Q2 2024 AltaGas Ltd Earnings Call
Speaker Change: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the AltaGas second quarter 2024 financial results conference call.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the AltaGas second quarter 2024 financial results conference call.
Operator: My name is Chris, and I'll 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 then zero for operator assistance at any time. After the speaker's remarks, there will be a question and answer session. As a reminder, this conference call is being broadcast live on the internet and recorded. I'd now like to turn the call over to Aaron Swanson, Vice President of Investor Relations. Please go ahead, Mr. Swanson.
Chris: My name is Chris 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, then zero for operator assistance at any time.
After the speaker's remarks, there will be a question and answer session. As a reminder, this conference call is being broadcast live on the Internet and recorded. I would now like to turn the conference over to Aaron Swanson, Vice President, Investor Relations. Please go ahead, Mr. Swanson.
Aaron Swanson: Good morning, everyone. Thank you for joining AltaGas's second quarter 2024 results conference call. Speaking this morning will be Vern Yu, President and Chief Executive Officer, and James Harbillis, Executive Vice President and Chief Financial Officer. We're also joined here this morning by Randy Toone, President of our Midstream Business, Blue Jenkins, President of our Utilities Business, and Jon Morrison, Senior Vice President of Corporate Development and Investor Relations
Aaron Swanson: Good morning, everyone. Thank you for joining AltaGas's second quarter 2024 results conference call.
Speaker Change: Speaking this morning will be Vern Yu, President and Chief Executive Officer, and James Harbillis, Executive Vice President and Chief Financial Officer.
Speaker Change: We're also joined here this morning by Randy Toone, President of our Midstream Business, Blu Jenkins, President of our Utilities Business, and Jon Morrison, Senior Vice President of Corporate Development and Investor Relations.
Aaron Swanson: This call is being webcast, and we encourage those listening to follow along with the supporting slides that can be found on our website. I'll remind everyone that we will refer to forward-looking information on today's call. This information is subject to certain risks and uncertainties as outlined in the forward-looking information disclosure on slide two of the presentation. As always, prepared remarks will be followed by an analyst question and answer period. With that, I'll turn the call over to Vern.
Speaker Change: This call is being webcast and we encourage those listening to follow along with the supporting slides that can be found on our website.
Speaker Change: I'll remind everyone that we will refer to forward-looking information on today's call. This information is subject to certain risks and uncertainties as outlined in the forward-looking information disclosure on slide 2 in the presentation.
Speaker Change: As always, prepared remarks will be followed by an analyst question and answer period. With that, I'll turn the call over to Vern.
Vern Yu: Thanks, Aaron. Good morning, and thanks, everyone, for joining us today.
Vern Yu: Thanks, Aaron. Good morning, and thanks, everyone, for joining us today.
Vern Yu: It's great to be here today to share our strong Q2 results. I'll start with some highlights from the quarter, provide an update on our major projects, then I'll turn it over to James. Now, let's move to slide four.
Vern Yu: It's great to be here today to share our strong Q2 results. I'll start with some highlights from the quarter, provide an update on our major projects, then I'll turn it over to James. Let's move to slide four.
Vern Yu: We delivered normalized EBITDA of $295 million in Q2, which was up 23% year over year. Normalized EPS was $0.14 per share, doubling what we achieved in Q2 2023. These results were modestly ahead of our internal expectations but position us well to deliver on our 2024 guidance. Our midstream segment had record export volumes of more than 123,000 barrels a day. Performance across the balance of midstream was also very strong, with positive year-over-year growth and volumes across the business. Utilities were in line with our expectations and continued to deliver stable earnings growth despite warmer than normal weather in D.C. and Michigan.
Speaker Change: We delivered normalized EBITDA of $295 million in Q2, which was up 23% year-over-year.
James Harbillis: Normalized EPS was $0.14 per share, doubling what we achieved in Q2 2023.
James Harbillis: These results were modestly ahead of our internal expectations, but position us well to deliver on our 2024 guidance.
