Q1 2023 AltaGas Ltd. Earnings Call
Okay.
Yeah.
[music].
Good morning, ladies and gentlemen, thank you for standing by welcome to Alpha gas first quarter 2023 financial results conference call.
My name is Laura and I will be your operator for today's call.
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 operator assistance at any time after.
After the Speakers' remarks, there will be a question and answer session.
As a reminder, this conference call is being broadcast live on the Internet.
Got it.
I would now like to turn the conference call over to Adam Mcknight Director of Investor Relations. Please go ahead Mr. Mcknight.
Thank you Laura and thanks, everyone for joining us this morning for Alta Gasses first quarter 2023 financial results Conference call.
Speaking on the call. This morning will be Randy Crawford President.
President and Chief Executive Officer, and James Harmless 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'll proceed on the basis that everyone has taken the opportunity to review the press release and our financial results.
Similar to previous quarters.
We've published 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 of nonrecurring items that we assume will 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 followed by James harmless, providing a more detailed walk through of our first quarter financial results, our near term outlook and 2023 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 our 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 this.
Our filing system.
And with that I'll now turn the call over to Randy.
Thank you Adam and good morning, everyone in.
In the first quarter the company delivered solid results with normalized EPS of <unk> 98 cents and normalized EBITDA of 582 million.
These strong results and the continued execution of our strategic priorities have positioned the platform to achieve the company's 2023 guidance ranges, including normalized EPS of $1 85 to opine and normalized EBITDA guidance of one 5 billion to $1 6 billion.
Our operating results built upon the strong foundation of growth that we delivered the past four years and is a testament to the quality and strategic value of our two businesses.
Through ongoing investment and associated cost reductions, our regulated utilities were able to overcome the impact of warmer weather and the loss contribution from Alaska utilities in March to deliver solid first quarter earnings results.
We continue to make investments in our network on behalf of our customers and execute our regulatory strategy to update our rates on a timely basis.
The current operating cost environment, including cost of capital.
We are optimistic.
Cheating successful resolution in our Virginia rate proceedings over the summer and our D. C rate proceedings during the fourth quarter positioning utility for continued profitable growth.
In our midstream business, we continue to capitalize on the tremendous opportunity export responsibly produce Canadian L. P. G East Asia to meet the rising demand for lower carbon intensive products.
We delivered strong results, which included the export of almost 100000 barrels a day of LPG East Asia.
Delivered across 16 B L G sees as.
As we look forward, having completed our annual LPG supply contracts at pricing levels, reflecting the inflationary impacts on logistics.
Lower risk profile from increased hauling levels and a significant hedge portfolio, we are well positioned to achieve our forecasted profitability.
Our newly executed VLCC time charter agreement continues to extend out the gas value train reach into Asia when.
Well reduce maritime shipping costs by approximately 25% relative to current Baltic freight forward pricing and lowest pricing volatility on a long term basis.
The incremental time charter builds on the Derisking of the two dual fuel B L. G seized it off the gas will be taking delivery of and.
In late 2023 and early 'twenty four.
The proactive steps we've taken during the first quarter and have solidified our export platform.
We are now positioned to take our export business to the next level and.
And therefore, we are excited to reach an agreement with BOE pack for the potential expansion of our energy export business off Ridley island subject to positive S. I D.
The project isn't granted the key federal and provincial permits and is designed to create increased LPG export capacity and measured phases.
Divide logistics cost synergies to our current export business product optionality and dedicated access to a newly constructed dock.
And approximately four years since <unk> was first commission, we are steadily growing our global LPG export capabilities, which combined with Ferndale Ultra gas now connects more than 12% of Japan's annual propane and 12% South Korea is annual L. P. G imports the newly Ridley Island energy export facility partnership in <unk>.
With low pack positions off the gas to further expand this business and provide additional access for our valued upstream customers to key downstream markets in Asia.
And of course in order to fully capitalize on the strategic growth opportunities that surround us we are fully aware and higher interest rate environment that the absolute requirement that we possess a solid investment grade balance sheet.
With the funds available from the closing of the Alaska utility sale at the beginning of March we were able to pay down debt and are well positioned to achieve our medium term buybacks net debt to normalized EBITDA target.
Now with our balance sheet concerns for only behind US we are positioned with the flexibility to opportunistically invest in both organic and inorganic projects surrounding our strategically positioned utilities and midstream assets.
