Q2 2022 AltaGas Ltd Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by welcome to the Altra gas second quarter 2022 financial results Conference call. My name is Pam and I will be your conference operator today.
All lines have been placed on mute to prevent any background noise. If you have any difficulties hearing the conference. Please press star zero for the operator.
After the Speakers' remarks, there will be a question and answer session. As a reminder, this call is being broadcast live on the Internet and recorded.
I would now like to turn the conference call over to John Morrison Senior Vice President Investor Relations and corporate development. Please go ahead Mr. Morrison.
Thanks, Pam and good morning, everyone. Thanks for joining us for all to <unk> second quarter 2022 financial Resort 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.
<unk> and president of our midstream operations.
Blue Jenkins Executive Vice President and President of our utilities business will proceed on the basis that everyone's taking the opportunity to review the press release and our second quarter results.
Similar to previous quarters, we published an earnings summary presentation that you can find on our website the presentation walks through the quarter and highlight some of the key year over year variances and non reoccurring items that we thought would be useful for the market to understand as always today's prepared remarks will be followed by an analyst question and answer period.
As for the structure of the call will start with Randy Crawford, providing some comments on our financial performance and progress on key strategic initiatives, followed by James for Bill is providing a more detailed walk through of our second quarter results. Our near term outlook in 2022 guidance and then we'll leave plenty of time at the end for Q&A before we begin to also remind everyone that we will be refer.
Turning to forward looking information on today's call. The information is subject to certain risks and uncertainties as outlined in the forward looking information disclosures on slide two of our investor presentation, which can be found on our website and more fully within our public disclosure filings on SEDAR and Edgar filing system and with that I'll turn it over to Randy.
Okay.
Thank you John and good morning, everyone. We are pleased.
You announced that all the gas delivered solid second quarter results with normalized EBITDA up 7% year over year in the quarter, while we continued to execute on our strategic plan.
The acquisition of the remaining equity interest owner equity ownership of Petro gas and our agreement to divest our Alaskan utilities enhances our energy infrastructure platform and positions off the gas for continued long term value creation.
Our ability to recycle capital into strategic growth opportunities and further improve our balance sheet will ensure that ultra gas is well positioned to deliver sustainable future value for our stakeholders.
Second quarter results were underpinned by strong operations in both our midstream and utilities segments.
Utilities normalized EBITDA was up 17% year over year, and we continued to benefit from the robust capital investments, we are making in our network to our various AARP programs.
We remain dedicated to upgrading our asset base to build resilient infrastructure.
It is focused on improving safety and reliability.
Reducing emissions and lowering operating costs.
Which are all focused on driving better outcomes for our customers.
Our Virginia regulator.
A five year extension to our safe AARP plan, which provides nearly <unk> $880 million of accelerated investments through 2027.
As our most recent example of this commitment.
When coupled with our approved AARP programs in our D C, Maryland, and Michigan jurisdictions Ultra gas is regulatory approval of $1 5 billion.
Our investments into our utilities.
Through the next five years to ensure we continue to provide safe and reliable service.
We contemplate future extensions.
Key programs in these jurisdictions.
Increase the spending commitment.
We remain committed to operate with a high degree of capital and cost discipline that has been our focus in the past three years and while we remain active and keeping our rates up to date and reflective of the current operating environment.
To that end in June we filed a rate case in Virginia, seeking a U S $48 million increase in annual revenues to reflect the impact of increasing cost of capital and plant investments above depreciation not included in the safe AARP.
This filing along with our D. C rate case filed in April and the new rates in Maryland that we became effective earlier. This year, we will ensure that our rates reflect the appropriate return on investment on our investment in our critical infrastructure.
By investing in our system and ensuring our rates remain current.
Well positioned to navigate the current inflationary environment to a modern and efficient platform, while driving the best customer and stakeholder outcomes.
As we execute this strategy, we believe that we will continue to deliver steady earnings per share and <unk> per share growth for our shareholders.
In our midstream segment.