Speaker Change: Our midstream segment had record export volumes, more than 123,000 barrels a day.
Speaker Change: Performance across the balance of midstream was also very strong, with positive year-over-year growth and volumes across the business.
Speaker Change: Utilities were in line with our expectations and continue to deliver stable earnings growth despite warmer than normal weather in DC and Michigan.
Vern Yu: We were able to offset this warm weather with enhanced cost management, strong retail performance, and continued rate-based investment. Diving deeper into our midstream segment, we continue to focus on de-risking our operations to generate stable and predictable results. We recently finalized long-term agreements for an additional 18% of REEF's phase one export capacity, which is inclusive of our recent Birchcliffe analysis. And we're in the late stages of finalizing more tolling agreements with multiple counterparts for more than 100% of REEF's initial capacity. In Q2, we executed an agreement to construct a fifth VLGC time charter, which locks in marine shipping costs and further de-risks our operations. We expect this VLGC to arrive in late 2020.
Speaker Change: We were able to offset this warm weather with enhanced cost management, strong retail performance, and continued rate-based investments.
Speaker Change: Diving deeper into our midstream segment, we continue to focus on de-risking our operations to generate stable and predictable results.
Speaker Change: This is inclusive of our recent Birchcliffe announcement.
Speaker Change: And we're in the late stages of finalizing more tolling agreements with multiple counterparties.
Speaker Change: In Q2, we executed an agreement to construct a fifth VLGC time charter, which locks in marine shipping costs and further de-risks our operations. We expect this VLGC to arrive in late 2026.
Vern Yu: We're about 87% hedged for global exports, 86% hedged on frack exposed barrels, and 100% hedged on Baltic freight for the balance of 2024. We're also now starting to hedge for the 2025-2026 NGL calendar year as part of our systematic hedging program. Turning to our midstream growth projects on slide 5, we're making steady progress on the execution of our two major projects, Reef and Pipestone 2. On Reef, we reached a positive FID earlier in this quarter, and site clearing and geotechnical work have now been completed.
Speaker Change: We're about 87% hedged for global exports, 86% hedged on frack-exposed barrels, and 100% hedged on Baltic freight for the balance of 2024.
Speaker Change: We're also now starting to hedge for the 2025-2026 NGL calendar year as part of our systematic hedging program.
Speaker Change: Turning to our midstream growth projects on slide 5, we're making steady progress on the execution of our two major projects, Reef and Pipestone 2.
Speaker Change: On reef, we reached a positive FID earlier in this quarter. Site clearing and geotechnical work have now been completed. We just started work on the jetty, as well as additional on-site earthworks.
Vern Yu: We've just started work on the jetty, as well as additional on-site earth. We've executed fixed price EPC contracts for roughly 40% of the project, with plans to award another 10% under fixed price contracts in the coming week. Additional fixed price DPC contracts will be awarded as we move through the construction cycle. Pipestone 2 construction is also on schedule and on budget. The two acid gas injection wells at the plant have now been drilled and completed.
Speaker Change: We have executed fixed price EPC contracts for roughly 40% of the project, with plans to award another 10% under fixed price contracts in the coming weeks.
Speaker Change: Additional fixed price DPC contracts will be awarded as we move through the construction cycle.
Speaker Change: Pipestone 2 construction is also on schedule and on budget.
Vern Yu: Construction on the gas gathering system has begun and is expected to be completed this fall. The project is on track for its end of 2025 entry into service. It's exciting to be in a period of strong midstream growth. We've been here before, and slide six illustrates our track record of successful project execution. We have a strong history of delivering large midstream projects, both on time and on budget. In fact, our last series of major midstream growth projects totaled a billion and a half dollars. These projects were all delivered on time and 8% below budget.
Speaker Change: We've been here before and slide 6 illustrates our track record of successful project execution.
Speaker Change: We have a strong history of delivering large midstream projects both on time and on budget. In fact, our last series of major midstream growth projects totaled to $1.5 billion.
