Q4 2020 AltaGas Ltd Earnings Call
There'll be a question and answer session. As a reminder of this conference call is being broadcast live on the Internet and recorded of Nellix just from the conference call over to Adam Mcknight Director of Investor Relations. Please go ahead Mr. Mcknight.
Thanks Megan.
And good morning, everyone. Thank you for joining us today for all the gas its fourth quarter and full year 2020 financial results Conference call.
On the call. This morning will be Randy Crawford President.
President and Chief Executive Officer, and James Harbor, Lewis Executive Vice President and Chief Financial Officer.
We're also joined here this morning by Randy Toone, Executive Vice President and President of our midstream business.
Jenkins Executive Vice President and President of our utilities business and John Morrison, Senior Vice President Investor Relations and corporate development.
In addition to the fourth quarter press release financial statements and MD&A.
At least earlier today. We've also published our Q4 earnings summary presentation that we may refer to at select points during our prepared remarks the.
The presentation, which walks through the quarter and highlight some of the key variances and one time items that we would assume would be helpful. For the market is available on our website under events and presentations.
As always today's prepared remarks will be followed by a question and answer period.
And everyone that we will be available after the call for any follow up or detailed modeling questions.
Were preceding the basis that everyone has the opportunity and have taken the opportunity to review the press release and our first quarter results.
Before we begin.
We also remind everyone that we will refer to forward looking information on today's call. This information is subject to certain risks and uncertainties as outlined in the forward looking information disclosure on slide two of our investor presentation.
Which cannot be found on our website and more fully within our public disclosure filings on both SEDAR and Edgar.
For the structure of the call will start with Randy Crawford, providing some comments on our 2020 financial performance the <unk>.
The gas integration and what you can expect on the road ahead for all of the gas.
All of that James harmless.
Providing the more detailed walkthrough of the financial results and our near term outlook and then we'll leave plenty of time at the end for the Q&A session.
With that I'll now turn the call over to Randy Crawford.
Good morning, everyone. The Pea.
Last year was one likelihood of not seeing and included great disruption across every part of the globe.
Spite these challenges all of the gas persevered and delivered robust financial and operational results yielded positive outcomes for all our stakeholders.
We delivered 14% earnings per share growth, while building off the gas organizational capacity and advancing our corporate strategy.
We executed one of the largest capital programs in our history with more than $900 million of organic capex deployed.
We also invested another 750 minutes of $15 million to advance our global export strategy through taking operational responsibility of petrol gas and now controlling both operational LPG export terminals on the North American West Coast.
And through it all the positions at the gas to excel in the evolving ecosystem the energy transition that is upon us.
We have built a culture that is geared to deliver outstanding results for our stakeholders.
Focused on performance, it's fueled by accountability, and it's underpinned by collaboration and pushing the envelope.
For two years running we have delivered normalized EPS growth that is materially eclipsed all of our U S gas utility in Canadian midstream peers.
Our stock performance was also at the top of our peer group for the second year running.
This performance, we are continuing to improve our balance sheet and our credit position.
The risk the platform in numerous ways and we have built the more sustainable business.
The past year was also an environment that provided us validation of the resiliency of the platform our people and the purposeful actions we have taken over the past two years to create an enduring business that is focused on creating long term value for all of our stakeholders.
We also take great pride in being able to play a part in lending of helping hand to the communities. We serve during this time of need.
There are four key areas I wanted to touch on the day before turning the call over to James.
This includes our 2020 financial performance.
Petrol gas integration of <unk>.
Joel and evolving energy market and what you can expect on the road ahead for all of the gas.
In terms of 2020 performance, our utilities business demonstrated the strong and resilient performance that we worked hard to achieve delivering 21% year over year normalized EPS growth.
This provides us with high confidence that we will capture the full value of our industry, leading 8% rate base CAGR through 2025 weeks.
We continue to realize the benefits of our acute capital discipline judicious management of our cost reduction of incoming leaks, which were down more than 15% year over year and our regulatory cases that are designed to deliver better customer outcomes and keep our rates in line with our current operating and planned cost structure.
We successfully close the ROE gap by approximately 150 basis points from 2020 in line with our target.
This keeps us on track to close the remaining 150 bps scout and achieve our allowed return over 'twenty and 'twenty one.
The D C and Maryland rate cases, we filed in 2020 are expected to have an input impact at the start of the second quarter of 2021 and.