We continue to capitalize on the tremendous opportunity to export cleaner burning LPG to Asia from Western Canada, and the north Western U S to meet the rising demand for lower carbon LPG.
In the second quarter, we shipped approximately 111000 barrels a day of propane and butane to Asia.
Presenting a 26% increase compared to last quarter.
Another record for our company.
In a span of just over three years, we have taken our global export business from zero to exporting over 100000 barrels of North American LPG as to premium markets in Asia, which now represent more than 10% Japan's annual propane and South Korea as total LPG imports.
While operationally, we excelled in the quarter the financial performance of the global export platform are slightly behind our expectations due to hedging timing certain inflationary pressures and other headwinds the.
The good news here is that our push to significantly increased volumes that has helped us identify areas of manageable improvement in our value chain, such as rail and ocean logistics, and our supply acquisition and hedging strategies sustainable improvements in these areas coupled with our demonstrated ability to increased volumes from our export platform.
Provide ultra gas the opportunity to further enhance our financial results as we continue to connect our upstream and downstream customers for the best industry outcomes.
I am pleased with our achievements this quarter.
Particularly in the context of global energy crisis as the World comes to terms with the energy shortage and the importance of securing access to reliable safe affordable and responsible produced energy to power everyday life.
Looking forward the strategic initiatives, we accomplished in the first half of 2022 are positioned at the gas with the enviable ability to simultaneously advanced a significant pipeline of growth opportunities in front of us, while reducing our leverage ratios and providing steady and consistent dividend growth for our shareholders.
I'm proud of the rollout the gas plays in providing access to affordable and diverse energy sources, both domestically within North America into global markets.
I will turn the call over to James to review the financial results in more detail.
Thank you Randy and good morning, everyone during.
During the second quarter of 2022, ultra gas achieve normalized EBITDA of $246 million compared to $230 million in the same quarter last year representing.
Representing a 7% year over year increase.
Normalized <unk> per share of <unk> 60 in the second quarter 22, compared to <unk> 56 in the second quarter of 2021, representing an 8% year over year increase and continues to provide the foundation to fund organic growth and returns of capital to shareholders.
Normalized EPS of <unk> <unk> in the second quarter of 'twenty, two was consistent with the same quarter of last year.
Digging into our segmented results for the quarter normalized EBITDA in the midstream segment was $133 million compared to $142 million in the second quarter of 2021.
Our global export platform achieved record volumes during the second quarter shipping approximately 111000 barrels per day of combined propane and butane to Asia spread across 18 ships and one partially loaded chip.
This represented a 23% year over year increase in volumes relative to the second quarter of 2021 with repeat exporting approximately 64000 barrels of propane.
On 10, full and one partially loaded ship, while Ferndale exported approximately 47000 barrels of combined butane and propane on ships.
Record export volumes continue to be driven by strong offtake demand in Asia.
Strong global export volume growth was offset by a number of factors, including a $20 million negative impact from hedge timing of global export volumes that were loaded at the end of the first quarter with a corresponding hedge loss not recognized until delivery in the second quarter of 'twenty two.
Lower margins on tighter North American Safari spreads, particularly butane volumes and increased logistic cost due to higher rail and ocean freight.
Of note the tighter butane spreads in the second quarter was principally a function of north American pricing for butane rising along with crude prices of far east butane prices didn't lift to the same extent as we were in the shoulder season for LPG demand in Asia in the spring.
As as we move towards the fall, we would expect far east to North American spreads to widen in order for the far east market to continue to attract incremental barrels from global markets to meet local market demand, which is <unk>, which is in line with the traditional seasonality.
Inlet gas volumes at our facilities were slightly lower year over year as a result of four scheduled turnarounds in the quarter, including her Madden Townsend Gordon Dale and North Pine.
We continue to have a healthy hedge position with our midstream platform with approximately 51% of global export volumes told or hedged for the balance of the year.
This includes an average <unk> and North American financial hedge price of $12 66, a barrel U S well.
