Q1 2022 AltaGas Ltd Earnings Call
Good morning, ladies and gentlemen, thank you for standing by welcome to the <unk> first quarter 2022 financial results Conference call.
My name is Miranda and I will be your conference operator today.
All lines have been placed on mute to prevent any background noise if.
If you have any difficulties hearing the conference. Please press Star then zero for operator assistance.
After the remarks, there will be a question and answer session.
As a reminder, this conference call is being broadcast live on the Internet and recorded.
I would now like to turn the conference call over to Adam Mcknight Director Investor Relations. Please go ahead Mr. Mcknight.
Thanks Miranda.
Everyone. Thank you for joining us today for Alta Gasses first quarter 2022 financial results Conference call.
Speaking on the call. This morning will be Randy Crawford, President and Chief Executive Officer, and James <unk>, 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 Blue Jenkins Executive Vice President and President of our utilities business and John Morrison, Senior Vice President Investor Relations and corporate development.
We are preceding the basis that everyone is taking the opportunity to review the press release and our first quarter results.
The previous quarters, we have published an earnings summary presentation that you can find on our website.
Presentation walks through the quarter and highlight some of the key variances and nonrecurring items that we would assume would be helpful for the market to understand.
As always today's prepared remarks will be followed by an analyst question and answer period, and I'll remind everyone that we will be available after the call for any follow up or detailed modeling questions that you might have.
As for the structure of the call will start with Randy Crawford, providing some comments on our financial performance and progress on our strategic priorities.
By James harmless, providing a more detailed walk through of our first quarter financial results near term outlook and 2022 guidance.
And then we'll leave plenty of time at the end for Q&A.
Before we begin I'll 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 can be found on our website and more fully within our public disclosure filings on both SEDAR and Edgar.
And with that I'll now turn the call over to Randy.
Okay.
Thank you Adam and good morning, everyone.
I am pleased to be here today to discuss our first quarter results.
Once again, our team delivered strong operational and financial results as we continue to execute our strategic plan and near term priorities.
US on solid footing to deliver on our 2022 guidance and longer term growth plans.
Our utilities and midstream segments continued to deliver stable and predictable results as we focus on safe safely and reliably connecting our customers to affordable sources of energy.
The importance of which continues to be highlighted during this period of energy in security.
The far reaching geopolitical implications arising from unfortunate events to continue to transpire in eastern Europe illuminate the importance of energy independence and diversity.
The critical role that the energy sector plays and fueling the global economy, and keeping society moving forward in a sustainable way continues to shine a light on the need for ethically produced and secure North American supply growth to meet the rising global demand for affordable energy.
As a result, the macro environment for energy fundamentals continues to strengthen as the tightening supply and demand picture is beginning to drive a supply response.
We are fortunate in Canada, and the United States to have the access to abundant sources of energy.
And it is imperative that investment in critical energy infrastructure continues as we transition to the energy sources with the future in a sustainable way.
Alta gas is well positioned to support the continued development of critical energy resources, such as the Montney and to a lesser extent the Marcellus shale to facilitate the best outcomes for our customers in Canada, The U S and Asia.
The views that have been taken by the opponents of MVP are unfortunate.
And of course significant delays to the completion of the pipeline.
The pipeline creates the opportunity for Marcellus producers to accelerate the development of their acreage and introduce significant new quantities of natural gas to east coast gas utilities, and electric generators, the benefits of which will be passed onto consumers domestically and abroad with lower prices. During this period of high energy prices.
We take great pride that our critical infrastructure and operations, including our leading west coast export platform and significant gas distribution networks support better global environmental outcomes that align with lower carbon and lower emissions future that is upon us.
As we look ahead I am extremely excited about the position of our company and the increasingly constructive energy demand fundamentals as the global economy continues its recovery.
We remain steadfast in our strategy and are firmly committed to leverage our strategically positioned utilities and midstream assets.
Both with significant growth opportunities.
And with that backdrop, I would like to touch upon some highlights about the guest's first quarter.
This quarter, we achieved normalized earnings per share of $1, two and normalized EBITDA of $574 million, both of which were in line with our expectations.
Our results are further evidence that our strategy and diversified business model are working.
Our regulated utilities continue to demonstrate stable and predictable results delivering the critical energy that our customers need during the peak winter season, while providing stable and predictable financial results for our shareholders for.
For the quarter normalized EBITDA was $408 million up approximately 10% year over year.
The strong year over year growth is supported by the continued investment in our networks to improve the safety and reliability of our system reduced long term operating costs and deliver improved environmental outcomes, all of which provide better outcomes for our stakeholders.
We continue to advocate for our customers and focus on affordability and.
Ensuring our customers have access to safe reliable and affordable energy remains a top priority.