In December 2020, we reached the settlement agreement with the D. C. P. Public service Commission that included a revenue increase of the U S 19, and a half million dollars.
D. C. Currently has the largest GAAP between our earned and allowed returns in this rate case is the first since 2016. So it will go a long way towards closing the order of we've got the W. G L.
The update of D. C weights had been approved to become effective April one.
Within our midstream business, we made significant progress in advancing our global export strategy, including a full year of operations at rip it and acquiring petrol gas and the Ferndale export terminal.
Also completed the north pine and Townsend to the expansions with significantly increased our processing and fractionation capacity within the Montney region.
All of the gas of course throughput volumes in the region increased by 16% year over year in Q4 'twenty 'twenty.
As customers continue to grow in the contractual agreements at Townsend and north pine.
Recent upstream consolidation has provided a significantly improved counterparty credit risk.
Shrink consolidation transactions built scale create financially stronger companies with the support the longer term growth plans in the region and alignment of our thesis to build an industry leading footprint in the northeast B C.
In 2020, we made significant progress on our operational logistics capabilities wrapped up.
From a rocky start to the fourth quarter due to logistics difficulties, we achieved our 50000 barrels a day exit rate target by exporting approximately 50600 barrels a day in December 2020, and January of 2021.
In 2020, we export of 27 day L. G CSF.
Which contains approximately $1 2 million metric tons of 15 million barrels of western Canadian propane to Asia, providing tangible benefits to the Canadian upstream and midstream industry.
We took advantage of the strengthening of the forward at the eicher for propane in Asia by locking in hedges of healthy spreads late in Q4 and early Q1.
Currently we have just approximately 70% of rip its expected exports hedged for 2021, which includes 35% underpinned by tolling agreements and the balance coming from financial hedges of approximately $10.25 per barrel at the eye to Mt Belvieu throughout the year.
From a timing standpoint, or approximately 90% hedged in the first quarter and 65 per cent hedged for the remainder of the year.
In terms of the petrol gas integration, although we are in the early days Petro gas employees have already been of great cultural fit within the Alta gas and we are seeing benefits of their deep midstream and energy export knowledge and experience.
<unk> been busy embracing the best practices of the combined organization and level.
Learning a great deal from each other in terms of driving operational excellence across our logistics and maritime shipping practices.
The highly confident of being able to realize the $30 million and run rate cost savings and logistics optimization opportunities that we originally identified for 2021.
Petrol gas Calgary employees will move into altogether the offices in the coming weeks and we are taking purposeful steps for accelerated the integration and ensuring that the best ideas and practices lies within the larger organization.
The addition of Ferndale effectively doubled our LPG export capacity to approximately 100000 barrels a day with the ability to expand to in excess of 130000 barrels a day in the coming years with minimal capital investment.
Petrol gas assets also provide us with greater access to NGL supply and storage in Fort Saskatchewan, which further advances our energy export value proposition and supports further volume growth.
The integration of the commercial and operational knowledge and experience of petrol gas employees, along with the off the gas people and the platform will yield large dividends to our stakeholders.
We exited 2020 and began 2021 on a very strong footing shipping five cargoes in December.
Four cargoes in January and we are on track the ship five cargoes in February.
As we continue to move towards the more decarbonize. The ecosystem, we believe natural gas will play a critical part of the transition fuel of the future.
Our utilities distribution network is comprised of critical infrastructure that enables us to deliver low carbon natural gas today and provides the foundation for delivery of carbon free solutions in the years ahead, including renewable natural gas and hydrogen.
It is for this reason that we place the strong emphasis on our accelerated pipeline replacement program spending within W. G. L. As it replaces aging infrastructure and reduces methane emissions through the remediation.
The first and foremost improves the safety and reliability delivery of cleaner and affordable energy is critical to keep society of moving forward.
Serving optionality for delivery of carbon free fuels in the future.
We have a demonstrated track record of delivering on this initiative through other parts of all of the gas, including a simple cooperations in Michigan.
We have reduced emissions by 50% since 2010, and we continue to advance these environmental stewardship initiatives across the all of the gas platform.
In addition, our ability to deliver lower carbon emitting fuels to Asia through our midstream platform creates the potential for us to help lower global carbon emissions.
Our combined LPG export capacity of Rip it and.
In Ferndale has the potential to reduce the equivalent of 500000 average agent citizens total carbon footprint per year, when compared to using more carbon intensive fuels like thermal coal.