Such as reap expansion project upon favorable F I D.
Yeah.
So in closing this is likely to be my last earnings call as CEO of Altra gas and I want to take this opportunity to express my gratitude to the dedicated employees of all of the gas, but their unwavering support.
Commitment and hard work during my tenure.
Together, we have transformed ourselves from a highly leveraged low growth company into a premier integrated West Coast LPG export company and a standalone highly efficient utility business.
During this journey, we increased EBITDA by over 50% doubled earnings per share and EBITDA at both the utility and midstream businesses from 2018 to 2022.
Even more impressive in my opinion is that we were able to achieve these results. Despite the sale of $7 9 billion of EBITDA producing assets the reduction of leverage from blood the next to buybacks.
Oh equity issuances.
This was a monumental transformation and a testament to the enormous intrinsic value of our asset base and the dedication and hard work of our talented employees.
Given the magnitude of our transformation and the enviable strategic positioning of the company. We are well positioned to continue to achieve a 5% to 7% companion animal growth rates through 2026.
Proud of what we've accomplished together.
I am confident this management team will continue to drive value for our shareholders and I'm pleased to transition to the next CEO of company with a solid foundation and bright future.
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 the operational and financial results that we delivered in the first quarter of 2023 and with the strong progress that we've made on our strategic priorities.
We achieved normalized EPS of <unk> 98 per share normalized EBITDA of $582 million in normalized <unk> per share of $1 63 for the first quarter 2023.
These results were slightly above our expectations and leave us well positioned to achieve our 2023 guidance.
Diving into our operating segments. The utility segment reported normalized EBITDA of 401 billion in the first quarter of 2023 as compared to $408 million in the first quarter of 2022.
Our utilities continue to deliver stable and predictable results that are in line with expectations.
Quarter included ultra gas, making strong ongoing asset investments on behalf of our customers across the network favorable foreign exchange rates offset by warmer weather impacts in Michigan, and the district of Columbia and weaker year over year performance at the retail gas business, which was principally driven by warmer weather higher cost gas inventory and the timing of swaps.
In the first quarter, we deployed $151 million of invested capital in the utilities, including 66 million through our accelerated pipeline replacement programs.
These investments continue to be directed towards improving the safety and reliability of our system, while bringing long term operating cost benefits.
We continue making these upgrades on behalf of our customers while balancing ongoing.
Ongoing customer affordability.
This is increasingly important during the current economic environment of higher interest rates and inflation across the broader economy. We remain acutely focused on cost management across the utility platform and driving the best outcomes for all of our customers and stakeholders.
Washington gas realized normalized EBITDA of $349 million in the quarter, an increase of 17% over 2022.
The strong year over year growth was driven by interim rates at Virginia ongoing capital investments to upgrade our system and lower O&M.
This was partially offset by warmer weather in D C and lower asset.
Asset optimization activities.
Semco and star combined normalized EBITDA was $81 million in the first quarter, which is down year over year due to the Alaska sale at the beginning of March and significantly warmer weather in Michigan and slightly higher O&M costs.
Finally utility results benefited from the strengthening of the U S dollar in the quarter, which was in line with our previous and current guidance.
Normalized midstream EBITDA came in at $183 million compared to $174 million in the first quarter of 2022.
The quarter included strong operations and year over year volume growth across global exports higher fractionation volumes and realized pricing in the resolution of commercial disputes.
These were partially offset by higher logistics costs marginally lower gas processing volumes, resulting from the sale of Aitken Creek gas processing facility in the second quarter of 2022.
And lower realized Asia to North American butane spreads in the global exports business.
In the first quarter of 2023, we exported approximately 99444 barrels of propane and butane to Asia is spread across 16 vlccs.
This included approximately 58000 barrels of propane export it from rapid and 41500 barrels of combined propane and butane from Ferndale.
Yeah.
During the quarter, we were able to secure additional agreements with an investment grade counterparty for approximately 6500 barrels per day of tolling, which contributed to us achieving our target of 40% of 2023 volumes being told.
For the remaining merchant volumes, we continue to be disciplined with our hedging practices within global exports and are focused on locking in structural pricing differences in subsequent quarters.
Inclusive of told barrels were approximately 68% hedged for expected global export volumes for remainder of 2023 at an average <unk> and North American price of approximately $12 U S per barrel.
