Q3 2020 Keyera Corp Earnings Call
Standing by and welcome to care costs, 2023rd quarter results Conference call.
At this time all participants are in a listen only mode.
For the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that todays conference is being recorded.
If you require any further assistance. Please press star zero I would now like to have the conference over to your speaker today bonds <unk> director of Investor Relations. Please go ahead.
Good morning, everyone and welcome to carry <unk> third quarter conference call for 2020, our speakers today will be David Smith.
CEO Dean Setoguchi President I need.
Merrick Park, SVP and CFO, Brad luck, SPP and C O I did well, Jamie Urquhart, SVP and Chief commercial officer will be available for the Q when a section following our prepared remarks before.
Before we begin I would like to remind listeners that some of the comments and answers that we will provide speak to future events.
These forward looking statements are given as of today's date and reflect events or outcomes that management currently expects.
In addition, we will also refer to some non-GAAP financial measures.
For information on non-GAAP measures and forward looking statements. Please refer to carry public filings available on SEDAR and our website with that I will now turn it over to David Smith.
Thank you live on and good morning, everyone.
Well, we continue to navigate the twin challenges of the ongoing COVID-19, pandemic and low commodity prices I am pleased with our commitment to health and safety, our financial discipline and the resilience of our business. The resilience of our business continues to show.
In the third quarter, we delivered solid financial results and on a year to date basis, both adjusted EBITDA and distributable cash flow increased over last year.
We maintained a strong balance sheet and kept our payout ratio low.
54% year to date.
We remain confident in our ability to maintain our monthly dividend and fund our capital projects without issuing common equity.
I lean will provide more details on our financial results later in the call.
We continue to ensure our business is well positioned today and for the long term.
Our gathering and processing optimization plan is progressing well and the expected cost efficiencies will provide better netbacks for our customers and improved profitability for kiera.
These optimization efforts will be the catalyst to delivering a best in class cost structure that will make here a more competitive.
I was to preserve and grow our market share.
To extend and enhance our integrated infrastructure business. Even further we plan to invest between 400 million and $500 million on growth capital projects in 2021.
The majority of this investment relates to the caps pipeline system.
Which will be a strategic asset for kiera connecting our gas plants in the Montney development in northwest Alberta.
So our NGL infrastructure in Fort Saskatchewan.
And providing numerous growth opportunities within our upstream and downstream businesses.
We expect to begin construction in 2021 and have the pipeline in service in 2023.
Looking further ahead I am confident in the outlook for the Canadian energy sector and for Kiera not.
Natural gas prices are improving producers are continuing to drive cost down and improve their balance sheets.
And Albert has access to markets is improving with additional transportation capacity.
And our industry continues to innovate and to reduce our environmental footprint and support the transition to cleaner energy.
With that I'm going to turn it over to Brad to discuss our operations.
Thank you David.
Health and safety remain key <unk> remains clear as a top priority and we continue to emphasize the well being of our workers throughout the organization.
Once again I would like to thank our front line employees and contractors for their commitment to our values and their diligence in working safely with one another in these exceptional times.
A cure we provide essential services to the energy industry, and we understand the importance of responding to our customers' needs.
2020, we work diligently with our customers to develop mutually beneficial solutions to keep gas volumes flowing during the commodity price turmoil of the past eight months.
Unfortunately in the third quarter, we had an unplanned outage at our walk the gas plant.
We recognize the importance of this plant to our customers and worked hard to bring the plant back online in a safe and efficient manner in late September.
Since that time the plant has been operating very well and we continue to take steps to improve the reliability of the silly to ensure its continuity of service.
Reliability and predictability, it's important for all of the assets within our portfolio. As a result, we decided to take our old Britain Bart fuels facility offline. This fall for approximately six weeks to address performance issues and complete some additional preventative maintenance.
The others began in October is proceeding exceptionally well and we expect to have a back operating later this month the.
The maintenance activities. We're undertaking are intended to facilitate Ats continued reliable operation at full capacity until its next scheduled turnaround in the fall 2022.
Care continues to modify its business to provide the most competitive services to our customers, while improving our profit ability.
During the third quarter, we significantly advanced our gathering and processing optimization plan in the South region.
In August and September we suspended operations at our West Pembina and bigger I guess plan successfully diverting these volumes to nearby curing facilities.
2021, we plan to suspend operations at our riskiness and browser north gas plants, followed by the Nordic gas plant in 2022.
We expect our optimization efforts will increase utilization in the South region grew approximately 7%.