We're also undergoing engineering work on various emission reduction opportunities across our midstream network with a focus on steadily reducing all of the gas emissions intensity over time.
All of the gas has a long history of operating with social purpose and delivering strong environmental stewardship, you can expect that the same from us in the years ahead.
Looking ahead, we are steadfast in our goal to reduce leverage to below five times net debt to EBITDA over the medium term as our credit ratings and Derisking plans remain the top priority.
We will continue to execute our strategy and take advantage of our distinctive utilities and midstream businesses that are well positioned to deliver strong and highly visible growth.
In the year ahead, we remain acutely focused on one.
Optimizing returns through previously deployed capital as there is simply no greater way to create value for our stakeholders than improving the returns on the capital has already been deployed.
Growing our midstream segment to the investments we have made in northeast B C and our global export platform, where we have deployed more than $2 billion of capital in the past four years.
And three making disciplined investments and other utilities platform and provides steady returns and having having a positive environmental impact.
With this approach that we are building a diversified low risk high growth utilities, and midstream business that is delivering resilient and durable value for our stakeholders that she'd compound in the years ahead.
And with that I will turn the call over to James.
Okay.
Thank you Randy and good morning, everyone.
Despite the many challenges that were brought by COVID-19, and economic and social societal disruption that came as a result, we're pleased that our diversified platform delivered another solid quarter to conclude a successful year.
2020 normalized EBITDA of 131 billion landed in the upper end of the guidance range that we set at the start of the year, while 2020 normalized EPS of $1 42 eclipsed the top end of our guidance range.
These results continue to highlight the strong underlying resilience of the platform and the purposeful actions that we've taken over the past two years to refocus the company.
We have said in the past we are acutely focused on creating durable value for our stakeholders and providing steady compounding returns overtime.
Our utilities business, which represents the property approximately 60% of EBITDA continues to provide stable and reliable earnings and experienced only moderate challenges in 2020 associated with the usage bad debt expense and other factors underpinned by COVID-19.
Our midstream business were approximately 65% of EBITDA is underpinned by take or pay or fee for service arrangements has less direct commodity exposure and continues to provide stable and predictable results.
We also continue to take steps to Derisk the platform in areas, where we do have commodity price exposure and that can be seen through the active hedging program. We undertook in recent months in relation to both of our merchant exposure and the frac exposed output in 2021.
Despite the challenging environment, we achieved normalized EPS of <unk> 53 in the fourth quarter and $1 42 for the full year with the latter representing a 14% year over year increase.
It was well above our 2020 guidance range of 120 to $1 30 per share.
Normalized EBITDA for the quarter was $392 million and $1 three 1 billion for the full year landing in the upper half of our guidance range of $1 75 to 132 5 billion.
Similar to last quarter I want to highlight a couple of large one time items in 2019 that were not present in 2020 and are important in understanding our business performance.
This includes a $117 million of lost EBITDA from asset sales and the $21 million tailwind associated with the contract settlement in Q4 2019 of Petro gas, which was not repeated this quarter.
Excluding these items our full year adjusted run rate EBITDA was up approximately 12% year over year within our core business.
Yeah.
These one time impacts and major year over year variances are laid out in our Q4 'twenty earnings presentation, which is available on our website and intended to provide additional color the better understand our operating performance and an open and transparent manner.
The year over year growth within our core businesses was underpinned.
Strong execution within the utility segment and resilient performance within the midstream segment, despite a very challenging commodity price environment.
Our full year normalized 2020 utilities EBITDA was up 13% year over year, which was driven by the same capital regulatory and cost discipline that has been our focus over the past two years.
Specific to the fourth quarter, our utility segment reported annualized EBITDA of $259 million compared to $260 million in Q4 2019.
If we adjust for loss contribution due to asset sales and the one time impact the Virginia hearing Examiner's report on Q4 2019, the utility segment run rate EBITDA increased by 4%.
W. G L normalized EBITDA was $170 million in the fourth quarter down $12 million year over year.
During the one time $5 million impact associated with the Virginia hearing Examiner's report W. Joe results were down approximately $7 million year over year.
Factors impacting results included higher revenue from ongoing ERP spending that was more than offset by unseasonably warm weather within D C and COVID-19 associated costs.
Yeah.
We made significant progress towards earning our allowed returns of WGN <unk> through our ongoing capital regulatory and cost discipline.
