Q3 2021 Keyera Corp Earnings Call
Good morning, My name is Michelle and I will be your conference operator today.
At this time I would like to welcome everyone to the Kiara corporations third quarter 2021 conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press star two.
I would now like to turn the call over to Mr. Dan Cuthbertson director of Investor Relations you may begin.
Thank you and good morning, joining me today will be Dean Setoguchi, President and CEO.
America Senior Vice President CFO, Jamie Urquhart, Senior Vice President and Chief Commercial Officer, and Jared Best Jeremy Senior Vice President operations and engineering.
We will begin with some prepared remarks from IV.
After which we'll open the call to your questions.
I'd 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 refer to some non-GAAP financial measures for additional information on non-GAAP measures and forward looking statements. Please refer to <unk>.
<unk> public filings available on SEDAR and on our website with that I will turn the call over to Dee.
Thanks, Dan and good morning, everyone.
The steps, we've been taking to increase the competitiveness of our assets and enhance our integrated value chain are setting us up well for the future.
With commodity prices at multi year highs and positive industry momentum, we're seeing an increase in demand for our services.
The gathering processing segment, we have available capacity at our plants, which allow us to capture increasing volume and generate incremental margins.
The optimization program and our South region.
The consolidated portfolio are our most efficient plants.
This translates to lower per unit costs and higher per unit margins, making us more competitive.
The Nordics gas plant was originally planned to be shut down next year as part of our optimization program.
However, because of increased demand at our capture area. We have now canceled the suspension of this facility.
This means the optimization program, we launched in 2020 is now complete.
This resulted in increased plant utilization in our southern region.
$50 million in ongoing annual cost savings fully realized in 2022.
And a 12% reduction in absolute emissions compared to 2019.
With the program complete we can now better direct our future investments to the remaining plants to drive further efficiencies including emissions reduction.
In the North region Pipestone continues to set new quarterly highs.
At Wapiti quickly regained momentum after a planned maintenance outage.
There continues to be work at wapiti aimed at increasing reliability and long term performance.
This work will progress for the plant operates and is expected to cost about $5 million in the fourth quarter.
Moving now to our liquids infrastructure segments, our assets continue to be highly utilized and generate stable cash flow.
We're seeing continued high demand for our fractionation average storage and transportation services.
And our Kaps project construction is well underway.
The pipeline is a critical link that will further integrate our value chain expanding our service offerings for our customers.
It's an end to end solution that will deliver value to producers and margin growth for Europe.
As we already know the Montney is set to drive the next era of growth for Canadian natural gas and NGL production.
Kaps is positioned to be integral part of enabling this growth.
Visible catalysts include growing export capacity for natural gas NGL and crude oil.
Increased in basin demand for from coal to gas.
And expanding petrochemical industry in Western Canada, including a new net zero ethane cracker announcements.
And the startup of LNG, Canada in 2025.
Our marketing business continues to enable Kara to deliver premium returns by leveraging our infrastructure assets and.
And employing a disciplined risk management program.
With strong year to date performance and our ability to lock in margins for the remainder of the year.
We are once again raising our guidance for this segment, we now expect to deliver between 303 hundred $20 million for the year.
Turning to our ESG priorities during the quarter, we issued our 2020 ESG performance summary.
Highlights include a year over year, 15% reduction in absolute emission.
In the coming weeks, we'll release, our first climate report, which will include emissions reductions targets and other information aligned Tcs.
With more tailwind that we've seen in quite some time I'm excited about the outlook for our business.
The hard work we've done during the downturn has positioned us well to capture the upside of the industry recovery.
Now I'll turn it over to Irene to provide an update on our financial performance.
Thanks Dean.
Adjusted EBITDA for the quarter with $214 million this was impacted by $25 million and realized hedging losses on product inventory.
These losses are expected to be more than offset by physical sale over the next few quarters.
Distributable cash flow was $149 million.
Net earnings were $70 million.
During the processing segment delivered realized margin of $76 million.
This result was impacted by planned maintenance outage at the Wapiti gas plant as well as reduced ethane volumes at rimbey.
Combined impact was about $8 million for the quarter.
The liquid infrastructure segment delivered a quarterly realized margin of $98 million with.
With high utilization across our key asset.
<unk> was impacted by lower seasonal propane loading and a planned outage at a third party facility in which we own a minority interest.
