Q2 2020 Inter Pipeline Ltd Earnings Call
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I went out like the turn the meeting over to Mr., Jeremy Robert Vice President Finance and Investor Relations pipeline. Please go ahead Mr. Robert.
Thank you Whitney and good morning, everyone on the call with me today or Chris fail interplay points, President and Chief Executive Officer, Brent Cherokee Chief Financial Officer.
More shares senior Vice President Transportation Inquiry, Neufeld, Vice President NGL commercial.
For today's call, Chris will provide a major projects update and discuss recent developments and Brett will conclude with her remarks honor. Our Q2 2020 results and recent financing activity.
I think to remind you that certain information on this conference call may contain forward looking information involves risks uncertainties and assumptions.
Such information all considered reasonable by interplay not just time, mainly to prove incorrect and actual results may differ materially from both stated or implied by our comments today.
Ever line should not be placed on such information.
Discussion of the related risk factors and uncertainties and assumptions is available in around do you need in here, we seem to have some technical difficulties on Germany's then.
Good morning, everybody.
The business environment during the second quarter of 2020 continued to be challenging the result of the unprecedented decline at global energy prices and the cold.
Pandemic.
[music] pipeline is committed to the health and safety, our workforce and personnel continue to work safely drilled diversified asset base and that major project site, including Garland petrochemical complex without material disruption to activities or services.
If I find remains highly focused on the advancement.
That's a chemical complex.
Rigorous sanitation efforts and robust controls in place to protect workers, we have been able to successfully increased productivity and currently have approximately 2600 people on site everyday.
40% higher than Q1 workforce levels.
During the quarter, we invested 238 million on the complex with approximately 2.7 billion spent on the project since inception.
Please to report that the project remains on track. According to the road bike 4 billion dollar budget and scheduled in service date of early 2022.
Finally, the process to secure a partner from material interest in part when complex remains active and we are investing significant time and resources into this effort.
We expect it will take at least until early Twentys. What do you want to conclude this process and there can be no assurance that a transaction will be completed.
[music] moving to the conventional oil business during the quarter, we completed phase one two expansions of our central Alberta system.
These two if I can connect or was completed on April 1st and included 75 kilometers of pipeline to connect in our pipelines, but remember in central Alberta pipeline systems.
In a normal operating a buyer firemen piece to it is expected to wrap up to.
Tween 10000 to 15000 barrels per day of throughput volume.
At the end of June we completed the vital component of phase one which included the construction up to 130000 barrels storage tanks at stellar.
Maintenance work completed on time within budget territory.
Lastly, in conjunction with Interpoint ongoing board renewal efforts Mr., Richard Shaw or chair Mr., Brett Sangster have announced their intentions to retire from pipelines board of directors effect on our next annual meeting in May 2021.
I would like to congratulate Mysmart Mckenzie when a pipeline intends to a point to the role of board chair at an annual meeting.
Mckenzie yet have served on enterprise once board for five years and brings over 30 years of experience the energy sector.
I would like to turn things over to Brent to discuss our financial results recent financing activity. Please go ahead.
Thank you, Chris and good morning, everyone. During the second quarter 2020.
Good morning generated funds from operations 184 million or 43 cents per share as expected the lower commodity price environment negatively impacting our NGL processing and conventional pipeline financial results are all signs transportation and bulk liquid storage segments continued to remain strong.
And your pipelines oil Sands transportation business continues to provide stable cash flow that is underpinned by long term cost to service contracts that are not materially impacted by throughput volume or commodity price fluctuations.
Segment generated 152 million all during the quarter, representing a 2 million increase compared to Q2 2019.
Our conventional pipelines business generate a quarter, yeah for 26 million versus 50 million and compare America comparable quarter and 29 gene.
Conventional results were impacted by 45000 barrels per day reduction in throughput volumes 240000 barrels per day during the quarter. In addition, midstream marketing activities were impacted by week lending margins and generated approximately 1 million and adjusted EBITDA During Q2 2020.
For the full year 2020, we expect our midstream marketing operations to generate between <unk> million, and 10 million and adjusted EBITDA subject to pricing differentials volumes and corporate cost allocations.
<unk> <unk> <unk> outlook for our conventional business has improved with july's average throughput volume increasing to approximately 150000.
Hundred 57000 barrels per day.