Finally, as a reminder, we expect to take delivery of one new VLCC time charter at the end of 2023, and one year time charter in early 2024.
We will add a third time charter for a new 86007 hundred cubic meter dual fuel VLCC with expected delivery in the first half of 2026.
Each of these time charters are expected to reduce our ocean freight costs by approximately 25% relative to current Baltic freight pricing and lock in pricing on a long term basis.
In the corporate and other segment, we reported normalized EBITDA loss of $2 million compared to a loss of $8 million in the first quarter of 2022.
The $6 million year over year improvement was mainly driven by lower operating expenses.
Turning to our balance sheet and capital recycling during the quarter, we closed the divestiture of Alaska, and utilities, which allowed us to reduce debt by approximately $1 $1 billion Canadian.
This significantly strengthens our balance sheet and provides financial flexibility to advance our strong portfolio of growth opportunities across the midstream and utilities platforms over the coming years.
In terms of other developments last night, we also announced the execution of a definitive agreement for a new 50 50 joint venture with Vo pack to further evaluate the development of the Ridley Island energy export facility or reef as we refer to it.
We'll have the capability to facilitate the export of LPG as methanol and other bulk liquids that are vital for everyday life.
<unk> has been granted the key federal and provincial permits to construct storage tanks, a new dedicated jetty and rail and other ancillary infrastructure required to operate the state of the art and highly efficient facility.
Brief would be developed on 190 acre site on lands administered by the Prince Rupert Port Authority, which the joint venture has executed a long term lease that sits adjacent to <unk> and <unk> existing rip it facility.
The project is aligned with our corporate strategy of investing in and operating long life infrastructure assets that connect customers and markets and have the ability to provide durable and compounding value for our stakeholders.
Development of reef would further bolster ultra gas is first mover advantage and differentiated LPG value proposition and provide increased operational synergies that allow us to more efficiently connect our north American customers to premium global downstream markets.
Similar to rip it in Ferndale reef will benefit from a significant geographic shipping advantage with a tender with 10 day shipping times in northeastern Asia, which represents a 60% base time savings over the U S Gulf Coast, and a 45% time savings from the Arabian Gulf.
I wanted to take the opportunity to thank our valued partners a bullpen, who we have worked closely with to get to this stage and look forward to expanding our relationship.
We also want to thank the Prince Rupert Port authority for their ongoing support and vision to build a world class Global Port.
I'll first nations right holders in the local communities surrounding Prince Rupert who have embraced and partnered with US on this journey as well.
We look forward to continuing to connect our upstream and downstream customers and for Canada to continue to play a larger role in global energy security.
Looking ahead, we continue to focus on delivering durable and growing EPS and <unk> per share, while lowering leverage ratios and increasing margins of safety within the business by moving towards our medium term goal of reaching five times net debt to normalized EBITDA.
We are maintaining our 2023 guidance ranges, including normalized EPS of 185 to 205 per share and normalized EBITDA guidance of one five to $1 $6 billion.
We also continue to target delivering regular sustainable annual dividend increases that compound in the years ahead with an anticipated 5% to 7% compounded annual growth rate through 2026, and with that I will turn it over to the operator for the Q&A session.
Thank you.
Ladies and gentlemen, we will now conduct the analyst question and answer session if.
If you would like to ask a question press Star then the number one on your telephone keypad.
Star then the number one on your telephone keypad.
If you would like to read the <unk> question.
Star followed by the number to.
There will be a brief pause while we compile the Q&A roster.
Your first question comes from the line of Linda is a dilemma.
From TD Securities. Please go ahead. Your line is now live.
Thank you I'm wondering if you can provide some more context on the bookends of.
Scale beyond acreage for your initiatives, whether it be in terms of capacity or.
Capital expenditures just to give us a sense of scale and also.
What would be the runway of completion ultimately to the final phase in terms of.
Calendar rising.
Quickly or how slowly a measured this initiative would be.
Alright, Highland, it's Randy Toone.
As far as scale goes and we're still doing the design work on on reef, but it would be similar to.
That's kind of the first phase of rip it so I would use that as a.
Metric for scale.
Thank you for your time.
Sorry, sorry go ahead.
No no go ahead.
I think part of your question was also in terms of financing and expected capital costs I think it's still too early in the process to talk about capital costs. That's what the teams working through in terms of detailed design and the feed study and we would be talking about.