The marketing segment contributed realized margin of $59 million as Dean mentioned, we are increasing our 2021 marketing segment guidance and now expect to deliver between $300 million and $320 million this year.
We expect strong performance from the marketing segment into Q4, and Q1 of 2022 <unk>.
This provides incremental cash flow that ensures the continued strength of the balance sheet as we execute our growth capital plan.
Moving on to capital spending.
We've revised our expected capex for 2021 to range between 460 <unk> $490 million.
The increase is mostly due to higher cost to complete that sheet jumps Tulsa facility.
We also increased maintenance capital spending to range between $40 million to $50 million. The increase is mostly due to maintenance work being conducted at the Aes facility.
We also provided 2022 capital spending and cash tax guidance in this mornings news release.
Maintenance capital for next year is expected to be between 101 hundred $20 million.
About $60 million of this.
Plant six week maintenance outage at the <unk> facility in the third quarter of next year.
Growth capital is expected to be between $520 million to $560 million.
Of which about $450 million is related to the Kaps project.
And cash taxes are expected to be between 15 and $30 million.
For reference there is a detailed maintenance turnaround and outage list included in this mornings news release.
We exited the quarter in a strong financial position net debt to adjusted EBITDA was two seven times well within our targeted range of two and a half to three times.
And we have one 4 billion in available liquidity.
I'll now turn it back to Dave.
Daily.
We're feeling encouraged and optimistic about the future.
We have a strong macro backdrop.
Fully funded growth projects well underway.
Our balance sheet remains strong and our customers have never been in better shape.
On behalf of <unk> Board of directors and our management team. Thank you for your continued support.
With that I'll turn it back to the operator for Q&A.
Thank you.
Ladies and gentlemen, we will now conduct a question and answer session.
As a reminder, if you would like to ask a question. Please press star followed by one on your Touchtone phone and if you would like to withdraw your question. Please press star two.
One moment. Please for your first question.
Your first question comes from Rob Hope of Scotiabank. Please go ahead.
Good morning, everyone.
Can you maybe I know, it's early days, but.
Looking out to 2022, especially Q1, how much of the marketing margin have you locked in there in terms of propane and then how are you thinking about higher butane costs I guess.
How do you think butane costs will trend through the winter and then into the new Ngls.
So thanks for the question Rob This is Jamie Urquhart on the propane side, yes, we've locked in essentially the margins that.
We would historically be realizing in.
In the winter season, so we're well positioned on that side of our business on the beauty side.
Lots of different dynamics going on in beauty right now with respect to increased exports out of North America, but also just seasonal winter demand that has prices elevated.
Based on the current our current outlook and others.
Third parties that we publish.
Their views and ultimately the forward curve in North America.
We would expect and I think we've been telegraphing. This over the last year or so that we will get back likely to more historic levels.
Levels for the upcoming licensing.
Alright, I appreciate that.
And then just turning over to the to the G&P side of the business. So the decision to keep running.
Are you seeing an acceleration of growth at your plants.
Especially you are getting a little bit tight at the northern plants. The southern plants have been moving up maybe some commentary on how you think volumes trend into 2022.
Yeah, Rob so as Jamie still yes, I think thats being on as I think we were.
I'd put it pleasantly surprised with respect to how quickly our producers have got their balance sheet in order in.
Getting after drilling obviously commodity pricing is a big part of that.
Factors got Cal 'twenty, two eco pricing north of $4 and also balance of year and north of $5 50.
We've seen producers, obviously accelerating accelerating their drilling programs.
Even in 'twenty, one to take advantage of that strong winter pricing. So those things all went into our decision to keep Nordic running at least for the next four years and its turnaround cycle.
But that is a reflection of.
Activity throughout the South alright, everybody hopefully as reminded that we have very strong interconnectivity between all those facilities in the south and and as a result of that Nordics.
An element of the overall network.
We operate.
Rob maybe just add to Jamie's comments is that we did have discussions with the producers in that area behind that facility yet.
Yes based on their clients.
We thought the right decision.
And then as well.
Alright, that's great I'll hop back in the queue. Thank you.
Thanks.
Your next question comes from Matt Taylor of Tudor Pickering Holt. Please go ahead.
Yes, thanks for taking my questions here.
Going back to the GMP is following up on Rob's question, there with the North region largely contracted beside Simon at when you guys are talking about capturing this upside are you are you talking about more gas directed drilling in the south region are.