We also have 75% of our expected frac exposed volumes hedged for the remainder of 2022 to $34 68 per barrel.
Our utility results reflected the normal seasonal slowdown in natural gas demand that is associated with the spring and summer months.
Normalized utilities' EBITDA was $116 million in the second quarter of <unk> 22, compared to $99 million in the comparable quarter of last year.
The 17% year over year increase was driven by continued rate base growth through ongoing ERP investments.
Customer growth strong retail contribution and higher asset optimization in the quarter, partially offset by increased operating costs.
Washington gas reported normalized EBITDA of 65 million in the second quarter up 16% year over year.
Driven mainly by continued ERP investments and customer growth the impact of the Maryland rate case, as well as asset optimization and higher base usage, partially offset by increased O&M costs.
Semco and <unk> combined normalized EBITDA was $35 million in the second quarter up $2 million from the same period last year, driven by customer usage and growth, partially offset by higher O&M costs.
As a reminder, we expect the sale of our Alaskan utilities to close in the first quarter 2023, and therefore expect ongoing contributions for the remainder of the year.
And finally, the retail business generated $16 million in normalized EBITDA up $6 million year over year, which included stronger optimization margins and lower than budgeted gas costs, which was partially offset by higher PJM costs.
Some of this strong performance is expected to be reduced in future quarters as a portion of the outperformance is timing related.
The corporate and other segment reported a normalized EBITDA loss of $3 million in the second quarter 22, compared to $11 million loss in the same quarter of 2021.
The $8 million year over year increase in normalized EBITDA was mainly driven by lower corporate expenses, primarily related to ultra guests as strong operating performance and higher employee incentive plan costs associated with the second quarter of 2021, driven by ultra gasses rising share price last year.
Year to date <unk> has experienced many of the same inflationary pressures that are being seen across the global economy. Although the company is well protected against these inflationary pressures through its cost of service operating model on the utilities and through take or pay and fee for service contracts within its midstream operations Ulta guest has an acute focus on judiciously managing.
All controllable costs to protect its customers and deliver the lowest cost possible.
As Randy mentioned, we have had a very active first half of the year in terms of corporate development activity as we announced plans to divest our Alaskan utilities and we acquired the remaining equity interest in Petro guests from Intermezzo.
We believe both of these transactions will drive long term value creation for our stakeholders and allow <unk> to continue to achieve our corporate objectives that we have set for ourselves.
Looking ahead, we continue to focus on our corporate strategy connecting customers and markets and delivering durable and growing EPS and <unk> per share.
Lowering leverage ratios over time.
We are maintaining our 2022 guidance ranges, including normalized EPS of $1 80 to $1 95, a share normalized EBITDA guidance of $1 5 billion to $1 55 billion and a 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.
Last question and answer session, if you'd like to ask a question. Please press the number one please.
Please press Star then the number one on your telephone keypad, if you would like to withdraw your question. Please press star two.
There will be a brief pause while we compile the <unk>.
So in a roster.
Your first question comes from <unk> <unk> with Bank of America. Please go ahead.
Hey, good morning, and thank you for taking my question.
Just wanted to start off on the acquisition of the remaining stake in Petro gas can you, maybe just talk a little bit about the timing.
Sort of how the purchase came to be that.
Your partner approach you about <unk>.
Acquiring the remaining stake to.
To the extent that you can comment and also if you could potentially comment on.
The difference in valuation relative to the majority stake that you purchased back in 2020.
Hey, good morning, and thank you for the question.
This is Randy just a couple of comments and I appreciate the question.
From our perspective, it was a good purchase and we believe in the assets and its capabilities and really the value proposition and we wanted to have more.
Exposure to put these reasons and.
Our partner <unk>.
Looked at.
Yes.
Monetizing that position and Thats basically how that came about.
My my perspective, having complete control streamlining the corporate process and as I said, we believe in the asset because of its position on the west coast.
And the fundamentals in Apple Optionality that it provides so.
