Q4 2019 Earnings Call
2019 financial results Conference call. My name is Sheryl and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise. If you have any difficulties here in the conference. Please press Star then Tiro Sidon, operator assistance at any time.
The speakers remarks, there will be a question and answer session.
A reminder, this conference call is being broadcast life on the Internet and recorded I would now like to turn the conference call over to make nice director of Investor Relations. Please go ahead Mr. Mcknight.
Thanks, Sheryl and good morning, everyone. Thank you for joining us today for the altogether fourth quarter 2019 financial results Conference call.
Speaking on the call. This morning, we'll be Randy Crawford, President and Chief Executive Officer, and James Horribilis, Executive Vice President and Chief Financial Officer.
As always today's prepared remarks will be followed by an analyst question and answer period.
I remind everyone that the investor relations team will be available after the call for any follow up questions that you might have.
[music] presentation slides have been made available for today's webcast and they can be accessed through our events and presentations web page. However, today's prepared remarks will not follow up directly.
With the slides provide it.
A replay of the call will be available later today and a transcript will be posted to our website. Shortly thereafter.
[music] 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 and more fully within our public disclosure filings on both the SEDAR and Edgar system.
With that I'll now turn the call over Randy Crawford.
Oh, sorry to James Herbalists.
Thank you Adam and good morning, everyone. It's my pleasure to welcome you to our 2019 fourth quarter and full year results call.
We had a strong year, reflecting solid financial and operational performance from both our midstream and utility segments.
Normalized EBITDA was $1.3 billion, which is the high end up our full year guidance of $1.2 billion to $1.3 billion and represents a 26% increase over 2018.
This growth was driven primarily by full year contributions from W.G.O. seven months of operations at Rip it or our industry, leading LPG export facility and strong results from Petro guess.
These impacts flow through to normalized funds from operation, which was $895 million compared to $657 million in 2018.
Normalized net income was up over 65% to $324 million in 2019, driven by strong operational performance of our capital investments than previously referenced factors impacting normalized EBITDA.
And higher interest expense and depreciation and amortization expense.
Also driving the increase was below normalized effective tax rate, which was impacted by the accretion of regulatory amounts for tax expense and higher nontaxable equity earnings.
We delivered these strong results while remaining firmly focused on executing our balanced funding plan a significant component being the disciplined approach to capital deployment and an aggressive approach to our noncore asset sales program with funds being used to de lever the balance sheet and fund organic growth.
In 2019, we execute on $2.2 billion, an asset sales at attractive multiples exceeding our target of $1.5 billion to $2 billion.
We closed out 2019 with a much stronger balance sheet decreasing our net debt by approximately $3 billion and improving our debt metrics inline with expectations.
In addition, we positioned the company for continued organic growth through our accretive asset sales and 29 team, including the sale of <unk>, which has been approved by shareholders and is expected to close in the first half of 2020.
This is an all cash transaction for 33 50 per share generating proceeds of approximately $370 million to altogether.
In 2019, we executed on the largest capital program in our company's history spending approximately $1.4 billion slightly higher than our guidance due to accelerated timing on certain growth capital projects and the timing of close of certain asset sales.
Overall, we delivered on all our financial commitments in 2019.
Moving onto our fourth quarter results, we recorded normalized EBITDA of $425 million up from $394 million in the prior year.
The surface the shows an uplift related to the work we have completed on the rate cases in Maryland, and Virginia, as well as rip it which added $36 million in normalized EBITDA to the quarter.
Strong quarter over quarter results were also positively impacted by higher equity earnings from Petro gas due to higher export volumes and domestic margins, partially offset by higher operating costs are Washington gas and the impact of seeing says rate case decision.
As I mentioned earlier, we were very successful in monetizing assets to Delever, the company, which had a corresponding impact on loss normalized EBITDA negatively impacting.
The quarter by $85 million adjusting for this we would have achieved over 25% growth in normalized EBITDA.
He gets slightly deeper into our segments the fourth quarter at our utility shop saw earnings ramp up consistent with historical seasonality expectation.
In addition, the increase in normalized EBITDA was largely attributed to the impact of rate cases in Maryland, and Virginia and higher revenue from accelerated pipe replacement program spend which was offset by the impact of <unk> IPO and higher operating expenses.
As you'll recall in the third quarter, we recorded a onetime adjustment of $30 million related to the hearing Examiners report in Virginia due to an adjustment of the T.C.J. liability.
In December the Commission in Virginia issued a final order adjusting certain of the hearing examiners findings some of which were favorable to Washington gas, resulting in an 8 million dollar increase to normalized EBITDA on the fourth quarter.
Our midstream segment reported very strong Q4 results with normalized EBITDA up over 80% 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 our equity investment in Petro gas, which <unk>, which I will get to in a moment.