Expected capital costs once we make a final investment decision, but we've always said that we feel that we can build these projects at a capex EBITDA multiple of roughly six to eight times and with respect to financing we feel that we put the balance sheet and strong enough shape and Derisk. The project given the 50%, 50% showing a 50 50 joint venture with low pack, where we can.
Finance, our capital through additional borrowings on the facility and maintained our our credit ratios. So we feel comfortable in terms of our ability and the financial capacity that we have to be able to move. This project forward when we make the final investment decision.
Thank you and just a sense of timeline beyond F D as to when this might actually become operational recognizing that.
And let me sum.
Parts of the timeline that are outside of your control.
Uh huh.
Andy again, yeah for timing, we feel that reef would be built in.
In a three year window and that all depends on the in waterworks.
The project has a jetty in and that will be critical item for for timing. So I would use three years.
Great. Thank you I will jump back in the queue.
Thank you.
Our next question comes from the line of.
Robert <unk> from CIBC capital markets. Please go ahead. Your line is now live.
Hey, good morning, everyone I just wanted to follow up on reef here, specifically just on the.
The contract they want to make sure I understand.
The worrying here you have in the press release, when you say all of the gas has executed a long term commercial agreement with the JV.
As all of the gas can be the customer at the facility or is there a third party.
That's come in and taking the capacity.
Hey, Rob it's Randy Toone, yes.
Just similar to what we've done at Rip It we have all the capacity for the rapid and also for the first phase of reef. However, we have numerous customers that we aggregate.
On rail and numerous off takers, so we might be taking all the capacity for through the joint venture, but we have a number of customers will supply and offtake.
Yeah, that's what I.
And then.
<unk>.
As you look to.
Build out this this project.
<unk>.
Can you just give the update on the contracting of the existing rapid facility.
And.
I guess, what I, what I would.
Want to ultimately know what your vision is for how much.
We have capacity you would have there how much.
Spread exposure you would have in the business pro.
Pro forma.
This new asset coming in into service if it does reach up idea.
This is Randy I think as we look at that project and Randy can give you the specifics and the recent and strengthening fundamentals in prices. We've seen as you mentioned increasing interest in tolling and such and they reached the 40% target as we look forward on the project.
To meet the <unk>, we're going to be focused on getting firm multiyear commitments that will R&R at minimum cost of capital before we go forward and we'll scope out what those are but but this will be a long term.
Construct is to be more of a well there'll be some merchant overall Knight will continue to provide our customers access to the market and I fully expect that youll see a demand pull customers that will in a real long term tolling as well as a producer push so we're quite optimistic but from a risk standpoint will be will be focused on.
Firming up our commitments for multiple years before we go forward.
Okay last question for me on the subject is what are the implications for developing the land near Ferndale and related to that.
The inflation reduction act gets further detailed.
There any positive implications for developing the site near Ferndale.
Thank you.
Hi, Robert It's Randy Toone.
We feel that Ferndale.
You know existing infrastructure on the West Coast is very valuable and we did acquire significant land around the terminal.
And we are you know we are looking at.
<unk>.
Fuels of the future to be utilized around that land on that terminal in and definitely the.
The inflationary reduction act does provide some some benefits, which we are currently exploring.
Thank you.
Your next question comes from the line of Robert Kwan from RBC capital markets. Please.
Please go ahead your line is now live.
Good morning.
If I can just come back to the contracting discussion and if we just think about your existing business and 40% of its told is that where you would want that business to be long term and if not what percentage do you think is optimal and then is it fair to assume when you think about adding reef that you would want.
At least 40% of it told her or frankly, probably whatever does this pro forma number.
Which would be your goal for the existing business.
Yeah, Robert It's James here. Good question I mean, we've obviously talked about the fact that we've been actively trying to derisk, our our export platform over the years and we've seen progress this year relative to last year, obviously being at 40%.
We've always thrown a range out there are 40% to 60% of the volumes coming from those facilities to be to be told on an aggregate basis and that's what we would be targeting as we as we look at reef and an expansion. There. So that's the positive progress and momentum we've made and Randy Crawford touched on the fact that we're starting to see a demand pool.
These type of agreements as well and hope to build on the contract that we announced this quarter.
From Asia.
Got it so just to be clear youre at kind of that minimum level than on the existing facilities. So for this to get a positive.
You would need to find 40% of risk capacity under a long term Tau and.
