Q1 2020 Earnings Call
Good morning, ladies and gentlemen.
Welcome to enter pipelines first quarter 2020 conference call and webcast I would now like to turn the meeting over to Mr., Jeremy Rhubarb, Vice President Finance and Investor Relations of Inter pipeline. Please go ahead Mr. bar.
Thank you might show up and good morning, everyone on the cost me today, Chris Bill Inter Partes, President and Chief Executive Officer went Haiti, Chief Financial Officer, just Porsche Senior Vice President Transportation, and Corey Neufeld, Vice President NGL commercial.
For today's call, Chris will discuss the current business environment, including recent developments quite a major project something right will conclude with remarks on her 20, or Q1 2020 results and financial flexibility.
To start I'd like to remind you that certain information on this conference call may contain forward looking information most risks uncertainties and assumptions.
Such information, although considered reasonable by Andrew pipeline at this time me later prove incorrect and actual results may differ materially from most stated or implied by our comments today.
From a line should not be placed on such information.
Discussion of related risks factors uncertainties and assumptions is available in are empty Guinea, which you can find on our website or at Cedar Dot Com. Please go ahead Chris.
Thanks, Jeremy good morning, everybody.
I wanted to start this call. This morning by thanking all of inter pipelines employees field stopping contractors dedication and hard work during these unprecedented alright.
It's not lost on me or the executive team.
Alan just space by balancing the needs of family and work and thus far.
[noise] open 19 pandemic.
Im supply imbalance is placed significant pressure on global energy markets and commodity prices.
It's difficult macroeconomic backdrop significant consideration was given to how best to prudently fun well program a sustained.
No flexibility our organization.
In March and her pipelines board of directors determined that retained cash flow was the most effective form of equity financing for our business needs and made the decision to reduce monthly cash dividend.
72% to four cents per share concurrently suspend the premium dividend and dividend reinvestment plan.
This is always one of the hardest decisions that aboard has to make but we believe for our company. This decision.
Correct one in this environment.
These actions result in an annualized cash savings of approximately $525 million and eliminate shareholder dilution through the drip.
And our pipeline continues to focus on the advancement of the Heartland petrochemical complex construction activities progress during the quarter.
Hello safety of our workforce as a top priority for the company with robust controls and initiatives implemented across our organization and at the Heartland construction site can manage cobot 19.
These controls and initiatives our alignment with rules recommendations from government agencies and public health authorities.
As a result of these precautionary measures staffing and productivity levels have decreased somewhat from our plan profile and we've adjusted our plan spring construction activities Accordingly.
As a result, we've revised our inspected in service date to be really 2022, instead of the and 2021.
During the quarter inner pipeline invested approximately $255 million on the heart and complex.
With 2.5 billion spent today all the projects since inception.
Subsequent to quarter, a detailed analysis of the remaining capital costs was completed and has resulted in a revised total project cost estimate of $4 billion.
As expected a refinement of capital costs for the polypropylene plant what was an updated contingency cost estimate the propane dehydrogenation flat represented a comparatively small portion of the increase at $100 million.
Majority of the increase is linked to extra resources required for project commissioning and startup as well as incremental interest during construction, which combined represent an additional $250 million.
Finally delays and achieving elevated productivity levels, resulting from a koeppen 19 endemic are expected to have a project cost impact of approximately $150 million.
We also announced in late 2090 that in late 2019, inter pipeline launched a process to secure a partner for material interest in the heart of the complex.
Interim advisors have been engaged in the process is ongoing.
Of course, there was no assurance transaction will be completed and the definitive timeline has not been announced.
However, we believe this project will be of interest to a number of third parties as it is an excellent opportunity to invest in a multiple large scale projects with unique commercial advantages.
The next active component of our capital plan includes phases, one and two of our central Alberta expansion within the conventional pipeline segment.
I'm pleased to report that the that phase Twob. If I can connector has been completed on budget I was placed into service on April Onest as planned the construction of 75 kilometers of pipeline to connect into pipelines or river and central part of pipeline systems is expected to ramp up to 10000 to 15000 barrels per day of throughput volume.
What a normal operating environment returns.
I don't component of phase, one, including to do 130000 barrels storage tanks at stettler.
Is nearing completion and expected to be on budget and placed into service in July.
Moving to Europe, we suspended process to sell the bulk liquid storage business earlier. This year, we were it and at that stage of the process, but unfortunately potential purchasers of this business has been significantly affected by Kobin 19, as well as travel restrictions and social distancing made it extremely challenging to multi country asset sale.
We may revisit sales process at some point in the future go in the interim.
Current market environment is created strong demand for starch and the bulker can storage business is well positioned to generate reliable cost of service and fee based cash flow for into pipeline.
Finally, despite significant market turmoil I remain confident in the financial result.