70% lower per unit operating costs and significantly reduce cures environmental impact by eliminating the greenhouse gas emissions associated with those facilities.
We also continue to progress our capital projects. We are currently commissioning phase two of the water the gas plant and finishing the wild horse crude oil storage and blending terminal in Cushing, Oklahoma.
We expect to have this terminal mechanically complete by year end operating in the first half of 2021.
The Blackstone gas plant began operating in October five months ahead of schedule and on budget.
The newly constructed gas plant is processing volumes from our anchor tenant open to under a 20 year infrastructure agreement.
This investment is an important next step here a strategy to build a stronger presence in the liquids rich Montney development.
With our pipes don't walk Buddy and Simon if gas plants tiara has a world class footprint, providing significant natural gas and condensate processing capacity, which will ultimately be taught connected to our cafs pipeline. Once it is put into service.
Ill now pass it over to waiting to talk about our financial results and plans.
Yes, Brad as David mentioned care delivered strong results for the third quarter of 2020, despite the ongoing pandemic and low commodity price environment.
Overall, our integrated business delivered adjusted EBITDA of 196 million, bringing our year to date adjusted EBITDA to seven and 705 million, which is 22 million higher than the same period last year.
In the third quarter, our gathering and processing business delivered 49 billion in operating margin because of lower drilling activity by producers and the unplanned outage at our wapiti gas plant, which reduced operating margin by $16 million.
Within our liquids infrastructure business demand was strong for fractionation and storage assets, which operate at near capacity during the quarter. Throughout 2020. This part of our business have delivered approximately $100 million, an operating margin each quarter, demonstrating the value of these assets and their ability to generate us.
Daddy stream of cash flow.
Bite fluctuating market conditions.
Our marketing segment also performed well and generated $64 million and realize margin during the quarter.
Largely due to our isooctane business as well as Karen effective risk management program.
We continue to expect the marketing segment to generate real life margin of between $300 million and $340 million, although at the lower end of the range given the outage at our <unk> facility.
For the third quarter, our business delivered distributable cash flow of 175 million or 79 cents per share. This brings our year to date distributable cash flow to $2.66 on a per share basis, which is 30% higher than 2019, as we are benefiting from significantly lower cash.
Taxes and maintenance capital expenditures this year.
We continue to expect maintenance capital to be between 20 million and 25 million in 2020 and have increased our expected current income tax recovery to between 35 million and $45 million as David mentioned, we expect to invest between 400 million and 450.
Million in capital growth capital projects in 2021.
Looking to 2021, we expect an income tax expenses between 20 million and 30 million and maintenance capital expenditures to range between 25 and 35 million.
The ongoing uncertainty as to when a full recovery in energy demand and commodity prices may occur, we remain committed to our financial discipline and capital allocation priorities, we have a strong balance sheet and strong liquidity position with minimal debt maturities in the near term with that I'll turn it over to Dean to talk about our future.
[noise] Thanksgiving.
During the pandemic, we've demonstrated the resiliency of our business as we look forward to 2021, we recognize that there is a near term uncertainty, but we feel like the worst is behind us.
Our approach will be to focus on factors within our control.
Strengthen our company for the challenging times that we see today and positioned for recovery in the future.
We will continue our relentless pursuit to cheaper vision goals of being number one and see number one in customer recognition and number one in total shareholder return.
Our near term priorities will focus on improving reliability.
Achieving a best in class cost structure with our optimization program companywide cost reduction initiatives and an emphasis on innovation to find further step changes to our business.
And also leveraging our entire integrated value chain to deliver our customers the most profitable midstream solution.
We believe these initiatives will competitively positioned us to capture market share and incremental volumes when activity picks up.
As they look to our future I'm excited for what lies ahead.
With improving natural gas prices and additional take away capacity for both natural gas and oil under construction.
There's reason to be confident in the o.
Look for the Canadian energy sector and Carol.
We will continue to maintain or track record.
Exercising prudent financial discipline.
We have strong growth opportunities for the future including caps.
Captains and silvery projects expanding the baseline terminal.
And developing our significant land base in industrial heartland with projects to enhance and extend our downstream liquids business.
In addition, our infrastructure assets and services, we offer a line with Albert is new natural gas strategy, which could lead to additional growth opportunities.
We're also focused on and on continuing to improve all aspects of our E.S.G. track record.
Something that has always been part of cures values culture, and the way we do business.
In the coming months, we will be issuing our inaugural U.S.G. reports to show, how we think about the U.S.G. throat or business.