Particularly during periods of rising energy prices like we're experiencing today.
On April 4th Washington Gas filed an application to increase rates in the district of Columbia $553 million.
The rate case also seeks to drive forward a number of initiatives to help our utility in the district achieve our climate goals.
These initiatives include a climate progress adjustment, which is designed to promote energy efficiency measures that reduced customer demand and consumption.
And the climate action recovery Taro.
The company initiated climate measures to reduce emissions.
We are also asking the district to expand support for low income customers to alleviate the impact of rising energy prices and rate increases on our most vulnerable population.
In our integrated midstream segment.
We continue to provide our customers with safe and reliable connectivity to premium markets for North American LPG, providing the best net backs for our customers, while delivering diversity of supply and supporting energy security in Asia.
Our fractionation and liquids handling volumes increased by 14% year over year in the first quarter and we exported nearly 88000 barrels a day of LPG to Asia on 14 Vlccs.
<unk> lingering logistics challenges in the early part of the quarter associated with the devastating floods that took place in late 2021.
With rail operations back to normal and a successfully supply re contracting cycle completed in April we are well positioned to meet our 2022 export target of 97000 barrels a day.
We are proud of the role that all the gas is playing to support global energy security to the supply and export of safe and reliable source of LPG to global markets.
We continue to focus on optimizing our platform and existing assets to maximize facility utilization and drive increased returns on our invested capital.
<unk> and our midstream business will continue to be centered around our global export platform to provide north American producers and Aggregators with the best markets for propane and butane will providing diversity of critical LPG supply, which contributes to energy security in Asia.
In summary, with another strong start to the year, we continue to execute our strategic plan and deliver on our near term priorities, which keeps us right on track with our 2022 guidance ranges.
<unk> ahead, we remain very constructive on the path forward for our company and the role we will continue to play in delivering safe reliable and affordable energy to various end markets to the benefit of all of our stakeholders as we continue this journey.
And in closing.
I'm proud of the growing role of ultra gas plays in supporting North American Energy independence.
Access to affordable diverse energy sources, and our ability to export affordable butane and propane and LPG to the world.
And with that I will turn the call over to James to review the financial results in more detail.
Thank you Randy and good morning, everyone. As Randy mentioned, we are very pleased with our first quarter 2022 financial results and the strong start to the year.
During the first quarter, we achieved normalized EPS of $1 two compared to $1 29 in the same quarter of last year, representing a decrease of 21% year over year.
I want to remind everyone on the call that in the first quarter of 2021 in the U S experienced extreme weather conditions and market volatility, which led to a larger than expected profits in our U S transportation and storage business, which we subsequently monetize in April 2021.
As such year over year normalized EBITDA for the first quarter 2022 was impacted negatively by approximately $115 million lost income associated with divestiture of this business last year.
Normalized EBITDA for the quarter came in at $574 million compared to $674 million in the same quarter last year.
Normalized <unk> was $462 million in the quarter compared to $583 million for the same quarter last year.
Turning to our segmented.
<unk> for the first quarter normalized EBITDA in the midstream business came in at $174 million compared to $304 million in the first quarter 2021, which included the previously mentioned contribution from the U S storage business in the first quarter.
The quarter also included year over year growth in our global exports platform, albeit at a slightly slower pace than otherwise would have been the case.
Some carryover effects of the devastating flood flooding in rail outages on the west coast that occurred during the fourth quarter of 2021.
Despite these headwinds global exports generated $81 million in normalized EBITDA during the quarter, representing 16% growth year over year, driven by strong export volumes of nearly 88000 barrels of combined propane and butane to Asia.
Richard exported approximately 53000 barrels per day of propane in the first quarter on eight ships and Ferndale exported approximately 35000 barrels per day of combined butane and propane on six ships.
Alta gases fractionation liquids handling volumes increased 14% year over year, driven mainly by strong throughput at our north pine and her matan facilities.
We continue to have a healthy hedge position at our midstream platform with approximately 41% of global export volumes told are hedged for the balance of the year.
This includes an average and north American financial hedge price of just over $10 U S per barrel.
We also have 77% of our frac exposed volumes hedged for the remainder of 2022 at $34 58 per barrel.
Our hedge position is slightly lower relative to our typical position for this time of year, which we expect will increase over the coming months and with the NGL re contracting season behind US we have good visibility on our export volumes for the balance of the year.
Normalized EBITDA for the utilities business was $408 million in the first quarter of 2022 compared to $371 million in the comparable quarter of last year.
10% year over year increase was driven by higher asset optimization in the quarter ongoing ERP spending and customer growth, partly offset by higher operating costs.
WGN reported normalized EBITDA of $298 million in the first quarter up 8% year over year, driven mainly by the positive impacts of the Maryland, and DC rate cases continued ERP investments and asset optimization offset by higher O&M.