We had a stated goal of closing the arlie GAAP of W. Gel by 150 basis points in 2020, and we met that target.
We have another 150 basis points targeted in 2021 to be in a position of fully earning our allowed return in 2022 and beyond.
And Michigan Central had another strong quarter contributing $41 million to normalized EBITDA of $6 million year over year.
The increase is the result of higher rates associated with 2019 rate case that came into effect in January 2020, and higher transport and gas services revenue, which was partially offset by warmer weather.
In Alaska, and starting the <unk> benefited from colder weather and contributed $25 million of normalized EBITDA for the quarter up $3 million over the same quarter last year as a result of usage and customer growth.
Finally normalized EBITDA from the retail energy marketing business was up $7 million year over year to $23 million in the fourth quarter on higher gas margins to the favorable commodity prices higher volumes and lower operating costs, which were somewhat offset by COVID-19 impacts related to electric margins and usage.
Moving over to the midstream segment, we continue to see stability in the core business absent some of the earlier headwinds that we experienced during the third party logistical issues around rip it.
Q4, normalized EBITDA of $128 million compared to $179 million in the same quarter of 2019.
Excluding the previously mentioned the one time items in Q4, 2019, consisting of the $21 million tailwind from petrol gas contract settlement and the lost EBITDA from asset sales midstream fourth quarter normalized EBITDA declined modestly year over year.
The largest contributing factors result of lower hedging gains and the company's U S storage business lower realized margins at rip it due.
Due to higher tolling volumes and lower margins on merchant exports in.
And higher logistical costs due to disruptions along the supply chain that were present in the early part of the quarter.
These factors were partially offset by two weeks of petrol gas consolidation and strong volume growth at our northeastern BC facilities.
Richard and Petro gas contributed $38 million of normalized EBITDA in Q4, 2020, including Petro gas realizing equity earnings for the more than 80% of the quarter and altogether only consolidating its earnings following the close of the acquisition on December 15.
As noted earlier Richard's volumes in the first six weeks of the quarter were impacted by third party logistical issues the carried over from the previously disclosed.
Q3 challenges.
These issues were resolved in mid November and strong execution in the back half of it after the quarter, we achieved our 50000 barrels per day exit rate target.
As we have highlighted in the past continuing to Derisk. The midstream platform remains a top priority for all of the gas in 2021 through increasing export tolling arrangements that Richard and Ferndale.
We continue to see strong demand in Asia as the economies of open back up.
Heating demand has been robust and petrochemical feedstock demand has increased with new facilities coming on stream to meet the growing demand for plastics globally, including robust demand for PP&E.
We took advantage of the strengthening in the forward curve for propane in Asia by locking in hedges at healthy spreads in late Q4 and early Q1.
Currently we have 70% of rip it as expected exports hedged for 'twenty, one which includes 35% underpinned by tolling agreements and the balance coming from financial hedges at approximately $10 25, a barrel.
The items Mount Belvieu throughout the year.
This includes as being approximately 90% hedged in the first quarter.
At Ferndale.
At Ferndale, we of tolling agreements in place with local refiners for a portion of the capacity, which is weighted to the spring and summer months.
We continue to integrate the assets and optimize logistics between the two terminals, we expect to take a similar approach to derisking of Ferndale, because we've taken it rip it over the long term. This includes increasing our tolling arrangements and hedging of greater amounts of merchant volumes going forward.
Our northeastern BC footprint continued to deliver steady increases as customers continue to grow into contractual agreements at the recently expanded Townsend and north pine facilities.
Excluding the onetime impact of maintenance work at younger of northeastern BC throughput volumes were up 16% in Q4.
We had approximately 10000 barrels of frac exposed output in the quarter that was hedged and realize that in average frac spreads of $30 95 per barrel.
Interest expense was down $9 million year over year to $68 million in the fourth quarter due to lower average interest rates compared to 2019 as 2020 maturities will refinance at lower rates and aligned with our ongoing focus to continue to stagger extend and de risked ultra gas of capital structure.
Our capital focus in 2021 remains heavily weighted towards organic growth within our low risk of utilities, perhaps the platform that will deliver stable and transparent rate base growth through accelerated replacement programs and system betterment that ensures a timely recovery of capital and strong risk adjusted returns.
Approximately 80% of our $910 million the growth capital program will be directed towards our rate regulated utilities.
Proximately, 46% will be directed to accelerated pipeline replacement programs.