Finally, I'd like to thank David for building a strong business.
Teligent team and a strong culture, all key foundations for a successful future.
I'm excited and honored to be taking over and committed to carrying on the great legacy that you're leaving behind.
David over to you for the final word.
Thanks, Deane this may be the last time I get the final word [laughter].
As you all know I will be retiring from here at the end of the year.
We have.
And I'm very proud of the Chira team and I'm very proud of the foundation, we have built.
We have a strong balance sheet and an integrated portfolio of assets with sustainable competitive advantages.
We have a great team of highly capable innovative and passionate individuals who will continue to hear his track record as a responsible corporate citizen generating value for shareholders.
And as I mentioned earlier I am confident in the outlook for the Canadian energy sector, where I know Chira will continue to play a prominent role.
As Dean takes over as CEO I know that he and his team have the experience discipline vision and energy to guide Chira successfully through the next decade.
We will continue to be a significant shareholder so I will be watching.
I would like to thank here as board of Directors management team employees customers shareholders and all other stakeholders for your support over my 20 to 22 year career with Kiera.
Back to you live on.
Thank you David with that concluding our prepared remarks, I will now turn it back to the operator.
You go ahead with the first question.
As a reminder, ladies and gentlemen, please press star one on your telephone keypad to ask a question.
Our first question comes from Linda adverse dealings with TD Securities.
Our line is now open.
Thank you and I want to wish Dave all the best in your retirement and congratulations on a successful career.
Thank you Linda I.
I know I know I know the company remains in good hands, so well be watching the continued navigation through some of the opportunities and challenges I guess the biggest start question I have right. Now is we have seen some producer consolidation and I'm, just wondering what sort of opportunities and challenge.
And is this might present not just for your current operations, but how you might sheet your potential growth projects going forward.
Sure Linda it's it's it's Dean <unk>.
Overall, we believe that it's it's positive in terms of when we see are producers basically combined and create a stronger.
More stable entity, that's capable of sustaining development, particularly in areas that are highly economic and where we have our facilities.
So I think as a general statement, we think that's important but overall our strategy mean remains the same and that's what we need to provide very competitively priced services and a again with all of our initiatives with our optimization program or cost reduction and a in innovation program that we have underway.
You know I think we're we're well on track on that perspective, but also because of the integrated assets and services that we offer we were also very dedicated to offer our customers the best netback and again because the expertise we have in the assets that we have we're able to do that.
And I would add.
Linda its David here I would simply add that as just as a general comment that I think you know when when we see consolidation I agree with Dean I think it's positive for the industry. You know, we generally expect that they'll be a a more deliberate and disciplined approach to the development of the resource and Ah, Yes, and I think that that works well for the industry, but it's also.
It's also good for Akira in terms of our planning.
Okay and as a follow up I'm, just wondering if you're marketing opportunities might be a change and you might maybe evolved how are you thinking about hedging and maybe in that broader commentary with some refinery closures et cetera can you give us a glimpse of how you're seeing maybe.
2021 for your marketing operations in the <unk>.
The streets outlook.
Yeah, Linda it's Jamie you know.
I think you keep doing a one point that's important is that we are seeing some.
Shutdowns and a reduced run rates on the refinery side of things. So isooctane is a big part of our marketing business.
Year over year, we're seeing gasoline demand probably off about 10%, but we're actually seeing a greater reduction in refinery run rates due to some shutdowns and also just refineries I'm Tony back their their their capacity really are Bob is the only commodity rate or gasoline is the only commodity right now that refineries or making any.
And so they are being very disciplined with respect to what their run rates are to ensure that they support a sufficient are bob crack over W.G. I.
So that.
I don't think were going to answer your other question look at altering our risk management policies.
I think we see volatility as being an opportunity to be opportunistic in execution of our risk management policy, but I don't see us changing our risk management policy. It's served us very well in the past and that's borne out by our 2020 results.
Okay. Thank you and just another question in terms of the outlooks for next year and there has been some delays in <unk> and GTL Debottlenecking and expansion and I'm wondering if that might have any effect on your facilities or operations where activity levels.
Linda I think from our perspective, we don't see the NGL system being a being a constraint or within our network anywhere.
I think the bigger issue for US is just what will the level of drilling activity be amongst the producers who are our customers.
Okay. Thank you I'll jump back in the queue.
Our next question comes from Sean things with BMO. Your line is now open.
Hi, This is Sean.
Pam I, firstly, congratulations David and all the best in retirement.
