Q1 2022 Keyera Corp Earnings Call
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
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Thank you.
I would like to turn the call over to Calvin lock manager of Investor Relations you may begin.
Thank you and good morning, joining me today will be Dean Setoguchi, President and CEO , Aileen Merrick Park, Senior Vice President and CFO , Jamie Urquhart Senior Vice President and Chief Commercial Officer, Jerry <unk> Senior Vice President operations and engineering, we will begin with some prepared.
Remarks from Dean and <unk>.
After which we will open the call to questions I would like to remind listeners that some of the comments and answers that we will provide speak to future events. These forward looking statements are given as of today's date and reflect events or outcomes that management. Currently expects. In addition, we will refer to some non-GAAP .
Actual measures for additional information on non-GAAP measures forward looking statements refer to <unk> public filings available on SEDAR and on our website with that I will turn the call over to Dean.
Thank you Kelvin and good morning, everyone.
As shared at our recent Investor day, I'd like to start today by reiterating why <unk> is well positioned to generate strong investment returns for decades to come.
First our business is strong and will remain in high demand.
We have a fully integrated value chain that plays an essential role in providing the world the energy it needs.
Second our continued focus on financial discipline is core to our success.
A fact highlighted by our successful navigation of the past two years a pandemic uncertainty.
Third.
We have clear visibility on near and long term growth.
We're forecasting 6% to 7% compounded annual EBITDA growth rate from 2022 to 2025 from a fee for service business.
In the first quarter of 2003, our Kaps project comes online and we will provide an additional platform for long term growth.
And lastly, we are uniquely positioned to create a strong energy transition business.
Our low carbon strategy will leverage our existing assets and advantaged land position expertise and collaborative relationships.
We aim to Decarbonize, our business and to help our customers Decarbonize theirs.
Our business is positioned to produce near and long term value for shareholders and our team continues to find opportunities to drive returns in all three business segments.
In our gathering and processing segments, we continued to increase competitiveness and optimize returns.
In the North region, our Pipestone gas plant is effectively full and we're progressing opportunities to expand its capacity.
At Wapiti, we expect to be utilizing our phase II capacity in the second half of this year.
And in the South region.
Seeing areas of volume growth as producer activity continues to increase.
And our liquids infrastructure segment.
See continued high demand for all services, including near record volumes flowing through our industry, leading condensate system during the quarter.
Supporting stable cash flow and additional marketing margins.
Our Fort Saskatchewan fractionation capacity remains fully utilized.
And with cap soon to be online. We believe we are well positioned to expand our fractionation capacity with appropriate contractual support.
Our marketing segment delivered another strong quarter.
A result of continued strength in commodity pricing and a 12% year over year increase in sales volumes.
We'll talk about our updated 2022 marketing guidance in a few minutes.
Moving on to capital projects.
<unk> is now nearly 70% complete and is progressing on schedule.
This project is a game changer for Keira.
And for our customers, it's a long awaited and much needed competitive alternative.
On ESG will be releasing our second annual ESG report this fall and in the fourth quarter, we'll begin supplying 10% of our total power needs.
Solar energy.
We announced in the quarter that we are collaborating with shell, Canada to develop potential low carbon projects in Alberta, industrial heartland, leveraging our existing assets and adjacent lands.
This opportunity supports the collective decarbonization ambitions of Europe , and there are many industrial neighbors.
We're pleased with the progress we made in the quarter and we look forward to continue to invest our strategic priorities for the remainder of the year.
I'll turn it over to Lee to provide an update on our first quarter financial performance.
Thanks, Dean for the quarter, adjusted EBITDA of $257 million compared with $225 million for the same period in 2021.
The year over year increase was due to higher contributions from the marketing business.
Net earnings were $114 million compared to 86 million for the same quarter in 2021 hour.
Our first quarter dividend payout ratio was 59% and our trailing 12 month payout ratio of 62% within our targeted range of 50% to 70%.
We continue to maintain a strong financial position ending the quarter with a net debt to adjusted EBITDA ratio of two five times covenant basis.