We continue to prioritize maximizing returns on previously deployed capital and we are maintaining a capital light program within our midstream business in 2021 <unk>.
This follows more than $2 billion of capital we have deployed in the past four years in northeastern BC and within our global exports platform, including the $715 million, we deployed on Petro gas in December.
We are maintaining a disciplined approach the capital allocation within the self funding model that will continue to strengthen our balance sheet and increased financial flexibility over the medium to longer term.
We are steadfast in our goal to reduce our debt to EBITDA ratio to below five times in the medium term by prudently growing into our current debt levels and realizing the tailwind of our strong rate base growth within our utility segment, and increasing utilization and volume growth within our midstream and energy export facilities.
We will also look to take advantage of any incremental deleveraging opportunities where possible, including potential noncore asset sales debt accelerate our deleveraging strategy.
We are reiterating our original 2021 guidance that was released in December where we expect to achieve annual consolidated normalized EBITDA of one four to $1 5 billion of normalized earnings per share of $1 45 to $1 55.
And with that I would now like to open the call to Q&A.
Thank you, ladies and gentlemen, we will now conduct of the analyst question and answer session.
To ask a question of stars on the minimum of one on your telephone keypad.
The try your question comes from the pound key there'll be a brief pause while we compile the Q&A roster.
Our first question is from Patrick Kenny with National Bank Financial Your line is open.
Hey, good morning, guys.
Just given the volatility in the far East index spread this winter.
Does that help or hinder your ability to lock in new.
Pulling the agreements with customers.
And perhaps you could just remind us of what your target contracting level is by say year end as a percentage of exports.
Hi, Patrick Thank you for the question.
Clearly.
With the acquisition of <unk>.
Petrol gas the ability of the load more ships and we have far more tools in our toolbox around the logistics and supply optimization and the balancing of the because of the storage. So.
And regarding 2021.
But coming out of the COVID-19 into where commodity prices have recovered.
And we've seen some consolidation in the upstream sector of creating stronger entities.
More capability of making long term commitments such as total an infill well at the demand and prices remain strong and the continued we're optimistic about the <unk>.
Risking that platform.
We are exploring alternative structures that would derisk it and provide more incentives on tolling. So our target is to where it over.
Over the past year, we've gotten to 35% of rip the tolling and our target is to exit the.
The year end at 50%.
And the spike in the spread this winter to debt, resulting in an increased level of inbound from potential customers.
Sure I mean really as we've said over time Patrick This is the best market for the LPG.
But we provide for our customers the sure there's lots of interest my point is that the things that working in terms of the consolidation in the upstream sector of that make the.
The producers other stronger.
And put them in the even in a better position to make longer term commitments such as tolling.
Got it got it okay.
Now with both hands on the steering wheel of Petro gas.
Randy what are you seeing in terms of other opportunities of set of Ferndale I know, there's a decent storage footprint of Fort Saskatchewan. Some other terminals scattered around North America.
Just curious if you see some hidden value outside of the core propane export business and.
What you could potentially realize over the next couple of years.
No. It's of Great question, and I'll, let Randy answer some of that in a bit more detail.
The broader kind of perspective right.
Of LPG storage assets in Fort Saskatchewan, as well as our larger domestic presence that.
Petrol gas springs in the Gulf Coast as well.
It's really something that we think we can leverage in terms of our future growth around our customers.
Randy go ahead of <unk>.
Talk about some of the specifics.
Sure.
So.
With Patrick Yes, they do have a more of a marketing presence for NGL, So both north American and <unk>.
Exports for both propane and butane.
So we feel that we can provide our customers.
More of the better net backs on those products and that will add value to our processing business and hopefully lead to future growth.
Those businesses as well.
And the Patrick and I'll, just chime in when you think about the our.
The marketing optimization and supply chain efficiencies and really the strategic positioning of that long term contracting and access to the refineries in.
And expansion.
The logistics of improved logistics all of our playing a role.
Too dramatically.
The increase the amount of product that we can move domestically as well as flow to Asia and our export strategy.
Okay, Great and then last one from me maybe for James Sorry, if I missed it but just given your exposure to the to the U S dollar in the.
The recent move here towards the <unk> can you just update us on your FX hedging policy and I guess at least until the balance sheet is below five times.
Yes.
Patrick It's we don't hedge our translational exposures with respect to the balance sheet. So we do have of sensitivity in our financials. We're a five cent move would impact EBITDA by about $35 million, but when you go to <unk>.