Thank you Sean.
And just wanted to ask on now off pretty fees to hear with commissioning a crane currently how do you guys really see the return profile and ramp up for that project and when do you expect to start generating cash flows.
This is Brad I think Oh as Weve previously communicated the the commissioning and startup is phase two isn't really needed right now for the volumes that we have delivered to the plant today. So.
So it's a it's a part of the program that I think is going to provide real opportunity as we look to 21 forward as we look at incremental volumes looking for capacity, there's number of opportunities we are producing out there.
Oh pursuing out there where the capacity of train two is really going to set up well to allow us to attract aggressively compete for those volumes and land them into available capacity with our plan. So I think having that facility available to produce is going to provide that opportunity. It's also going to provide.
Certain degree of redundancy within our facility that we think is going to be significant in allowing us to enhance the reliability that facility as we go into 2021 forward.
Yeah.
Sean It's gene maybe I'd just add to that.
In our north in particular I'd also add that although we you know our volumes <unk> profile may not be as high as is what we originally anticipated we do have take or pays. So we have take or pays that are above the amount of volume that's being delivered to our facility. So were still getting paid for for some of the volumes.
The other thing I would say is that I want to be in particular, we have a lot of assets at that complex, including the compressor station condensate stabilization the water disposal and.
And those are operating at much higher utilization rates. So we are generating.
Very strong returns for those parts of the of the facilities I think is due to Brad's point, you know, perhaps what's with the opportunity for US. The next year is that.
Both pipestone and Paramount or our drilling and they've announced drilling plans in that area. So we will see incremental volumes going forward and also you know we're focused on reliability that facility will will certainly help us as well.
Okay perfect. Thank you for the detailed answer and then just on and leverage relatively low at two and 2.4 below your guidance targets of two and a half to three times I guess, where do you see that metric moving as you move forward with caps construction and really the bulk.
The spend.
In the next couple of years and within the context of your range.
Hi, Sean if I lean here, Yeah. I mean, you know at this time, we expect to fund a cap and you know the rest of our capital program in 21 without any common equity our long term target has always been to maintain that debt to EBITDA and that you would have to three times range because that really provide sufficient buffer so that we can.
I would stand very cycle, just like the one we've been in right now you know and we're okay to to go over that range for a short period of time, but long term you know that the plan is always to bring it down to that you want to have to three times range and and we have various tools available to us, including hybrids Kras and.
We'll also look to asset sales, if and when they make sense.
Okay perfect. That's it that's all for me.
Our next question comes from the line of Matt Taylor with its Tudor Pickering Holt. Your line is now open.
Yeah. Thanks for taking my questions here I just wanted to follow up on Linda's question, there about and marketing outlook. So public data is showing us propane and butane inventories are well above normal for western Canada. So.
Line addressing two things first can you speak to your view of the butane, marking a EPS being taken offline in pricing already weeks is that setting up for another decent marketing year and 2021.
And the second being essentially all spec inventory levels are well above normal production isn't fully recovered yet whats your view on track rate to 2021.
So Matt its Jamie I'm, so to talk to butane first yeah. Certainly E. F is a is a large consumer of butane in the western Canadian market right now we're seeing.
Yes pretty much.
Average historic pricing for butane in the spot winter market right now, we're seeking seemed very strong butane pricing down in the U.S. and if everybody recalls back in 2018, we had some lower butane prices, but those prices rebounded fairly quickly and that's due during the ARPU.
And the efficiency of the market in North America. So it's you know it's it's early days with respect to our re contracting for the next contract season, but our expectation is that we would see butane pricing a pretty similar to what we would have seen in 2020 I'm on the inventories side, Yeah, we're seeing high inventories of pro.
Appendix you would expect that at this time of year and we've seen some cold weather in the north and the Midwest over the last couple of weeks that followed.
Called up obviously, the cold weather that we experienced here in Western Canada, and that's spurred on expected demand down there. So we have a winter sales program well in place, we're well positioned to take advantage of that with respect to railcars and rail service that weve lined up and we expect that a Q4 in Q1 or.
Everything going to plan, we'll we'll we'll have strong quarters on the on the propane side of our business.
Thanks, Jamie and then can you tell you one step further and speak to Frac rates do you expect those inventories to clear and go back to somewhat normal I know your messaging that utilization.
Just for Fort Sask, there should be.
About where they are right now for 2020. So can you speak to your view on Frac rates in 2021, yes, sorry, Matt I I apologize I'm. So on Frac rates, Yeah, we that's a basin asset base.