We don't see of our company our assets remain fully operational continued to generate substantial cash flow furniture pipeline.
We continue to expect between 780 million to 810 million of adjusted EBITDA during twentytwenty from cost servicing fee based agreements within our all sands conventional and book liquid storage businesses, assuming normal operations.
Now I'd like to turn things over to Brent discuss our financial results and recent initiatives to enhance financial flexibility.
Go ahead Brent.
Thank you, Chris and good morning, everyone. During the first quarter 2020 enterprise pipeline generated FF all of 208 million.
Or 49 cents per share the quarter benefited from strong results within our all sense transportation and bulk liquid storage segment results within our conventional pipelines segment were consistent year over year, but impacted by declining midstream marketing margins, while our NGL processing segment was impacted by declines.
In realized commodity pricing.
And our pipelines financial resilience is rooted within our oil sands transportation franchise, which generated 155 million NFF old during the quarter, representing a 7 million increase compared to Q1 2019, the increase largely relates to higher capital fee revenue, partially offset by a long return on equity and debt result.
Shifting from the decrease in interest rates during the period.
As we continue to navigate these tough economic conditions I'd like to reiterate that this segment is supported by 20 plus year cost of service contracts that are not materially impacted by throughput volume or commodity price fluctuations.
Our conventional pipelines business generated quarterly FFO at 37 million versus 34 million in the comparable quarter in 2019, despite a smaller contribution from our midstream marketing activities.
Midstream marketing activities were impacted by unfavorable crude oil differentials related to the collapse in commodity prices experienced during the quarter, where we generated approximately 2 million an adjusted EBITDA. During Q1 2020 compared to 3 million during Q1 2019.
Full year 2020, we expect our midstream marketing operations to generate between 5 million and 15 million at adjusted EBITDA subject to pricing differentials volumes and corporate cost allocations.
Moving to the NGL processing segment financial results were impacted by lower realized frac spreads, partially offset by strong operational performance.
Regarding our straddle plant conference at a quarterly record free inlet volumes, averaging 2.5 billion cubic feet per day.
Efforts to an Empire Spike performed in line with previous quarters due to their stable cost of service and fee based contract structures.
At Redwater operations continued to produce strong production and sales volume.
Well, if increasing over the comparable period in 2019.
As we continued to progress through 2020, the operational outlook for NGL processing remains strong. However, near term results are expected to be adversely impacted by the current pricing environment.
Our bulk liquid storage business generated its strongest quarterly results to date with 35 million NFV fold during Q1 2020, representing a 30% increase over the comparable period in 2019.
The increase is a direct result, a strong storage demand, resulting from a return to contango markets as well as IMO 2020 regulations.
So I'll, let David utilization rates have demonstrated a marked improvement averaging 95% in the first quarter of 2020.
From 78% in Q1 2019.
And our pipeline anticipates strong utilization rates to continue through 2020 with April utilization rate rates, reaching 98%.
Now turning to the balance sheet, we remain focused on measures to enhance enterprise clients financial flexibility.
In addition to the actions Chris highlighted in his earlier remarks, we have made significant progress securing additional liquidity.
First we successfully closed a new $1 billion unsecured revolving credit facility with the syndicate of key lenders. This facility. In addition to our existing five year 1.5 billion revolving credit facility provides approximately 2.2 billion of Undrawn committed credit capacity and positions us well to fund.
With our capital program and near term debt maturities in the event of a prolonged capital market disruption.
In addition, we announced that we successfully extended the maturity of our 500 million term loan for two years to August 2022, which materially reduces our refinancing requirements in 2020.
So this concludes the formal portion of the conference call and I would now like to turn the meeting back to Marcella to open the floor for questions. Thank you.
At this time I'd like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad.
Your first question comes from the line of Linda Ezergailis.
TD Securities Your line is open.
Thank you.
I'm wondering if you can give us a sense of.
Your your debt metric and with S&P, putting you on a negative outlook are there any additional steps.
That management the board is considering to address that or do you really just have to wait until the pandemic is over and that negative outlook.
Should resolve after that.
Yes, I'll take that its brand Linda.
Well to clarify I wouldn't say that the S&P downgraded list tired heat related to.
Just a pandemic itself.
Although yes. The pandemic did certainly was a big contributor in the decline in commodity prices, which I think was.
Certainly a big part of Snps concerns.
Maybe let me just make a few comments about S&P. So on March 30, Onest 2020.
S&P downgraded inner pipeline to two notches to triple B negative outlook from a triple B positive.
Negative outlook that was on their since December Twentyth 2017, we were surprised by the magnitude of the downgrade as well as the retained negative outlook.
And our discussions with S&P.
They have taken a very conservative view on forward looking commodity prices and have waited their forecast towards 2020, and 2021 and discounting that 2022 timeframe. When HPC is in service and so that was a little bit different.