Speaker Change: These projects were all delivered on time and 8% below budget.
Vern Yu: Turning to slide seven, we're also excited about the growth opportunities in our utility, which represents around 55% of our 2024 CapEx program. Their macroeconomic fundamentals for natural gas and gas utilities are very strong. Demand has been rising steadily in the U.S. for the past decade because natural gas is the most affordable and efficient form of space heating. In fact, the deliberate cost of electricity is more than three times greater than that of natural gas.
Vern Yu: Gas demand is expected to accelerate through 2030 due to increased energy demand coming from AI and data centers. This will compound the demand associated with coal power plant retirement. Demand for energy in our franchise area is driving growth across our utilities. The first growth levers are asset modernization programs. This totals to be more than $1.5 billion of approved pipe replacement capital over the next couple of years. We recently filed for updated APR programs in Michigan and D.C., which will add to our ability to modernize more of our network. These modernization programs are critical to enhancing our overall safety and reliability while growing our rate. The second is new customer growth. We've been averaging approximately 1% growth per year across the DMV.
Speaker Change: Gas demand is expected to accelerate through 2030 due to increased energy demand coming from AI and data centers. This will compound the demand associated with coal power plant retirements.
Vern Yu: Demand for natural gas by our residential customers remains extremely strong, as homeowners desire natural gas for heating and cooking. We continue to add around 10,000-12,000 meters per year in the DMV, mostly for newly built homes in the suburban areas surrounding DMV.
Speaker Change: We continue to add around 10,000 to 12,000 metres per year in the DMV, mostly for newly built homes in the suburban areas surrounding DC.
James Harbillis: We are expected to have one or two smaller data centers connected to WGL's network before the end of the year. And we continue to have other conversations on gas supply, where we can cost-effectively provide energy to more data sets. The third is system expansion, where we see strong growth opportunities at Samco and WGL. An example is the Keweenaw Pipeline in Michigan. Which is a proposed new pipeline we're actively progressing through the regulatory process.
James Harbillis: This pipeline would improve system reliability and add gas supply for new customers in the Upper Peninsula of Michigan. Finally, we're also investing in assets that lower the emissions of our customers. We have recently completed two RNG connections in Michigan, with one more in construction, and we have one large RNG project underway in Virginia. Overall, we're very excited about our growth prospects, both in midstream and in utility. With that, I'm going to turn the call over to James, who's going to provide more detail on our second quarter performance, provide an update on the status of MVP, and our path forward.
Speaker Change: We have recently completed two RNG connections in Michigan with one more in construction. And we have one large RNG project underway in Virginia.
James Harbillis: Thank you, Vern, and good morning, everyone. The second quarter was another period of focusing on operational excellence, advancing our strategic priorities, and progressing key growth projects, all of which will position AltaGas for continued value creation in the years ahead. In terms of the financial and operating results for the second quarter, we'll start with the midstream segment on slide 8. Normalized EBITDA came in at $175 million, representing a 31% increase year-over-year. The segment benefited from record volumes and a 7% year-over-year increase within our global export business.
Speaker Change: The segment benefited from record volumes and a 7% year-over-year increase within our global export business.
James Harbillis: We exported 123,285 barrels of propane and butane per day across 20 VLGCs in the quarter. This included more than 76,000 barrels per day across 12 ships at Rippit and nearly 47,000 barrels per day across eight ships and one partially loaded ship at Ferndale. This was modestly ahead of our expectations coming out of the first quarter.
James Harbillis: You'll likely recall that in our first quarter results, we had some favorable ship timing as one ship that was originally scheduled for April was loaded earlier than expected in March. However, we were able to make up the volume in the second quarter through strong logistical execution at the terminals and across the value chain. This strong second quarter will partially offset some of the rail disruptions we have seen in July with the forest fires impacting rail service through Jasper for several days.
Speaker Change: However, we were able to make up the volume in the second quarter through strong logistical execution at the terminals and across the value chain.