Based on our access to barrels both behind our facilities and with our within our network. You know, we we expect frac fleets to hang in at current levels and utilization. Similarly to be you know strong look moving forward in 2021.
Great. Thank Sir Jeremy Pardon me, Jamie and then one more question just around the CIO is.
And on caps as you start ramping spend there in 2021, when do you need to order long lead time items.
And then I guess a follow on question to that is if these conditions persist into the summer would you be willing to defer caps again if necessary.
Well I'll.
I'll talk to the Sprott I'll talk to the long lead I mean, we've with.
With the deferral into 2021 with our construction plan, we're still sequencing a lot of the of the activities. We don't expect a lot of spend early in the early in 2021, the commitments will kind of grow as we go through 2021 with an expectation that we're actually going to get construction in the back half of the year. So there will be some.
Spend in the in the first part of the year, but that will be modest in nature and also maybe talk to turn it over to dean to talk about comps business.
Yeah, Matt as mentioned I mean, we plan to move forward with our project in the first half of next year and I guess, if there's any changes to the plan. We'll go now to the time, but lesser in their plan today.
Great. Thanks for taking my questions.
Our next question comes from Patrick Kenny with National Bank Financial Your line is now open.
Hey, good morning, everybody looks like there was a fairly sizable impairment charge taken for the whole terminal this quarter just.
Wondering if you could walk us through what change there yes.
I guess versus the previous narrative that you know.
The terminal was well positioned for synergies with Wildhorse and I guess, the rest of your integrated strategy into the U.S.
Patrick its Jamie So hold was you know a very strategic entry point for us in the U.S., particularly into the mall Bellevue market, but you know as as Weve grown that business and you touched on it with respect to all T. Wildhorse, our new facility at Galena Park that he's going to hopefully be operational towards the end of <unk>.
This year, we've really grown our market presence both on the propane and butane side of things and as we develop those relationships and alternative higher value markets.
Our whole has just become less you know impactful, but as you know I'd encourage people to view that we've found higher value markets that that we've been able to take advantage of the nuts. The emphasis on the value of haul for the time being is less but it's still you know a strategic asset for us just less strategic as it read.
Both of our growing presence down in the U.S.
Okay. That's helpful.
And then just to follow up on caps I know you're still in the process of refining the cost estimate there but.
But with the Alberta government, providing some more details on the petrochemical grants does that influence your thinking at all around pursuing an ethane plus option for caps and.
And I guess as a follow on you know your Fractionators already back running at essentially full capacity when would you expect to make a decision on any further expansion that kfs.
Yes, Patrick this is a this is deemed certainly the vision the long term vision for caps would include a nothing plus sort of service on it as well you know we wouldn't go ahead with that until we have a underpinning to to make that investment.
So you know while we've had a lot of discussions. So you know, we we won't sanction anything on that front until we have a contracts to support it.
Certainly the feds announcement by the government the.
The incentive program that was just announced last week, it's all positive for more petrochemical development in our province, and and again like producers.
Petrochemical side of the business wants competition and they want alternative sources of feedstock and again you know our system. Our integrated system that has a lot of feedstock and its lot of Ngls.
It certainly helps and supports our business as well so in the long term future. Yes, we do see a C plus service, we see more Jeff notation, fractionalization storage opportunities, but again, we need to contractual backing first.
Got it and I guess with the incentive program also extending into ER blue hydrogen opportunities. Maybe you can just comment on whether or not you.
Guys are pursuing any any opportunities or if any of your.
Gas processing plants or are good candidates for hydrogen production.
Yeah, Patrick it's Jamie yes.
Yeah, we certainly see that as an opportunity Oh, you know what it's early days with respect to what that opportunity might look like but we see that yeah, we would be a logical fit with respect to being able to take advantage of that opportunity.
You know I don't know if many people are aware, but we all already produce and generate higher hydrogen off of our AG EPS process that obviously, we'd be looking to you know what the opportunities are with respect to that existing hydrogen production that we already creed had a <unk>. So.
I think we're well positioned and and certainly we've just got a lot of attention in my group with respect to moving forward.
Pat maybe just add on that I mean, obviously, there's a lot of momentum with the both federal and and provincial governments on hydrogen and then certainly as Jamie said, we're very well positioned to a two to provide increased that hydrogen if if the demand is there I think what's interesting is that if you look in our central Alberta capture area were just fine.