This is at the low end of our target range.
To three times.
Now moving on to the segment financial performance were higher volumes to our integrated value chain contributed to the solid start to the year.
The gathering and processing segment delivered a realized margin of $77 million.
Impaired to 79 million for the same period last year. These results were offset by 22 days of downtime at our Wapiti gas plant.
Which impacted margins by approximately $10 million.
Got it.
Our liquids infrastructure segment delivered realized margin of $105 million.
Consistent with the same quarter of 2021.
Marketing segment delivered a realized margin of $103 million.
Compared to $61 million in Q1 of 2021.
This strong result was supported by the continued strength in commodity pricing and the benefit of low cost butane supply from the 2021 contracting here.
Moving on to our guidance update.
For 2022, we now expect realized margin for the marketing segment to range between.
300 million at $340 million up from previous guidance of $250 million to $280 million.
The increase is due to strengthening motor gasoline and octane demand that benefit our isooctane margin.
As a result of higher marketing contributions, we now expect cash taxes for the year to range between $30 million at $40 million increased $50 million to $30 billion.
All other previously disclosed.
<unk> disclosed guidance remain unchanged.
I will now turn it back to Steve.
Thanks Ali.
Closing the macro outlook for Canadian energy continues to be positive.
Near term signals include high demand for oil natural gas and natural gas liquids, driven by expanded export capacity and fuel source switching.
The longer term outlook is equally positive.
LNG, Canada startup in 2025, and petrochemical industry growth puts our basin and company in a very advantageous position.
Against this backdrop drop I feel confident in saying Keira is well positioned to drive DCF growth and provide a path to sustainable dividend growth.
On behalf of <unk> Board of directors and management team I'd like to thank our employees customers shareholders and other stakeholders for their continued support.
With that I'll turn it back to the operator for Q&A.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.
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Your first question comes from Rob Hope from Scotiabank. Please go ahead.
Good morning, everyone I wanted to start off on Kaps your competitor on that project testing some contracting winds up in northeast BC, where these volumes that you were targeting or how has your contracting outlook changed for caps in the waste in the recent weeks and months.
It adds up.
Good morning, Rob It's Dean.
And thank you for the question.
Bob.
This is not surprising to us at all I mean, we're talking to the same players.
I think sometimes people assume that.
It's all or nothing and.
For most producers they want an alternative so they want to they want redundancy for their production.
<unk> competition.
Our pipeline is a new pipe so reliability should be very good.
Not necessarily they put all of their.
Eggs in one basket, so to say they split it out and so I fully expect for most producers some will go to our competitor and some will go to us.
So again, we're not we're.
We're not surprised.
Signed contracts in D C.
We're going to continue to forge down that path until we have sufficient volumes to sanction.
Alright, I appreciate the color and then just taking a look at your northern G&P assets Pipestone was above nameplate capacity in March wapiti seems to be trending in the right direction. There. How are you thinking about the volume outlook and then how much you could debottleneck that system, whether it just yet pipestone or la.
Return.
Some other solutions.
Yes, I mean, the great thing is is that we're in a very.
How the economic location and as a result, there is a lot of activity around us from for many producers.
So.
We see opportunities as mentioned earlier.
Working on the expansion of our Pipestone gas plant.
We do see opportunities to utilize more of the second train.
Capacity that we have at Wapiti, So we should see more volumes in that second train in the second half of this year.
So yes, I mean, all the everything is trending in a positive direction.
And it's because economics are just so robust and relocated into grade area of the mountain.
Thank you I'll hop back in the queue.
Thank you.
Your next question comes from Patrick Kenny from National Bank. Please go ahead.
Yes, good morning, everybody.
I know, it's still early days, but would you have an update on the scope of your involvement in the Atlas Ccs hub with shell.
I'm just curious if you've been able to fine tune your role in the partnership or if you've been able to identify any specific investments that you'd be looking to undertake over the course of developing the hub.
It's still early days.
But as we mentioned a lot of what we're centering our discussions on this around carbon Ccs and basic and hydrogen.
And.
You probably would've saw path.