Are you looking at doing some bolt on expansion opportunities I am thinking about pipestone since it's already fully utilized.
Okay.
Matt It's Jamie again, yes, I think all of the above right.
Certainly we're seeing.
<unk> elevated activity up in the north and continuing to.
Find ways to maximize the utilization of those assets as well.
In Pipestone would be right in the heart of Av.
What we view as being the best geology in the Alberta Montney, yes.
And then back to the <unk>, it's just a function of.
Strong commodity pricing, allowing people to.
Access really good geology, very close to existing infrastructure and therefore, it can get their production on.
In a quick manner.
Just maybe just to add.
<unk>, we actually do have a fair bit of capacity left that we can contract and so.
Again, we think there's opportunities there.
The.
Production to that region is very well.
Liquids heavy.
We're looking at ways to handle the increased liquid volume and utilize the infrastructure that we already have in place which is the gas.
No.
<unk> had never discussions with.
Our customers in the area and again, we think that there is some good opportunities I think gallons itself in sorry, south of Wapiti, which is inside of that region.
Again, we have more capacity there as well.
As you know I think they are starting to be some early development more so than <unk>.
Bernie So I guess, we'll see how that.
It plays out in 'twenty, two and beyond but certainly at these price levels.
More attractiveness.
At that point.
That's great. Thanks for your answers there just as just as a follow on to that is it is it a function more of upside coming from excess capacity and you being able to push volumes through there or is there a margin component to some of the cost saving initiatives that you've done where you can be able to earn more.
More on each barrel that each molecule thats going to your plants.
Yes, I think.
If we just think of things overall.
It was pretty tough circumstances over the last few years right and so.
As our contracts come up for renewal.
The 'twenty prices, where they are I think over time. It provides an opportunity for us to restructure some of our contracts that could be more beneficial for us and our shareholders.
Again reflective of.
The 20 price environment that we're in today.
Okay, great. Thanks for that and then one last one if I may and maybe a question for you Dean you talked to you about future capital being weighted towards the legs. The liquid segment. So I'm wondering if you could comment on the mix you'd be willing to do there whether it's development.
And or M&A to grow that business.
And how your focus and what you're focused on there if it's just acquiring or developing contracted assets or do you see some strategic value and maybe buying or developing assets that maybe last contracted but help you capture more volumes for caps and give you some downstream optionality.
Well definitely do you want to increase our contracted base.
Returns are first and foremost for us so our allocation of capital is.
Formal so we wont do anything and this is the value add for our for our shareholders.
It certainly has that.
The strategic in terms of our integrator.
<unk> footprint.
So what I think I think we could see.
See opportunities in different parts of our business. So as Jamie said I mean, we're seeing a lot of demand in our northern.
Montney gas plants.
So could we make some investments there yes, it is very well possible, but we're going to make sure that we have the contracts and the contractual certainty to back those types of investments.
We.
We're going to pursue them.
I think.
Post caps I think the strength of our company is in the industrial Heartlands between Edmonton and Fort Saskatchewan.
We have an incredible footprint there that is also capable of helping the industry transition.
If you think about some of the petrochemical developments that.
We are likely to happen in the future some of that probably are announced yet.
They're going to require services like.
What we can provide which is.
Feedstocks.
Fractionation storage <unk> kind of services. So we see a lot of opportunity in industrial Heartland, where we have a big advantage already because of the footprint that we have.
Okay. Thanks for that thanks for taking my questions everyone.
Thanks, Matt.
Your next question comes from Patrick Kenny of National Bank Financial. Please go ahead.
Thank you. Good morning, just wondering guys. If you can provide an update on how the outage at the plains PFS facility is impacting your business.
Whether you're having to manage any bottlenecks upstream or on the flip side, if there's been any incremental volumes coming your way until the facility is back.
Fully up and running.
Hi, This is Jamie.
Yeah, certainly the challenges Plains has had has tightened up the frac market in Alberta, and Thats created some challenges.
Primarily industry in general and the customers that we collectively deal with so.
The opportunity we see is we're working with those customers that maybe have been impacted by the outage.
Ensuring that their production and the value of their production is maximized so.
That's the opportunity in the short term and ultimately our ability to help those customers that would hopefully will translate into longer term relations and value for our shareholders.
And with <unk> operating at full capacity.
And given the outlook for drilling activity are you in discussions today with customers regarding an expansion.
