Q3 2023 Keyera Corp Earnings Call
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Storage assets.
Today, we announced that our pipestone expansion project is.
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<unk> is now expected to be completed ahead of schedule and at the low end of our budgeted capex range of $60 million to $70 million.
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This project adds 40 million per day of processing capacity driving further fee for service growth starting in the fourth quarter of this year.
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Our customers are in a strong financial position and have multiyear growth plans that rely on our integrated service offering.
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This further reinforces the strong outlook for growth.
Our marketing segment continues to outperform.
We now expect marketing to deliver between 420 and $450 million of realized margin this year, putting us on track for a record marketing year.
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This strong result comes from our ability to leverage our physical assets and logistics expertise.
To deliver products throughout North America.
Our marketing segment provides <unk> with a distinct competitive advantage.
As it continues to produce strong cash flows that have enabled us to consistently deliver above average corporate returns.
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Marketing cash flows are then reinvested into long life infrastructure projects, such as cats, and the pipestone expansion.
In turn driving growth in high quality fee for service cash flows.
With a number of successful strategic investments made over the past few years.
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<unk> is now delivering sustainably higher levels of discretionary cash flow.
Last quarter, we took an important step returning to our long history of sustainable dividend growth.
Supported by the strength of our fee for service business.
Our capital allocation priorities remain the same.
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True to <unk> DNA.
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Our first priority is to maintain a strong balance sheet.
From there it will be a balance between disciplined growth capital investments and increasing returns to shareholders.
In terms of future growth investments will be primarily focused on projects that leverage and enhance our existing core asset position in western Canada.
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These could include a debottleneck of existing Frac, a new frac expansion and a potential caps zoned for extension.
Any incremental investments need to generate a strong return underpinned by long term contracts.
I'll now turn it over to Aleem to provide an update on <unk> financial performance for the quarter.
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Thank you Dean.
Okay.
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Adjusted EBITDA for the quarter with $288 million compared to $247 million for the same period last year.
Distributable cash flow was $186 million or <unk> 81 per share compared to 162 million or <unk> 73 per share for the same period in 2022.
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These results were driven by record performance from our liquids infrastructure segment and continued strong performance from our gathering and processing and marketing segment.
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Net earnings were $78 million compared to $123 million for the same period last year.
Net earnings were impacted by higher finance costs and lower operating margin from the marketing segment, which includes the effect of unrealized gains and losses from risk management contracts.
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<unk> continues to maintain a strong financial position ending the quarter with net debt to adjusted EBITDA at two five times.
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At the low end of our targeted range of two and a half to three times.
This allows us to retain maximum optionality to advance organic growth projects when they are ready.
Moving to our guidance for 2023.
As Dean mentioned, we now expect our marketing segment to contribute between $420 million and $450 million of realized margin in 2023.
I cannot hear you could you on mute your line.
Hello, I'm, sorry, I cannot hear you.
This is up from our previous guidance of $380 million to $410 million.
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These results are largely due to the continued strength of ISO octane premiums and <unk> ability to access advantaged markets.
For a full list of guidance assumptions. Please refer to care third quarter MD&A released this morning.
Growth capital for 2023 is now expected to range between 200 to 220 million previously $200 million to $240 million. The decrease is due to factors, including the pipestone expansion project coming in at the low end of its budgeted cost estimate.
Maintenance capital remains unchanged at $95 million to $105 million.
<unk> continues to expect cash tax expense to be nil for 2023.
I'll now turn it back to Dean.
Thanks Ali.
<unk> remains well positioned for the long term with strategically integrated assets that stand to benefit from decades of expected volume growth in Western Canada.
Our basin continues to set new production records in Canada remains a preferred supplier of energy to the world.
With LNG, Canada on the Trans Mountain pipeline expansion projects on the horizon here.
We will continue to play an integral role enabling this growth.
On behalf of <unk> Board of directors and management team I want to thank our employees contractors customers shareholders indigenous rights holders and other stakeholders for their continued support.
Ill now turn it back to the operator for Q&A.
Thank you if you wish to ask a question please dial a stall.
<unk> on your telephone keypad now to enter the queue. Once you're names announced you can ask your question.
Your final question is answered before Showtime to speak you can start soon to cancel.
Our first question comes from the line of Robert <unk>.
<unk> Bank. Please go ahead your line is open.
Hi, Good morning, everyone. I was hoping you could give a bit more of a fulsome update on the zone four project given what appears to be strengthening your volume outlook in the basin as well as group CEO. Please proceed sir.
North River Northeast B C connector project gain regulatory approval.