Results in our base midstream business remains strong and we are seeing healthy volumes at our plants, specifically a full year of operations at the concrete north facility and you volumes from the Knick Creek facility. A direct result of the work we have done with respect to our northeast BC and energy export strategies, creating a dinner.
Great value chain connecting our customers from wellhead to export markets in Asia.
Ribbit, our cornerstone of our cornerstone asset in our Canadian Midstream strategy continues to perform well supported by strong FBI spreads.
During the quarter repeat generated approximately $36 million a normalized EBITDA was slightly greater than 3 million barrels for six ships the propane exported to Asia.
Overall, we're pleased with the performance of the facility today.
<unk> export it for the quarter were just over 36000 barrels per day slightly lower than anticipated due to the C. N strike in the fourth quarter.
We continue to see strong results from Petro gas recording equity earnings of $31 million, a significant increase from $5 million in Q4 2018.
These strong results were driven by higher export volumes and improved export margins.
Like what we are experiencing at rip it together with improved contributions from Petro guess Petro gas is other core business segments.
Contract termination payment realized during the quarter.
Turning to our capital program in funding plan for 2020, given all the work we have done to improve our financial flexibility. Our focus is now able to shift towards executing on organic growth opportunities to drive meaningful contributions in 2020 and beyond.
Our emphasis will be on capital efficient organic growth and executing on the accelerated replacement programs at our utilities to ensure timely recovery of this growth opportunity.
As such the funding plan includes $900 million and projects, primarily within our low risk utilities business that are anticipated to deliver stable and transparent rate base growth and strong risk adjusted returns.
In 2020, we've allocated approximately 25% more capital to accelerate a replacement programs, which represents about 45% of the total 2020 utilities capital program.
Capital in our midstream segment will be focused on the completion of Townsend and not find expansions.
We'll see it pipeline systems maintenance and administrative capital and the completion of MVP Southgate, which is the mountain Valley pipeline expansion program.
We plan to fund our capital investment plan through our significant embedded growth and existing financial capacity with no expectation for raising common equity in the near term.
We will continue to maintain a disciplined approach to capital allocation our priorities have not changed as we focus on preserving a strong balance sheet, returning capital to shareholders right through our dividend and executing on low risk capital efficient organic growth with a self funding model.
Given our decision to spend the drip early in 2020.
Our investment grade credit rating continues to be fundamental to our strategy. As you know provides us with greater financial flexibility and a lower cost of capital, which in turn supports growth going forward.
In December positive rating action was taken by S&P of Triple B minus with the revised outlook, the stable well Fitch and DBRS affirmed ratings at Triple B and Triple B low respectively.
The S&P result was favorable and in line with our expectation as we've made significant strides in strengthening our balance sheet and refocusing the business.
We will continue to work on improving the financial metrics of the company and we'll continue that dialogue with the credit rating agencies with the goal of improving our credit rating overtime.
As we move into 2020.
We are positioned to deliver strong earnings growth, which reflect the underlying strength of our business and our ability to capitalize on the ample opportunities within our core business.
Growth in our utility segment is driven by rate based growth in achieving higher returns through rate case settlements increased utilization of accelerated replacement programs and operating costs and leak remediation reduction initiatives.
Our consolidated utilities rate base is expected to grow at approximately 8% to 10% in 2020.
The recent rate case settlement at Semco is a strong example of our ability to capture timely returns on invested capital and rate based growth. We completed the market connector pipeline safely on time and on budget in the fourth quarter 2019, and on December 620, 19 at an order was finalized in respect to assemble rate case with an effective date of June.
January Onest 2020, several months ahead of previous expectations.
The settlement approved included an approximately 20 million dollar rate increase and then allowed return on equity of 9.87%.
Growth in the midstream segment will be driven by the significant upfront investment we made since 2018 and increased utilization at rip it.
As well as increased volumes at northeast BC facilities, including North find Townsend and they can creep.
As well as higher expected margins on U.S. midstream storage and transportation.
Our distinct ability to handle the molecule through the entire value chain and provide access to premium price global markets is very attractive to western Canadian producers.
We will leverage our first mover advantage to drive that continued expansion of our integrated asset base, an increase export volumes at ribbit.
The facility itself was built to accommodate almost 80000 barrels per day, which will drive significant long term earnings growth with minimal additional capital required.
We expect to achieve normalized earnings per share of 120 to 130 and normalized EBITDA of approximately 1.275 to $1.3 billion to $5 billion, excluding any contributions from the outcome of the Petro gas put option.
We will update the market on contributions from Petro gas once we finalize the valuation and close that transaction.
In conclusion strategy. We have outlined is designed to result in reliable attractive long term earnings earnings and dividend growth.