<unk> and <unk> combined normalized EBITDA was $88 million in the first quarter up 6 million from the same period last year due to higher customer usage and customer growth, partially offset by higher operating and personnel costs.
And finally, the retail business generated $21 million in normalized EBITDA up $8 million year over year due to higher gas prices and favorable margins and the timing impact of swap gains between the first and second quarters of 2022.
Later of which has the effect of pulling profits into the first quarter of 2022 from the second quarter and as a result, we expect to give some of this benefit back in the coming quarters.
The corporate and other segment reported a normalized EBITDA loss of $8 million compared to $1 million loss in the same quarter of 2000 $21 million to $7 million year over year decrease in normalized EBITDA was driven by the combination of higher corporate expenses, which were primarily related to employee incentive plans as a result of ultra gas is strong corporate perform.
Vince and rising share price and costs related to a planned spring outage at the <unk> Energy Center in California.
Looking ahead, we continue to focus on delivering durable and growing EPS and <unk> per share while lowering leverage ratios over time.
Maintaining our 2022 guidance ranges, including normalized EPS of $1 80 to 195 normalized EBITDA guidance of $1 5 billion to $1 $55 billion in the 2022 capital plan of approximately $995 million.
And with that I will turn it over to the operator to open the call for questions.
Thank you, ladies and gentlemen, we will now conduct a question and answer session.
If you would like to ask a question.
Press Star then the number one on your telephone keypad.
I would like to withdraw your question press.
Star then the number two.
There will be a brief pause while we compile the Q&A roster.
One moment please.
Your first question will come from Darren <unk> with Bank of America. Please go ahead.
Hi, Good morning, Thank you very much for taking my question.
Just wanted to touch on the midstream and the export volume plan for the rest of the year briefly it sounded like you guys are quite confident in achieving the 97000 average.
Can you, maybe just discuss a little bit.
Do you expect there to be any seasonality in that with one quarter, perhaps higher than another or any flex that there might be in that plan to potentially account for weather or maybe other unforeseen disruption for the balance of the year.
Hello, It's Randy.
Randy Toone, yes, we have seasonality in our exports in Q2 and Q3, we do bring in a lot of product to be a pipeline into ferndale. So we can move more product out of Ferndale in those two quarters and then less in Q4, so youll see higher volumes Q2 to Q3, and then a little bit less in Q4.
Yeah.
Okay excellent.
Alright, maybe just if you could.
Briefly touch on.
I assume there is some degree of flex in that plan because for instance in Q1, there was a little bit of.
I guess carryover from severe weather so in the event that there are other like some sort of unforeseen.
Welcome standards for the balance of the year I assume despite that you would still be confident hitting that 97000, I just want to confirm that please.
Yes, yes, we're confident we're going to meet the 97000 barrels. There is there is always some sort of.
Essentially weather effects, but those are short lived.
So let me this is Randy Crawford. Thanks for the question I'll just add that this has been one of our best years from a supply procurement.
And when you look at the.
Our core competencies in.
And really the credibility that we built in the marketplace in Asia and the core competencies that I believe is quite unique.
And again, we're able to maximize lease logistics.
We've done an optimized MMO games, we believe that.
Managing these two ports that we have the right companies in place built credibility and.
And that's going to position us well for continued growth.
Confident in hitting our numbers going forward.
Okay excellent. Thank you very much for that added color sorry, just one more maybe down the utilities if I can.
Just in brief could you comment maybe on how you are tracking as far as the earned ROE at WGN, specifically it seems like maybe in Q4, there was a little bit of <unk>.
Guys might have fallen a little bit short of the target of achieving your authorized returns, but then there was a nice step up here in Q1 so.
Curious, how you're looking at there as far as the authorized returns or excuse me the earned returns.
Yes, I mean, we said that we've steadily sorry, it's James here. We said, we said that we've made steady progress relative to those those ROE and where we were sitting at the end of.
Q1 on a trailing 12 month basis is probably about 60 to 70 basis points short if I add in asset optimization and then we're obviously a little closer to those returns we've said consistently that for us to get to the allowed returns. The one jurisdiction that we're tracking a little bit behind and is D. C and we've filed a <unk>.
Case that Randy referred to to take into consideration the considerable rate base investments. We've made in DC to improve customer service and obviously to have our current cost structure reflected in rates to customers. So that will that will help us close the gap to the ROE at WGN.
And I'll just add to James's comments do you see as more of a catch up when I look at that.
Normally as James pointed out with the rate base growth and costs, but.
We continue as I said in my prepared comments.
We continue to drive down leaks and keeping cost under control and we do this because in the capital plan is the right thing to do and its proactive and the investments are paying off very well for our customers. So thank you for the question.