Shell was awarded for space right.
Last month, so that's very positive in terms of.
Carbon capture and also adapting their hydrogen project. So again, we continue to collaborate with them and but we still have.
A ways to go here before we have anything definitive.
Got it.
And then with respect to the balance sheet any update on your desire to sell some non core assets over the next year or so.
Perhaps the quantum of proceeds you would be looking to bring in ahead of caps coming online.
Or on the flip side Mike.
Might you be more inclined to hang onto these assets now that you have greater visibility on marketing continuing to generate outsized earnings this year.
Yes, we don't have any specific guidance on that.
But.
I think consistent with what we said last quarter is that.
Our objective is to always continue to high greater asset base and be very focused so some of the assets that.
EMEA made sense historically may not make sense in the future. So.
We're going to continue to high grade our asset base.
That'll be an ongoing process.
Got it.
Last one for me if I could just with.
With respect to the operational challenges at Wapiti could you just remind us what might differentiate the phase II facility or.
And what might need to be implemented on the second unit to ensure that your limit.
Unplanned downtime that you've experienced at the base plant so far.
Thanks for the question about it's Jaret here.
We learned a lot at wapiti and the first two years of operation So.
We're comfortable that we've put the changes in place on both trends such that when we.
When we do bring the second one on here in the back half of the year that we can be reliable.
Okay. That's great. Thanks, Jerry Thanks Dean.
Thank you.
Your next question comes from Robert <unk> from CIBC capital markets. Please go ahead.
Hi, Good morning, I was wondering if you could talk a little bit more about the outlook for our Frac expansion. It seems like it's been tight for quite a while.
So it's a product expansion contingent on.
Securing zone four or is there something else that's <unk>.
<unk>.
Okay.
So thanks for the question Robert.
I wouldn't I wouldn't say that frac capacity is contingent on zone four certainly zoned forward.
To help.
With respect to contracting volumes, but as you pointed out just fundamentally in the basin.
There is.
Tightening right now with respect to frac capacity relative to demand.
We continue to talk to our customers with respect how we might be able to.
Have contractual support too.
Expand the fractionation capabilities of our Fort Saskatchewan assets.
It might come in various different forms, but obviously the focus right now is trying to get a frac III.
Expansion fully contracted and ultimately sanctioned.
Okay.
There was a decline in our volumes in the North region I Wonder if it's possible to give a comment as to how much of that is due to the.
Yes, wapiti versus the blueberry for Robert first Nations issue.
Just in general how are producers viewing the likelihood of a positive resolution on that.
First nations issue.
Look at their capital clients.
Just maybe with respect to I think the second part of your question is the blueberries first nation.
Bob.
What we do.
We do follow that and what we're hearing is that there's just more and more confidence that this is going to get result.
I think some producers are thinking in the second half of this year.
I guess nothing is done until it's done, but there seems to be growing.
Positive sentiment that that will be resolved, but as we've said before I mean.
I think that the blueberry.
<unk> is just one of many on both sides of the border. So just means that.
We should be all as an industry, making sure that we.
We include them in our development.
You can put in build those relationships, which I think our industry has come a long way and certainly we have as a company as well so.
I really believe that we're heading down the right path and we will have resolution, whether it's second half of this year or next year I think its within range.
Okay.
Quick question.
Yes go ahead Brett.
Your return.
Yes.
I think youre, just talking about volumes in the north and I would say most of the volume loss in the north would have been at <unk>.
Pipestone, while we're down for.
Roughly 22 days.
Yes.
Wapiti, keeping in mind that when we when our plant is down for 22 days there was a period of time to get the production back up.
It's probably over a month, where we didn't have sort of.
Steady volumes.
So that had a significant impact on our volumes in the north.
Okay. Thank you and then last question for me is just on capital allocation.
Sure.
When youre looking at.
A possibility again getting back to dividend growth.
Obviously, youre kaps is a big component of that and having that in service but.
I'm wondering how the whether you need to see stability in an inflationary environment before you.
<unk> raised the dividend in other words.
There is still pressure uncertainty on interest rates.