I believe that the combination of appropriate capital discipline business optimization and operational excellence will position us to deliver strong performance with that I will turn the call over to Randy.
Thank you James and good morning, everyone 2019 was a transformational and extremely successful year for us here at all to gas.
We exceeded the operational and financial priority set out in December 2018, which resulted in earnings that were at the top half of our guidance range.
This is a direct result of the newly focused strategy and Moreover, the hard work and effort of our talented teams across the company.
We transformed the focus and focus the company on our stable high growth utilities in midstream businesses that we see the best return opportunities and are now well positioned to deliver long term value to our customers business partners and shareholders.
Looking back since I first spoke with you in December 2018 at my fourth day at all to gas I am proud of the achievements that we've accomplished.
I laid out an aggressive strategy designed to de lever the balance sheet regain our financial strength and flexibility and streamline the business to focus on sustainable growth from a highest returning investment opportunities we.
We successfully executed our balance funding plan delevering, the balance sheet and solidifying our investment grade rating.
Well funding the largest capital program and the company's history at almost 1.4 billion.
We did this through responsible execution, a major capital projects like Rip it and the market connector, which were delivered on time and on budget.
In may.
We celebrated the official Grand opening of Ridley Island propane export terminal.
First LPG export facility on Canada's West Coast, and a cornerstone asset of our integrated midstream strategy.
Through rip it we offer our customers a unique and compelling proposition providing services across the energy value chain, including access to export markets, where demand is strong and the value proposition remains robust.
We expect this integrated value added capability to provide significant growth in our midstream business over several years by attracting increasing volumes to our existing facilities with minimal capital investment.
We achieved significant profit growth at all utilities to projects like the market connector.
Realization of accelerated rate initiatives to upgrade and modernize our distribution system.
Rate cases to update our current cost structure and implementing our operational excellent model keep future cost in check.
We took steps to establish our utility management team new until the management team to address the current needs of our operating an industry leading LTC.
We have accomplished significant milestones in the short period due to the exemplary effort and innovative commitment to a new approach of our leadership teams across North America.
We are now position in 2020 with a significantly stronger financial flooding, a sharper focus on our core businesses and ability to capitalize on the significant portfolio of organic growth opportunities in front of us.
We continue to improve our operational excellence model, which will position ought to gas to deliver on our long term strategy of being low risk high growth utility in midstream business.
The near term growth opportunities I see today exceed my original expectations and are now achievable to the hard work the teams have delivered over the past year.
Looking ahead 2020 is all about execution that our core businesses.
We have a unique investment proposition that combines higher growth midstream assets with stable and predictable cash flows of our utility business.
We continue to believe this strategy is the right, one and the quality and diversification of our asset position.
Hey position us to deliver sustainable attractive risk adjusted returns over the long term.
Our strategy is straightforward.
Leverage the unique proposition of our high quality utilities in midstream businesses to utilize our expertise along the that energy value chain to connect customers to markets in North America and abroad.
In 2020, we expect approximately 13% year over year growth driven by our core businesses, which more than offsets the lost EBITDA associated with the 2019 asset sales.
Our midstream strategy is underpinned by the growing demand for energy in Asia, and our first mover advantage rip it.
We will continue to leverage our unique structural advantage to export cleaner energy, the Asia and expand our footprint in northeast BC.
We expect this unique capability to attract more Canadian production.
To increase producer value proposition to drive continued expansion of our asset base increased volume and provide more producers the opportunity to access our value export capacity.
Our northeast BC strategy and the value added approach to our customers continues to position alter gas as a midstream provider of choice.
Because excessive rip it is highlighted through premium pricing, we see by our tolling customers and we see increasing demand for export capacity and tolling agreements at rip them.
By the end of 2020, we expect to increase tolling volumes to approximately 40% of throughput to approximately 20000 barrels by the end of 2020.
We expect approximately 15% growth wouldn't it.
The midstream segment in 2020 after adjusting for the last of EBITDA from asset sales in 2019.
Driven by full year.
And higher propane export volumes with it and increased volumes at northeast BC facilities, including North kind towns and then a concrete.
We also see significant opportunity to further expand our current service offering through the increased ownership of Petro gas, which owns and operates the 50000 barrels a day Ferndale NGL export terminal in Washington State.
The opportunity for a JV to obtain full ownership Petro gas upon the closing of Sam holdings exercise of its put option.
And all to gas acquisition to be greater indirect interest as a result.
We will create the opportunity to provide producers additional market alternatives to access to up to 130000 barrels of industry, leading west coast energy export strategy.
Shifting to the utility segment through the ownership in WGCL, we are uniquely positioned to capitalize on one of the higher annual rate base growth rates in the United States at 8% to 10%.