Moving to the NGL processing segment AFFO for the quarter was 37 million down from 72 million in Q2 2019.
Natural results were impacted by lower realized olefin.
<unk> cost frac spreads, partially offset by an improvement in real life, Airconnect frac spreads and strong operational performance.
Just try to plants are continuing to receive high inlet volumes are approximately 3.1 billion cubic feet per day and sales volumes at Redwater continue to be strong nearly 35000 barrels per day.
In the near term results from this business could be adversely impacted should a lower commodity price environment persist.
Our bulk storage business generated 34 million NFV Oh during Q2, 2020, representing a 27% increase over the comparable period in 2019.
The increase is a direct result of higher demand for all products to work, particularly in Denmark.
So many added utilization rates have demonstrated a material improvement averaging 90% and the second quarter 2020.
From 83% in Q2 2019.
Inner pipeline anticipate strong utilization rates to continue throughout 2020 with increased demand for storage infrastructure.
Turning to the balance sheet enter pipeline remains committed to maintaining financial flexibility.
In late April we successfully posed a new 1 billion unsecured revolving credit facility and extending the maturity of a 500 million term loan for two years to August 2022.
First we successfully completed a seven year 700 million medium term note offering proceeds were used to repay 500 million of notes that matured in July and reduce indebtedness under 1.5 billion revolving credit facility.
So as a result of our efforts to enhance our financial flexibility, we're well positioned to convene to continue funding our capital program.
As of June Thirtyth enter pipeline had 2.5 billion of Undrawn committed credit available and approximately 290 million in cash. We also ended the quarter with the net debt to total capitalization ratio of 42.5%, which is significantly below our maximum bank covenant level 60.
Yeah.
So this concludes the formal portion of the called <unk> Conference call and I would now like to turn the meeting back to Whitney to open the floor for questions. Thank you.
If you would like to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment so compiled the Q1 day roster.
Well go ahead.
Yes. Your first question is from a line of Linda Ezergailis with TD Securities.
Thank you.
Wondering if you can help us understand and your NGL business. What those forward pricing is looking looking like and kind of the the ramp up of of recovery for not just the back half of this year, but kind of what you're seeing early on for for next year in 2022.
Hi, Linda its Jeremy I don't know if you can you just need can you hear me.
Yes [laughter].
Richard Please.
Paul let John is that a cut out earlier the balance for the forward curves for corporate Frac spread this is U.S. dollars for U.S.
Cents per gallon.
So if you're looking around 36 cents.
For 2021 full calendar year looking at around 32 cents and that compares to a current spot rate today, roughly 38 cents per U.S.U.S. dollars per U.S. Gal.
Okay. Thank you.
And.
Maybe.
I I realize there's some sensitivities around to your HPC sale process, but.
We get a sense of with some of the reopening that we're seeing in Canada, maybe not a south of the border or any discussions are accelerating or things still fairly slow and I have the nature of the discussions maybe improved or.
Become more active with with some of the commodity price recoveries were seeing an economic maybe a bit more optimism than than earlier. This year can you comment on any contracts that you can provide.
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Hi, Brian.
Well.
Yes, you back on the call you might resume.
Yes, sorry, our we heading for I think you name it.
Yes, the participant is still in Q she's still connected.
Can you. Please we announced two it is the name of the individual in the company [laughter].
Well Linda Ezergailis your line is open.
Okay. Thank you [laughter].
In terms of the then the context.
But you might add additional incremental contracts you can provide around HPC sale process I'm just wondering if a the nature of discussions has changed in any way in terms of volume or.
Ah, yes content or anything else just to help us understand how that might be a progressing.
And as Chris said, sorry about the long believed there Im sorry is your question a boat.
We also finding a partner or the process of securing take or pay gone.
Well, we can discuss though.
Well when any kind of securities.
Comes to securing cheaper take or pay contracts b.
You know the nature of the discussions remains essentially unchanged.
Clearly the near term forecasts, particularly the spread between polypropylene in an upward of propane has compressed.
With the drop in commodity price particular polypropylene.
With all our long term outlook on that spread remains intact. So we continue to have constructive conversations with potential counterparties and continue to move that ball forward. When it comes to the process for finding a partner.
We don't have anything more than we can say beyond our remarks and whats in the news release that was issued yesterday.