And develop that or get those signed call. It over the next year or so.
What we would factor that into the <unk> the percentage of off take the we can we can contract would be factored into the <unk> when I threw the 40% to 60% target out there. It is on an aggregate basis. So we would be looking at it through that lens.
And then just coming back to the funding on that.
You've talked about your current plan being self funded.
Got the five times medium term target and you've been talking about leaving leverage kind of progressively lower.
Does all of that holds.
Continue to hold if you go forward with reef or would we see leverage.
Higher.
Sure.
Kind of drain during the construction.
I mean, we've talked about operating a diversified platform that has both utilities and midstream and we've also talked openly in the past about the fact that the capex profile of the utilities tends to be much more linear and we get a little more.
<unk> and the build out of the midstream platform. So we would be looking to.
To wind to ratchet up or down our capital between those two platforms on a risk adjusted basis from a return standpoint, and we would look at leverage through that lens as well. So if we have a big build out on the midstream platform, we can always allocate more capital there.
And be a little more conservative in terms of our utility spend.
And try to manage our our our leverage that way and we've also obviously got the noncore assets that we continue to advance although some of those are in different stages of evaluation as well with with MVP and Blythe in other assets. So we would look at those opportunities from a capital recycling standpoint, as well to manage our leverage ratios.
Got it and I can just finish with that kind of a housekeeping item just to understand some of the onetime items that were included in normalized EBITDA. So.
The <unk> gain has been excluded but the debt defeasance gain.
For <unk> include Ed and then the last is there is a reference to midstream favorable settlement of contingencies and it looks like that has been included and I'm. Just wondering how much that amount was in the quarter. Yes. So let me let me deal with those individually because you touched on three different items you are correct that the letter gain on.
Sale, which was a gain on the sale of an asset we've always normalize those and we normalize it again this quarter. The defeasance was basically us retiring roughly $153 million of debt related to <unk> and we were able to do that through buying treasuries that were.
To satisfy the principle and any remaining interest payments.
Over the remaining term of that debt, we didn't normalize that game, because we basically legally to fees a.
Debt with those cash savings.
We accelerated the recognition of those those cash savings are going to accrue over the remaining term of the debt. So thats why we didnt normalize that amount that's not something that we.
That is in our normalization policy on the commercial disputes that you referenced I mean, this was something that we flagged.
In Q3 of 2022, it was related to the petrol gas transaction. These were.
Contingent liabilities and commercial disputes that we set up in the purchase price allocation and during Q3 of 2022, we flagged.
That could.
Positively contribute to future quarters and Thats, how its played out in Q3, a little bit in Q4, and then obviously into Q1 of 2023, and we don't expect any significant contributions from here on out from these items.
But we don't want to disclose it because there's some commercial sensitivity around these discussions.
Okay understood that's it for me and Randy all the best in retirement.
Thank you so much I appreciate it thank you.
Thank you.
Your next question comes from the line of Darius <unk> from Bank of America. Please go ahead. Your line is now live.
Hi, Good morning, Ed. Thank you for taking my questions.
Just starting out on the latest announcement on adding a third VLCC.
Can you, maybe just kind of help frame.
All three of those vessels are operating how much on a quarterly basis, how much of your actual volumes do you think those would be.
Be able to absorb and correspondingly what is the additional opportunity to add more vessels and reduce shipping costs and it related to that obviously the VLCC effort is a very tangible way that you guys have demonstrated that part of the business more efficient. So I was wondering if you could comment than at any other opportunities.
To further vertically integrate and building efficiencies into that export business.
Hello, It's Randy Toone.
So those time charters you could.
In constant.
Our operation is in their servicing book Ferndale and Rip it in and you can use a roughly like a 20000 barrel a day is what they are.
Capacity is and so with three of them that would be roughly 60000 barrels a day.
Of our of our total portfolio.
And so those are definitely locking in freight and as you saw through 'twenty. Two freight can can be very expensive and we see that as a benefit and taken some volatility out of our out of.
The export business.
Okay, Great appreciate that color and sorry, if you could just touch on the other part of my question.
Or maybe anybody <unk> on other opportunities to either vertically further vertically integrate or otherwise add efficiencies into the export business.
So Randy can come on this Randy Crawford, but clearly the team's done a.
Multiple job about building scale overall.