Underpinned by the replacement of aging infrastructure innovative rate design.
And growth in our customer base.
Our strategy is centered on safety and reliability capital discipline and growing the rate base through accelerated replacement programs.
We continue to drive towards the performance based culture to enhance our capital efficiency and returns and maintain affordable rates for our customers.
We will optimize every dollar spent on repairing replacing aging pipe to improve safety and reliability improve our customer experience and we do sleep remedies remediation costs.
2020, we expect over 10% growth in our utility segment underpinned by approximately 10% rate based growth.
Hi, retrieved returns through rate case settlements increased utilization of accelerated placement programs and operating cost reduction initiatives.
In January we filed a rate case.
In the district of Columbia, asking for an increase in rates of approximately 35 million to reflect the growth in rate base and updating our operating costs.
We haven't filed for new rates in DC since 2016.
It is currently the jurisdiction, where we see the largest gap between earned versus allowed returns.
So this rate case represents a significant step towards closing the gap on achieving our loud.
Please.
In summary, we have a clear line of sight on a significant portfolio growth within our utility in midstream segment, and a stronger balance sheet, which will allow us to deliver sustainable growth.
We have the internal cash flow in incremental debt capacity to fund approximately 1 billion in annual growth capital that will provide us the ability to invest in our profitable growth opportunities.
Finally, our near term priorities have not changed we continue to execute on our organic growth opportunities, while preserving capital discipline within our self funding model.
Maintaining strong balance sheet and prudent payout ratio that reflects the long term nature of our asset and balances the need to fund growth and return capital to shareholders.
That concludes our prepared remarks, I'll now pass it back to the operators facilitate the QNX session.
Thank you, ladies and gentlemen, we will now conduct the analyst question answer session. If you would like to ask a question Press Star said in a number one on your telephone keypad. If he would like to withdraw your question press. The pound key there will be a brief pause while we compile the Q when they roster.
Your first question comes from Rob <unk> of Scotiabank. Please go ahead. Your line is open.
Good morning, everyone.
First question on the utilities in your prepared remarks, you mentioned not the de had the largest gap between the earned in the latter or we can you kind of walk us through where you actually earned in 2019 or what your actual income on the utility side for a work to be if we were to kinda back into some of the parts there.
Well I think a clearly as I said in his prepared remarks, Rob the DC district is our.
Currently has our biggest gap between allowed return.
And current and we have a slide in our Investor presentation, I think that walks you through essentially the different steps that we go forward.
We filed our Maryland rate case last year, an updated our rates as well as Virginia.
And so the main focus really is on getting the Washington, D.C. district rates up to current Oh.
Current basis.
Okay.
And then moving over to Rip. It can you just remind us what percentage of your volumes historically or I guess in the last couple of months I've gone to China versus Japan, and whether or not you could see a slowdown in exports. There just given current a virus.
Sure Rob I tell you what a you know I don't have the exact percentages, but I'll make comments in terms of the Corona virus is had an impact I saw on propane demand in Asia. Some of the factories and shut down, but we haven't seen any direct impact on rip. It operations at this point, we really don't anticipate it that it will again we have.
A structural shipping and pricing advantage from the West Coast, Canada over the supply destinations such as the U.S. Gulf Coast.
So we would we would not expect to be the first impacted you know we continue to see a in received.
Multiple bids for our spot cargos in January.
As well as March you know with them into the lower demand in Asia for LPG, we have seen at the I pricing come off however that spreads in North America for propane out 20 are still strong be happy to Mount Bellevue is an $11.55 a barrel we have additionally to your point about Japan and Asia we.
How about from term commitments with asked most that 16 cargos per year.
And we have over 22000 barrels that are of our merchant that are hedged and I mentioned the tolling. So we leads that we again if you look at our historic asked most it's been probably taking 50% of the load.
In the prior year and.
And then the spot cargos tend to go to to China and other countries.
All right that's great. Thank you.
Your next question is from Robert Kwan of RBC capital markets. Please go ahead.
Good morning, I'm, maybe just starting with a higher level strategic question.
You have mentioned about being a diversified company, but I'm just wondering what are your thoughts as you kind of get both sides of the house in order and then start growing what are the thoughts on splitting the business into a w. CSP midstream company in a separate U.S. utility company.
Well, Robert you know right now as I've said in my prepared remarks, I think we currently believe we've got a unique that investment proposition combining nor high growth midstream assets, where they're stable predictable cash flows and in currently though we believe that's the right approach for all to gas as Weve focused company on the highest quality core businesses.
Restructured the company. So yeah, I think right now the diversification in our stable and growing utilities in our higher growth midstream business portfolio.