From our perspective acquiring that remaining stake is just going to enhance the flexibility optimization of the <unk>.
LPG export growth.
In that standpoint.
Plus it was a good good purchase and the timing fit really well.
Terry.
James here and from a valuation standpoint, I mean, obviously the initial interest that we acquired was a controlling interest and that's what gave us operational control over that that facility when we acquired <unk>.
Sam Holdings, the founders original interest and obviously you had a mixed use was a minority interest with obviously limited governance rates.
That was that went into that factored into the valuation difference between the two stakes as well.
Okay.
Got it.
Helpful. Thank.
Thank you very much one more if I can maybe just pivoting over to the utility.
It looks like the D C City Council is.
Passed a resolution that would limit commercial gas.
Hookups in new buildings.
During the decade, so it's not an immediate impact but just curious.
It doesn't seem like it will be a larger simply a near term impact on numbers, but just how are you thinking about that just kind of long term strategically as you think about deploying capital and growing year rate base across the WJ all footprint.
Yes, hi.
Hi, Derek its blue thanks for the question.
So as you know if you've had a chance to look at it. So the bill requires the mayor to issue regulations that update commercial buildings with energy conservation codes by December of 2026, So we still got a ways out. It also covers remodels four buildings over 50000 square feet as long as it's more than 50.
Percent of the prior value of the building so it's kind of a fairly.
Cerro scripted narrow script, if you will for us.
Talk about the growth profile, no real impact to debit GL for C&I in the district as C&I isn't really a growth area over calendar year 'twenty. One 2020 in 2021, we only had five net C&I ads in D. C itself. So it represents less than 1% of our C&I customer adds over the period, 90% of the ads happened.
In Northern Virginia, and that's a trend we've seen for a while so.
We've got some time to work with the mayor and her staff on what that means and how it approaches, but we don't see it having a significant impact.
Given the focus on C&I in the area.
Great. That's very helpful. I'll turn it back here. Thank you.
Your next question comes from Robert Hope with Scotiabank. Please go ahead.
Good morning, everyone.
Wanted to take a look at the global export business can you just talk about.
What the key drivers for the strong growth on a quarter over quarter basis with this partially timing related four ships or our producers or is your logistic capabilities, increasing such that this is a relatively good run rate here.
Hey, Robert Randy Crawford. Thank you for the question good morning.
Look the the records volume is a major milestone for us and it's really has proven that the assets can do it and we have robust demand as well and that creates real value and to have that optionality to consistently move those barrels is going to provide and has provided substantial and sustainable value.
So really it does come down to our.
We've been able to prove out that we can move these volumes consistently and.
And we see a robust demand going forward. So this ramp up of the 110000, it's allowing us to identify some of the issues and opportunities that we can address that with clarity into fixed as we push this envelope, but but clearly we're seeing robust demand in.
Well, we think.
It profitably keep it in and around these levels going forward, but again, we will do those.
Fluctuate, but the key driver was to us to prove out that we can move that level of capacity and I'm really pleased with that.
Value created as a result.
Excellent and then a follow up question. There is that we have seen volumes increase but the amount of long term contracts that <unk> been a little stagnant.
What have the tone been regarding your conversations with contracts with producers are they just trying to figure out what the world looks like just given the commodity price environment.
One.
There is a better impact or an estimated impact of what heartland does to the propane market could you see contracting discussions accelerate maybe towards the end of the year into 2023 for long term contracts.
Yeah. The answer is yes, I mean look the recent strength in the fundamentals and the improving commodity price.
It has certainly been working out.
On paper in terms of supporting these conversations and.
We recently have been seeing increasing interest not only from producers, Robert but aggregators, who want to participate in the upside of having direct access to easing pricing. So.
So.
Demand side as customers and as we look to reach back into the basin and secure supply. So again, we're having.
Strengthening fundamentals strong conversations and Derisking, the midstream and energy export remains a top priority for us and so I would just comment that the.
<unk> remained constructive.
And it's a top priority.
