just assessing all that and how we want to position our company.
Okay.
Then just last one.
Last one if I could you guys I'm just stuck to the drip.
And looking at my screen here, if this broader market still off you know does get worse before it gets better would you consider adjusting the 3% discounts or perhaps dialing back the premium component.
Just until some of the the macro risks subside year or.
Perhaps but yet you know looked at other funding levers.
All other than than the drip.
Yeah I appreciate the question in the yeah, we too have been looking to screen today and don't want looking to screen today, but the I'm on the drip. We Ah we are actually a with the March dividend, we are moving to a 2% discount on that.
As you can appreciate with was 1.2 billion of capital still to be spent Oh, we still believe it's prudent to add to keep the drip on.
At least for the next couple of years or we will continue to monitor it depending on how no business units or performance cetera, but but we are moving to a 2% a discount for that for the March.
Indefinitely.
Okay fair enough. Thanks, Steven Thanks, guys.
Thanks.
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Your next question comes from the line of Oh, Yes.
Plus of industrial line Securities. Your line is open.
Good morning.
Morning.
I've got a couple in a sense follow up questions.
The first one has to do with rail and EBITDA guidance and I'm not focused on the rail disruptions per se as much as the transport Canada regulations on key train.
First of all without having much of an impact.
In other words.
Causing some sort of a slow down or delays and is that built into your EBITDA guidance. If it is.
So at least such Jamie we have not seen much material impact as a result of the ministerial order.
The majority of the product that we're moving there specifically at this time of year is is either coming up from the U.S. are going down to the U.S. and so the amount of physical kilometers the that are impacted relative to the entire journey is asus relatively small percentage.
Okay, great. Thanks, very much for further clarification.
Next sort of short why not I'm, assuming that a <unk> F went down it it's currently up correct.
Correct.
Okay.
And finally day, it's been it's been running nicely since since or preventative maintenance outage back in a in November so I know, it's been running very well.
Okay, I thought I read that there it was down in.
February was that.
No that was flat that was no lastly, ill do that cold snap.
Okay. Okay.
Last thing and I'm going to try to poke a bit on capital projects. It is that.
Likely you think that we might get an announcement on some sort of capital project.
Before the end of year right.
There were some that you mentioned at Investor day, but Oh.
I know you've got a good trop line of capital, but I want to try to push it at that.
Yes, we certainly see opportunities.
So it's certainly possible that we have other projects to announce I would say, though it fits within sort of our or spend profile, where you know the the Capex program that we have sanction today, we have funding plans in place with our drip and our cash flow and any new.
Projects are likely the material capital that would have to be invested associated with those projects would likely be beyond.
2021 beyond so it would fit nicely with our our cash flow and our ability to to fund those projects.
Great. Thank you very much that's it for me.
Thank you.
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