Speaker Change: This strong second quarter will partially offset some of the rail disruptions we have seen in July with the forest fires impacting rail service through Jasper for several days.
James Harbillis: Performance across the balance of the midstream platform was also very strong, benefiting from fundamentals and volume growth across our facilities. Fractionation, extraction, and liquids handling volumes were up 22% year-over-year, supported by strong volume growth at North Pine and Hermatina. Total gathering and processing volumes were up 6% year over year, underpinned by volume growth at our Hermattin facility. The quarter also benefited from the addition of the Pipestone assets, with this being our second full quarter of operation.
Speaker Change: Performance across the balance of the midstream platform was also very strong, benefiting from fundamentals and volume growth across our facilities.
Speaker Change: Fractionation, extraction, and liquids handling volumes were up 22% year-over-year, supported by strong volume growth at North Pine and Hermattin.
Speaker Change: Total gathering and processing volumes were up 6% year-over-year, underpinned by volume growth at our Hermattin facility.
Speaker Change: The quarter also benefited from the addition of the Pipestone assets, with this being our second full quarter of operations.
James Harbillis: AltaGas' realized frack spread averaged approximately $25 per barrel during the second quarter of 2024, with most of the company's frack exposed volumes hedged. Moving on to the utility segment on slide 9, normalized EBITDA was $122 million, representing a 20% year-over-year increase. The year-over-year growth was driven primarily by four major factors.
Speaker Change: AltaGas realized frac spread averaged approximately $25 per barrel during the second quarter of 2024, with most of the company's frac exposed volumes hedged.
Speaker Change: The year-over-year growth was driven primarily by four major factors.
James Harbillis: Lower O&M from ongoing cost management initiatives across WGL and SEMCO, ongoing investment in our modernization programs, which earn an immediate return on capital, strong performance in the retail power business, and the benefit of new rates in place in D.C. These factors were partially offset by the impact of the Maryland and Virginia rate cases, decreased asset optimization activities at Washington Gas, and warmer weather in Michigan, where AltaGas does not have weather normalization.
Speaker Change: Ongoing investment in our modernization programs, which earn an immediate return on capital. Strong performance in the retail power business, and the benefit of new rates in place in D.C.
Speaker Change: These factors were partially offset by the impact of the Maryland and Virginia rate cases, decreased asset optimization activities at Washington Gas, and warmer weather in Michigan where AltaGas does not have weather normalization.
James Harbillis: During the quarter, we deployed $178 million of invested capital in the utilities on behalf of our customers. This included $92 million across our various asset modernization programs in the DMV and Michigan, which improves the safety and reliability of our system and reduces leaks. In addition to our modernization programs, our utilities investments are focused on new meter growth through servicing customer additions and regional expansion opportunities. We also plan to file a DC rate case in the near term and a DC ARP modernization application on or before the end of September.
Speaker Change: During the quarter, we deployed $178 million of invested capital in the utilities on behalf of our customers.
Speaker Change: In addition to our modernization programs, our utilities investments are focused on new meter growth through servicing customer additions and regional expansion opportunities.
Speaker Change: We were also active on the regulatory side, with SEMCO filing a modernization program extension for approximately $114 million to 2027.
Speaker Change: We also plan to file a D.C. rate case in the near term and a D.C. ARP modernization application on or before the end of September .
Speaker Change: Results in the corporate and other segments were primarily impacted by higher G&A related to employee incentive plans due to AltaGas' rising stock price.
James Harbillis: Turning to slide 10, after a long journey, the Mountain Valley pipeline was completed and placed into service in mid-June, and it can be expanded by an additional 500 million cubic feet per day through incremental compression. On slide 11, we share our 2024 outlook. There have been a number of tailwinds and headwinds realized to date; however, taking these into account and after the first half of the year performance, we are well positioned to achieve our 2024 guidance ranges of normalized earnings per share of $2.05 to $2.25 and normalized EBITDA of $1.67 billion to $1.775 billion. We continue to execute on our strategic priorities with a focus on compounding long-term value, as highlighted This is a testament to the entire team and to the quality of the enterprise.