Yes, absolutely. Thank you guys I'll pass it along here.
Your next question will come from Linda ever Gillis from TD Securities. Please go ahead.
Thank you I'm wondering if you could help us understand a little bit how you're.
Contracting philosophies are continuing to evolve with global exports.
Proven out that facility with your customers.
And yet.
Following geopolitical developments that might may be might accelerate contracting can you give us a sense of.
Whether you expect to increase your level of contracting.
Or if you're more comfortable leaving more open and also how your thoughts are evolving on the potential for expansions and maybe optimizing the facilities.
In terms of how you use them.
Hi, Linda this is Randy.
Thank you for the question.
First from a strategic standpoint.
Everyone knows that our strategy is centered around optimizing as you mentioned and maximizing the existing capacity and really positioning the platform for expansion and as I mentioned earlier, it's our core competencies to move the product liquefy, it build vlccs and really enabling seamless delivery of North American supply to Asian markets and Thats.
What is positioning us for success.
We've continued to develop those core competencies and how to get product from Alberta, Canada, and British Columbia to Asia.
And I mentioned that the outset.
From the standpoint of.
The market right we are seeing.
Robust demand both on the demand side and on the supply side, we continue to build that credibility going forward. So.
I think that we're well positioned to continue to expand so it's really that unique position in the platform.
And thats going to <unk>.
To allow us.
If you think about this lynden, we've talked about it we've been proactive in arranging the ships we have.
Contractually, we will control our Vlccs and we view this as a catalyst to to extend Alta gas reach of its export.
Facilities, and that's going to position us for opportunities to contract longer term demand and really a catalyst for expansion. So I see it as a virtual direct pipeline from North America into Asia, and so it's those attributes that are positioning us quite well for that and we're regularly discussing and looking for opportunities.
With partners to expand those capabilities and working I think the other point that you had raised I think more on open positions and strategies.
And I think James touched on this in his comments, but we've established a sort of a floor as we continue to layer in hedges targets to meet our expectation and as we see trends. We continue to do so and we optimize those so hedging a base amount layering in hedges as the fundamentals continue to change and overall.
Our view is that we're bullish.
At this time so that.
It gives you some general view will help us too.
Feeling confident in our ability to meet our targets and expand going.
Going forward.
Thank you and as a follow up question, maybe if you can help us understand a little bit more about your D C.
Utilities application.
For the U S $40 million revenue increase.
Get everything that you ask or how much what income go up year over year, and maybe can you help us break down.
The requested increase into different buckets beyond rate base investments and capital returns.
Hi, Linda this is blue.
If we got everything we ask for what you will see in the applications, we would get $48 million I'm rounding and new revenues the $5 million that make up the delta between the <unk> 48 in the 53, we filed as part of an annual rollover of our accelerated pipeline program. So thats already and we will.
Just codify it as part of the part of the rate case.
And Linda.
The majority of the driver as I mentioned in my comments about the investments we've made in and driving down operating costs is really.
Driven primarily by rate base.
The pre pandemic dollars and tests that we put in and the investments that we have made and thats the real driver marginally in the case.
Is there any change in depreciation or returns or.
Anything like that.
Sure.
The change in depreciation rates.
Return on equity with you, yes, we requested a slightly higher rate in the filing then we currently have.
We can get to I believe it's.
We're at $99, two or $9 two five in D. C. I don't recall right off top of my head 95, and we requested I think 10 three is what's in the case.
Thank you I will jump back in the queue.
You bet.
Your next question will come from Rob Hope with Scotiabank. Please go ahead.
Good morning, everyone.
Regarding the comments about having a very successful supply procurement.
Year, how have the conversations with your producer customers kind of changed over the last six months with a stronger commodity price environment.
Which could kind of increase your utilization at your we'll call it like.
Gas plants as well as your normal client the Soviet era.
Seeing increasing demand for those assets and kind of how are you looking at the expansion there.
Yes, I'll, let Randy comment ill just snake.
Overall comment.
And the results of the significant increase that we've had in our fractionation utilization and so when you say youre seeing ample supply come to the market.
Increased throughput at these facilities.
I think thats that supply responses.
Happens to dovetail.
<unk> with our core competencies on the export platform, but Randy do you want to add any more color to that.
Sure Yeah, we have seen an increase in our fractionation volumes in northeast BC.
And we're probably at Max capacity at North Pine. So we are evaluating further expansion there.
There has been a slowdown.
In there with the blueberry first nation.
Court case, but we also have seen an increase in frac volumes coming into the port.
We have been successful in.
Securing supply for this year out of the <unk>.
So we do we do believe that the LPG volumes are going to grow in Western Canada, which supports our export.
Programs.
Alright, Thanks for that and then maybe just a little bit of a follow up question.