Process remains active we're pleased with the level of interest that we've seen from a variety of counterparties.
We will continue to remain to be the major commercial focus of the business here.
So the year.
Thank you and maybe just as a follow up I realize that the HPC sale process is a focus.
But.
The extent that your storage business is likely not long term core holding im wondering if youve any interim received any inbounds for other assets and if the organization might have the interesting capacity to potentially start ramping up.
Hi, there potential jvs or outright sales and other assets.
In parallel with HPC processor or would that only be decided on afterwards given.
Organizational capacity and other considerations.
Our view on other.
Potential asset transactions remains unchanged from from what we discussed in May.
Opportunistically, we would definitely look at any compelling offers that we may receive for storage business.
Weve stated many times it remains noncore.
It is not.
Commercial priority right now the focus as HPC and I will continue.
During frequency.
Thank you I'll jump back in the Q.
Your next question is from the line of Jeremy Tonet with JP Morgan.
Hi, good morning.
Okay, just want to touch base on the conventional segment a little bit here.
Three systems were down anywhere from kind of high teens to about 40% quarter to quarter for volume and just wondering if you you cannot quantify how much of that was due to shut ins versus competitions are natural decline just when when do you. When do we expect to see volumes return to something close to prior or what's the new based.
Line to which we can climb back to achieve.
Hi, Jeff do you want to handle that question.
Sure, Yes, Hey, Jeremy it's Jeff here we.
Well the vast majority of what we've seen cutback.
Our.
Since I will say Q1 is all.
Really due to the endemic and this supply demand with producers shutting in very little competitive draw on that and as you heard brand say, we are already seen pretty strong recovery I'll say stronger than we expected. So Q2 certainly.
Our low point and we're optimistic that that will remain low point as we continue to grow the volumes back. Thank Brian mentioned 157 is what we're seeing for July MRC not grow into.
Further now as we move into Q3, but.
Address your question, we expect to get back to where we were.
Q4, 19, Q1, 20, but thats, probably going to take at least into 21.
As we move over to Q2, so we're probably little less than a year anticipating in our forecast to get back to those levels.
Got it that's helpful. Thanks.
And then in the storage segment.
Looks like utilization was very strong, but I think that the rates were a little bit less than what we were thinking none of us much change given maybe some of the contango benefit that that could have.
Materialize. So just wondering if what you think is possible timeline for higher rates to to make their way into revenue or how should we be thinking about that.
Hi, Jeremy its brand hanging out I'll take that yes, you know I think maybe part of the reason for slightly decreased rates.
Is even though we've had fairly high utilization.
The other thing that was impacted was was throughputs.
And that was largely that same for some of our terminals, let's see like raise which is just outside of London, which provides diesel fuel and gasoline and and that type of thing into the greater London areas. So I.
I think as we start seeing a bit over recovery in the economy, we'll start seeing some throughputs.
I'll come back up and I think that will probably start helping on the rates I will say, though that.
So in this environment.
The.
Business continues to perform quite well and you know our outlook still looks.
Pretty strong for it.
So yes, so that's probably what's been going on with that business.
Got it that's very helpful. Thanks.
Just if I could.
I wanted to dive into the cost savings a little bit and you talked about the reductions organization wide.
And I think there was a number of 100 million that maybe you had said before just wanted to see kind of the cost savings that you guys are achieving here how durable are those if you. If you look at 2021 plus.
As Brent here again, Jeremy and I'll take that yes in all our previous guidance that we gave lets say last quarter on the cost reductions, we're still standing by that.
You know one I think you can see like even in our that's even particularly NRG energy costs.
Thank you your your real we're seeing the benefits of those activity starting to flow through.
You know certainly as we head into 2021.
We're going to try and maintain as much of those cost reductions as we possibly can.
It's going to be very very important.
As we head into 2021 to make sure that were being very diligent around reducing our costs.
That being said, we do have a large.
Project being HPC.
Where we are incurring some IBG inane operating cost or sorry, right now it's just in the DNA costs.
For operational and business business readiness, but certainly we are looking to maintain as much as possible these cost reductions going into 2021.
That's very helpful. Im just wanted to clarify real quick I think you referenced a 36 cents spread in response to want to linda's questions in what was that with regards to if I heard that number correctly.
Jeremy its Jeremy.