Excellent. Thank you.
Your next question comes from Robert <unk> with CIBC capital markets. Please go ahead.
Hi, good morning, everyone I'm going to start with the Petro gas now that you have it fully under control how can you accelerate the integration and development of the Petro gas assets and the energy export terminals.
Well. Thank you for the question, Robert I think Youre, saying I mean, we.
Took over operational control Randy and his team have been driving a great deal of the Optionality as we move cargos between even both of our ports and maximize the value between the two products. So and then optionality. So I think that flexibility of operating those two west coast facilities as.
Very helpful. Another attribute in value is the difference in rail deliveries and so we have optionality to move on different rails, which will help us to manage our cost going forward and to maximize flows either into ferndale or rip it.
And so from a corporate perspective, we're indifferent and it gives us a lot of.
Optionality and flexibility to create value for them.
For all of our customers and shareholders.
Okay, and just on the inflation frontier.
When you look at the utility Capex is inflation.
More likely.
Cause an increase in utility capex and delay leveraging or will it simply a result in less progress.
On ERP programs or other initiatives for the same amount of spending.
Yes. It's a good question. This is blue, it's primarily where we would see it is we would get slightly less work done for the same dollars, we wouldn't expect to increase the capex per se.
I'd highlight for you that we are reasonably well protected inside this year just on the way we contract for our materials as well as our contractors and service providers. So we have contracts that focus more on a per unit.
Structures are contractors and Senate for efficiency as well, but primarily means you might get a bit less work done for the same dollars.
Okay. Thank you and then last question here, a little bit of a shot in the dark here previously the company had some small to medium size LNG.
Project I Wonder if you still have those or if those were disposed of as part of some of the asset sales.
If you still have the is there any interest in a rekindling NAS.
Alright.
We do not have those.
At this point in the future but.
But overall right in terms of our DNA, we're focused on the LPG and all of the development and there are significant opportunities I think to expand our growth around the <unk> and thats.
Primarily our focus obviously with the increase.
Production of natural gas that comes with associated liquids.
I think those are all important factors in our growth story, but those particular projects are not in our portfolio.
Okay. Thanks, very much guys.
Okay.
Your next question comes from Ben Pham with BMO. Please go ahead.
Hi, Thanks, Good morning, I had a.
Couple of questions on natural gas and LPG exports and the first one is on.
Your leverage.
Expectations debt to EBITDA, when you factor in Petro gas as it is.
Leverage creep up a bit of near term and then it drops.
Much more as you look towards <unk> 23 versus what you were planning before.
Alright.
It's James here from a from a leverage standpoint, we are we obviously saw a slight reduction in leverage when formally and exercise their buyout on our non operated interest at Aitken Creek, and when we decided to recycle that capital and deploy it to the purchase of <unk>.
Amidst these minority interests, we basically took back leverage to where it was before the we exercise and close of the Aitken Creek facility. So I wouldn't necessarily see it as a creep up from from where we were exiting 2021, and then obviously you touched on the most salient point as we head into 2023, and we closed the <unk> transaction.
We would see a meaningful deleveraging event as we are as we apply the proceeds from that sale too.
Outstanding debt on our credit facility. So overall, we would expect the leverage reduction from 'twenty one as a result of the <unk> sale and we considered the petro gas transaction more or less leveraged neutral when you reallocate. The proceeds we received on the Aitken Creek facility to the purchase of that minority interest.
Okay got it and I know you mentioned some of the seasonality.
Do you think spreads and dispatch in general versus Q2.
But really they're actually is it correct to think of that as the volumes continue to ramp up on LPG exports that you will see more of a structural.
Declining and spreads and then maybe that one.
One related to that have you have you seen any change in conversations with producers.
Our chemical.
Hi.
Alternative propane.
Yes.
On butane spreads I mean, we.
We touched on it in our prepared remarks, if you look at Q2, we had.
Pricing in the shoulder season, so we didn't see a real ramp up of W. T I, which is where we're buying butane as a percentage of <unk>, we saw double UTI prices run up.