Enable us to deliver strong risk adjusted returns over the long term. So at this point in the yeah. I think we're focused on on two strong business is wrong under a common platform.
And so I think that's because we see significant growth opportunities at this point.
We'll always look at at that at corporate structure, but at this point as I said combination. The two strong business is is the best a path forward at this point.
Got it if I can turn to Petro gas I'm just wondering.
Able to quantify how much it the onetime contract.
Booking was and if theres any color on just the nature of that contract.
Sure I'll, let James and see that yes will Roberts, it's obviously a contract termination that that's specific to one contract as a result.
We don't want to disclose the amount because it is commercially sensitive information, but what I can confirm that it wasn't a material contributor to quarterly performance and the cancellation of that contract doesn't impact our guidance for 2020, as well that will not negatively impact our 2020 performance.
Got it if I can despite a quick they're going here.
You just give an update on MVP.
Specifically as well just thoughts on HCP Supreme Court hearing and read throughs for your project.
Yes, sure Robert I I.
I think based on our discussions with our partners a EQM to call I think we've we continue to believe that is an excellent project and that is that will ultimately be in service and they're targeting the end of this year. So clearly focusing on the court's decision. It's been some recent comments that appear to be positive, but we'll see.
Now that turns out that but overall our view is that excellent project, they're 90% complete as we speak.
And they're targeting the ended this year.
For the answer anything.
Great. Thank you.
Your next question comes from Robert Catellier of US see RBC capital markets. Please go ahead. Your line is open.
Oh, Okay, Hi, good morning, I just want.
I Wonder if you could walk through the provision on fusco bake.
And.
Just generally discuss your appetite for allocating capital to other gas plants in the current environment.
Robert It's a it's James here, so with respect to whose could pay I mean, it's a it's an acid gas injection well that's a that basically we've shut in because we're in the process of drilling new wells in that area for for the purposes of acid gas injection and just felt that it was it was the appropriate provision to take given the fact that were really.
Placing it with within you will.
Yeah, just Robert.
Sorry.
Just going to comment this is Randy on your second question in terms of the basin and that we continue to believe that Weve long term fundamentals and outlook.
For gas and Ngls in the Montney continue to remain strong.
You have for US we're in an enviable position a with the fact that.
Capital spent that we did in 2019 positioned us well with respect to rip it. It's it 80000, a day of capacity.
In the completion of our processing facility in towns in in a doubling of a frac capacity. It a north pine. This year allow us to have a capital light program and really grow into those capacity is going forward. So has the market evolves, but more broadly you know the egress issues that are imply.
Acting a Canadian production.
To some extent or using the Transcanada north Montney mainline is expected to come on shortly we're helping a great deal with our LPG rip it asset to providing an outlet for the 40000 barrels a day I'm, So excellent basin, well position company with assets.
That are providing producers access to valuable market. So in the long run I think we're well positioned to continue to have growth in this space.
Okay, and then just adding to that the aspects of DC in training on drip recently and then also we've seen some protester rail blockade sort of how does that factor into your capital allocation decisions.
Yeah.
Well I mean again with the particular rail issues that we've encountered.
You know are really not and overly concerned we don't like a you know interruptions, but the rails an integral part of our supply chain in Canada, it's been that way for over 100 years and and while we wouldn't expect labor strikes in blockades is a common practice in the long run I'm. So it doesn't you know has we look forward into our investments you know, we see that real hope.
Viable option into long run so.
Okay. Then final question for me I noticed there's a sensitivity in there related to.
The pension discount rate I don't think we've seen not.
Sensitivity published before I'm, just curious why now and what conditions would you what conditions were triggered or change in the discount rate used in your pension accounting.
Yeah, I mean weve.
What we've included it because obviously, having bought WGCL and having a defined benefit plan and a post retirement benefit plan, we felt that it was an appropriate disclosure.
The obviously returns of the plans themselves could could potentially impact the the rate and as well as work that the actuaries do so we felt that it was a an appropriate sensitivity to include just given the impact to EBITDA that a change in that rate could have as based on work that actuaries do every year with respect.
For the appropriate discount rate from a funding standpoint.
So really it's a portion of <unk> rates, the actuaries pick and when they picked them.
Correct, Yes, and that's that's something we we look at annually with respect to those funds.
Thank you.
The next question comes from Linda Ezergailis of TD Securities. Please go ahead.
Thank you.
I realize there's a lot of moving parts to how this year will unfold on a number of fronts, but I'm wondering if you could give us a sense of.
How much was already baked into your 2020 EBITDA guidance when you introduce it in December and what do you see is the more significant headwinds and tailwinds.
Merging since then that we're not contemplated Hum you introduced a guidance.
Okay.
Sorry, let Nick I didn't catch the first part of your question do you mind, just just repeating that.