Or when might we hear of some development there.
Yes, we're always obviously looking.
To expand our business as Dean said, though we need to make sure that we've got the contracts in place to make sure that that's a good investment for the company and our shareholders, but yes. We're always we're always talking to customers and look forward looking with respect to when we think.
Capacity is going to be required off of our network certainly kaps is.
A big part of that as well when that gets in service and ultimately provides another.
Alternative for customers for bringing Ngls down into the Fort Saskatchewan area. So.
Sorry, it's a long winded answer, but yes, we're obviously compensation.
With all our customers yet that and certainly we see.
For the growth in our basin.
Because of some of the drivers I talked about before certainly a lot of increase the address for our basin, which is fantastic.
Our kaps pipeline.
It's going to grow over time and deliver more.
No.
MX volumes to be.
Catherine.
So we do think that industry is going to require more frac capacity at some point in the future and we're very well positioned we have obviously.
Very competitive site.
Around field developments, obviously, it's.
A much more economic than someone else trying to build a greenfield one somewhere else and we have the best connectivity at that site, which obviously makes it valuable so.
Again, we're very well positioned when the time comes to.
Increased capacity.
Okay. Thanks for that and maybe last follow up for me just maybe you can just help us distill the opportunities that you see for tiara.
Related to Dow's net zero project announcements.
Well you know what.
First of all I mean.
But I think that this is a.
Credibly exciting I mean sanctioned yet, but I think it's incredibly exciting potential for Canada or Alberta to have the first.
The world's first net net zero ethane cracker.
No.
I won't specifically speak to them I think there's others. Other companies that are looking at petrochemical developments in the industrial heartland, but obviously is.
The big.
Driver of feedstocks I mean, we have a lot of feedstocks for our system as part of our strength of our company in terms of all the assets that we have and our expertise.
Yes, we are feedstocks yesterday's nation, we have fractionation, we have storage capacity and expertise around that in transportation. So all all infrastructure and expertise that will help enable projects like the snip project without doing so.
Generically, we think that we're very well positioned to capture some of that upside in the industry.
Excellent. Thank you for that I'll jump back in the queue.
Your next question comes from Linda <unk>.
TD Securities. Please go ahead.
Thank you maybe I can just build on pat's question.
And.
Ask for maybe a bigger picture vision of how keira might participate in the pet chem value chain.
The facility also could be expanded brownfield.
There are potentially opportunities for extension down the value chain as well maybe you can provide some guardrails as to size, how willing you would be to partner with others, whether it be.
On brownfield facilities, our new greenfield facilities, and how ultimately that might translate into.
A shift in your business mix overall.
Thanks for the question Linda.
That's a lot.
Overall, I think our industry has to get better at it.
Developing strategic partnerships.
And part of that is that we have to think about how.
Our basin, and how Canada, and Alberta is going to be.
Competitive globally.
They can be competitive you have to be super Super efficient in terms of your cost to.
To be competitive.
<unk> has to be.
Peter in terms of ESG and emissions. So I think that we can solve for both but.
We really good at it we have to work together so in industrial Heartland.
We always have active discussions with different players that are looking at developments there.
And as I said before.
There will be a need for more petrochemical feedstock and whether that ethane or propane.
Obviously butane has to be part of our integrated value chain we.
We can be a big supplier for that and I think over time.
There's going to be demand for lower carbon versions of that so when we think about our gas plants are.
Facilities or facilities over time.
Work to do.
Lower the carbon footprint of those.
Facilities, so that the products that we process, our lower carbon version, which is going to help feed the.
Yes.
Future low carbon petrochemical development, so I think theres opportunities there, we have great pipe connectivity between Edmonton and Fort Saskatchewan, So again that existing pipeline infrastructure. We can continue to leverage in terms of transportation that's required within the industrial heartland and weather.
Hydrogen in the future, which I think that.
There is good potential for that or.
<unk>, that's possible, but we do have.
Some capacity that makes them that happen.
I think any petrochemical development certainly need storage.
And we have the largest underground storage position in Fort Saskatchewan already.
Very core part of our expertise and our industrial undeveloped land Heartland lens, we have 1300 acres, there, which we have most of the.
Underground storage rates too so.
As the industry needs more storage capacity, we can build it right there as it relates to aes.
We already have a premium gasoline additive.