And we've also seen strong local pricing for butane, which squeezed our butane margins and that was something that we signaled in Q1, when we when we had our prepared remarks, where.
Where we are today, though we've seen wth ti moderate a little bit obviously in local butane prices have moderated a bit too and then the back half of the year, we're entering stronger demand for butane in Asia. So we would expect NII to rally. So we see the back half of the year as having margins on butane that expand from where they where they are today.
And Ben This is Randy on your question about the PVH plant in Canadian supply that there is robust demand as you suffer Canadian lpg's globally in Asia, and we have the egress solutions in the best market for those and we factored in the plant coming online into our models and that was even at the time when the market dynamics were not as <unk>.
<unk> as they are today and so we feel that theres a lot of headroom for increased production and.
Moving additional volumes.
That's great and maybe lastly can you remind me.
Randy what is your you are contracted.
That's fair.
I had a rep at our Ferndale are on a consolidated basis.
In terms of the export volumes in terms of them.
I think I think around 30% right now correct me, if I'm wrong on that target.
Targets he got a $40 50, I think for your enemy.
Is that still the plan or has it changed or it just just wanted to know the latest on that.
Sure Matt.
The plan and the commitment to Derisking and contracting these volumes hasnt changed in terms of that but as we increase the amount of volumes through there right that has an effect on the overall percentages, but overall where we.
We want to be able to continue to derisk that platform and we are having as I said very constructive discussions with both the market as well as producers looking at quite frankly hybrid models of tolling, where we share in some of the upsides as well and so we think that.
No, we're not stating a specific percentage, but youll see that volume continued to increase and then what we'll do is we'll continue to export additional volumes over and above the levels that we're at so at this point. The goal is to continue to do that and we will do it.
Specific percentages will depend on the quantity of volumes, but expect overall, increasing in tolling and derisking.
The year.
Okay. That's great. Thank you.
Okay.
Your next question comes from Andrew Kuske with Credit Suisse. Please go ahead.
Good morning.
Maybe if you could just focus on the core utility business.
Just what youre seeing from a customer standpoint are you seeing an increase in bad debts and adult pressure delays in payments and then any mitigation programs you have around that.
Sure.
Thanks, Thanks for the question.
A couple of comments I'll, let blue chime in on some of the specifics here, but when you basically these increases in the cost of natural gas and the value the price of natural gas is unfortunate right, especially when we have the resources in the U S to develop and mitigate these increases.
Unfortunately, the increased production, we need increased capacity of the markets and as you know building a pipeline it's been challenging in the U S around public policy reserves of their producers wanted developed and responsibility responsibly.
And we need to see clear to move. These forward. So these increases are unfortunate, but they disproportionately affect to your point about the utility at least capable of absorbing them and.
And that's <unk>.
Exasperating assistance, otherwise blue and his team have been investing money improving the system lowering operating costs managing inflation.
Finding a higher quality of service.
And we continue to work with our public utility commissions and we're looking at finding new ways to fund these increases in gas cost and to protect our most vulnerable in our system.
Income program so.
A big focus on that as we move forward, but the overall macro is that.
There's a public policy matter we.
Feel that.
These prices should be coming down, but we need to build pipelines at this point working very closely with the commissions alluded you want to add to that yeah. Thanks, Randy I think you hit the highlights I'd add just a little bit of color on a couple of things.
Randy point, so we're very focused on trying to manage cost all the way through the process.
Knowing the impacts our most vulnerable customers to most so you will see us the specific answer to your question is are we seeing an increase in bad debts. The short answer to that is no. We have not seen that yet been a very focused effort with the team to ensure that there are payment programs and other opportunities to help customers keep correct.
We've also been very focused on ensuring that our customers have access to those third party programs that are available like <unk> and others to help them as appropriate and you will see us in our most recent D. C rate case for those that are defined the most energy vulnerable we've actually proposed increasing some credits on a year round basis to help offset the impacts so.