Well I just say when you introduce your EBITDA guidance in December.
Yeah, I think you had certain assumptions baked in there and.
Things are fluid and dynamic and continue to evolve as 2020 continues on but I'm just wondering.
What has changed since then that was not contemplated that's presenting headwinds and tailwinds that might cause where you land either within guidance or potentially need to revise guidance.
As the year unfolds.
Well look I mean, when we when we actually rolled out our guidance in December of 18, we.
We knew about the the C. Unreal rail strike it added more or less come and gone, but obviously blockades in the Corona virus were not something that were in play at the time with respect to the guidance that we've rolled out that being said, though I mean, you've heard very clearly from from Randy that despite some muted demand in southeast Asia, we've not seen.
A drop off in terms of cargos, leaving rip it.
We've not seen a drop off in a in demand whenever we go to market with a spot cargo. So we wouldn't anticipate those issues impacting our ability to land within the guidance range that we provided.
Two analysts when we rolled out our numbers in December.
Uh huh.
And the only thing I will add is obviously the the other the other thing Thats changed since we rolled it out is the Petro gas put option. So once we close that deal. We will we will update the markets on the contribution on a pro forma basis, so of that Petrobras acquisition.
And any sense of timing bookends of timing of when Petro gas might close.
Yeah, Linda this is Randy I, yeah, we.
We think our judgment is that a.
Of the ended the second quarter is where we would you know see that are coming out at this point and that and I would add that you know acquiring the third interest and Petro gas.
And in a greater interest and operational control of the strategic assets.
Or a nice fit within our midstream footprint as you know and it's a great opportunity to take on that operational control.
So we would expect too and we're hopeful but through the second quarter that we will work toward closing that transaction.
And can you maybe give us a sense of how you're seeing potential synergies as Eugene operational control of Patrick asked whether it be revenue or cost synergies or maybe even future capital allocation decisions, how they might shift now that.
You would have a that full control of Petro gas.
Well when do you know, we I guess I would have an answer your question. This way that we've made an investment in Petro gas in 2013, Yeah. We were bullish on the prospect of exporting products from North America, and and we continue to remain bullish.
Currently there are moving and as I said through the process to determine the value of seems ownership stake. So therefore, you know at this point you know as I think you'd agree I cannot kicking into great detail, but what I can tell you is that we recently did invest in building, our really island LPG and we continue to move rip it to a more of a tolling model items.
Position the asset for upside and we would deploy the same strategy for Petro gas and the opportunity to have more access to the Asian markets is exciting for us.
I firmly believe that the valuation it seems interest will be accretive to our Haley shareholders and you know that ability to operate petroquest together with their assets will prove valuable to all of our stakeholders.
Thank you and just a final question Patrick is I realize that the funding plan can shift depending on a number of.
Considerations, but have you started a parallel process to tee up the funds required for that.
And can you comment on I know you can't comment on asset sales, what would they be partial or full sales of assets there or not.
Text you can provide on how the funding plan has started if at all would be appreciated.
So it's James here and if so what I what I can say is that obviously are that we will not need equity to fund Petro gas I just want to reiterate that for free grew in the markets, but what our first.
Our first option from a financing standpoint is to is additional is cash flow and some additional leverage because we will have incremental EBITDA once we start to consolidate.
That acquisition and then with respect to asset sales process has no. We haven't started any yet, but we do have noncore assets that we can monetize when the time is right to be able to to be able to fund that I don't think that we need to close an asset sale.
At the same time that we closed Petro gas because we've got capacity on the line, but we can closing.
Shortly after we close Petro gas on an asset monetization and and pay for that.
Thank you.
Your next question comes from Julien Dumoulin Smith of Bank of America. Please go ahead.
Hey, good morning team. Thanks, so much of the time and again congratulations on some pretty incredible results here I want a focus here on the utility front first DMR P. success in Maryland is pretty pretty incredible can you guys talk to whether that was contemplated in the rate base.
Disclosure you guys provided in December and then separately speak to.
Timeline on achieving your are we used to what extent did you intend or have a thought process about using this again towards your broader achieving of the are are we and then separately and related on DC in tackling that I know you've talked about a rate case, but is there any ability to to file anything more formulaic as we saw in Maryland of late.
Yeah, Hey, good morning Jewish as Randy.
A question so look I, a when we looked at a building our guidance. We we've built in a the results of our Maryland, and our Michigan rate case a into.
Our forecast in 2022, we built those aspects in and I think we'll look at a variety of innovative approaches in D.C., we filed the case straight up but we're having discussions on on on on a variety of different approaches that can you know modified rate approaches and such like that so more to come on it but but certainly the team is looking at.
Variety of ways to have an innovative rate structure that can allow us to have the opportunity to earn are allowed return going forward.