Looking at Q1 2022 versus Q1 2021 on the midstream side lower NGL marketing margins were called out as.
A headwind for the quarter.
Can you maybe touch a little bit more on that is that just more of a function of the very strong Q1, 2021 or were there some specific dynamics.
In in Alberta that didn't allow you to fully realized.
The value of the barrel.
Yes, Robert it's James here. It was it was definitely the farmer I mean, if we look at Q1 'twenty, one obviously, our U S storage and transportation business benefited significantly from.
Price dislocation and we had some cheap supply on the NGL domestic marketing side that we were able to move into those markets. During some very very strong pricing and that contributed significant it was roughly about a 30% to $35 million tailwind in Q1 of 'twenty. One that obviously, we didn't experience in Q1 of 'twenty.
So it wasn't one.
Specific something specific to the Alberta market. It was just really having product that had a low cost base and inventory and we were able to take advantage of price dislocation in the market in Q1 of 'twenty one.
Thank you.
Okay.
Your next question will come from Robert <unk>.
<unk> from CIBC capital markets. Please go ahead.
Hi, good morning, everybody.
I'm not mistaken.
Received the BC environmental assessment certificate to expand rip it.
So I'm wondering at this point, what the gating items are there is it.
Was there anything.
And the conditions of that certificate.
Or is it really just dependent on customer demand and securing.
Corporate level of contracting.
Hey, Rob it's Randy Toone.
The BC.
Permian is great to see progress on that project, but we still are waiting for the federal approval, which we expect here in the summer, but it also still we need to do the projects that we're still working on de risking the project.
Both commercially and looking at capital and that sort of thing.
Okay.
Just wanted to go back to the conversation again and the hedging.
It's understandable that your hedging levels are low until.
Where you stand on.
Supply for their contract here.
But I'll, let you know that.
It sounds like Youre relatively bullish.
Mike.
It might have a view of.
Maybe leaving a little bit more open but.
With the high prices being where they are seemingly.
Partly driven by geopolitical tension.
Wouldnt you be more inclined to take advantage of these high prices in the hedge more of the.
<unk>.
Hey, Robert It's James here. So it's a great question I mean, if you look at the hedge book now we're highly hedged for Q2 as we head into Q2.
But when we look at the balance of the year and we look at the curve. There is backwardation in the curve and that's why our hedge position is a lot lower now relative to where it's been historically, we expect that that backwardation to flatten out and when we start to see that trend.
We will probably start to layer in hedges at that point.
We have certainty around the supply side, we just like to see the backward dated end of the curve come up a little bit before we start to lock in some of that profitability.
Yes, okay.
Sense.
Last question for me I guess for Randy Toone here is whether what it takes to have really feeling with respect to timing for any resolution with a blueberry River first nation and what impact might have on.
Producer activity.
Yes, so we have seen a slowdown in D C with some of the E&P folks that don't have permits in place already.
We have heard encouraging.
Messaging coming from the government and the Treaty eight members that resolution is coming.
Soon within the next few months and.
I think what we've heard is that the treaty eight members.
They support activity levels. They just want to have more of a say.
And we have a very strong relationship with them as well. So we do think that thats going to.
Youll see more on that in the next couple of months.
Okay.
Okay. Thank you.
Your next question will come from Ben Pham with BMO. Please go ahead.
Alright, Thanks, Scott good morning.
My first question is on inflation.
I'm wondering.
Really your ability to.
The pass through inflation Youre seeing input cost increase on the wage side are there any.
I think Dr Chan on inflation.
That's impacting your business.
Yes, Ben it's Blue a couple of comments I'll make.
As you note of course costs are up.
Across many many items, we're fortunate in the sense that last year, we were able to extend most of our union contracts and so we fixed most of those in for terms. So we had line of sight on what that looked like we also had we've also had a pretty good.
Term contracting strategy through our contractors that do a lot of work for us. So thats helped us hold the line a bit on cost as well and then of course in our in our products.
Products in our steel and meters and those type of things. We also have some term contracts and we had.
Took advantage of the opportunities along the way to stock a bit more if you will as we go so for 2022, while we're certainly seeing the pressures we don't see a lot of impact there. There are certainly some items in the variable cost type of components, you get into paving and those type of issues.
Those costs are certainly up but we are pretty well protected by our term con.
Contract strategy to date.
Yeah.
Ben It's James here I wouldn't mind, just tackling that question from the organization as a whole as well so obviously on the midstream side, we've got a.
High degree of our EBITDA that comes from fee for service and take or pay contracts and obviously contracts that also have inflation indexing. So we're able to cover inflationary pressures on a large chunk of our revenue that way and obviously from an interest standpoint, because obviously inflation does have an impact on interest rates.
We're in a period here, where we don't have a lot of maturities coming due in.