Debt ratios, because we have some U S dollar denominated debt, we would we would get a benefit in both of the denominator and the numerator. So it doesn't really move the needle in a negative way or positive way in terms of those ratios, but our FX hedging does not deal with translational edges of focus more on transactional hedges, where we want to.
Lock in margin on certain U S dollar denominated revenues.
Okay. Thanks for that I'll leave their guidance.
Thanks.
Your next question is from Rob Hope with Scotiabank. Your line is open.
Good morning, everyone I'll follow up on the Patrick's question as you take a look at 2021 guidance the environment at least on the NGL side of have significantly improved but we've seen kind of FX headwinds.
As you look at kind of the tailwind and headwinds that youre seeing so far where are you able to capture strong marketing margin in Q1, which hopefully offset the.
The strengthening commodity net.
The strengthening FX. So I'm, just trying to get a sense of how youre thinking about 'twenty and 'twenty one guidance.
Yeah. Good morning, Rob. Thanks for the question I guess the answer is yes.
As you know.
With the acquisition of Petro gas, we have our Canadian LPG storage assets in the fourth and the Gulf Coast as well as our midstream business has natural gas storage assets in the mid continent, and that does provide us opportunity and allows us the.
Now the opportunity to inject product as you know when prices are low and the withdrawal when prices are high.
So.
As well as really balancing of our supply for our export business. So it was just the petroquest has enhanced our ability to take advantage of the swings and the team has done a really good job.
Alright, and then just a question on the capital allocation.
Two things in the MD&A I thought were interesting one the 40 megawatt standalone energy storage projected in Goleta, California are you looking to do more on the energy side of the reinvigorate kind of of your energy business as well as a comment on.
Potential asset sales in 2021 are you still focused on.
Some nearer term stuff or is it still are probably the day.
Yeah, I mean look we were focused.
<unk> as you know the on positioning of our long term strategy of diversity.
Two of these in midstream business too.
And so on the power side, where it's not.
Particularly the area of.
Our focus in but you know in terms of your asset sales and we're committed to getting below and under the five times and.
There are certainly scenarios, where we could achieve that.
Exceed guidance and the noncore asset sales, but I would point out that we have.
Ample liquidity.
And net we're not committed to selling those assets and the only committed to selling at the right price. So I think we are in excellent position from that perspective.
We will continue to the increased profitability and look at opportunities.
Can accelerate that deleveraging.
Thank you.
Thanks.
Your next question is from Jeremy Tonet with J P. Morgan Your line is open.
Yeah.
Hi, This is Joe on for Jeremy.
Maybe if I can just build off the last question a little bit I know I think if you could kind of go into the asset sales and what assets, specifically I know you've talked about bright in the past and maybe kind of I don't know of M. D T looks fine.
Anything there it could be later dated but but is there anything else you're kind of looking at that could it could be sold in the discussions are ongoing.
Well, we're always looking at opportunities.
Good morning, Joe Thanks for the question too.
Blake I'll address that person that is even though it is contracted with southern California through December of 'twenty three.
And really with the recent rolling blackouts in California, and the value of the grid and Thats just been reinforced so we.
It's really in a strong position so in terms of whether we would have a potential sale of there would have to the credit accretive and otherwise we'd be happy to continue to collect a regular annual contract and cash flow.
And well.
With Mvp's completion.
Over time, clearly, we're looking to do that to the de risk before we were to monetize that.
That's pretty much the two if we were looking at other other.
Opportunities with some marketing assets and such.
But generally speaking of the Saar peak non core assets.
Okay, great. Thank you and then also wanted to ask kind of on the propane exports side.
Just there's the competing terminal coming in into service day in and they're also kind of talking about doing an expansion there.
Does that impact any of your plans to expand Prince Rupert or kind of thoughts there and just I guess kind of generally like how do you do those those two terminals.
With each other.
Sure and again, our strategy is to continue to leverage our unique advantage and it really comes down for us in terms of scale efficiency storage and optimization and so we believe that from a <unk>.
Competitive position, our assets of lease costs and provide.
Excellent markets for our customers. So we continue to look at and we believe that the overall.
The Canadian.
It's going to continue to be oversupplied theres been over.
The different projects that had been canceled so over the long term we continue to be.
The bullish on our ability to grow and expand our exports were pretty much the laser focused in on the logistics aspect of this and continue to optimize our rail.
The cost inefficiencies and overall Petro gas springs of significant scale and opportunity and so.