Okay, Alright fair enough well just stay tuned here and what does innovative approaches might be.
Right.
Not to get ahead of him Jeff.
No no very much appreciate the regulatory process here.
If I can if I can pivot back here quickly.
Why do you think there hasn't been more of a pricing impact on propane I hear what you're saying about volumes in the demand for volume, but you know the pricing commentary about that being sustained its been.
I suppose.
I Dare I say surprising, but I'd be curious on any further thoughts there and then if you can't I'll squeeze and just the last one any financial metrics you can disclose do you think about this petro grass pro forma.
I'll leave that there.
Well, we <unk>, we have seen <unk> with the impact on demand a decline in happy I pricing, but the real driver is at the end today that the spread between the alternative belvieu market NFI I and that has remained strong I think that's the key driver for us and as I said with the shipping advantage up the west coast of Canada.
Provides a very cost effective solutions to the market so and so what you might see some declining you'll see the overall spreads had remained a strong on a going forward basis for US. Your second question was about more financial guidance with respect to Petro gas I'll, let James naturally I would say that until we finalize the.
The valuation there isn't a very much in the way of a pro forma or.
The impact that we can provide what I can point you to though is that no 14, I believe in RM DNA that discloses what the after tax equity pickup of Petro gas has been in 2019 and 2018 as well this historically, but so obviously once we once we close that process, though we would be consolidating a better.
Position and not doing an equity pickup.
Fair enough, Okay, guys best of luck.
Thank you.
Your next question comes from Patrick Kenny National Bank Financial Please go ahead.
Yeah. Good morning, just starting with the 8% to 10% replace Cagar outlook for utilities through 2024.
Can you remind us what level of annual Capex is required to achieve that growth rate, perhaps comment on how much of that annual capex would be exposed to pre approval from the regulators versus you know ongoing maintenance and replacement capital.
Right. So we have.
Again, we get these U.S. in Canadian conversions.
Not we have.
When I look at this at a 10% rate base grows a number our rate base is about one for now.
Billing.
Right.
Yes, you about that so you're talking about a 400 million dollar Capex program for growth capital and beyond that.
But specifically to the strategy of getting current recovery on those as I mentioned in the past the accelerated rate recovery in all of our jurisdictions has been pre approved over a five year plan a de sees a bit shorter and we're working through that process, but our strategy is to all investments above depreciation and maintenance.
We'll be recovered on a and through our accelerated rate recovery mechanisms that will give us your current recovery to to those investments.
Okay perfect.
And then moving over to Rip it.
Just curious if you know what point.
2020, you might be able to achieve the.
50000 barrels a day throughput.
It depends on.
Being able to secure the incremental volumes through tolling agreements the spring, but just curious if you might be able to achieve 50000 barrels a day well before the end of 2020, if all goes well on the contracting fraud.
Sure. We we would expect a capacity to grow in material incumbents commencing in April 2020 that that aligns to the LPG contract here I'm. So we feel very good about our forecast a in their supply aggregation and so I think you would see that starting up in the April on a going forward basis.
Okay, perfect and then circling back to funding the Petro guess auction here was additional noncore asset sales.
How do you think about timing the a the cash payment there assuming it is the end of the second quarter with maximizing value for something like your stake in NBP <unk>.
Do you need to see that project in service for you look to sell it or is that a process that could be undertaken well before yearend.
Well you know I'll comment on the asset sales and as James said Weve, that's a good bit of asset sale liquidity with NBP with our power assets that we hit and we can be selective as to how we move forward with that I think James referenced the fact that we could close this transaction without those assets sales comfortable.
<unk>, so we'll be well again, when we look at NBP. We believe that's an excellent asset and we'd like to de risk that and see that a little bit more clarity before we do any transactions there, but we'd expect that clarity to come later this year.
Okay and last one for me as if I could just on your recent sustainability report.
You know, obviously propane displacing hydrocarbon fuels in Asia is a good news story.
I'm just wondering how this U.S.G. momentum might be playing into some of the.
Commercial contracting discussions you're having with customers right now both producers.
And also acres or are you seeing any financial tailwinds from this rising demand from industry towards de carbonization.
Well you know I think that the overall macro market in Asian demand for propane strong and that's driving some of the pricing as we get through their Corona virus and we look long term.
So I think but clearly the ability to displace higher carbon intensive fuel is good for the world and it's good.
For Canada, and so I think it's a very important part reducing carbon emissions and we're excited to be part of it and while I think that could we expect that to continue to grow I'm going forward basis.
Got it I'll leave it there thanks guys.
Your next question comes from Ben Pham a female. Please go ahead.
Okay. Thanks, I want to go back to the main topics of a rip that Petro Gasunie <unk> brought all your appetite for I guess commodity exposure.