That's in relation to our Cochran for expert on C plus volumes.
Great very helpful that turns me thanks.
Jeremy was for the balance of the year for 2020.
Forward curves for that same see three plus frac spread was about 32 cents per 2021.
Got it. Thank you very much that's it for me.
Yeah.
Your next question is from the line of Ben Pham with BMO.
Okay. Thanks, Good morning, I wanted to.
Let's talk about so I'd, rather see whether acute care you had some.
Puts or takes that you're managing oil sands is quite resilient storage was strong.
And NGL processing I wanted to check for years there. There's some change in volume composition volumes were strong rises.
Are you basically or can you basically new and change the slate around pretty easily to.
Really maximizing capitalize on.
On really different pricing.
Trends or how to horse meat produce the downside that you're seeing in east These high level stock prices.
Yes, Hi, Ben its Cory here.
In our NGL business the composition.
It's kind of too bold in our extraction business. A composition is made up of the composition that's flowing through the gas through our near our plans adjacent to our plants and what we saw in Q2 is.
Higher competition more as a result.
Field gas processors re injecting within because there was an economic for them. So we saw an increase competition, we can't really control that and we basically just.
Extract the liquids that full by our plant and that's similar with our off gas business are off gas business extracts liquids from the oil sands operations and depending on their operations.
Drives the composition, so our facilities can't really dial that in to maximize based on pricing.
Just on me one thing to add there.
Lockers, we do have the ability to Reinject for example, if if the C. Plus is uneconomic to produce we can put it back in the gas stream.
We don't have that ability and our off gas businesses. It's a must run facility because there is no place to reinject delinquent loans there fractionated.
Okay, all right understood plan.
Okay can I ask us about.
Credit metrics on there.
His scrutiny right right now.
What do you still making you mentioned you guys look at as is equally agencies in your own internal modeling as you look at next 12 to 24 month.
Well I think its brand here, Yeah, let me take that question.
So we do continually have.
Discussions with the rating agencies right now we have.
Ratings from S&P and from Dvrs and they were recently reconfirmed when we did our 700 million.
Medium term note issuance.
So to give a little bit of color around the dialogue obviously.
No.
We're pointing to is sort of the path that we would have let's call. It that in terms of proving up improving our credit metrics.
Certainly the big one is HPC.
Coming online and starting up in 2022 and.
As you've seen we still are holding our.
Long term average annual EBITDA expectations about $450 million to $500 million a year. So once once HPC comes on thats going to materially improve our credit metrics.
The other thing to that we're talking about and Chris has already talked about is the process that we're going through to find a partner for HPC.
That will not would materially improve our credit metrics also so we're in continual dialogue I think the other thing that I'd like to emphasize.
Around our ratings, we earn an excellent liquidity position now we are funded all the way up until the start up of HPC with all the actions we've taken.
That included reducing the dividend by 72% brought in approximately 525 million.
Is there, saying sustaining capital by approximately 25 million.
Expense reductions that we just talked about.
We've got 2.5 billion of capacity on our credit facilities right now and you know we got the issuance of a 700 million MTN down in that allowed us to pay down.
The 500 million was coming due in June so we're in an accident liquidity position and I think the rating agencies look at that also.
We're in good shape, there, so I hope that helps and kind of giving a little bit of color around.
You know the rating agencies and our dialogue with them.
All right that's great. Thanks, everybody.
Your next question is from the line of Robert Kwan with RBC capital markets.
Hey, good morning.
Second connected to European storage, and Chris you mentioned side.
Wholesale.
Thank you treated hopper opportunistically you'd look at it offers certain downs just wondering what would it take for you to actually just formally restart that for us.
Well you ought to be blunt would be an interesting offer from.
For the business, we're not what we're trying to be clear out here is we don't intend to restart a formal auction process for that business at this point.
And but however, if there was a one off transactions that we found particularly compelling I do believe board would with that with interest.
Turning to heart lenders.
Are there is there anything that you can update even directionally on the contracting discussions and we've seen polypropylene prices spot prices start to tick up a little bit off the bottom so does that help engage.
Customers.
Well definitely.
Yes, Theres no doubt the spreads as I mentioned materially compress that take off the top of my head.
The first half the year, the spreads or the potential bleeds, Brent price for polypropylene was around $1000 us dollars per metric ton.