Maintenance capital costs and other operating costs.
If you need to see that settle down before you would make a decision on the future dividend growth.
Got it Scott.
Thanks for the question.
I think I would just take it back to you a lot of what we said.
At Investor Day.
Top priority is to get that.
Balance sheet back to our target range and we see that in 2023 and given the strength of the marketing guidance that we put out we see that coming down faster and then once we get that back into range really balanced that those priorities right between returning cash to shareholders, which is really important as.
As well as cloud so really those are the two things that we're going to continue to balance.
Okay. Thanks very much.
Your next question comes from Andrew Kuske from Credit Suisse. Please go ahead.
Thanks, Good morning.
Maybe if you could give us some insight on just what you're seeing on labor availability and also labor productivity on the projects you have in the queue right now.
Hey, Andrew it's Jared I can speak to that yet.
Certainly a tough environment I think across projects and operations in terms of labor availability.
But we haven't we haven't seen a significant impact to the point that it's put us off schedule or or significantly different than what we've seen already communicated on the cost front.
And maybe not to put words in your mouth, but.
I guess this sort of cycle pales into comparison, the past sort of cycle. We saw from say three through seven where things got really heated.
I would agree yes.
Okay. That's helpful.
And just maybe if we look at your core business on the storage side do you do you anticipate in the future maybe being a bit more dynamic with your storage usage.
Given some of the.
Competing pulls on Ngls in the marketplace, so heartland coming up and running.
Some export efforts that are going on by others within the basin.
Do you think about being more tactical at times with the storage to really support the other parts of your business on the marketing side like AF and others.
We always use of stores strategically I mean, it's a huge advantage to us in balance every product.
Whether it's operationally or commercially, but Jamie if you want to add any.
Yes, no Dean nailed.
Nailed it.
We over the last few years in particular theres been lots of opportunities to use those caverns for different spec commodity and also for mix as well so.
Yes.
I look at the marketing team and their access to the storage and the flexibility of the storage at Carefirst.
One of the main reasons why we have delivered the results that we have is because of the ability to maximize the value of the storage we have available to us.
So then the follow on to that would really be as you expand with kaps.
And then frac into the future.
How do you think about the <unk>.
Incremental storage that you need for your own account to really help support your expanded operations.
Yes, yes.
Yes.
The way we look at it right now is that.
And we've said this before we've telegraphed are our return expectations, excluding those downstream benefits, but I always want to remind the market that there is a meaningful down stream benefits of having more product running through our system.
Now that we've got a cavern thats coming in service later this year.
And with that Kathryn.
We're well positioned we have sufficient storage to be able to execute our growth.
Anticipated growth as a result of kaps.
Okay. Thank you.
Okay.
Jamie's comment is that we have been adding storage capacity over the last several years and including the one that's coming on so we feel that we're very well positioned.
Okay I appreciate that Dean.
Okay.
Your next question comes from Robert Kwan from RBC Capital markets. Please go ahead.
Great Good morning.
There's been a lot of talk around expansions, whether thats pipestone cafes.
Not sure if there's anything else material youre looking at but I'm, just wondering what feedback you're getting from customers right now and their willingness to sign long term take or pay contracts you mentioned your target of being fully contracted on.
On Frac, III, which is a nice change in strategy, but it's also a tall order.
Yes, good morning, Robert.
It's the laws of supply and demand.
When you get to.
When demand exceeds supply and <unk>.
Something has to get built.
Obviously at that point.
Your customers are more willing to underpin new investment.
And.
I think we're certainly getting very close to that range for frac.
And the same thing for <unk>.
Please say pipestone, where capacity is very tight.
<unk>.
I would say that generally the.
Industry is more.
<unk> in terms of how they invest money, including off so we certainly need to have a lot more contractual backing before we're willing to make more investments in.
Think that.
Producers understand that as well.
So Dean you highlighted exactly the way you have changed your thinking and I guess my other question was going was producers not necessarily around contracting specifically, but producers also chain.
Change the way they're approaching.
Spending money on the drill bed instead.