Hey, good morning, Rob, It's Dean and thanks for joining our call.
Listen I think that first of all the.
The announcements with the.
The recommendation for approval of the northeast connector is very very exciting for our basin and as you mentioned, we certainly agree with the view that our basin is going to continue to grow in terms of its natural gas volumes and natural gas liquids. So when we look out to 2027 2028, we think that there is.
Three to four Bcf of growth, which will drive also a lot of liquids production.
First of all I want to say that we're very happy that zones, one to three extend through the.
Richest liquids rich part of the.
The Montney fairway, so we're going to capture a lot of that growth there, but we also fully understand that there will also be more growth in zone four and also into BC. So we'd love to have the opportunity to connect our pipeline to the BC border to capture some of that growth as well.
Just like we see a lot of interest in caps <unk>.
Producers, one optionality and they want to make sure that there's competition for the long term. They also want to have operational reliability, so that when they make billions of dollars of investments.
Know that they have.
<unk> means of transportation. So that's that's the opportunity that we provide for industry and for our producers.
So so anyway, we're very excited about the interest that we're seeing in zone four.
I do want to emphasize that we will not continue to proceed ahead of this project unless we have the commercial support from our producers.
But again I do want to reemphasize that this is a really exciting opportunity.
And we do have a lot of interest in it.
Thank you.
And then maybe just going back to the guidance that was announced at the 2022 IR day of six months to 7% fee based.
How are you tracking on that and kind of how are we view has changed on that through the year, just given what appears to be a stronger production outlook and could this be kind of revisited with the December update.
The December update.
Yes, well first of all maybe just speak a few comments thanks for the question.
We are tracking very well against the 6% to 7%.
For service EBITDA growth, but I do want to emphasize that <unk> out to the end of 2025 is based on the investments that we've largely made already so.
The thing that we do from here forward is going to be incremental to that so.
We're very excited about how our business is performing across all three business segments.
We had some some maintenance scheduled maintenance in this quarter, so that created a little bit of noise with our G&P segment, but we're very excited about the volume growth and cash flow growth that we see there liquids infrastructure. As you saw was was a record this quarter and as you saw we just increased our.
Our marketing guidance for the year, So we're very well positioned to deliver on the 6% to 7% EBITDA growth.
Applying.
Authority to approve or not approve which took years.
To come to that decision.
That that might help resolve situations like that where you have more regulatory certainty because theres going to be more within the province, if this works out the way.
Understand it and that.
That should be more positive for investment in Alberta, overall, which if that occurs it's positive for our industry and for our business directly.
Great.
I could.
Okay.
Great.
The consolidation means for that development outlook for some of your other facilities, specifically I know you mentioned previously.
Al.
The consolidation has impacted caps volumes, but just wondering on the other facilities as well.
Consolidation of like within the producers you mean.
Yes.
Okay, Yeah, no I mean, that's a good question.
It's a theme that we're seeing in both sides of the border obviously with some mega transactions with with Exxonmobil and also chevron's announcement.
We're seeing that as well in our basin.
I think overall it's positive.
It usually means that.
More well healed.
The company is.
Acquiring production to create greater efficiencies and.
And a lot of times that can then translate to more activity.
One of the examples could be bonded Vista and our sales portfolio.
I think people would understand their history and how they were taken private and.
<unk> had a lot of that well.
That business as I understand is looking a lot better now in terms of where they are they're able to pay off debt and getting a good position and sell so.
But over the last several years, whether paying down their depth where activity was relatively low I would just say in the last year, we started to see them become more active and.
I think those activity levels will likely be.
More consistent with with a player like Terminalling behind there. So we think overall consolidation is good.
It makes a base of more more efficient overall.
Great. Thanks, that's it for me.
Thank you. Our next question comes from the line of Linda <unk> of TD Cowen. Please go ahead. Your line is open.
Alright, thank you.
Maybe you can just give us an update on how we might think of the net effect.
Some tailwind and headwind.
Associated with your marketing business specifically.
Isooctane margins.
Obviously, some of the structural changes and positive fundamentals.
In the basin.
Our tailwind but.
There's a lot of moving parts and maybe you can give us a sense of how some of the global dynamics are.
We are looking and how we might think of.
Maybe a discrete shift shift upwards in the earnings power of your marketing business now that your fundamental physical business has grown as well.
Yes.
But I think it's a great question.
I want to emphasize I mean I know.
Sometimes the market.
It doesn't like or our marketing business, but I can tell you that it's what helps us generate.
Superior returns at a corporate level.