Than previous discussions that we've had with them, especially in the years that they're looking at.
I will say, though that S&P continues to believe that we have strong business risk profile.
Reflecting high level, the contractedness, a diversified and large creditworthy counterparties and asset diversity.
Maybe let me just talk about DBRS. So dvrs still have this at a triple b.
Who and they reconfirmed that rating on April the third 2020, citing that we're taking prudent steps to enhance our liquidity, which I just discussed.
And.
In other actions that we're taking to manage through this current difficult environment.
Although it would be ideal to stay investment grade rated by all agencies credit rating agencies have changed in this environment their views have changed and really obviously any actions, we take or outside of our control. Our focus remains on completion of HPC and our credit metrics I'll note are expected to.
To significantly improve in 2022.
So let me just talk a little bit further about some of the credit specific actions to fully address your question.
So as Chris mentioned, we reduced the dividend by 72%. This results in approximately 525 million of annualized cash savings, we reduced our 2020 sustaining capital by approximately 25 million.
We implemented expense wide herbs expense reductions organization wide as I mentioned, we entered into this new 1 billion committed credit facility. We extended the 500 million term loan and as Chris has mentioned also we are exploring this partnership opportunity for material interest in HPC in a first success.
Well on that that will definitely be credit positive.
[music].
Thank you for that context, you're not the only company. That's had the goal post occasionally changed on new them from the rating agencies, maybe moving onto your operations I realize.
It's a very dynamic situation, but can you give us a sense and your conventional business kind of what you're seeing in terms of volumes.
How that might trend through the second quarter and what you expect in terms of recovery at the light volumes I guess some industry you those.
Recoveries, maybe might lag the oil sands and then.
Just within the context of that as storage fills up I'm wondering if there might be some incremental opportunities for inter pipeline to find.
Some.
Idled assets, whether they be pipelines or store.
It might have been under utilized to help the industry.
Stores some of the barrels that are looking for home.
Jeff Myrtia or.
Our business leader for our pipeline business is on the phone Jeff do you want to answer Linda's question.
Sure. Thanks, Chris.
Yes, Hello, Hello, Linda.
Finally, seeing seeing the ramifications of what is.
Quagmire of supply and demand issues, we've probably got across the basin well over 100 producers that have taken steps to cut production and not directly.
Speaks to what we've included here this quarter with our equal numbers be.
Around 140000 barrels a day, we expected to be just above that.
The may forecast is just that it's a challenge to really understand where we're going to end up with at this point in the month, you've got producers and their nominations, indicating volumes for the month coming and their literally changing on a daily basis. So.
The main number that we included there 120 to 130 I think.
For my my part in this I feel that we're starting to get close to the bottom of where that will be we're starting to already see green shoots producers that had indicated shut ins for April and May are starting to bring volume back already numbers or are starting to show up but at the same time, we've got other producers at a different point in time under different.
Drivers shutting it in so it really is a volatile situation. So for Q2, it's a tough tough number to gauge, but I certainly think we're going to.
We're going to be better than what we're we're calling for me.
But but not much more than what we've seen in April that said as we get into the second half of the year. We certainly are expecting some recovery what that is yet to be determined but as I said the green shoots are starting to come up.
Your I'll get to your latter question if I missed one in the middle from a storage standpoint, we have done exactly what you've suggested we've actually.
Put into service a number of barrels of storage, where we've had some idle tanks keep in mind inner pipelines focus is operational so our tank and our storage capacity is limited.
We don't have excessive amounts of storage that we can put into merchant.
Commercial situations, but we are using every nook and cranny, so to speak and we have actually.
Started we're running through an open season with our stellar so as everybody knows were.
Both to complete the tanks out at Stettler as part of our phase two central Alberta program, and we're able to use one of those as merchant storage while volumes are at this depressed level.
So we're definitely taking advantage of all those opportunities where we can.
Not sure if that answered everything.
Thank you, yes, thank you and I guess another follow up question operationally is realizing that social distancing as a requirement to the priority to keep everyone safe I'm wondering if there might be any opportunity.
During this slower.
Industry time to accelerate any planned maintenance or opportunistically, maybe even de bottleneck or enhance capacity anticipating that that the industry will recover.
Yes, it's a great.
Yeah.
Linda works, we're trying to balance.
Feedback there, we're we're trying to balance.
A very very rigorous approach to to our costs can spending over the next.
Few months through this year.
There are opportunities to do do certain things and we're evaluating knows there's also some commercial opportunities that.
Perhaps warner priority earlier, but given the situation and dynamics, we're looking at those to the so there are several initiatives underway, but generally speaking, we're we're being very cautious and very prudent about where we're spending our resources as we move through.
The balance of this year.
Thank you I'll jump back in the Q.
Your next question comes from the line of Jeremy Tonet.