I think very well positioned to continue to grow.
Great. Thank you for taking my questions.
Uh huh.
Your next question is from Linda <unk>.
From TD Securities. Your line is open.
Thank you.
Recognizing that some of the commodity price range.
Strength, starting in 2021 has been a nice tailwind of more than offsetting any sort of FX headwind.
Can you give us a sense of.
When we look at your guidance range it isn't that wide.
Recognizing that you thought the substantial proportion of your cash flow from EBITDA.
Really secured but im wondering what what what are the bookends.
What factors might we want to look at.
That might cause you to exceed that guidance range. It looks like at this point, but also.
What could slip in the year in terms of extremely mild summer potentially in the utilities or something that might cause you to fall below the lower end of your range.
Good morning, and thanks for the question.
You know.
We're off to a good start.
The good start with our export business and our utility.
In the utility, particularly we have tailwind associated with settling two rate cases.
So key drivers right, we're on target to meet our goals on cargoes.
On the tailwind that we have in the rate case that.
Continued efficiency so.
If there's opportunities to continue to exceed.
Our targets cargoes as well.
And to exceed some of them.
Cost savings initiatives going forward, but we reiterate our guidance where competence.
We're headed.
Going forward James did you want to add.
Anything to that.
Yeah, I think you touched on the.
The impacts of some of the colder weather.
The around some of our marketing businesses in the U S. As the as an area and just in terms of volumes were off to a strong start in terms of export volumes for 2021.
Okay. So maybe I can ask this of differently as well at what point.
The management and the board look at guidance again and had the confidence to potentially.
Modify the range potentially operating does that midyear and the Linda Yeah, no. It's a good.
Question, we're still about seven weeks away from reporting Q1, and as that starts to come into the tier picture, we would update our guidance range at that point once we've got a clear picture of what volumes will look like in terms of our export facilities and where the.
The marketing businesses and especially in some of the areas, where we saw strong pricing as a result of the polar vortex. Once we start to crystallize. Our views. There then I would I would say the Q1 is where we would revisit guidance.
That's helpful and recognizing that you don't.
When they got 19th to Patrick asked very recently and I appreciate that I'm. Just wondering how you might have all of your understanding and timeline for achieving synergies on that front over this year as well.
I would assume that Q1 with the a bit too soon for that but.
Maybe you can comment on any sort of that process is underway to discover what's possible there and achieve that.
Yeah, Great Great question Linda.
I'm excited about the Randy what his team is doing in the Petro gas team as I said in my.
Opening comments and giving us the ability to load more ships far more tools in our toolbox logistics and optimization of this and so we've really focused on getting that team integrated and the best practices.
So we're.
Very confident.
Our targeted synergies.
But maybe.
I wanted to add to that.
Yeah, Hi, Linda.
Already realized some of the synergies that you can imagine.
The office cost.
Certain G&A costs are almost immediate but we've also been able to rationalize our rail fleets. We do see some other savings in rail and also the Grande says we do have more tools to play with and it has helped us achieve better margins already in Q1.
Yeah.
Yes.
Thank you.
The next question is from Robert <unk> with CIBC capital markets. Your line is open.
Hey, good morning, everyone you touched on much of it already but I'd like to know what youre doing the mitigate the third party logistics issues, you are having and how does that change.
Change with the acquisition and integration of the petrol gas.
Yes.
Questions on the let Randy go into some of the details, but clearly logistics supply optimization and having more storage for balancing and access the supply at the port has been.
Significant and it's not a coincidence that we're hitting on all cylinders and we're moving in excess of 50000 barrels a day at Rupert and the shifts that we're moving so Randy.
Yes, I think what Randy said.
Is that accurate.
Continuing to work with the third party Z their performance says is the.
The improved and.
We see that continuing through the rest of the year. So.
And maybe the Randy.
Comment.
On how much.
The control versus some of it because of the vagaries of of.
The rail industry.
Sorry go ahead of any.
Sorry, Robert what was that question yes.
Maybe if you could just attribute how much you think is.
Logistics issues.
Are really under your control can be mitigated through optimization of.
<unk> how much is really the result of third parties.
Well no.
Part of your service providers are they're not in our control, but we do as the.
The strong contracts in place we communicated a lot in.
We're actually investing a lot in real time day.
So we always know where our cars are and we can make decisions quicker.
So it's just the continued work with the third party providers provide better service, but that's all we can do.