And in terms of all of the integrated activities, mainly and the team are focused on unit trains right to continue to improve our logistics, which also increases capacity and our cost and so there's a lot of effort there and that and certainly looking at any other opportunities to be able to control additional shipping or vlccs.
As a possibility, but I did want to remark that one of the other aspects of the Vlccs is our ability to reach into the market.
And owning that control be able to reach back with a solid logistics strategy and operation to reach these valuable markets.
I think it is really in the long run is going to increase our not only our efficiency in cost, but extend our reach into the growing market stuff.
And I can also add that the other things that we're looking at is technology and so investing in.
Oh T or operational technology to have real time data from both our export facilities rail for our supply sources and even from the Vlccs just keeps us on top of our business better. So we have less to merge cost storage costs and those types of things and so that's another way, we're trying to to reduce costs.
And Brady team, great job best and most valued market for the product and the opportunity to continue to drive efficiencies and cost and to bring those benefits to our customers. I think is something I'm really looking forward to as we continue that progress.
Okay, great. Thank you I appreciate that color.
I could.
Move over to the utility side of the business now just wanted to ask about the specifically WGS.
Washington, DC can you comment on what the earned ROE has been or at least ballpark. What the earned ROE has been at that business, maybe on just in Q1 or on a trailing 12 month basis, and then obviously, there's the rate case and the AARP application that are both in process right.
Now.
Specific to the AARP application I think last time around you guys asked for five years, you've got three years maybe.
Maybe any comments on how how if at all you're approaching this application differently and if you were to get three years as opposed to five how that might affect the.
The.
Medium term capital plan at that utility specifically.
<unk>.
It's James have rose here ill tackle part of your question here with respect to ROE.
<unk>.
I'll kick it over to Blue to talk about ERP five of the pipes III filing in.
At that part of your question so in terms of ROE.
Never broken it down by jurisdiction within WG L. We've obviously said that we continue to make strides in terms of closing that ROE gap and right now we've.
And we've also said that DC is the jurisdiction where that gap is probably the biggest that's why we've been active in the rate hearing room trying to have our current rates reflects the sizable capital investments that we've made in that jurisdiction to improve safety and reliability on the system. So that's the rate case that we're working through right now.
Upon resolution of that rate case, we hope to get to close that gap within DC, which is the one jurisdiction, where we said we've got a lot of wood to chop. So once we once we get resolution of that rate case will take a step back and see if theres additional rate cases that are required to be able to continue the journey to close that gap and have our rates to reflect the considerable capital investment.
We've made within DC to service, our customers and provide safe and reliable service so with that I'll turn it over to blue to comment on the ERP.
Yes, Thanks James.
And in.
In reference to your AARP question, Yes, we did file our request late last year you can see those details it's a public document.
As you pointed out correctly, we filed five years last time and got three each one of these cases are unique right Theres a conversation you know what.
What's occurring in the market and balance of what we're trying to achieve on modernizing the system for the future as well as accelerating the safety component and modernizing that system at the same time. So we still got several months in that particular case. So I think I think we're too far out to to give an educated guess on how many years.
And what the dollars might be but you can see the range of the ask and when you you know if you kind of straight line that out against last time, you, perhaps up puts a reasonable expectation in there yes.
And the only thing I'll add to <unk> question is if you look at these programs and what they are directed towards cast iron and bare steel pipe Theres still a lot of that.
Pipe within our jurisdiction, especially within within DC, So theres obviously.
Need for these capital programs, but obviously once we get clarity around term in dollars will will update the markets at that time.
Okay, great. Thank you very much I'll leave it there.
Thank you.
Our next question comes from the line of Ben Chan from BMO. Please go ahead. Your line is now live.
Okay. Thanks, Good morning, maybe just start off on <unk>.
As you think about <unk>.
<unk> capital through.
Aerospace is phase, one and two and maybe beyond.
Beyond is it going to be more of a piecemeal.
Or is it going to be like Rip it and what you your size it up and coming from phase one and two there wasn't much capex.
On top of it.
Hi, Ben it's Randy Toone.
Just given that the first phase is LPG.
And we think the future phases or potentially other bulk liquids, we'd have to build additional tankage and so we do see the future expansions or future phases being more costly state and then what happened at <unk>.
Because we did prebuilt.
More around extra compression and pumping capacity.
So yes, these future phases will have more capital.