JP Morgan your line is open.
Hi, good morning.
Okay.
HPC if I could.
Few different questions here I guess.
No I'm not sure how much you can say given where you are in a process, but just as we think about strategic partners.
That you might want to bring in here for project.
Would you be able to speak with the attribute to be bass, whether it's kind of working with a competitor we might be looking to the same thing or working with the chemical company or.
Gene.
Karen Alberta stepping in kind of support other energy infrastructure projects, but would that make sense here and then.
I had a few more HPC.
Well, there's really two.
The clean types of potential investors as we see it today, there's there's more strategic investors that are either in the space today or wanted to get in the space today.
They may or may not have a footprint existing footprint in North America that theyre trying to expand to for the ones that don't it could be a global player that is looking for an attractive entry point into North America.
Being in mind that our project is truly is unique in north American polypropylene production because we're in a geography, obviously that no. One else is that it gives us access to.
So what we would call premium markets the Gulf Coast producers are more challenged.
To access and.
Obviously, we have the feedstock advantages that we've talked about it at length.
In the second category or was there are more financial investors more people, who are more investors like like we are theyre looking to invest into one life infrastructure type asset.
We'd like to participate on the same sort of contracting framework that we are working to set up right. Now. So those are the but thats the way I would describe the.
These investor units, but it's.
The number entities that fall into those categories like we said before we have we do have interest in this.
But we are definitely trying to manage expectations around the speed of this though it gets were really needs to acknowledge that the cobot has impacted everybody in business on this planet.
So when people organizations have their own unique challenges in this time, but we think that.
The unique this and the opportunity to enter into Alberta with this project here is compelling and we believe we'll get interest but were well have to manage the pace of this and as quickly as we humanly, Ken but it's not going to happen in the next month that's for sure.
That makes sense given just how much everything is changed really wondering if you could update us with how you think the project might have changed as far as.
Where your offtake plans for HPC would be are you looking maury.
We can you answer Asian markets at this point in the range of EBITDA that you guys had provided historically is that something that you guys. It's still tracking at this point or any other kind of changes to what the project would look like upon completion given what's happening.
Hi, good order our outlook for the markets that we think are our best for Heartland remains North America.
Yes.
The global economies have taken a whacking that's for sure.
The impact of the pandemic here.
Again, this too shall pass.
Take a while to work through but this is a 40 year investment.
So and we got two years before it's even in physical operations. So there's an RV ample time for market disruptions to work itself out before we we enter into service.
And that I'd also like to emphasize that I think this pad epic has talked to wrote one thing is that plastics are highly desirable.
Most of the things that people are using on a daily basis in the healthcare industry to fight to protect themselves from the from the virus or meet auto polypropylene. So having another home grown source for polypropylene is is very advantageous for the country frankly.
Let me just because of engine, but let me just since your question on the on the EBITDA, Yes, you know.
The 450 to 500 million that we've quoted many times in the past that's a long term average EBITDA.
Because it's a long term number yes, we're not we're not adjusting that outlook today at all.
Obviously as we get closer to the in service for the project.
Yeah, well to guide, though there's more accurately on hold on the near term EBITDA profile for the business.
Comfort or.
Another at least a year that way.
That makes sense and just last one if I could on HPC and given the benches that you laid out here do you think.
Capture kind of a promote given how far you are in the progress.
These advantages or how do you how does that factor into whether or not you, though given the partner.
Well frankly has Brett laid out we are 100% focused on.
Successful execution of finding a partner during the day, we'll we'll look seriously at all reasonable offers to partner with us on this project.
So multitude of approach as investors could take in terms of how they make the investment.
And what their share of the future EBITDA might be whether you want to participate in the contracts or not take market exposure.
We're very flexible in our thinking and we're just looking for the best deal possible for that for the organization at this point in time.
We did call it don't.
So.
It was our thought that approaching partners for investment in this project.
The most opportune time was above the midpoint of the project because than we do these 0.2 substantial de risking of the execution of the project we think thats.
Pieces should play well in these discussions coming up.
Great. That's all very helpful. That's it for me thanks.
Your next question comes from the line of Patrick Kennedy from National Bank. Your line is open.
You guys made it clear that you could potentially go back to a higher dividend once HPC comes online.
So assuming all does go well on the contracting front.
The 450 to 500 EBITDA holds.
Frac spreads and conventional volumes do come back to more normalized levels by 2022, what is the right payout ratio for you guys pro forma HPC and.
What might that imply in terms of an increase back from the current dividend level.
Oh, it I totally understand why are asking the questions, Pat but theres far too many hypothetical so there for meta.
To address that at this point in time, I guess I'd like we have general comment I would say if everything worked out as you wait out there would be substantial torque within the organization for enhancing the dividend.
That's it that's obviously a board decisions that will be made.
On the road.
Okay.