And again, we think that we can continue to increase the value of demand for that product. If we go down a path to decarbonize, it which again, we're looking at opportunities to do that there as well.
Thank you and as a follow up.
As you look at the opportunities related to energy transition.
Is there potentially.
To accelerate that through.
Acquisitions to either gain capabilities or new assets that may be cant be achieved through innovative partnerships and Conversely might therapy.
Our rationale for divesting some assets that might be of higher value to other energy infrastructure or energy.
Participants that can maximize the value in other ways.
Beyond what you can do with the assets.
Yes first of all we are absolutely looking at our portfolio and assets that are not core to our future.
And certainly we will look to.
Those are some of those.
Again, when we think about energy transition I think that's our best opportunities to leverage with what we already have industrial heartlands going away and in fact is going to be more development there.
What we need to do is help that industry again with the feedstock they need but also to.
Decarbonize the products that we handle and also help to Decarbonize the industries that are within that fairway.
And we see great opportunities to do that but again, it's leveraging off of the infrastructure, we already have and the expertise that we already have.
Thank you I'll jump back in the queue.
Thank you Linda.
Your next question comes from Ben Pham of BMO. Please go ahead.
I had a question on the Kaps project in our report.
You mentioned.
More pressures on any product business with utility cost and power cost and whatnot in the kitchen.
Project also experiencing.
Capex pressure are you how are you.
Still confident in terms of that $1 6 billion to our Capex budget for kaps.
Hey, Ben it's Jaret here.
We are the projects tracking on plan in terms of cost and schedule and certainly we are seeing some inflationary pressures. So I would say, particularly around the labor market. So we're monitoring those closely but really nothing material at this point.
The other the other portion of that that we've been monitoring throughout the project has been steel costs and again. The majority of that has been contracted already and are our pipe production will be completed in early 'twenty. Two so the remaining exposure in that regard is limited so one way to go yet, but we're feeling pretty good about where we're at from the cost perspective.
Okay, that's great and then.
You mentioned to the utilization improvement in itself.
What are your thoughts about.
Phase two on Wapiti.
All of that and potential timing.
Ben It's Jamie.
As Jim was saying is that.
Sure.
One of the characteristics of the walk Wapiti Montney.
Formations as.
Hi liquid loading.
The production.
Those wells come on and we've seen that over time, where predict particularly water. So the water cut is.
Come on quite significantly at the beginning of bringing wells on it ultimately has leveled off into what we would've expected when we when we built that facility, but as as the producers are developing up around that area that is one of the challenges that we face and so as we can.
Continue to see more maturation of the wells that are being drilled there.
And we are finding alternative mechanisms by which to handle the water.
That's giving us more line of sight as to how we're going to be able to fill up wapiti and.
That's a progression so we fully expect that by mid 2022, we will have.
The first phase.
Phase of the Wapiti falls from a from the processing side and ultimately then get some momentum into starting to fill up phase II.
Okay.
Yes.
Just to add to that Ben so more generally we see a lot of demand in the area and from new.
Sort of.
Producers that have been sort of.
Inactive how theyre getting more active in the area, which is right we have more diversity.
Federal customers.
Bob.
Our philosophy is that water filled out second trained with the least amount of capital and so it might require some capital to default debottleneck some parts of the infrastructure that EBIT.
We're also trying to leverage off of the infrastructure that exists in the area. So there.
There is a third party service provider that has a water disposal facility in the area. So let's go fill their facility first without deploying more capital and so that we can direct more gas to our gas plants. So that's our overall strategy.
There. The question is how do we fill it with the least amount of capital.
Alright.
That helps a lot more I guess just wanted to clarify on <unk>.
<unk> Capex.
Did you already spent.
<unk> two <unk>.
<unk>.
That phase or maybe I have that wrong.
Sorry, Im not sure if I understood your question.
Yes, I will walk a phase III.
Perfect.
Close to a billion dollars for entire.
Phases any of that added some water.
Water disposal infrastructure at the same time, so I would thank guys.
Volumes commented our montney those areas.
Getting immediate benefit to EBITDA without any capex.
Yes.
What Jamie.
What Jamie said is that.
The liquid.
Capacity at that facility and some areas. Some parts of it is nearing capacity. So we don't have enough liquid handling capability too.
To maximize.
The bulk of the capacity of the gas plant itself.
So that's where again, we're trying to use third party facilities for that liquid Emily.
Again, just try to try to utilize our gas plant more.