We're trying to do what we can to protect and help those who are most impacted but to date, we have not seen an increase in bad debt. So.
Okay I appreciate the thorough answer and then maybe it segways into the related question.
What are you seeing just an appetite for customers to go towards things like RMG related options, where big growth area carbon friendly.
But obviously theres a pricing pressure issue across the industry right now.
Yes. Good question, obviously it depends on it depends on the customer segment. So we are actively working through the R&D opportunities in our in our respective market areas. We certainly have appetite from our transportation customers, we're seeing it in our larger C&I, particularly datacenter customers those type of thing.
So certainly an appetite there.
As you roll it through you saw legislation in Virginia, It gives us the opportunity to bring.
R&D and other lower carbon options into the fuel mix. So certainly see an appetite it is.
Customer class specific in many cases.
Okay I appreciate that thank you.
Ladies and gentlemen, as a reminder, if you do have any questions. Please press star one.
Question comes from Robert Kwan with RBC capital markets. Please go ahead.
Morning.
Just starting high level here with guidance.
Just talk about just give an update as to the different headwinds and tailwind you're seeing as well.
We're now halfway through the year and as part of that.
Are there any moving pieces outside of the ordinary kind of commodity prices weather and tax rate.
Hey, Robert It's James here in terms of in terms of guidance I mean, obviously, we do expect to be in the range and in terms of tailwind to your specific question in headwinds.
On the tailwind side, we are seeing stronger frac spreads that we've been able to capture and that's going to benefit us.
For the balance of the year. The <unk> acquisition that we undertook is going to benefit us from an EPS standpoint, but not not necessarily an EBITDA standpoint, because we were already consolidating 100% of that EBITDA.
Then FX.
You touched on has been a tailwind as well just given where it is today versus where we set our guidance back in December of 'twenty, One and then stronger volumes in the first half of this year with respect to global exports and the performance of the retail business as well been been tailwind in terms of.
You know obviously, the butane margins that we've experienced here in the first half and that we called out early in the year being compressed relative to last year had been has been a headwind and then the Aitken Creek.
<unk> was also something that was unexpected when we set our guidance and we've also incurred some increased customer cost of utilities to address customer service levels, there and make an investment in the customer experience. So those were all those were all headwinds, but when you when you kind of take a step back and you look at all the pluses and minuses, we expect to be in the range.
Despite some of those headwinds.
That's great.
Just drilling down.
Into the midstream logistics and timing, obviously called out the.
The hedge timing, which can reverse out but.
Just on the Opex.
And you noted opex improvement.
So can you just talk about like are you able to quantify where you what those opportunities might look like what are the greatest opportunity how quickly you can get out.
Put differently how much of the.
The impact in the quarter.
Thank you Ken.
Improve on a sustainable basis.
Hey, Robert It's Randy Toone.
As far as.
Operating cost and we've been working quite hard on logistics logistics is our one of our biggest cost to get.
Products from the source to to Asia, and we've had a big focus on that for a number of years and we're working with their service providers to get those costs down we know, it's vital thing too to be sustainable and to grow our volumes and so we will continue to work with our service providers to lower that cost so it's going to be mostly on the.
Logistics also if you look at these time charters.
We've got a one time charter this year, but thats helped reduce our ocean freight and we have two more time charters coming on next year, and we feel that thats going to definitely help lower our freight rates going on across the ocean.
Robert I wouldn't mind.
Go ahead.
I just wanted to add to Randy tunes coming not necessarily from the logistics standpoint, but the one thing that we want to highlight as well.
When it comes to supply costs on on the global exports as well we had turnarounds at four facilities, which took equity barrels that we have offline right. So those those impacted margins with global exports as well and obviously with the turnarounds behind US now that's something that's not going to happen in Q3 and Q4. So we would have access to those equity barrels is.
Well.
And.
The turnarounds just from the midstream platform as a whole reduce obviously volumes and corresponding EBITDA by about $9 million as well and that that kind of obviously doesn't reoccur in the back half of this year as well.