Maybe just within the 500 million dollar increase on HPC.
And specifically the onefifty related to the pandemic just wondering if you could walk us through how you landed on that number and.
No if that really is a a midpoint of a range of outcomes.
And if so perhaps what the upper end of that estimate could look like I guess, assuming that the current situation persists longer than say the base case of a recovery through the back half for 2020 and and its 2021.
Yeah, well I guess the way I'd characterize this estimate there was a enormous amount of.
Work that was done with a bottom up.
Refresh, particularly of the polypropylene plant and we have now what what.
Industry parlance is called the class two.
For both the PDH plant and the polypropylene plant the highest quality estimate that you can get.
Project under construction.
So were I would say, we're quite confident in call. It the EUR estimates around the base construction of the facility and I'd like to point out that the based construction activities only increased $100 million project of this size with a four year build.
Performance is frankly in our opinion is pretty good.
We.
Other larger component of the increases around the startup and commissioning costs.
I think I've mentioned in previous calls you will be the commissioning and operational and business readiness activities for facility of this complexity in size.
Hello requires a massive amount of resources like when were commissioning. This facility will probably have around seven to 800 people.
Onsite assisting our operation staff for a period of could be six to 12 months.
You layer on the extra spare parts were going to order the vendor support.
You name. It you can this is a substantial investment, but we think it's the right investment to make its investment in the future of the facility and try to ensure to put us in the best possible position for a safe and and successful startup of flat.
And we really.
That cost increases really result of having hired.
A majority of our long term operational staff and people brought a wealth of industry experience directly related to these facilities and really helped us positioned ourselves here for that successful started up.
And then.
The of course, we indicated there is it theres ITC adjustments frankly, that's just I don't know this is the right turn but it's more of an accounting exercise. Its the it's just the timing of the cash flows and its adjustment in this for interest rates really outside the control of the execution of the project.
And finally, we have the cobot impacts.
These cobot impacts are really tied to our view on how we're going to.
Our ability to staff up leave the project.
And the productivity levels and how that impacts the ultimate.
On stream time for the of a plan that ships by a few months that layers and substantial additional costs a lot of it has to do with ITC frankly as well.
So long story short, we think there is definitely a prudent amount of contingency in these numbers and we're quite comfortable comfortable with the number as it stands in terms of a final completion costs.
Okay. Thanks for that color Chris.
The last one year maybe for Brent.
Just the incremental liquidity that you've locked in and specifically to the 16 months.
Billion dollar line.
Did you land on that 16 month term just based on your expected outside bookend for the timeline to find a partner for HPC or.
I reading too much into that and then there was just the optimal term based on pricing and other financial factors.
Yes, Thats definitely the latter Pat.
Okay. That's it from me guys. Thanks.
Well.
Your next question comes from the line of Rob from Scotiabank. Your line is open.
Good morning, everyone.
First question on Hartland, I, just want to go sense of whether or not the contracting strategies. It on pause during the.
The process to find apart.
At the partner does turn into want a.
I would say its share of merchant production and I would assume that there is still.
A slice of that they're still.
No we're definitely not pausing on our contracting efforts and they remain active and ongoing in fact, even.
You mean during the last few months we've had.
New people paying us on potential.
Interest in contracting with the facility.
So.
We do.
It certainly we have to mesh carefully our contracting plans with.
Desperation of a partnering.
The community here, but we think we think we can manage inherent maybe conflicts in that and Theres a theres a path forward for us.
Alright, Thanks for that and then just in terms of the commentary where that the in service date Hurtling may slip a little bit what's driving that and kind of what mitigation factors.
Could there also be just given that you were tracking relatively well versus schedule previously.
Yes, yes, we were frankly quite.
Positive on the.
The schedule was tracking for this project until until the pandemic hit US. It's really just a function of we are base plan had a staffing up about 20% in terms of construction labor.
At around mid June.
And obviously when the pandemic hit us in full force opening in late February early March we did not stop but we stopped the ramp up of staff, we still have about.
We were tracking between 15 to 1700 people on site everyday.
And.
But now so the best the best way for Us to mitigate this schedule slippage is to see if we can try to claw back some of the lost productivity that we've had in terms of a lower.
Horse here for the past few months and try to advance some work throughout the balance of this year that early next year and that's sort of project teams are working on right now we're trying to find.
Sensible plan to fall back some of those months of schedule slippage, there that we see as a potential.
And we think it's the taught us that sort of paint hope. We think we think there is an opportunity there to do a bit better than what we think today, we are guiding investors to that to a little bit of schedule slippage here to be conservative.
I would I would point out that bill based off our analysis.
Most major single site construction projects stopped during the pandemic. We're one of the few that was able to keep moving forward and were able to do that.
Well safely and within all the regulations put in place by public health officials and government.