Okay.
Understood start talking about that and then maybe.
I had a question as you look towards 2022, like where where do you think youre going to try it on debt to EBITDA where does it.
Have you talked at quite a rate agencies around that temporary bump up before it.
Trends lower into 2023.
And it's I mean.
So based on our forecast today.
Comfortable funding cap problem.
Cash flow and using the balance sheet, we don't see any requirement for any discrete common equity theres always other levers we can pull such as the sale of noncore assets with Dean already spoke about that's something that we're always looking at but again in general we are okay to go above our two and a half to three times leverage.
Targets for a short period.
Cap spending at kaps.
Kaps wraps up in 2022, but the leverage comes in line quite quickly at cap starts to generate cash flow. So there have been no issues with with rating agencies based on our forecast.
Okay. That's great. Thank you.
Your next question comes from Robert <unk> of CIBC. Please go ahead.
Hey, good morning, everybody and most of these are going to be follow ups, but I just wanted to.
The Dow opportunity a little bit more.
It doesn't seem like the timing is perfectly aligned for kaps.
In terms of getting an ethane pipe in that kaps trench.
So maybe you can just talk to that how the timing lines up with some of your current.
Projects and the ability to.
Maybe get an ethane pipeline in the cap system.
Hey, good morning, Rob.
Yes, I mean, if there were demand for.
<unk>.
Our clean plus line.
I think mix line and genomics line.
Yes, it would not be will be constructed with the timing of capex, because obviously we're building it today.
We would never pursue that project go again, unless it were contractually underpinned, where we can achieve our rate of return with our contract.
And if so.
We could build it and incrementally whether we built it with existing two lines or we built it separately.
We look at when the cost isn't significantly different so if there is demand for it we could we could absolutely creative solution.
Yes, so hopefully that answers your question.
Yeah and then.
Just.
They have a sense of a big picture understanding that Dow has officially sanction the project.
It sounded like it's.
Going to be a reality, but just in terms of timing.
In terms of.
When they would need supporting infrastructure and have to start contracting for that.
What I said I can't.
Speak to doubt needs at this point.
Think more generically.
Rob is that we are obviously in the business to provide services to our industry.
Very well positioned.
And whether it's Dell or anybody else, if you look at our infrastructure and industrial Heartland.
Do you want to use that as an example.
<unk>.
We're sandwich that other side of the with our undeveloped land.
To the east that Joseph Burk, and our Capex plan and we.
We have a lot of pipe connectivity that goes right to the land so.
Again, we have a lot of infrastructure in the area that can enable.
Clinical development with us dollar or anybody else.
Alright.
Moving on to the drilling here just to follow up a bit on your decision on nor Doug.
Sure.
Maybe you can mention which producers, but if you don't want to talk about your customers that way, then which plays and which other plants are seeing the most activity there.
<unk> decision to keep more open.
Yes, Robert this is Jamie So I hope you can understand we would share any specifics around what producers, but anybody with accu map, our Geo scout configure out who is drilling around those facilities as debt.
The formation is primarily the spirit River, a very economic play.
Especially in today's commodity price environment.
Yes.
Facilities around Nordic Brazeau River bug in our plants.
We're partners with with Spartan Delta of a striking gas plants.
Those are all in the fairway of hub.
The developments and the activity that we're seeing.
There is one.
There is one.
Pretty active private company in the area.
Again I think.
This strategy is maybe a little bit different than the public company.
I mean, they see the quality prices today economically could generate.
And to take full advantage of it.
It's going to be irresistible at this point.
And then just on the.
I just wanted to follow up on the <unk> business and the isooctane margin compression I mean, the curve itself speaks to compression.
Those margins because of the higher butane costs, but I'm wondering how much of that you think is structural I think earlier comments referred to going back to more traditional levels of pricing for butane.
But do you think there is anything structural going on based on pet Chem demand butane exports so it might be.
Actually causing.
Might cost prices for butane to go higher than what you've seen.
Traditionally.
Yes, Robert.
There's just a ton of things going on in the world right now.
A function of wide butane pricing is where it's at right now and maybe encourage we could take that offline with with Dan and his team because we'd be happy to share thoughts but.
If I could eat up the next 20 minutes documents detail about.
The global dynamics, that's driving butane demand and ultimately pricing.
Okay Fair enough, we can take that offline and just I noticed sort of some re contracting on the condensate side for storage and other services.