Speaker Change: Turning to slide 10, after a long journey, the Mountain Valley Pipeline was completed and placed into service in mid-June.
Speaker Change: MVP is a critical piece of infrastructure that is connecting upstream production in the Marcellus and Utica shale plays to strong and growing downstream demand in key eastern U.S. markets.
Speaker Change: can be expanded by an additional 500 million cubic feet per day through incremental compression.
Speaker Change: which is an exciting opportunity to add much needed capacity in a capital efficient manner.
Speaker Change: We have always been transparent with regards to MVP being a non-core asset for AltaGas's long-term strategy and we are actively evaluating value maximization options to accelerate AltaGas's deleveraging strategy.
Speaker Change: On slide 11, we share our 2024 outlook.
Speaker Change: There have been a number of tailwinds and headwinds realized to date. However, taking these into account, and after the first half of the year performance, we are well positioned to achieve our 2024 guidance ranges of normalized earnings per share of
Speaker Change: Reaching a positive FID during the second quarter, we increased our 2024 capital budget from $1.2 billion to $1.3 billion, as shown on slide 12.
Speaker Change: In closing, we are pleased with our second quarter and first half of 2024 operational and financial results.
Speaker Change: Looking ahead, we will remain disciplined allocators of capital, as we have demonstrated over the past five years, and driving the best long-term outcomes for all of our stakeholders.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be answered in the order they are received.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.
Speaker Change: Your first question comes from Jeremy Tonet, JP Morgan. Jeremy, please go ahead.
Eli Ahn: Hi, good morning. This is Eli Ahn for Jeremy. Maybe just starting with some of the steady de-risking progress you've made across the midstream business, can you just walk us through where you expect to finish 2024 from a tolling perspective? And then maybe, you know, given this increased line of sight and reef and pipestone coming on later, what kind of growth do you target for the segment overall through the long term?
Speaker Change: Hi, good morning, this is Eli on for Jeremy.
Eli: And then maybe, you know, given this increased line of sight and reef and pipestone coming on later, what kind of growth do you target for the segment overall through the long term?
Operator: OK, thanks, Eli. Pulled.
Speaker Change: Okay, thanks, Eli.
Vern Yu: I think we can expect good growth over the next couple of years in the midstream business. Obviously, we'll see a kicker in growth when Pipestone 2 comes into service. We'll see a second kicker of growth when Reef comes into service in 2027. The subsequent phases of Reef will be even more profitable for us, obviously, because we're spending a lot of upfront capital on the jetty and the rail facilities that won't be necessary in the later phases of Reef.
Speaker Change: in 2027. And then the subsequent phases of REIF will be even more profitable for us, obviously, because we're spending
Vern Yu: So, overall, we're pretty excited about the growth prospects. I think we've communicated before that the business is going to grow at 5% to 7% per year. Obviously, the utility is a big chunk of that, where we'll have that steady modernization capital growth and the other things I talked about. The midstream growth will be a little bit lumpier, but the returns in that business will be higher.
James Harbillis: And then, yeah, maybe switching a bit to the utility segment, I know you've seen strong growth and you've got the ARP and cost reductions, can you maybe just walk us through how you're prioritizing ROE gap reductions? I know there have been some filings, but which jurisdictions do you see as the most likely to start to reduce the ROE gaps that you're targeting?
Speaker Change: I think James is going to talk about the ROE gap, and then Blue can come back and talk about how we look at filing rate cases.
James Harbillis: We touched on it in our prepared remarks; we've taken some pretty aggressive actions to reduce our costs to match the cost structure reflected in our current rates to customers. And when we look at that on a full year run rate basis from those actions, it'll probably achieve about a 50 to 60 basis point increase in ROEs as we move to close the gap. So that'll move our gap to below 100 basis points.
Speaker Change: And when we look at that on a full year run rate basis from those actions, it'll probably achieve about a 50 to 60 basis point.