And I think look we're making investments in aggregation unit trains.
That will help those logistics that are in our control right that we can build out and leverage the position that petrol gas hasn't before.
The increase of our efficiencies improve logistics. So there's the steps that we can do to help our third parties as well to increase productivity and efficiencies by putting these rails together of these aggregation yards in shipping.
The more effectively and timely with the unit trains and the teams of all over that.
Right. So it's a little bit more of a symbiotic thing okay.
I'm just wondering.
Obviously some of the net backs for the producers.
Looks like it was more of the gross options.
On the way here.
So what are you expecting in terms of when we might see an increase in a meaningful increase.
In drilling activity or the.
Do you really expect.
Thanks for customers to be circumspect with their capital throughout the entire year.
Well you know again I think we've seen some improvement in pricing I think the consolidation that is occurring in the upstream business is creating stronger entities.
Of the guidance is that theyre going to keep production.
At the 2020 levels in some cases, but we're seeing behind north east BC ramp ups of ongoing so I think that the upstream community will be prudent, but I think the price signals are such that you will see some increased activity going forward.
And my final question.
This has been in the non volume pipeline. So do you have an updated view as to what it sensible.
The state might be.
Well I think look the.
The.
I remain confident of the pipeline is going to get built its 92% complete.
You know from the waiting on the.
The.
The nationwide permit 12, they went ahead and filed with the FERC to outlined individual permits and so the.
We'll stick with the the.
The operators and our partners, who we're targeting.
Maintaining the 2021 in service target.
As we go forward and there were a couple of positive events in terms of the.
DC circuit ruling that they could continue construction activity.
The forward and the extension of the certificate so.
I think the continuing to make all of the progress. So I don't want to get out in front of him on the on the date that they are looking at.
Yes.
Great guys. Thank you.
Your final question is from day one.
<unk> with RBC capital markets. Your line is open.
Good morning.
I can start with the midstream business and you talked about the operational logistics volume.
In terms of Derisking and then you also talked about the type of gas integration, but I'm just wondering what other things do.
Do you envision sort of that.
The segment.
We feel comfortable that you've got.
And you noticed the mature business and I guess snapping back.
Could you comment on the third quarter conference call about the potential down the relative to split the business up.
Sure.
Look we've.
As I've said, Rob we're focused on our corporate strategy of of diversified utility and midstream business.
And so we continue to believe that the unique and diversified strategy is the right one.
And so I don't think we should expect any news.
In that regard in terms of anything but executing on all of it.
Plan to continue to Derisk, the asset increase the volumes and go through the integration of that so that's that's our focus right now.
In the early days of executing that strategy that we laid out last year, and and that's where I want and where our focus isn't at the task at hand, because it's a tremendous opportunity for us. So that's what we're gonna be focused this year.
And is there anything the juice.
Whether that's M&A wise or major project wise.
On the print.
To reach them.
That vision.
Well look we just did the M&A when we acquired them, which is increasing you can see it in the resolve of increasing our efficiencies driving down cost moving.
And so look we're always on the lookout for opportunities that will strengthen that'll enhance the core business right and they're up and opportunistically deploy capital, but what's.
It's only like I said the transactions on a couple of weeks behind us in the near term that sort of.
The focus integration and optimization.
We'll always evaluate any opportunities that throughout our.
But we don't necessarily believe that we're on the cusp of any major M&A in the Canadian midstream market at this point.
Got it if I can.
The small.
Question just on your retail business just from what you've seen to date in the first quarter can you just just some color on performance just given.
Weather events can swing these businesses.
The results.
The fair question, but I'm not we're fine and if you look at the weather where on the most of US is in the Washington, Maryland area.
And most of this weather event clearly was in the Georgia, and Texas and the mid continent, So our retail business and our risk management has been.
As in good shape.
You are prepared for.
The happening.
Yeah, Yeah, we've been.
Thats the full requirement schedules, but we have storage and now we are.
They've done an excellent job.
The change.
Great. Thank you.
This concludes the Q&A portion of today's call I will now turn the call back to Mr. Mackay for closing remarks.
Thanks, Megan and thank you everyone. Once again for joining our call today and for your interest in Ulta gas.
As a reminder, we will be available after the call for any follow up questions that you might have.
That concludes our call this morning, and I hope they are.
You all enjoy the rest of your day you may now disconnect your phone lines.
Hum.
Okay.
Okay.