I wonder how much of the book was re contracted.
Is it similar in terms of what can you tell about the relative change in any of the economics there.
On the condensate side.
Yes.
Our book.
They were two meaningful contracts within our book cant really share from a percentage perspective.
What percentage of that they would account for but all of those contracts are long term contracts. This was an opportunity to work with the customer frankly that had existing contract that made sense for them and made sense for us to to extend that contract out and provide some flexibility for them for their business that also made sense for tier.
So is this a blend and extend type deal.
Yes, I can't really get into the details.
It may make sense for us and it made sense for them.
Okay. Thank you.
Your next question comes from Andrew <unk>.
Credit Suisse. Please go ahead.
Thank you good morning.
I'll apologize in advance because this question is going to have a lot packed into it and it really sort of speaks to the Nexus of your strategy your operational performance and just the finances in relation to emissions profile.
And just how do you think about paying a carbon tax.
Generating offsets or buying offsets and what's really the dynamics around your decision process now on a go forward basis.
And then maybe a collateral question to that.
As does Canada need of 45, Q like credit system to really stimulate investments now.
Please go ahead.
I think too.
Yes.
Almost specifically and what policies will work or not but certainly with the increasing.
Carbon taxes.
You go up to $1 70 per tonne by 2040.
It's certainly going to motivate companies to find ways to reduce their carbon footprint.
And so for US we brought all of our facilities.
And how we can continue to improve and as we said we're going to be.
Issuing our reports under Tcf.
Reporting standards here later this year or.
In November so that's going to be up shortly.
The next couple of weeks.
And we're going to outline sort of our targets of.
I think are very meaningful what we're gonna do concretely.
In the near to medium term and in the longer term.
No.
Sending the right behaviors.
We think Canada can be a very responsible company in terms of resources.
Country in terms of resource development.
And also competitive from a.
Our production and extraction costs as well so.
The midstream service provider, we think that we can offer services that help enable that.
So again I guess, maybe to ask your question is.
The carbon taxes already are going to drive us.
So our path.
Carbon reduction.
US and the rest of our industry is already heading down that path.
Okay.
Helpful color and context, and I guess when you look at your portfolio of assets right now.
Just from an emissions reduction standpoint would you target investments on emissions.
Emissions reductions activity, whether they'd be ccs or something else on your fractionator is in your gas processing facilities, just because of the high intensity of the emissions that come off.
Yes, absolutely Neal.
Part of that can be power U S low carbon power U S.
I think what's also going to evolve is that we certainly believe that to have low carbon feedstocks in our system is going to be also a competitive advantage.
Does the end purchase there is theyre going to have to look at all scopes of their emissions.
They are if they have a low carbon product.
Phil.
They will be able to achieve a premium for it I believe so.
Except for us how do we get a low carbon product feedstock in our system to deliver to them.
And again, it will get a premium for that as well I believe.
Sure.
So if I if I may sneak in just one more and its related and it's really do you see a bridging of your effective your carbon emissions reporting with.
With your capital program in the next year or two.
Yes, very much so I think as Dean said.
Emissions targets that we will be disclosing in a few weeks at very much drive strategy and.
And that and when I talk about strategies, what are we going to be investing in in the future and what might we be divesting of as well to set those emissions targets I would say overall, so as being already alluded to we have the asset that Ken.
Really be an important part of the overall inflation.
Okay. That's very helpful. Thank you very much.
Your next question comes from Robert Kwan of RBC capital markets. Please go ahead.
Hey, good morning.
I wanted to start with a question on the NGL market as you think out to 'twenty two.
Re contracting season.
Just with.
Frac space getting tight whether thats, just in general or with.
Wayne.
Outage in the NGL mix and market getting a little bit sloppy here.
What do you what do you think you will see four for Frac fees.
Next year.
Yes, Robert.
Oh, sorry did I catch up.
No yes.
Obviously, you're probably going to get into a specific number but just if you can frame. It like you did on butane, where we are today versus where do you think we might be going into 'twenty two.
Yes.
Certainly even without the planes outage, we're starting to see a tightening in the frac capacity versus demand as we see growth in the basin.
Yes.
Simple.
<unk> supply demand is that obviously if demand is outstripping supply are getting close to supply then.
When logic, you should look to.
Be able to increase fees I think we look at it probably longer term Robert with respect to.