2022, we've got a $500 million MTN that comes due at the end of the year, but we have plenty of liquidity, where we can take advantage of.
Of lower interest rates on the facility that are almost equivalent to the interest rate on the maturing MTN and then the last thing I'll say is just on capital. We're in a period of pretty light capital on the midstream side, which doesn't really come under a lot of inflationary pressure on the ERP side of it.
The Capex program and the utilities, we still get to continue that continue to collect that through rate riders. So we're just.
We're basically flowing that through to the rate riders.
Okay great.
And then maybe back to blue.
I'm wondering on on the regulatory filings.
The D C.
Recently, any you're benefiting from some of the other jurisdictions from current recent great bumps Gwen.
Is your expectation on how often you need to come back.
For two years to reduce regulatory lag and then the other question is what about the AARP program is expiring in 2020 through that is that more filings in 2010 include EMEA circling to handle that.
Yes, good questions Ben Let me take the let me take the accelerated programs first.
So as you would note. So we have a program so Michigan carries through 2025, so that one's got a bit more runway. The Virginia program. The current program ends in 2022, but we filed for a five year extension where.
We're fairly optimistic based on the commission or the Commission staff. Our response to the commission that Thats going to turn out very very well as a reminder.
We filed almost $900 million requests for a five year program. So that's a very sizable term program, we expect to get a large percentage of that.
We do the Maryland program ends at the end of 2023. So we will file late this year or early next in terms of extending that program and then Dc's program ends in 2023. So same schedule will file late this year or early next on extending that program. We believe that we've shown really good progress as Randy highlighted.
Earlier, our progress on leaks and our ability to execute those programs and what it's meant for the long term cost benefit to our customers. We think that's a good story. So we're optimistic those will continue.
To your other point in terms of what's our cadence of filing it's a function of course of whats occurring in the greater marketplace.
I wouldn't tell you we have we have a preplanned cadence of filing we look at our capital we look at our ability to recover those accelerated pipeline projects and we've done a really good job over the last couple of years of holding our manageable cost fairly flat. So if we continue to do that that obviously gives us some flexibility and finally DC as Randy mentioned, we've just.
Such a large capital investment there over the term it was time for us to file again, but I would tell you. We're very we're very focused on our cost and ensuring that we balanced the needs of meeting the regional commitments to both our customers and other stakeholders as well as managing the cost the cost to our customers. So we're very thoughtful about that.
Okay, that's great and maybe one last one on latest ones create James how do you think with the.
The FX rate.
You typically hedge hedge out that FX and the opportunities I believe yesterday USD is moving up.
Okay.
No I mean, we've.
We've looked at this in the past and we don't we don't hedge from a translational standpoint, I mean, we do consider.
Hedging on transactions at certain times to be able to lock in profitability on U S. Dollar denominated revenue, where we've got CAD input costs, but not from a translational standpoint, and if I look at it in the context of.
Our EPS and our debt ratios, we don't get impacted greatly at that level, just because of the fact that we've got a large U S dollar revenue base and cost base as well right. So and so we do get to translate the numerator and the denominator.
At the same rate and we don't have as much of an impact in the last point I'll make is it.
Current FX rates, that's pretty much in line with what we had when we rolled out our guidance. So we wouldn't expect it to be.
A headwind or a tailwind relative to our guidance ranges that we provided.
At the EBITDA level.
Okay.
Alright, Thank you very much.
Your next.
Question comes from Patrick Kenny with National Bank Financial Please go ahead.
Yes. Good morning, just had a couple of follow ups on the potential safety expansion next to Griffin.
I'm wondering what level of ownership you'd be comfortable taking on at this site.
How are you thinking a similar 70 30 JV structure.
Like you have it rip it.
Or perhaps more 50 50 with full back on this one.
And also.
It sounds like there is a likely update coming with respect to the.
Circa $900 million budget, but.
Curious, how you might be inclined to finance your share of the investment balance sheet versus project financing.
Especially in light of trying to achieve a bump in your credit rating sooner than later.
No.
Thank you I. Appreciate the question. This is Randy I'll answer the first part I'll leave that James talked about the second but I mean, we.
Yes.
The work with our partner of OPEC, and we have been partners in.
We regularly discuss these opportunities to expand that partnership in its capability. So.
As we look forward and this project will ultimately determine whether it's 50 50 or such and that may be where that goes if we go forward and such but we're talking and working on a lot of other expansion.
Opportunities as well and so as these things start to crystallize.
Have a better idea on how.
How much that will be in the percentages James I'll, let you comment on the debt financing.
Patrick It's James here from a financing standpoint look I mean at the end of the day. It's we still have an FID a project, but we would consider on balance sheet financing, we would even consider project financing I think its still too early to tell but at the end of the day I think we've done a great job recycling capital in the past to be able to fund capex programs.