That's right word, but maybe just just more of that the non non regulated side of that 10 and is is there I guess my question. There is there a certain level of commodity exposure, it's just that.
Far East index exposure that you guys start to get a little bit more uncomfortable.
Total enterprise.
Look I think that you know our strategy is a low risk high good utility in midstream business. We continue to move toward more of a tolling arrangement as I mentioned, a at rip it and with respect to the merchant we hedge those volumes as soon as we enter into one side of the transaction if that's the supply side with the FBI. So.
We continue to focus on on a new the long term earnings and with respect to Patrick That's as I mentioned previously you know, we we continued to move rip it more forward with a tolling model and we would expect to.
Operate similarly, as as we deal with Petro gasoline, we are not a producer we connect producers to valued markets.
The commodity risk should rest with those that are bearing that commodity risk and we provide the upside but those producers to access that market. So that's our strategy and we'll continue to execute on that.
Ben if I could just add to that I mean, if you look at if you look at 2019 once he usually if you look at our hedge positions and then you layer and totaling.
Terrific Rip it was anywhere between 70, 580% hedged for us during the year right. So I want to stress that we're not we're not out there are taking commodity exposure to randy's point, we lock it in.
Yeah I appreciate that.
Yes, I'm just I'm, just thinking I mean, <unk> patches don't you're not lucky in like a 10 year hedge right or are you and then I mean, I don't think you're expecting to tolling arrangements of younger percent right I mean, it's more 40, 50%.
Yeah, well, what I think what I've said in the past is that we'll continue to de risk. The asset. We had two we had to see this business right. So that we could show the Canadian producers the the advantage of getting to to the far east market and to get happy I pricing and and we've done that and I believe strongly there as we continue to to move forward the.
Percentage of tolling, we'll just continue to increase on a going forward basis. So yeah strategy was to see this business clearly demonstrate the value with getting to the far east market in our producer community is seeing that clearly and well work on the demand pull side of this too for long term annuity type contracts as well too.
Each all the way back so if the that's a philosophical approach and I think we're making excellent progress in that way.
Okay. Thanks for that time, and there's crush on corporate restructuring.
Before I am I right I Wanna tied into that a to run that my first question around commodity exposure I mean, how you.
San <unk> take.
Yeah.
Some of this rip that parties exposure that.
Maybe it makes it a little bit harder to.
Restructure business later on.
No I don't I don't think Ah. That's I think these two businesses run under a common platform that are both annuity based long term sustainable businesses with annuity cash flows are you fit together quite well and I don't think that precludes any other you know corporate restructuring down the road if if that's it that's the direction.
It's in the best interest of our shareholders.
And I'm not sure its disclose in APAC same outlook, but are you keep do you know what can you quantify the mountain valley <unk> you're booking.
Turned out to change if we have that it's VA. If you see I think there were booking is about a 35.
Million, a year 35 to 40 million a year.
Okay, all right. Thanks, guys.
Okay.
Your next question comes from Jeremy Tonet of JP Morgan. Please go ahead.
Good morning, Randy a great to talk again.
Hi, Jeremy how are you [laughter] very good. Thank you I just wanted to start off if I could for for Rip. It didn't know if there was any sense you can provide for the level of contribution to EBITDA last year, just trying to get a feel for how how big that was or maybe just kind of looking forward I guess on the midstream side, how do you.
See the business evolving between kind of liquids handling processing fractionation like the size of those you know the different contributors to midstream EBITDA going forward, just kind of Directionally speaking if you could.
Yeah, No [noise] with respect to last year's countries should we had seven months of rip It a and Oh. It was approximately 85 million EBITDA contribution and then we have a full year built into 2020.
Said in the past Jeremy that we you know we want to be able to touched the molecule throughout you know them from the wellhead through our processing fractionation facilities.
Ultimately or through rip it to the West coast, we're doubling the size of our fractionator at North Pine moving from 10000 barrels to 20000 barrels this year and that will be completed in April.
We're adding an additional 200000 today have a processing capacity Townsend all backed by firm contracts with shippers. So we want to <unk> will continue to see gross.
In the business in those areas. So it well, we don't touch every molecule or overall goal is to be able to.
Provided integrated business model to our producers and indeed.
Attached into attractive markets.
That's helpful I'll stop there thanks.
Thank you Jeremy.
This concludes the came in a portion of today's call I will now turn the call back over to Mr. Mcknight.
Thanks, Sheryl. Thank you everyone once again for joining our call. This morning.
For your interest in altogether as a reminder of the Investor relations team will be available after the call.
For any follow up questions that you might have that concludes our call today I hope you enjoy the rest of your day and you may now disconnect your phone line.
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