It is a those are some of the largest reservoirs that are capable of storing large amounts of carbon so in terms of generating that blue hydrogen that would be a great area to actually produce it. So we'll see what happens and we'll continue to work with both levels government.
Okay sounds good thanks, guys I'll leave it there and David Congratulations on your retirement and for I guess successfully executing on the vision that you and Jim had more than 20 years ago and setting the company up for a sustainable future.
Thanks, Pat I appreciate that.
Our next question comes from the line of Robert Catellier wins, you had you see capital. Your line is now open.
Hey, good morning, and congratulations to both you and the study did it on your upcoming retirement and all you both enjoy that.
They are up.
I'd like to start with a follow up on the on whopping two phase two and how and when that will be placed into service and start generating EBITDA.
Can you provide a little more clarity there as to.
Whether there's any take or pay or from contractual commitments that have sort of a trigger day to them one.
Some of the outside to when it will be placed into service.
So.
The a whopping he is we're commissioning wapiti phase two right now so.
So it will be placed into service here in the <unk> and available for service in the next the number of weeks.
As we've discussed the there's really no incremental EBITDA that is going to be generated associated with with train to the positioning that allows us to do with train two is facilitate handling incremental volumes that we see opportunities for through 2021 and in the near term providing.
Real reliability benefits to the existing WAPA diasa as I look out late 2021% to 2022 2023, we do see contractual requirements for that facility, but certainly not in the near term. So I wouldn't expect a significant EBITDA uptick associated with great to being ready available for service.
Okay, so effectively the take or pay commitments that those producers have made to walk me or covered off by the capacity.
The existing phase one point.
Yeah for the most part there so there's some minor things that go with it but it's certainly not material.
Yeah, Okay, well done.
Without getting into much detail I mean sort of the the contractual arrangements are different depending on the different assets or the complex as I mentioned before so you know the.
The the compressor station or and you look at the utilization on condensate stabilization and a and a water disposal, but those are very highly utilized. So I think everybody. You know maybe focus is on the utilization of the gas plant and they apply that to the whole complex, which is not a does not have an accurate analysis.
Okay. Thanks. Thanks for that then what really do you think the producers need to see to increase their activities you know in general in the basement, but specifically around though lofty is there a price level or some other consideration I think will motivate but higher levels and draw.
One.
You know from my perspective, I mean, I I think it's promising that we're seeing better natural gas prices today, Although you know a lot of the economics are driven around the currency price.
Quantity demand has returned to back to almost normal levels that we would have been at last year. So condensate demand has been very strong. So I think thats promising in terms of.
The <unk> the future pricing for for condensate and that has a big influence obviously on on producer confidence in terms of moving forward I think I think what's going to happen in short term is that producers are going to be a little bit cautious because they want to probably strengthen their balance sheets a bit before they get too aggressive with drilling, but as we mentioned before.
You know, both Paramount and and Pipestone have programs.
Programs underway and we're you know as Brad mentioned, we've talked to other producers in the area. I mean, we certainly see that it's still a very you know one of the best fairways for for GLG, and we certainly believe that there'll be more drilling here in the future just maybe not as quick as we originally thought so we'll see more volumes in 2021, but I see.
As we look into 22 and 23, we will continue to see more volumes in that area.
Rob I would add that John I would add don't forget that a year ago. At this time producers were starting to ramp up in response to stronger prices and.
And you know a lot of them suffered you know suffered severely for that when prices crashed in March and so I think the attitude right now I think is caution.
And despite the fact that we're seeing you know very healthy a coal prices and Ah you know and somewhat better condensate prices certainly than we saw in the second quarter of last year of this year. The I think there's there's still a very cautious approach.
What I do know is that producers are taking advantage of the natural gas levels to hedge a and to try and lock in a little bit more certainty on the commodity price and so you know I'm I'm, a I'm optimistic that as we get a little bit more certainty around the environment, we'll start to see more activity or in the first quarter.
Yeah that makes a lot of sun suddenly they caution and capital discipline will produce or sorry, he is probably long run beneficial to everyone.
If you could just elaborate a little bit on the comment that was on the Mdna I thought the outlet supply.
Acting.
The market for a payout.
Yeah, Rob this is Jamie yes, so although refinery run rates are lower than year over year than than they were so right now were refinery run rates about 75% versus a lift this year and last this time last year probably between 85.
90%.
The production of Alcoholics.
Would be pretty much the same so we've got <unk> you know, we got a little bit less gasoline production, but we've got the same amount of outlet being produced.