Deleveraging has been a big theme buying back stock and capital returns has been a big theme. So are you sensing that would change in the way they're approaching contracting or is this just like you said, we're going to get to a point where.
Something is going to have to be done and theyre going to have to.
To sign on the bottom line.
Yes.
I guess, maybe putting it another way.
Yes.
<unk> believes there is risk in the <unk>.
<unk> service.
In terms of.
Delivering our growth plans.
Or even existing volumes that are coming up for contract.
They are going to do.
Remove that risk and so.
On that basis with the more robust outlook that we see for the industry.
I think so.
Specially for core based in infrastructure like fractionation.
I think that there is a growing willingness to sign longer term contracts that underpin that.
I think the other contributor to that willingness.
I am Robert would be access to markets and connectivity.
We believe we've got the best connectivity to get access to market.
The fractionation facilities in Western Canada.
Got it and do you think on the contracting that it's going to be a small number of producers doing that or do you think it's going to be a much larger kind of consortium, taking construction was wrong word.
A number of producers taking a smaller amount of capacity you just get it done.
Yes.
We can comment on that but I would point out.
For <unk> II, Robert the same thing we contracted that in order to build up that to expansion as well. So it's really no different from the last frac expansion.
I do think that.
Patients can see that there's.
There are a lot of talk capacity getting tight.
They need to.
Make sure they have certainty of services they look at their growth plans.
Okay, great. If I can just finish with a question on marketing.
The underlying our Bod and butane and then just I mentioned octane, obviously, we can see the first two on the screens what can you some color as to is it sounds like octane premiums.
Have widened.
Color as to what Youre seeing in that dynamic.
And presumably you continue to expect that to be strong or is there something that was just a little bit more of a blip.
Blip.
Whether it's the first quarter or even here in the second quarter.
Yes, Robert Thanks for the question yes.
As you mentioned you can see the first two components that drive our isooctane business on the screen and you can see that.
Just on <unk>.
That's based on fundamentals, obviously that we've seen a lift in 'twenty two but you would have also noticed that we have seen a lift in 'twenty three 'twenty four as well, albeit not at the same levels.
And.
That said the dynamics of not only recovering demand, but also the availability of supply in North America.
And that also ties somewhat into <unk> that are very much in demand right now in North America.
To basically be able to feed that gasoline complex and so in 'twenty two structurally.
We're quite bullish with respect to where octane premiums are going to be.
But it.
I think it's probably premature to think that.
We'd see a similar lift in 'twenty three 'twenty four.
Possible, but.
It's too early to tell really with respect that.
The how the market will fill that space.
We could probably take it offline, but theres lots of ability.
In the on the planet to be able to feed the north American market from an RFP perspective, if the price gets higher.
Great I appreciate the color. Thank you.
Your next question comes from <unk> <unk> from BMO. Please go ahead.
Hi, Thanks.
On that last question and answer I wanted to confirm was who is the marketing revision, mostly driven by the <unk>.
Octane premiums premiums that you saw was there.
That was happening in the second half of the year.
I can maybe here.
Lifted the marketing guidance is largely driven by the <unk>.
As we see that strengthen outage.
And again, we begin to layer on.
Hedges at that higher so that was really what was driving the higher marketing.
That is the higher premiums.
Octane premiums.
And.
Can I ask then there was also a comment around risk management benefiting.
This quarter it sounds like there's a bit of a benefit in the second half was that.
Putting on hedges and our Bob in a quarter.
That's what the reference was referring to yes.
I'd say generally our risk management is in place to protect our downside and as we see we protect our inventory and then we also have the ability to lock in margins going out 24 months. So assuming the liquidity is there we have the ability when we see strong crack.
Correct.
We'll take that opportunity to lock in margins.
Thanks.
So again the commented markets continuing that disciplined approach and counting.
Yes, I would say 10.
The great thing about our hedging program is as we've been layering in.
Well look when we look back relative to 2021.
Our hedge floors are at a much higher price threshold in 2022 than they were in 2021. So our downside is protected at a higher level and we're seeing more opportunities like that into 'twenty three so.