And you were historically I'll go back last several years they've averaged of all 1400, so that's a big compression in polypropylene.
We are seeing certainly green shoots in the long term forecasts and we do we do believe that the long term fundamentals remain fully intact.
The pandemic is certainly has shown the value of plastics when it comes keeping people safe and polypropylene is is a major component of that so fundamentals.
Strong.
Just any update as to your thoughts of buying more granular contractor commissions marks.
Well it remains.
Subject to conversation at the board level, we do believes that the current decision to keep that confidence confidential is the right one to protect the competitor just mentioned around this but the board is aware that transparency on that issue is is an important factor and just stay tuned.
Thank you just mentioned granular question here around DNA.
Sounds for sure Brent. Thanks, Thanks on the last quarterly call you'd mentioned, you're expecting Jna, it's $190 million to $200 million for this year inclusive he was $30 million of HPC readiness Im just given what sell in the first half of the year to your cost savings how are you tracking.
Number right now.
Yes, I actually think it's going to be a little bit better.
Right now I would say, it's going to be around approximately 175 to 185 million.
But the one cautionary note I put around that is you know is around our long term incentive plans.
And obviously the expense or that is depend on our share price. So that can fluctuate obviously, depending on on the share price, but we are tracking quite strongly we believe.
Versus what we we had said before Robert.
Just how much can you give how much l. tips, you've embedded in your call second house. So you can think about.
Hey, Matt.
Yes, so Robert I don't have that number in front of me, we could certainly follow up if you after the call on that.
Sounds great. Thank you.
Your next question is from the line of Robert Cavalier, What's the IVC capital.
Hey, good morning, everyone I just wanted to just address the frac spreads I'm not suggesting that you should look to hedge at the bottom here, but I'm wondering if the.
Severity in depth of the downturn on any energy markets has changed or philosophy about.
Maybe heading.
The call Clinton exposure.
Once prices and get to more normalized level.
I would say yes.
Unequivocably, yes.
I think we do you need to take a more holistic view over how we.
Transact on all the products, we produce whether it's from our office business or or the conference facility.
So that will become part of our business plan.
I would say, it's more heading into 2021, because as you point out now is not delay time too aggressively started hedging products, but we do intend to be quite thoughtful about how we manage our commodity risk exposure going into the future.
Thank you have anything more you want to add to that.
I think you've covered it Chris.
Okay I just wanted to follow up on the.
The credit rating discretional, but because we've taken some.
Since to help her position of the past Brent talked about the strong current liquidity.
And the need to get HPC started.
But I'm curious are what happens in the context of starting HPC in 2022.
Commodity prices haven't rebounded to the long term average you're looking looking out for that EBITDA generation.
Are there any other you think that when to increase the impetus to consider other.
Corporate actions taken shore up the credit rating and what what might those be.
Well.
The.
The early let's say to first 12 months of operation for HPC, it'll be a variety of factors going on.
Outside even just what the rock commodity prices are these plants. They do have a ramp up period for example, sort of plants availability will be at the peak in this first year, we do intend to provide more granular guidance on that as we get closer the in service. So yes, we certainly won't be hitting about long term average run rate of 400.
That being 500 million in year, one, but theres still will be material cash flow from that business and it will be and that will be a materially positive impact on the credit rating for credit ratios.
In of itself.
Okay. So answers the question then of.
There's quite a work getting in service and.
You know just executing.
And.
I guess effectively relying on a recovering the.
Commodity prices across the business.
Well put it this way.
Obviously, we're not in a position to provide the exact guidance on the EBITDA forecast say for the first 12 months on this call, but we will definitely commit to providing transparency that well before we go into.
Service.
Based on what we're seeing today in terms of the forecast commodity price deck for 2022 at our internal availability assumptions, we're pretty comfortable with where our credit ratios are going to be.
Okay. Thanks, guys.
Your next question is from the line of ROP Hope with Scotia Bank.
Good morning, everyone.
A question on Hartland, just want to know, how you're managing or evolving.
Construction protocol there in the context of the Coburn 19 world when we saw Edmonton.
Cases kind of move up a little bit in June did you alter or anything and just maybe provide some color on kind of the parameters you are using there.
Yes, so frankly I couldn't be more pleased how the team has adapted and responded to cope with 19 onsite.