If we look at.
Our platform as it exists today, we've always said that we can dial capital up and down between the two segments, depending on needs and returns. So we would expect to be able to fund. This the way we've funded our capex programs currently and Thats through fund from operations.
Incremental drawings on our facilities, which would generate incremental EBITDA in and maintain or improve our leverage ratios.
Okay. That's great. Thanks for that and then with respect to this expansion.
Adding other products such as methanol.
<unk> products to your to your exports platform.
Just wanted to get your thoughts on how you see this diversification potentially influencing commercial discussions with customers.
As more of an integrated offering with rip at Ferndale.
And then also I guess, how adding these new products to your portfolio might impact or fit with your overall ESG strategy.
Yes, I think Patrick Thanks for the question.
When we look at the what we've done.
Certainly in terms of our experienced by adding Ferndale and butane to our product mix is obviously added a lot of optionality and a lot of value to our customers both in Asia as well as <unk>.
Our producers so.
I think it's a little earlier or premature to look at exactly what products because at the same time, we could look at our products.
On the renewable side of the business as well.
Such as ammonia and other factors in the long run so again, we'll evaluate all of those impacts.
But overall I think the strong demand for energy and overall being short energy in the world.
I think presents a critical need and opportunity for expansion.
Okay perfect.
Last one for me.
I was just wondering with respect to your Petro gas footprint at Fort Saskatchewan.
And your storage JV with Atco there.
Now that we're starting to see some progress on the carbon sequestration front.
Whether or not you guys have any direct or indirect plans to participate.
And the development of the.
Carbon capture network is the industrial heartland area or perhaps at any other upstream processing asset within your portfolio.
Hey, it's Randy Toone.
Yes.
See the partnership with Echo and Heartland as a valuable.
Partnership going forward.
Those are salt caverns, and so theyre not necessarily.
We used for carbon.
But we do believe that.
Projects like hydrogen in the future would be it would be well suited for that so we are looking for future opportunities there.
At our <unk> facility.
Harman is one of our large larger emitters and we are looking at potential carbon capture there and.
And potentially participating in some of the government incentives too.
To work that project.
Okay I appreciate that I'll leave it there thanks guys.
Your next question will come from <unk>.
Robert Kwan from RBC. Please go ahead.
Hey, good morning.
Just you've given you've had some more time now to digest.
MVP, so I'm just wondering.
If you've got some general thoughts on the deleveraging plan and more specifically.
There's been some additional.
No movement on an LDC M&A.
In the U S and just wondering whether that or even just rates moving higher has created an additional sense of urgency.
So look at monetizing to get that leverage down.
Yeah.
Hey, Robert It's James here, I'm going to I'm going to defer the LDC M&A question to Randy, but I'll deal with the leverage question.
I think we've been pretty consistent in our approach to deleveraging and.
I don't think we can lose sight of the significant strides we've already made and the fact that we've come out of numerous rating cycles, where we've had our our ratings confirmed and most recently by Fitch Triple B in S&P and Triple B minus so we have we are going to experience. Some additional deleveraging in Q2 as we've closed the sale of our non operated.
Interest in northeastern BC, so thats going to take that down by another $225 million roughly from our Q1 'twenty two exit rate. So we continue to think as a result of that we can be patient in order to maximize value on MVP and obviously the partnership is currently contemplating next steps and a revised in service dates.
That could be 2023, we'll wait and see once once the consortium has landed on our path forward there.
Absent the asset sale, we still feel confident that we can get to our targets with respect to leverage that we've laid out and thats through organic investment and organic growth in our EBITDA. It will take a little longer absent that asset sale, but.
But we do feel that we can still get there and MVP continues to be one that's going to be noncore for us. We just have to continue to be patient with it to maximize that value and I feel that the balance sheet is and isn't.
Pretty good shape here for us to be able to continue to make organic investments.
Robert This is Randy.
James answer no I will just add in that context from an asset sales.
We're on track to meet our debt to EBITDA goals continuing value as we have been as a disciplined management team opportunities to sell non core non growth assets. So we continue to do always to look at that capital recycling overall, but we're approaching it in a very disciplined manner.
<unk>.
We have significant growth opportunities ahead of us So I would say when it comes to selling assets is not solely for metrics as such as.
That we're targeting but rather that we're looking more to reinvesting funds into the growth opportunities going forward.
Got it.
Just on guidance.
Can you just.
You touched I think James earlier on FX.
Are there any incremental headwinds or tailwind.
In the fourth quarter call that you wanted to highlight with respect to the guidance range.
Or where you would be.
Okay.