A lot of people when they look at our marketing business, we're always trying to match it up to the commodity price environment that we're in but the other component of it is we're hedged like our floor price hedges are in.
And again each year, we're able to put them in at higher levels. As we're looking at 2022 and 2023, that's certainly going to help our marketing business going forward.
And can you also comment how is the composition of marketing itself.
Towards isooctane.
Maybe not specifically just this quarter, but is that sort of trend that youre seeing or is propane driving more hotter hotter molecules.
Our team is still the majority, but as I mentioned the.
The volume of Ngls with the increase in our system year over year, So all the products.
Or are generating higher margins overall.
Okay, and then maybe to close off on marketing related with that.
Extra modest uplift in cash from marketing and maybe this morning, how do you think about that excess cash is it help out maybe share buybacks talk about that at investor day or some more debt.
Debt reduction first.
Yeah, as we said at Investor Day is really our first priority.
Sheet back in line within our target so really the higher marketing guidance.
Got it.
Yes.
Okay. It's helpful. Thank you.
Your next question comes from Linda as a bolus from.
TD Securities. Please go ahead.
Yeah, and maybe just following on on looking at your balance sheet.
Maybe you can just share with us some update on conversations youre, having with your debt rating agencies.
Call that early in 2020, S&P downgraded your debt rating do too.
A decline in commodity prices and the industry outlook any sense that they might.
Rethink that and maybe.
Provide some tailwind as an upgrade here in light of the recent developments sooner than they might have historically.
To kind of augment all of the progress youre, making on yourself in your business.
Hi, Linda Thanks for the question.
At this point.
We continue to have conversations.
Both rating agencies S&P in particular.
The positive commodity price environment, our strong marketing performance the base business continued to perform very very well certainly.
Our investment grade credit rating I think with Kaps is in service and we continue to increase that take or pay on the aggregate on an absolute basis. I think that continues to help maybe get us back to that chip will be and Thats, obviously the goal.
That changed this year likely.
Thank you and another follow up with respect to your discussions with producers are you sensing any shift and what sort of attributes they're looking at in your commercial agreements with them are you seeing a more of a propensity for acreage dedications.
A tilt towards maybe full value chain path solutions.
Versus discrete services can you comment on.
Anything beyond price that.
Producers might be looking for differentiated services.
Linda it's Jamie.
I think the latter.
Hit the nail on the head with respect to I think what what's differentiated here in the past, which continues to differentiate US is that we have the ability to offer a full slate of services in our customer mindset.
It's very rare that we would just do one service for our customer.
And if it is that that's the case, it's very rare that.
After we prove the value of our offering that we don't expand that so.
I think that's always been the case.
I think part of what the producers looking for right now is our ability to be flexible and nimble in being able to accommodate new volumes coming on.
I think the Interconnectivity and are selling facilities is really differentiates us and enables us to be able to to do that as as our customers grow in the south and you would've seen that result, as a result of the significant growth that we've seen in the utilization of our assets and so as a result of that flexibility.
Similarly in the north.
We continue to work with our customers to be able to.
Timely manner be able to facilitate their requirements and I think thats really a differentiator in light of some of our competitors.
Thank you and maybe just to help us understand kind of your run rate in the next couple of years.
Any rules of thumb, you can provide us for operating leverage in your gathering and processing system in the north and the south recognizing that it is.
It is filling up but any sense of the white space currently and what that might mean as it fills up recognizing that you've got some cost inflationary pressures.
Well it would be helpful.
Okay.
Largely in the South I mean, we continue to see volume strengthen.
It is really stabilizing I think we feel good with what we've done with the optimization, we've taken out the cost.
So certainly there continues to be some inflationary pressure there, but again, it's mainly labor power is the other big cost.
You have.
Hedges in place I think youll continue to hedge our power.
In the north.
Again, maybe flow through yes.
Costs are largely flow through yes.
Yes, I'd say, Linda the thing I would add to the islands comments, which I hundred percent agree with is that as we fill up.