I really want to commend our project construction teams for that the of just on an exceptional job and keeping whats probably canadas largest single site construction project active and productive.
Thank you put the color.
Your next question comes from line of Ben Pham from beam Ammo. Your line is open.
Hi, Thanks, Good morning, I wanted to go back to.
The Heartland and made maybe a.
Calm comment on the timeline a bit more you you mentioned to started that process last last december's anything you would have got a couple of folks and before opening 1900 Bucks right a lot of those those folks probably when it is this capex and and whatnot. So that's that's good news on that front.
I should we think about.
Timeline visibility on a sale more linked to the coal that situation in anything of that hunters.
How is this sale process different than the European side, where it quick Colgate impacted the process.
Well I think the very different.
Processes, the but the problem with the Europeans.
Stored sale was the fact that it's 23 terminal spread over.
What five six countries. So just the.
Yes, and we were crystallizing this big.
To call it signing given driving towards.
Turning to execution of a definitive documents right with European countries were literally shutting down. So if just became a possible even to organize meetings at that point much less for for potential quarters do any due diligence final due diligence on the asset base.
So frankly, we just had to top out at that point. It just made no sense in it and when the board made the difficult decision to lower the dividend.
That frankly made the sale of the storage business less critical at this point in time.
And then you balance that off the fact that the business is doing extremely well in this environment.
The cash flow is actually quite valuable to the business. So.
We made the right call I believed the part that process keep the cash flow for now.
And at this at the same time pivot strongly towards that.
Wrapping up efforts and broadening the scope.
Potential partnership opportunity in hardware.
So that's the that's the focus for us today.
And we're not prepared to put any sort of timelines around this because frankly.
More time has to pass here in terms of advancing the process, where we have anything to say on.
When we think this thing could be to be completed but again just to reiterate hope it will have an impact.
We're talking to are generally facing issues within their own businesses that needs to be managed however.
Still have interest.
We still think that this is opportunity definitely worth pursuing.
Okay that makes it makes sense.
And I can I go back sad to.
Some of your remarks are on the EBITDA range that.
You mentioned in the slide as as well that you you posted I just wanted to clarify that doesn't actually deduct off your corporate costs and gionee.
In that calculation.
Sorry, you broke up at there can you repeat the question.
Yeah sure that that roughly 800 million EBITDA guidance that you provided ex NGL processing X midstream.
Are you also deducting your your corporate overhead costs in that as as wall and seems like you are but I just want to make sure.
We talked about 70 80.
Yeah.
At the double check that yes.
Okay got back to you on that Ben just want to make yep.
Moving to double check that and we'll just.
You get back to you.
Okay, and just thinking you take oil sand and Buck liquids and the already close to that that range to begin with.
Okay, Yes, you're.
Right, it's a well we think it's a relatively conservative range.
Okay.
And then maybe glass kind of how you guys think about your hedging strategy on the frac spread than a lot.
Couple of year, you haven't really thinking on on hedging and whatnot about how do you. How do you think about this year that really did the curve moves higher potentially locking into men to get down said or or the curve is so far from long term fundamentals that your leap that spot open for now.
Yeah, I would say it Dave a curve is not very constructive [laughter] at all.
So.
Near term hedging activities are highly unlikely.
Well I think what but let's say, let's say you you thought long term 50 60 cents and.
No we thought like zero cents in one month and it gets a 27 figure you more client and maybe give up that upside potentially this up this limited getting sort of downside w. shape.
Sure scenario.
Well.
I guess the best answer I could give you as are our views on on hedging in the merits of it are evolving.
Certainly.
It's a conversation we have on a regular basis right now other than that I can't really signal, what our intent might or might not be.
Okay.
Alright, okay. Thanks.
Ben its Jeremy just going back to your question on this on the guidance that we've provided.
It does include a corporate cost allocation just want to confirm that for you may now.
Okay. That's great. Thank you very much.
Well.
Your next question comes from the line of rubber Khan from RBC Capital. Your line is open.
Hey, good morning.
I can start with the Heartland partnership can you talk.
Right.
Being flexible as part of the process Im just wondering couple things first.
How much of a sell down with the optimal in your mind and then second are you really don't still targeting a straight investment into HPC or would you.
Into strategic.
Willing defense attached single asset into a joint venture.
But definitely are you really looking just for.
Yes, your cash commitment or JV.
Looking at as well.
I think directionally, where.
We're more interested in the direct interest in the heartland versus expanding.
The opportunity to include other assets are making I'll, let me be overall investment even larger put it that way.
You know fundamentally.
We're looking to sell a material enough issue too.
Well it instantaneously de lever.
Our balance sheet and put us in a much stronger balance sheet position all through the transaction.
And also lowered our future capital commitments and single project exposure. So it's we don't we will have a precise number.
Remains ran on in terms of up when ownership.