Yes, sure I mean look I mean, we we feel comfortable with the range at one five to 150 with the midpoint at 1525, if I if I look at some of the headwinds, though that we've had relative to the guidance that we rolled out. There is there is two primary ones. One was obviously the buyout of our non operated.
Investment in northeastern BC, and obviously the delay of MVP, we had some small EBITDA in the back half of the year related to MVP. So if I add those two up $20 million of headwinds.
That being said those those headwinds were offset by strong performance in our in our retail business in our asset optimization business within the utilities and that was a result of strong commodity prices.
We will give some of that back in retail but.
That performance on asset optimization and retailers, what helped to offset the headwinds on MVP and.
And the buyout of the northeastern BC, 50% interest that we had so.
When I kind of take a step back and I take all of that into consideration and that's why we feel comfortable with the range.
Got it if I can ask.
Thanks, Joe.
Last one here on Petro gas can you just talk about the performance.
During the quarter I don't know if thats, a good kind of signaled that noncontrolling interest expense.
Down so is that indicative.
Patrick asking a little weaker in the quarter or is there something else to be thinking about.
Yes.
I touched on it a little bit.
In earlier question. So if I look at Q1 'twenty. One we had very very strong results on the NGL domestic marketing side of the business, which was petrol gas predominantly in it was about $30 million to $35 million. So thats what would have increase the NCI in Q1 of 'twenty, one relative to Q1 of 'twenty two that was concentrated within the.
Petro gas platform in terms of that performance, okay. So actually the inventory, where you put it into different markets with Patrick.
And I just completely.
You got it.
Okay. That's great. Thank you.
Thank you.
The last question comes from Andrew.
<unk> with credit Suisse. Please go ahead.
Thanks, Good morning.
Question really just around your capital program.
I think ballpark figures youre, 20% midstream, 80% utilities.
Should you proceed on the expansion projects and the expansion potential for your export business.
How do you think those numbers land just on the proportionality between the two businesses.
Okay.
Well thanks for that.
I think that as we look forward right, we have given our guidance on our rate base growth in blue and the team are executing well there and we've talked a good bit about the accelerated pipeline and real benefits that were driving the customer so over time.
We will we will continue to have some flexibility around the spending and the utility as we move forward.
As we continue to.
To improve the integrity of the system. So again I think James touched on it in terms of our ability to dial down and up in terms of our capex. So we take all of those into account as we look at the timing of the projects and such and.
Again, Thats, just part of us as a growth company moving forward and so when we get some specifics on the project will be able to give you more.
Detail as we go forward, but at this point, we feel very confident in our flexibility to fund.
Great opportunities, we have in the organic growth platform.
I appreciate that and then I guess, maybe conceptually do you think of the midstream business is being able to build out sets.
Let's pick a range.
Five to eight multiple build but its worth north of Tam just for argument's sake in the utilities business more stable, but rate base driven.
And ROE kind of framework.
That's sort of how you conceptualize the capital allocation you get like a value left.
When you bring on a midstream asset.
Utilities business sort of chugs, along at a derisk fashion.
Yes, Andrew it's James here.
The build multiple that you touched on roughly five to eight times is very consistent with what we what we rolled out when we hosted our Investor day back in December those are the type of build multiples we are looking at.
And the only thing I'll add to Randy's comments and we've said this in the past is that when we look at the utility Capex program. That's typically much more linear for us and as you talked about subject to the regulated returns and a big chunk of that is collected through rate riders and we've always said that midstream goes through.
A much a much lumpier profile for lack of a better word just given the fact that we build out capacity and then we fill up that latent capacity and then we see another wave of growth.
And Thats, what I think we're on the precipice of here with some of these projects that could move forward in the coming years.
I appreciate that if I could sneak one final one in.
How do you think about just some of the <unk>.
LDC trades that we've seen in the market and the valuation of the carried.
And the potential to monetize a portion of an asset to effectively liberate capital in.
<unk> got a high valuation marker.
Versus the complexity that that might bring to the structure.
Yes, I think Andrew Thank you for the question.
As we look.
Forward.
I mentioned this on the last call about the underlying intrinsic value of these assets, which is why we are.
Vesting and our utilities going forward and I think that's something that we've been excited about and people recognizing that intrinsic value on a going forward basis. So again I don't want to comment on any specifics.
When we look at least capital lease rate recycling, we're not so much focused on illuminating that value because I think thats starting to be demonstrated ongoing forward, but it's more from a business standpoint of how we continue to fund what we believe is just significant opportunities for strong organic growth well above our cost of capital.
Okay. That's great. Thank you very much.
Yeah.
Yeah.
This concludes the Q&A portion of today's call I will now turn the call back over to Mr. Mcknight.
Thanks, Brenda 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, I hope everybody enjoys the rest of the day and you may now disconnect your phone lines.
Yeah.