In the past, where we might have done some deals two three years ago. When we had available capacity and so did our competitors as we fill up our <unk>.
Producers are recognizing that in order to.
Maintain as we do renewals or <unk> they look.
Potentially go off of an it service to a more priority service to ensure that their volumes continuing to flow that theyre going to have to.
Yes.
Take any operating cost risk that <unk> may have and Barrett themselves.
The market is fundamentally changing with respect.
How we view our business and ultimately how producers.
The deals that we are doing with producers they are fundamentally different frankly than a couple of years ago.
It boils down to Jamie's point, it's a supply demand so.
As there is less supply available or capacity available because demand grows.
It gives us opportunity to renegotiate some of our contracts on more favorable terms relative to what we've seen in the last couple of years with low commodity pricing and particularly itself I'd say the other thing is is that in the south where we've done some fixed fee deals.
We're actually benefiting from the higher utilization of our facilities because the per unit costs are dropping.
On the operating cost side.
Thank you I will jump back in the queue.
Okay.
Your next question comes from Matt Taylor from Tudor Pickering Holt. Please go ahead.
Okay. Thanks to everyone for taking my questions here I wanted to start first with cat zones for that extension proposal and just wanted to clarify is there.
Should the market be thinking of this is.
<unk> project, where it's going to be supported by additional contracting a brown field economics or are.
Or is it the right way to think about this as more of this is going to help underpin your original investment and maybe help you get to the lower end of Euro you or.
Returns guidance sooner.
Yes, it's both.
Certainly to make the investment.
Yes.
It has to meet our economic thresholds for zoning for Standalone, but clearly I mean, the volumes that go into zone four are going to go through the rest of the pipes on 1% to three so it's going to benefit the economics of the base project too. So it's a win win.
So I guess, then what we should be expecting as I know you've talked about maybe the later part of this year into next year is kind of a distinct announcements and then whether it's more contracting or what have you and then ultimately getting to.
Range within your range.
I think it was 10% to 15% return on capital much sooner to your point, where it helps the economics of the whole project is that the way to think about that.
That's right.
I would say that.
We're looking to do is commercially as two underpinned enough volume and cash flow to commercially sanction. The project and then it will be subject to sort of see our approval.
Next year.
And other items, so it's kind of a two stage approval.
And Dean will you be dealing directly with customers themselves or is the opportunity more dependent on north river, finishing their pipe and northeast DC and then having the optionality to go into yours.
The competitors pipe just I was just wondering if this opportunity is more so just helping filter volumes on our competitors' pipe are you actually finding more customers in Alberta that.
Might use that competitors pipe and then contracting on the back half.
Yes, I mean, I think it's a good question clearly, we see the largest opportunity in <unk>.
Northeast BC and half on slide North River midstream.
And their pipeline project I mean, both projects are independent pipeline systems, but.
Again.
It makes logical sense for the volumes.
But the contract and their pipe to connect into ours.
The Alberta border.
Because their customers will want a competitive alternative if it goes into our competitors' pipe. There is no reason for it now through over to builders.
Because it doesn't end up being a competitive alternative.
No.
We see opportunity in BC, but we also see opportunity in the.
On the Alberta side of the border with going forward as well so there's opportunities on both sides.
But I think to add to that is it's a parallel conversation Matt it's not like we're waiting for north for every day.
Their project and then start talking to those customers.
Okay. Okay. That's great and then one last one if I may.
Does the added financial flexibility here I know Aileen youre talking about getting down here to your targeted range sooner based on that our marketing outlook here, but does it change your view on on either side.
Essentially purchasing the other 50% of caps or because there is other assets that you are seeing.
In the basin that might help you.
Get to some kind of the downstream growth sooner.
Yes.
As we said at our at our Investor Day.
Six weeks ago is that we are the operator of caps so from a commercial perspective operational and project execution perspective.
We drive this project and so.
The other half is in a must have.
We would sort of treated as we would any other.
Acquisition opportunity, which would have to meet our rigorous capital allocation criteria. So would we consider it yes.
It's not a must have.
Right. Okay. Thanks for taking my question.
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