Again, we will be flexible around that in terms of what potential acquirers needs are but it does need to be reasonably material to us.
To affect changes here I just mentioned.
Would you be willing noted.
Joe to a 50 50 joint venture or even further.
It has.
The right amount of of operating controlling the agreements.
I don't what can be any more specific in my remote.
As I said Robert.
[noise], just staying with HPC and on the costs.
Mentioned that the.
He sees more accounting so excluding not how much of those costs have been.
Locked in and one of things you mentioned is on the startup cost hiring staff it sounded like some of that staff.
I'm going to be your staff versus outside contractors and if that's the case is there any material impact on ongoing attacks.
Yeah, we thought around the the people side, we've got Oh in rough numbers about 180.
Inner pipeline of nuclear pipeline employees that will be full time staff related to the.
Colin commercial operations and physical operations, and we're going to gold got up to two a bit over 200 here over the next year in a bit.
Yeah, the seven to 800 I was mentioning there.
For the commissioning activities that would include a big chunk of all of our staff plus the vast majority them will be short term contractors with specific expertise and commissioning activities.
Regarding the depth of numbers on the on the yes. So Robert just talking about the expense maybe I'll just talk to our overall genie.
So large specific to heartland for 2020, we're anticipating about 30 million for HPC readiness costs that are going to go through its going to go through Genie expense.
And since we're talking about DNA, it's probably appropriate just I want a little bit of a range, where we think it's coming in now, especially after our cost reduction efforts.
So if you include the 30 million.
So the numbers I'm about to put out there do include EGPC readiness cost.
For full year 2020, we think it's going to come in about 190 to 200 million and again that includes 30 million of HPC readiness.
Got it.
Just back to the HPC costs ex I'd see how much of that has been locked in or how much of it particularly how much faster.
Yeah.
I'm not sure I understand your question do you asking how much of the total 4 million to the enhanced number is generally.
Just the cost increase is there any elements of that that's already been locked in like it sounds like you've hired people, maybe a little bit more to hire them and then you side. So thats kind of been known cost at this point.
Oh, Okay assay, which mean, yeah ex ITC.
Oh.
Probably guess off the top my head here, but I would say that.
Probably a material amount of the Oneseventy, it's kind of a known that number.
The.
The increase related to the construction activities, that's not locked in yet, but I would say by as I mentioned pretty confident in that number and theres a meaningful amount of contingency. There's also included in that number as well the koeppen the confidence.
I would say essentially none of that is locked and thats all kind of future cost increases that were going up.
You are best to try to manage down if we catch when you Peel back schedule.
And I just finished with the European storage sale in the release you highlighted.
I guess the wording in the release is it just you kind of highlighting that it remains an auction or is there more of a desire now.
Once we kind of open up.
Literally I would say, it's more of an opportunistic sales process for US now as I mentioned, it's not mission critical today.
More mission critical is the partnering opportunity for Heartland, that's where we're really focusing our corporate development resources towards.
I said, if we got up we've got an a nice offer from somebody who is involved in the process.
At some point here in the future additive.
I was a nice transactable number that we would we'll certainly take out to the board and I'm sure. They were carefully consider it.
We're not actively marketing business right now 1.2 enjoy the enhanced cash flows from the business here for.
Certainly through 2020.
Got it thank you very much.
Your next question comes from the line of Robert Catellier from CBRC. Your line is open.
Hi, It's Ron can tell you from savvy see just a.
A follow up in HPC.
I think you've answered it indirectly through your discussion today, but I'm curious how your.
Going about maximizing the value for the for the sale.
And it looks like a major toys to pursue transaction dollar reduce leverage.
How do you how do you evaluate that versus the alternative of.
Maybe waiting a bit longer term, it's further de arrest and a that cultivated cloud is lifted a bit more.
Okay.
How best to I guess, maybe the honest answer would be hope isn't.
Consider that to be a good strategy like we can.
We can hope the things get better we don't know what's going to happen with with Covance, We don't know what's going to happen with commodity prices over the next two years.
But we do know we have a unique asset we do know that we have interest in it today and so I think the most prudent thing we can do as an organization is.
His work hard to try to advance a sale of that asset now whether or not we could have got a bit more forward. If we held off from weighted closer to what it's in service I guess, we'll never know, but I'd be willing to trade the possibility of a couple of of a slightly higher price further on for a good solid price today.
Okay Fair enough just on the when asked about the well sense in the Gulf coast processing, a bit I've indicated that.
There really isn't.
On the downside to the oil sands business I wonder.
To the extent you see decreasing volume once the volume rest of the off gas processing business.
First in terms of quantity.
What the downside might be.
And then Furthermore, try to get a sense of the alignment between your your.
Gas supply agreement linear sales agreement.
Yes.
Cory New fellow who runs our NGL processing business I think he's on the phone right know career you want to take this question.