We have not been covert free onsite, but there is only been a handful of cases here over the last what does it else four or five months.
And that's a site where there's a couple of thousand people showing up everyday so do the math on that and how many people coming in.
Of the facility gate.
Period of time, we've seen no community spread on site our controls have been very rigorous rigorous through mandating that uses a masks.
Managing.
The construction at into small groups of manageable packages of people, we've got excellent contract contact tracing going on so we're able to manage that when we do have into debt by case, we have.
Onsite temperature checks for all personal as they enter the sites. It's so.
A big driver for that $150 million is the fact that it's going to extend the schedule would believe by a few months and Thats really.
Attributed to the productivity kits related to these mitigation measures.
But it's all very manageable, we believe for the next two years.
Target. Thanks for that and then just turning over to the Frac spread business, we've seen olefins than hit harder than paraffin I can not quite recover as much.
Just want to give a sense of how you're viewing the differences between.
Full effect versus apparent perfect overlaps all while.
I think in that quarter here.
What we're seeing on our Olympic businesses, our main hit there as our alky feed.
Which is sold off of.
Percentage of Wi Fi get hit hard alky feed used ultimately for gasoline additive.
With gasoline.
Driving season down because of cobot, we're seeing continued challenges for that for the rest of 2020.
We see.
Pair bonding business.
Remaining somewhat consistent.
Thank you.
Your next question is on the line of entry to ski with credit Suisse.
Thanks, Good morning, maybe I'll start with just a big picture question and when you look through HPC and let's just say you're at a stabilized level of EBITDA generation in the future and everything's gone reasonably well according to plan.
What's the next strategic positioning move for inter pipeline.
Well I think once HPC is up and running though one of the major things is going to fees strengthening the balance sheet frankly.
We want HPC running we want it stable as you pointed out we want to make sure that the balance sheet is in very strong position.
At that point in time I think the next thing we would look at is the dividends and as well for.
Oh, it thoughtful dividend increases into the future as business conditions allow.
Beyond that it'll be just the continued advancement of.
Sensible growth opportunities across all of our lines of business.
Petrochemical oil sands or or conventional.
Hopefully at that point in time.
We'll have exited if not all of the bulk liquid storage business, but at least a material component of it and seek to exit the rest of it.
For the over the next few years.
As a conditions allow.
Okay, and then maybe the extension of that question or the follow up is really when you think about the deleveraging on the dividend potential and the future how does that interplay with just the sales process you've got underway.
If you're very successful on the sales process does that accelerate those activities I mean, how do you think about the optionality.
Yes, well you know I think clearly if we were to find.
A partner for material interest in HPC that immediately to de lever is the company had a very substantial way. So I think a lot of the heavy lifting will be done with with one step.
Regarding what the board may or May not do with a dividend between a hypothetical sale and startup of HPC I wouldn't want to speculate on that I.
I would just want to emphasize the company's very focused on.
Executing HPC and doing it in a prudent matter protecting the balance sheet as best as again in this environment and I think the board would that be first and foremost in their minds.
Okay very helpful. And then just one final question for me and it really comes down to your conventional business and during the quarter did you give any.
Tariff concessions or any kind of support mechanisms to the producers in the area to to try to encourage some of the volumes and administrative officer awful lot, but were there any incentive mechanism put in place to effective to try to drop volume.
Jeff do you want to Andrew It's Jeff Yes.
Yes.
Yes. Good question, Andrew we're constantly working with producers before during and we'll continue after this.
This period of time, we're going through so we have.
Workouts marine segments with the number of the producers to help them continue and at the same time benefit in our pipeline in the long term, so where we.
I have some arrangements in place contracts in place, we've been able to look at extending certain aspects of it in exchange for some short term relief, but really there hasn't been any material.
Changes to our tolling structure in fact, if I recall Q2, we've got a bit of a higher dollar per barrel number against the volumes move than we did in the prior quarter in the prior year. So basically business as usual, we're having get a little more creative but all all with an effort to benefit both longevity of these arrangements for the pipeline as.
Lows as the producers in the shorter term.
Okay. That's great. Thank you very much.
Constantly anyway.
Your final question is from the line of Patrick Kenny what the National Bank financial.
Hey, good morning, guys just to follow up on your productivity comments, there at HPC and.