Okay got it and just kind of at the beach each one sorry, Ben It's James here I was just gonna add that each one of those phases was obviously is obviously going to be evaluated on a standalone basis and will be subject to individual.
So we will have to get comfortable on construction costs of those additional phases for those additional products and obviously commercial terms before we move forward with any any additional capex.
Okay.
And I know there's questions around Capex, and we'll refine that as you get through feed.
Hum.
You look at some of the.
Public filings on on a project to revolve pack we can.
Get a sense of what the Capex is.
And so my question is that Capex number.
David is that Capex number and then.
Is that just for the LPG phase one portion or is that envision the entire project.
Hey, Ben it's Randy.
The numbers, you've probably seen in our public filings, where it is for the full build out with LPG and future bulk liquids, but.
And so we're building this in phases, but that number is also before any kind of inflationary.
Pressures of comp came into so that's why.
The gas has taken over the project from volt pack, we are looking at design and when we're looking at at what those capital costs are in today's dollars and so that's why.
We're not prepared to give you a number yet but by.
Over the next say six.
Six to nine months, we were hoping to.
Fine tune that number.
Okay.
They're actually about that but we got to also break up the basis from that.
Hey.
And maybe last one on interest expense when you look at that year over year, yet the hybrid impact in there.
On the remaining increase.
Is there a good rule of thumb of how much of that is passed through to the regulatory side.
Well I.
I mean, we can get back to you with that with that split I don't have that at my fingertips, but I want what I want to caution.
People about is that the interest rate for Q1, and the year over year increase shouldnt be seen as a run rate interest expense you already touched on one of the components of the fact that we've got.
Hybrid interest in that number.
Which the offset is sitting below the line impressed dividends because we use those hybrid notes.
Basically refinance perhaps that we didn't want to reset and they continue to be EPS accretive, but if you look at the other factors that led to the higher year over year interest rate, we were carrying roughly we've got $1 $5 billion of debt Thats come down from year end to the end of Q1 with the the repayment.
That debt with the <unk> proceeds and the unwinding of working capital. So there is about on a quarterly basis that probably accounts for a 20 million to $22 million lower interest rate number as you look out towards the remaining quarters of this year, just given the lower debt balance up recovering carrying and we don't expect working capital to build his drove.
<unk> is it did into the back half of 2022, because we've seen gas prices come down so as we get into re injection season with respect to our utilities and the gas. So we've got to put back into storage. We're doing it at prices that are probably 50% below where they were last year.
Okay got it.
And Ronny see Autodesk as well.
Thank you I appreciate it.
Thank you.
Your next question comes from the line of Matthew.
I L capital Michael. Please go ahead. Your line is now live.
Hi, Good morning, Thanks for taking my questions. The first one for me just on 2023 and looking at the guidance.
Do you see.
Q1 was quite a strong quarter kind of multiple tailwind some of them a little bit kind of one time, but but maintained the guidance for the full year I'm. Just wondering what if you can comment on the kind of puts and takes you're seeing for the <unk>.
Remainder of the year going forward.
Directionally is the guidance kind of more on track to be towards the higher end at this point would be your expectation or just any comments around that.
Yeah, Matthew it's James Herbert was here. So obviously youre right. We have had a pretty strong start to the year with Q1 results, but it is Q1 theres still three quarters to go but when we look at some of the headwinds that we've obviously been experiencing warmer.
Weather than anticipated in both DC and Michigan had a had an impact to the quarter. We also believe that.
New rates that we were looking to be in effect a little earlier in DC are now being pushed into late 2023, maybe early 2024, so we consider that a headwind.
And then asset optimization revenue because of the milder weather and lower gas prices is tracking.
Over than where our expectations were and obviously lower than where last year was just given some of the volatility that was experienced in terms of tailwind though.
We do see obviously stronger FX relative to what we had embedded in our guidance and we are seeing some strengths to butane spreads and we expect that to continue out into the balance of the year that we feel is tracking a little bit above where we were from a from a guidance standpoint. So that's why we feel comfortable reiterating.
105 to one six.
But we don't want to we don't want to guide to where we're going to end up in that range. Just given the fact that we still have a lot of the year to go here with three quarters in front of us.
Okay. Thank you I appreciate it and just thought.
The reef accessories expansion you mentioned that.
That's sort of.
Not just increase your scale, but also some sort of potential synergies exporting LPG off the island I'm wondering if you could just sort of talk about some of those synergies and what you might be able to kind of extract as you.