That's great so $9 million from the turnarounds does that include.
The higher supply costs, because you didn't have the equity barrels and you have to go out and source them elsewhere.
No the higher no those that would be in addition to the night.
And.
Are you disclosing roughly what that amount might be.
No we're not getting we're not getting that granular, but I did want to point out that that was a that was part of the margin compression.
Okay.
Would you be willing to disclose just on the Opex side like how much did you see that increase in the quarter versus how much you think you can get back with some of the initiatives.
That you've been talking about.
Randy Toone again, I think we're hopeful that if you look at our our our logistics costs.
We had we did see in Q2 higher.
Fuel costs the cost of.
Diesel went up and we also saw higher rates and so we're working with our service providers to to reduce that.
So I would say we'd see.
Anywhere from $2 million to $5 million for the back half of this year to our savings.
That's great. Thank you very much.
Your final question comes from Matthew Weekes with <unk> capital markets. Please go ahead.
Hi, Good morning, Thanks for taking my questions I was just wondering with that with the Virginia expanded AARP program that was approved there.
In general in the core utilities are you seeing sort of expanded spending profiles.
Resulting from.
Higher costs to sort of.
Those these programs or is that kind of playing into.
Sort of the capital profile of those businesses.
Yeah, Hey, Matthew it's Blue I'll answer your question.
So what we're seeing I think I alluded to it in one of my questions earlier, we're seeing inflationary cost in certain subsets of our business I think what you see from the Virginia save.
Ruble is a recognition by that governing body that the work. We're doing there is having a positive impact and upgrading our system, keeping our operating costs low and reducing our climate impacts and therefore I think that's why you saw that that extension, we're being very conscious on the cost base, there, where we're seeing our biggest cost pressures are.
Anything to do with fuel type costs. So you know the fleet component is impacted certainly paving costs are up that's a high energy use component, but we're seeing that across all aspects of industry certainly not just our work, but we believe that the work being done through this APR programs is having a very positive impact.
Both our customers and our system from a lower forward operating costs as well as a lower or more positive climate impact as we try to help the region meet the goal.
I don't know if that answered your question, but that's what I, that's what I'd focus on.
No that's perfect. Thanks.
I just wanted to follow up on that and given that sort of.
The growth trend in the utilities do appear positive and there was quite robust.
Profile happening there.
And would you say thinking about the onstar monetization that set to happen and then taking into account. Patrick asked are you comfortable with sort of where the balance sheet is going to be going into 'twenty. Two 'twenty three to continue to fund the kind of growth that you expect.
Yeah, Matthew had said James several weeks here. So the short answer is yes, I mean, obviously, even before we we monetize and star. This year, we had a fully funded capex program for <unk>.
2022, looking out into 2023, obviously once that deal closes we'll reduce leverage it creates a lot of balance sheet capacity for us to pursue organic growth.
In the midstream platform as well as to execute on the 8% to 10% rate base growth that we see coming out of the ERP programs that are that have been expanded by Virginia. So there's still there's still a lot of Maine to replace as Blue suggested in all our jurisdictions and obviously by investing in that type of capital were improving reliability.
We're able to be on the system, reducing leaks and and making the system a lot safer. So we can fund that AARP growth at 8% to 10% that we've outlined.
This is John I'll, just add Tim described it well, but in fact, the sale of the Alaska utility really has provided us enough liquidity to fund both of our business and to grow the individual basis is even larger and positioning us down the road.
The continued growth and so that's really the strategy.
Positions us quite well.
To execute on our enviable growth opportunities.
Okay. Thank you I appreciate the commentary on that I will turn it back thanks.
This does conclude my apologies. This does conclude the Q&A portion of today's call I'd now like to turn the call back over to Mr. Martin.
Thanks, Tim and thanks to everyone for joining us on the call and for your continued interest in all to guess that concludes our call. This morning, I hope everybody enjoys the rest of your day and you may now disconnect your lines.
Okay.