Staying on track with early 22.
In service date.
Obviously, we're still stuck in phase two here in Alberta.
Knock on wood that things don't get worse, this fall or this winter but.
Can you just remind us how much buffer.
You have in that construction schedule, assuming current productivity levels remain.
Then almost also how much flex you might have to accelerate productivity onto the current cobot protocols.
If the schedule does start to slip over the coming months.
And I'm thinking you know even if it meant.
Absorbing additional costs.
Or is another cost overrun on the project just simply.
Hard no fly zone internally and and if the in service date slips a quarter or too so be it.
Hey, Patrick This is Jeff I think Jeremy still on as well that we seem to have lost the guy that we'd like to answer that question for you, So Chris and brand or just reconnecting. If you guys can just.
Just for the trouble.
But.
Patrick It's a it's Jeremy I can give you a bit of than insight on the HPC project in construction activities are certainly.
Continue to attract according to our revised schedule, which is good so we're still in target to meet our insurance Dana early 2022.
Over 50% of the over work said is now has been completed.
And our estimate of 4 billion is still view is still the project cost we've actually de risked about 70% of this of the costs through lump sum contracts purchase orders and substantial cleated time and materials works.
By the end of the year, we expect to be around 75% to 80% of cost being de risks.
And I think you know a lot of the feed detailed engineering for both PDH pp is since it is also substantially completed as well.
And then focus right now certainly our construction support and completing file final documentation dropped the facility.
So things are going very well the you know we've actually had.
Approximately 2600 dealers workers on site, which has been able to wrap up a little faster than we were expecting through the initial covert planning phase, but I think as Chris mentioned, a little bit earlier.
We are going to be very cautious about this and we're doing what we can't in order to ensure that we can get the consumer built and maybe we can finish a little bit early but as we stand here today.
The still expected in service date is still going to early 2022.
Okay. Thanks for that Jeremy I realize it's a bit of a hypothetical and I'm.
Just curious on how.
How much cushion there might be from both the productivity in you know financial standpoint.
And then my second question was on the contracting front and maybe you know we might have to take this offline.
You know, if Chris and Brent don't make it back on but.
And this might relate as okay, hey, guys.
[laughter].
Just just a quick follow up year on and maybe relates to the brents comments around some of the discussions you're having with rating agencies.
But it's more around there.
The quality of Counterparties.
For HPC versus simply hitting that.
70% to 85% contracted target.
So as you think about.
Bringing on incremental upstream customers versus perhaps downstream customers in.
Maybe better financial shape.
Curious to hear your thoughts how important it is to hit that.
450, 500 million dollar EBITDA guidance versus.
Perhaps giving up some financial accretion in exchange for you know a higher quality cash flow stream with stronger counterparties.
Well.
I guess our goal is to try to balance both as best as we can because clearly.
Our approach when it comes to dealing with credit risk is.
It's well it's multiple first diversification, we're looking to have a broad slate of counterparties with without no call. It a major critical mass of capacity allocated any one.
Contracting party.
And the second thing major component is how we manage credit risk is through you know I think some pretty thoughtful.
Financial assurances language in the agreements.
Are we can get.
Letters of credit parental guarantees all sorts of you'll things that are typical in the industry to manage that risk and finally as we mentioned many times. The this is a very different contracting process to something like our oil sands pipeline business where of course, when you're doing a deal for an oil sands pipeline build.
Your counterparty at the end of the pipe.
That's what physically that's where it's going to be for the rest of its existence. So you're really tied into that one counterparty when it comes to HPC to the extent, we lose a counterparty because of some sort of fill insolvency issue or something like that.
We simply than just resell the capacity into the marketplace.
Because it's not tied to any one individual molecules are tied to any one individual organization.
So we think we can have the best of all worlds put it that way path in terms of the credit profile the maximizing the EBITDA.
Okay, that's great Chris I appreciate the comments.
Okay.
At this time there are no further questions I'll turn the call back over to Mr. remembered for any closing remarks.
Okay, well as had been a very eventful conference call everyone I apologize again for the multiple delays and connectivity issues, we had on the call.
For used for you then hung in there. Thank you very much for participating today, we look forward to a more seamless call during our third quarter.
In 2020, which will occur on November the six thanks, everyone and stay if it stays out there but I.