So yeah, we've got a little bit of a headwind or downward pressure on on the octane value within North America now I want to emphasize that Andy Yes, we have some very longstanding and weve developed actually new relationships in 2020 with respect to refineries in North America.
In the past, we've we've relied certainly in the winter more on exports into Latin America, and we've we've pivoted off of that strategy somewhat to develop more relationships in North America that see our product, which is a lower vapor pressure and higher octane product.
You know and prepared to pay a premium relative to octane. So our strategy has been to differentiate ourselves in and see that value you know and.
And get paid that value off of our products, but there's no debating. The fact that our teens were relatively long arc teams in North America and as a result, the standard outlet product.
Is is under price pressure, but once again and got to emphasize that AOCF in our opinion is the preferred octane.
Product Yeah in North America.
Particularly in the summer.
Driving season, where we pretty much place all our product with our existing customers.
Okay. Thanks for those answers.
Our next question comes from Chris <unk> with Barclays.
Your line is now open.
Yes, hi, guys. Good morning, and I guess first off congrats to Dave and best of luck.
My question is on cash.
He is there any update there on sort of the contract status or contract levels on that pipe moving forward order or is there anything to be sort of gleaned from your decision today to.
That's you're announcing you.
Fairly significant spending on that asset starting next year.
Oh.
You know as we mentioned earlier this year, we had deferred the the.
Project by one year.
And all of our shippers committed to a you know to to do that one year to first of all we Oliver contracts carried forward. The only guidance. We provided is that 70% of the initial capacity is contracted.
And then like I say, we have all those contracts still in place.
Okay.
Sorry go ahead.
Well I mean, I guess I was just going to ask.
Is there a longer term as we sit here today, the the futures curve that W. Ty futures curve is still mid Fortys at best So is there any concern that.
As some of the mandatory curtailments in Alberta come to a close later this year or some of the more conventional assets, we might see another wave of shut ins further down the road as.
Spreads widen out possibly.
Okay.
Yeah, I mean, I think there's a.
Those are just a lot to your response I mean, I think the reason why you see the resiliency of oil sands production is that there's a lot of demand for that heavy barrels in U.S., because all the complex refining capacity in the U.S.
Needs that barrel, even more with with Venezuela, and Mexico into and decline. So you know, we certainly are getting more and more confidence with a with trans mountain pipeline, which as you know it's going to add a.
650000, or so barrels of additional capacity.
And and that's a scheduled to be in service in 2022, maybe 2023 so.
So if there are if there are curtailments you know we think that you know those are sort of short term and when we look at the long term.
We certainly still believe that there will be the demand for diluent will will increase.
But if you if you think about overall the.
What the what the business proposition is for for Caf II.
It's just that need to have a competing system.
I used. The example that if you had at your airport only one airline that you could fly with what do you think the cost of that service would be and how good with the service fee. If you had only one alternative.
And again as we talked about a the pet chem side of the business.
Would you want to make a 6 billion dollar investment if you thought that you could only get feedstock off of prime.
Primarily one system and and that's part of the reason why for our industry and for a province that you need competition.
Okay. No. That's that's all very helpful. Thanks, Thanks, a lot on that one and then I guess just to clarify something did I think I missed it earlier in the call, but did you guys quantify the impact of the whopper the outage in the quarter.
Yes, we did we said it was $60 million 60, Okay got it that's it from me then thank you guys.
That was 161 SEC, yeah, [laughter], Yeah got it takes there [laughter].
And as a reminder, ladies and gentlemen that he would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Robert Kwan with RBC capital markets. Your line is now open.
Great. Good morning, I'm, just on the 2021 gross Capex and not just for 60 range. How much of that is sure today versus things you might secure in the future and are you able to break out how much is that as discounts.
No we haven't gone into that detail, but what I can tell you Robert is that that most of that is related to caps and then there is some for the cell to teach 'em up sell for a project that we had announced I think a year ago. So there's a little bit for that as well, but a lot of it is for cats and and as we had talked about earlier.
Sure most of that spend begins you know in the second half of next year.
Got it and just I mean is there a material portion of that range. So that's unsecured at this point or if you announced new initiatives, that's going to be kind of plus plus plus.
Yeah that would be something in addition, it yeah, there's very little for unsecured.
[noise].
You mentioned contractual docking.
On an earlier question.
Previously you've talked about a desired so yes on the liquids into.
The structure, just given the ability to get long term take or pay your desire to really take or pay components. I guess just in the past you've had a willingness to take calculated risks maybe.
Maybe some lower upfront returns.
That's still the case or.