How can we work with our customer to.
Develop maybe a longer term relationship our commitment that would enable us to solve the underlying problem, which is frac capacity in the basin. So.
It can mean not to say that there's not an opportunity maybe that charge slightly higher fees or maybe it's an opportunity to re contract and put some term on it that would enable us to be able to.
Backstop and incremental investments so there's lots of different ways that we might be able to take advantage of the current situation.
Got it and just thinking long term and having that kind of give and take relationship.
As well just with.
The next market.
Again, getting a little bit sloppy is that feeding into your commentary around butane returning to more historical levels versus the very favorable levels. We have this year notwithstanding that historical levels are still.
Pretty meaningfully below.
The butane to create.
Relationship, we're saying right here right now.
Yes, correct.
Yes.
Historical levels are still our business is still an attractive business based on historical butane costs.
We've had an environment, where the pricing has been.
Below those historical levels, and that's obviously been beneficial to our business but.
Once again, we look we look at it from a longer term view.
<unk> and ultimately.
We.
Just to reiterate.
Believe that based on.
All of the different dynamics within the.
The butane market in North America in particular that we would expect that.
We'll be able to contract at his.
Darko levels next year on the butane side.
Propane obviously.
<unk>.
Commodity as well with respect to the impact of exports, but also.
Ultimately.
Significantly low storage levels in North America, right now and a huge backwardation in the curve into 'twenty two.
We look at that and just from a fundamentals perspective.
See opportunity as well for <unk>.
Being able to.
Contract.
Appropriating at prices that would allow us this.
Historical margins off of that commodity as well.
Got it if I can just finish with a higher level question Theres been a lot of discussion on the call about all the different potential projects.
You can be involved with.
The heartland area, whether that's traditional or energy transition and you have that.
March spare land position <unk> been in no rush really can move on it I.
I think you've just been trying to get.
Get the highest value creation and the right contract structure I guess, how far out do you think.
Based on the different projects that Youre looking at discussions youre, having that we might hear more.
Development on the that's fair parcel.
Okay.
That's a good question.
Robert.
Certainly.
We have a lot of discussions other mines. So it's not like it's been sitting dormant.
And we have been trying to create opportunities on it.
We actually do see opportunities but.
The timing of that I think that where we're.
We're looking within sort of the next five years.
When there could be more announcements on there.
It's hard to say I mean, we have a lot of very engaged discussions with different companies, but.
I think some really exciting opportunities. It's just a question of the timing of our customers' plans and.
How definitive are with them so.
We do see a lot of opportunity, we think that there is momentum that gaming.
But we'll have to see how it plays out but we.
We certainly see good opportunity there.
Again, so it still sounds like it's something that's a little far out obviously somebody steps up with that offer.
Refuse then obviously that could happen sooner or is that kind of the right way to think about it though your base plan is still several years out.
Well.
Im not sure how youre thinking about a macro perspective, the way we think about those lenses that we want to increase.
The hub there.
Sure.
We want to build economies of scale, we already have great connectivity at that site, we have underground storage pretty much any develop you need you need to be able to have underground storage to help support almost any kind of service. We can access both rail lines from that site and put unit train tracks on there so.
The infrastructure and what you would require for a really large scale industrial development, we have all the pieces.
And if you look at the proximity I mean, we're right adjacent to Dow our Kitty corner to IPL Brookfield, the PDA facility shell Scott further to the north.
Connectivity, all the downstream industrial heartland right down to Edmonton.
We have.
I think are very attractive.
Piece of land to track development to there and we provide services to enable it.
No.
In terms of.
What you might describe as an offer.
Just trying to help enable development.
In our province, and net industrial Heartland, and I think we have the pieces to help make it happen.
Yes, the only thing I'd add David is that kaps runs right through that piece of land as well.
Yes.
That's a component of our overall strategy and offering as well.
That's great. Thank you.
Thanks for your question.
Ladies and gentlemen, there are no further questions at this time, so I would like to turn the conference back over to Dan Cuthbertson. Please go ahead.
Well. Thank you all again once again for.
Joining us today, please feel free to reach out to the Investor relations team for any additional questions and we're happy to help you go through your modeling.
After the call here.
Everyone have a good day. Thank you.
Ladies and gentlemen, this does conclude the conference call for today, we thank you all for participating and ask that you. Please disconnect your lines.
Okay.
Yes.
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Okay.
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