Sure Yeah from a from a volume perspective.
We're generally seen that we're not going to have any material impact to volume for 2020.
Everything we're seeing and hearing from our Suncor and horizon facilities is that their volumes will remain fairly consistent this year and we will remain consistent as well from a volume production standpoint.
Just in general the alignment between the minimum volumes on the on the on the cost side versus our minimum sales commitments those are relatively lawn.
Yes.
Okay. Thank you and supplement.
Your next question comes from the line of Chris Telecom.
Barclays. Your line is open.
Hi, guys. Good morning, Thanks for taking my question.
I guess first for me on the book liquids business utilization there was obviously very strong through the first quarter.
Just curious if you could give us an update on.
Sort of how that business has performed in the last month or so through the the heart of the pandemic.
No. It's performed really well we've as we said in our news release, we've had no no.
Consists of Cobot 19.
Through our employee base or contract contractor base in Europe, which is which is fantastic we've had.
Exceptionally high utilization rates I think it's probably the highest we've ever seen in 15 years of being in this business.
We have had seen some I'd call that throughput related declines. So one of for example, one of our most active facilities is up from a call Grays, which handles road fuels primarily for around the city of London.
And that obviously the terminal like that where rone fuels of massively declines will be all.
Around major centers like like London's we have seen some throughput declines there, but the utilization I got it remains no I think it's had 100%.
And so that utilization are very high throughput on the margin down a bit at certain areas, but overall the business outlook is very strong.
Okay. Great. That's helpful. Thank you and then maybe just as a follow up to that if you know I guess, if the sale of that business. It sounds like you're now you're viewing it may be more opportunistically.
Should we think that.
There are possibly opportunities for.
Capital investments in the not too distant future at that business. If you don't sell it or you kind of just content with the footprint as it is today and I'm just going to let it run.
If we have the latter where.
We're not a growth mode in Europe.
I guess our approach will be.
Harvest the cash flows to.
Remain as efficient as possible.
Really scrutinizing any incremental capital investments, we're not saying it wouldn't make any but they would be small scale will have to be high return and we'll have to have a very quick capital payout.
Hit any hurdle rate to we're willing to support.
Understood Okay.
Thats great Thats it for me thanks, guys.
Your next question comes from the line of Matt Taylor from attitude. Your line is open.
Hi, Thanks for taking my question just one for me now you considering the office for partner there and Heartland have your views changed at all on transparency for the market with respect to the contract levels. The project any updated thoughts there would be helpful.
Oh sure, but he noted we didnt see anything this quarter related to the two.
We're out with contracting I will say it is.
A discussion we have regularly around the board table as to.
When and how to disclose the contracting a rental heartland, so I'd say more to come on that but nothing today.
Great. Thanks for taking my question.
Your next question comes from a line of alias Escola from Industrial Alliance. Your line is open.
Good morning, everybody I've got.
Probably one question I respect that the priority one is a partnership for Heartland.
Well, what I'm trying to do we'd get a picture of what IPO will look like.
Three years down the road does.
Partnership.
I'm type completely mitigate.
Looking at disposing of the European storage.
No I wasn't trying to get out and I understand that's off the table, but did one mitigate the need to do the other.
Comments.
Well.
No my opinion is that the bulk of grid storage business still isn't the long term hold for enterprise.
Industrial logic behind the sale in the first place was the fact that we didnt believe that over the long term, we continued to grow that business sufficient pace to keep it call. It a meaningful part of the IPO portfolio.
Given the the amount of growth we have going on in Canada today.
Prices are just too frothy.
Asset quality.
As mixed in Europe from what we've seen the past few years in terms of storage businesses.
And prices.
Prices for high quality assets are climbing.
So long story short.
We think a smart divest divestiture that business remains long term interest of inter pipe.
It's just not a priority today.
But the five years from now what we still own it.
I'd like to say on hopefully not.
Okay.
That's kind of the feel that I was getting so I appreciate that color now.
The follow up for that which is if you proceed with the partnership if you're not.
I'm going to be in this business you know ideally in in a few years.
You are going to have a lot of cash you're going to de lever quite substantially is it. A fact that you just want to de lever quickly or are there projects and things that you're looking at.
The opportunity cost to capital if you can do this is is there.
Color on that please.
Well I would say balance sheet strength is certainly going to be a top priority for the company once heartland goes into service, obviously over the long term we still.
We still intend to be a it growing organization. So we'll look to.
Organic investments like we have done in the past to open the business along the balance sheet will be.
Topping the list Heartland comes on.
Great.
I'll leave it that thanks very much.
There are no further questions at this I'd like to turn the call over to Jeremy for.
Okay.
Well. Thank you everyone for participating our conference call today, and we look forward to discussing our second quarter 2020 results with you on August seven.
A lot.