Refine that going forward to say you know lock in something like the low end of that 10% to 15% range.
Yes, I think I think our philosophy is similar but so what I'd say is that you know our base return has to be higher than what it was before and that's to account for a higher cost of capital and.
And sort of making sure that we manage our risk and a you know we have a new CFO with a I lean and she's really put our foot down on us so [laughter], but but generally yeah. We we you know when they are self funded model, we have a lot of opportunities.
And you know so we have constrained capital. So that's a good place to be and I think that helps the force a disciplined to make sure that we have high base returns, but also upside so that we can achieve better than average returns overall as a corporation when we when we compare ourselves relative to our peers.
Should you expect though that its return to something more like that low end of the 10% to 15%.
Yeah, I don't want to give specifics but.
But certainly it's it's it's higher than what it was before for sure.
[noise], if I can just finish with.
We've got three and a half a billion dollars of tax pools I'm. Just wondering can you give just white.
She said she rate looks like but the other thing is what keeps moving to 2020 cash taxes around I noticed your assets, we're seeing you know piece.
Yeah. So.
It is really the the.
Current outlook for the the taxable income. So you know we had one and a half billion of assets that came available for use over the last two years, So well you know what.
With that much tax pools available, we were able to reduce this year's taxes to zero, but also to create a taxable loss that were able to recover taxes from from the prior year. So you know essentially with the with the F. outage at our taxable income for this year, having come down a little bit.
That would be the big driver for that.
[noise], that's such a shame back and then do you have accomplished this year.
[music].
Through Miss that did your compensation claim rate.
On the U.C.C. Oh, so most of them are that 25%.
Decline rate.
The g. and keeping it yes, we can get back to you Robert if you back on that but but most of it is at 25.5.
Pools, we disclosed or year end a year in disclosures I think Craig.
Okay, that's great.
Just Dave all the best in retirement.
Thanks, Robert I appreciate it.
[laughter].
Our next question comes from the line of Tobias Scholes with Industrial Alliance.
Your line is now open.
Good morning, Thanks, very much for taking my call and David I'd like to wish you congratulations on your upcoming retirement.
Thanks Les.
First question just to follow up on the capital program for 2021, let me call it the plus plus category.
Any possibility with TMX for a baseline expansion.
[noise], Yeah license, Jamie So yes, we're not we're not the operator that facility Pembina is but we're certainly constantly in conversations with them with respect to BTT.
Yes, certainly we see an opportunity I'm as TMX comes online for additional demand for storage and our view is that with our partner, where we're the best positioned to take advantage of that in the marketplace.
Good thanks for that and you know like I, probably concur with you moving to the Wild horse terminal I want to see if I word this correctly.
We're heading towards a mechanical completion I think by the end of the year.
Word starting to make a contribution I think you've been very careful onboard and within the first half of the year.
How do you expect that ramp up to be in terms of let me call. It.
The margin contribution from the terminal would that start to hit towards Q2 and would it be a relatively slow ramp or a quick ramp.
So it's Jamie again, all eyes, so yeah, there's definitely going to be a ramp you know are our customers, including Khera, who is who is taking out a million barrels storage at that facility you know we.
Expect that the ramp is going to be you know relatively.
Expedited in nature, you know, we're confident in in the facility and it was built around efficiency.
And you know providing.
Our customers the the most efficient terminal in Cushing so from an operational perspective, we don't anticipate the ramps going to be two challenged it's it's more the the the the commercial elements in the margin associated with that that will well it will take a little bit of time.
To to realize the.
The the ultimate run rate that we expect from that facility. So hopefully that answers your question.
Yeah that does that add some color.
And maybe one last one it's probably directed towards you again Jamie.
Interested in Galena Park, it's not a huge capital investment, but you know from a very high level you know, what we've seen with some blending facilities or export facilities as they can be very profitable for their size is this one that you know probably had some possibility of making an oversize contribution.
For its relative capital.
Well I think when we unveiled this back in Investor Day in December of last week, we did indicate that we expected to be on the higher end of our rate of return range and and we still expect that to be the case.
Great. Thanks, very much Oh for all those answers and once again, all the best to everybody in their new roles from transitioning rules.
I too.
There are no further questions in queue at this time I'll turn the call over to live on is if you look for closing comments.
Thank you everyone for participating and listening on our call that concludes.
The call for today, if you have any other questions. Please don't hesitate to contact any member of the IR team. Thank you for your support and investments have a good day.
This concludes today's conference call you may now disconnect.
[noise].