Look at that project.
Hi, it's Randy Toone, most of the synergies are going to be around rail.
There is with the new.
Project, we do have access to.
A bigger rail terminal and so we see more synergies with repeat on the on the rail side.
Okay. Thanks, I appreciate it and just one more for me sort of beyond.
Expansion, you look about through efficiencies and capacity with the existing ripping and Ferndale facilities.
Would you say you still see similar kind of potential to optimize those volumes that you've kind of highlighted back a couple of years ago at the 2021 Investor day, there were some growth targets involved in the existing export capacity.
Yes, Hello, it's Randy again.
So you don't Rip it was built to do.
80000 barrels a day and it all comes down to logistics efficiency and so with the with the synergy with sea reef with that extra rail efficiency. We do think we can potentially get closer to.
<unk> targeted that.
Design capacity.
Currently the most we've really got notice rip it is the highest <unk> between 65 and 70000 barrels a day. So we do think we can get up to closer to 75000 barrels a day.
And in Ferndale.
We do feel that again, its all logistics efficiencies. So we have a number of projects that we're trying to do there that will that will help on the efficiency of the.
The facility, which will increase capacity so.
Closer to that number that we talked about at Investor day.
Okay. Thanks, I appreciate the commentary and Randy all the best in retirement.
Ill leave it there thanks.
Thank you Matthew.
Thank you and your last question comes from the line of Patrick Kenny from National Bank Financial. Please go ahead, Sir Your line is now live.
Thank you good morning.
Just back to the El synergies just wanted to clarify.
As you've locked down rail and other logistic agreements for reef.
Are you looking to dovetail longer term more favorable contracts for rip it as well or is that a completely separate negotiation process with the rail and other shipping providers.
I guess, just a general update on how those negotiations are progressing would be great.
Hi, Patrick Yeah, it will be the same for <unk>.
Our rail service providers.
Well there is a synergy to have them serviced both repeat and recent so we are working with them to come up with the long term.
Agreement that both lowest.
Lowest cost for the service levels that we require and so yes.
There'll be a connected.
Perfect, Okay, Great and then.
Just on the LPG.
<unk> contracting process here in April it sounds like.
That puts you on track to meet your 10% growth target.
In volumes through 'twenty, three but I guess just from a longer term supply perspective, now that you are seeing the uptick in the number of well licenses.
Curious, how youre thinking about your strategy to secure future barrels.
They're beefing up your listing.
Hosting capacity in the field.
Either organically or through acquisition.
Say.
Sticking with the strategy to la.
<unk> commercial supply agreements with the other NGL gatekeepers in Western Canada.
I think it's going to be a combination of both.
We had a lot of supply coming out of our northeast DC asset and we see.
Expansion.
Of that facility, because our north pine Frac is full and so we see additional.
LPG supply from there and that's that.
That's considered long term LPG supply and we are working with a number of customers.
In Fort Saskatchewan for long term tolling arrangements and we do think the fundamentals work LPG is going to grow in Western Canada, and there is no market and so we we feel that the Asian market is the best market for for those LPG and also as we've talked we have just because <unk> has been such a.
A reliable secure source of LPG, we are seeing our Asian customers wanting to do tolling deals as well so we've got.
We have one in place for this this year and we're looking at future.
A number of different.
Longer term deals for the future.
Okay.
Okay, Great and maybe last housekeeping question here for James.
So now that you are.
<unk>, 5% to 90% hedged through the summer just curious when we might expect to see your Q.
Q4, Q1 say your winter hedge program framed up as well.
Hey, Patrick Yeah. So I mean, if you look at our our hedging program right now we do have some some hedges layered into Q4, we that has started to ramp up here as a subsequent to the quarter.
And we are moving we are moving higher so we do like where the curve is with respect to some of the propane and butane pricing, we're seeing and you can expect to see that creep up as we as we work our way through Q2 and it'll be at a much higher rate. When we report Q2 in July .
Okay, Great I'll leave it there thanks guys.
Thank you.
Thank you. This concludes the Q&A portion for today's call I will now turn the call back to Mr. Mcknight.
Thanks, Laura and thank you once again, everyone for joining our call today and for your interest in Ulta gas that concludes our call. This morning, and I Hope you all enjoy the rest of your day.
You may now disconnect your phone lines.
Okay.
Okay.