As we discussed earlier.
From an infrastructure level, we're aiming to achieve very strong returns on any infrastructure asset that we make an investment in.
When we flow that through our integrated system, including through our marketing business. That's what helps us generate those superior returns at the corporate level.
<unk>.
Really I do want to emphasize as well that is a physical business, we're leveraging our assets and our logistics and marketing expertise to generate a margin at the end so we're not making speculative.
Financial trades on screens to generate our our margins from that part of our business, but with that maybe I'll just turn it over to Jamie to provide more color. Yes. So thanks for that backdrop, Dean I think that was excellent and thanks for the question Linda Yes, 23 has been an exceptionally strong year.
We've revised our guidance and now expecting to deliver between four <unk> to $4 50 for the year and that would be a record.
Year for marketing really the factors, that's driving that performance in 2023 would be lower.
<unk> supply costs than we've seen over the last couple of years.
Strong run time at <unk>, and our ability to get a little bit more output out of out of AE up over the last couple of years. So always as Dean says I was thinking about the importance of those physical assets that drive the contributions from marketing.
Continued strength in ISO octane premiums and also our ability to deliver to the highest value markets and Eileen touched on that earlier in her comments.
We've actually gained some some new isooctane customers in advantaged markets in 'twenty, three and expect that momentum to continue into 'twenty four and beyond.
So regarding 24, we will wait until after our NGL contracting season to probably well to provide our guidance as we traditionally do so expect that we'll provide that guidance in Q1 24. So overall on track for a record 23.
And we continue to see continued strong performance in 'twenty four and beyond.
That's helpful. Thank you and just as a follow up if we are getting.
Marketing guidance in Q1 as per.
You have in recent years can you give us a sense of first of all what day Youre looking at for disclosing the December guidance and is there anything in the outlook beyond your capital budget for 2024.
Hi, Linda.
We do plan to do that the guidance update in the second week of December and we will provide an update on that the base marketing guidance kind of that longer term view and has been Jamie said, we will then update again.
Q1 with the once the supply season is known at that point.
Okay and anything.
Beyond marketing in terms of the guidance in December just trying to.
Understand kind of if your guidance philosophies are shifting.
Yes, largely again.
Capex and I think we'll provide a little more color and context around that 6% to 7% EBITDA growth.
How the quality of our cash flow has changed.
I think overall it will just be a more fulsome.
Update that we've done in the past.
Great. Thank you.
Thank you. Our next question comes from the line of Ben from of BMO. Please go ahead. Your line is open.
Alright, Thanks, Amit.
On that last question around the business update.
Do you expect that to be more for regular.
Annual process on on timing or is it.
To somewhat of a quietly investor day.
When you look at every three years.
Thanks Ben.
This is our plan that we will go forward it would be providing an update in December.
Sure.
Okay got it got it.
Okay.
Next question.
Maybe.
High level thoughts on Apple.
Appetite for acquisitions, whether it's opportunistic to Omar maybe.
Maybe strategic in the.
For example.
In that context.
You're blessed with a strong balance sheet relative to peers.
Rising cash flows.
Ample powder to deploy.
Thanks for the question.
And it is a good question just given what youre seeing in the industry today.
You are very right that we have a very strong balance sheet and that that provides us optionality.
And for US as a company we're trying to provide the most efficient midstream infrastructure services for our customers and for our basin as a whole.
And trying to make it more efficient.
So.
To the extent that there is opportunities too.
Acquire assets that.
That exists already.
And where we when combined with our assets. We can we can make our system more efficient.
We'll certainly look at those opportunities, but I do want to stress those employees.
With anything that we pursue.
And.
Great example would be the acquisition of <unk>.
So we did earlier this year.
No.
I see.
Yes.
I'm not sure where we're going to hear that static but.
Yes.
<unk>.
Frankly with that.
We have to make sure that we stay within our financial frame that parameters and if we go beyond it we have to have a plan to bring ourselves back into the two five to three times debt to EBITDA range. The second one is is that it needs to be on strategy. So that you know.
We won't do anything that.
It'd be a surprise to the market and really it's about strengthening and extending our existing integrated value chain in Western Canada, and lastly, it's got to be value accretive for our for our shareholders.
Hi, Mark are you there.
Hello, gentlemen.
It looks like we lost a couple online there for the questions. So we'll regroup will call. The two that we saw didn't get a chance to act ask a question after the call today and with that we'll we'll just wrap it up.
Thank you all once again for joining US today, please feel free to reach out to our Investor relations team with any additional questions you may have.
Thank you.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
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