James Harbillis: And then obviously, we've got a DC rate case planned for a little later this year and are looking at the broader network and system at WGL to determine the timing of other rate cases. So I'll turn it over, Blu, if you want to add anything. Yeah, no. I think you had a chance.
James Harbillis: Yeah, no, I think you hit it, James. So DC will file here in the next, you know, fairly recently. Maryland, given the rate case that we saw, we're looking at when we'll file the next case. Those two jurisdictions are driven by our capital spend. We continue to manage our costs very tightly. You know, when we look at our costs from rate case to rate case, they've been running below the rate of inflation.
James Harbillis: So we're making good progress on the cost front. We continue to be focused there, and the rate cases will be driven to recoup our capital. And so Maryland and DC are where you'll see most of that activity in the nearer term.
Operator: Thank you. Your next question comes from Patrick Kenny of the National Bank. Patrick, please go ahead.
Speaker Change: And it looks like Phase 2 expansion is going very well.
Speaker Change: Just wondering if you can comment on where you're at with customers for securing commercial support for a Phase 3 expansion, and as well, any update you can provide on
Speaker Change: potentially expanding the storage capacity of the Dimmsdale facility.
Speaker Change: Why don't you, Randy, why don't you take that one? Sure.
Randy: On Dimmsdale, we have a lot of interest on storage, given LNG Canada is starting up by the end of the year. And we're talking to customers about potentially expanding Dimmsdale, but we're still working through that. And again, more to come later on.
Speaker Change: I guess.
Speaker Change: given the potential for some new hydrogen production coming on stream here later this decade.
Patrick Kenny: stream here later this decade. Can you just talk about, you know, the opportunities you're seeing to export other products from the reef and, I guess, your willingness to export ammonia off the West Coast, just given.
Speaker Change: Can you just talk about the opportunities you're seeing to export other products from reef and your willingness to export ammonia off the west coast, given some of the logistical challenges relative to LPGs?
Speaker Change: In the value chain, I think really the bigger issues are upstream, whether there's going to be sufficient ammonia production in Western Canada, number one, and then number two, whether there's going to be comfort for the railroads to actually move the ammonia by train.
James Harbillis: Could those problems be solved? Will our facility be there and ready to export that ammonia when it arrives?
Speaker Change: Should those problems be solved, our facility will be there and ready to export that ammonia when it comes.
Speaker Change: Okay, fair enough. I'll leave it there. Thanks.
Speaker Change: Thank you. Your next question comes from Rob Hope, Scotiabank. Rob, please go ahead.
Rob Hope: Morning, everyone, keeping first questions on the utility side, can you, you know, help us understand kind of the path forward in Washington on the advanced replacement, but you had a setback in June with a filing there. And I just want to get a sense of.
Speaker Change: what the cadence could be for kind of the ARP investment in that jurisdiction.
Speaker Change: Yeah, hey Rob, it's Blu. As you know, so we filed our PIPES 3 filing back in December of 2022.
Speaker Change: Three filing just primarily given the age of the data was a year and a half old at that point They did ask us to refile a three-year program, which is consistent with what we got coming out of the last program
Speaker Change: They also gave us a procedural schedule in that order, which gives us a timeline to have an order come out of the PIPES 3 filing. We're now calling that DC Safe, S-A-F-E.
Speaker Change: 2025 which should be should provide continuity between the current pipes 2 extension and the DC safer pipes 3 order so we expect that to be fairly consistent with what we've been doing from both the time frame and a capital perspective
Speaker Change: I appreciate that. And then maybe just shifting over to asset sales. Historically, you've kind of highlighted Blythe and MVP as non-core assets. Blythe looks better, just given the increase in data demand. And MVP, we could see some additional expansion opportunities there. How do you balance...
Speaker Change: you know, improving the balance sheet versus, you know, the correct timing to optimize potential asset sales.
James Harbillis: Yeah, Rob, it's James here. I mean, obviously, with Blythe, we do see a constructive backdrop in California. And right now, the retention value is higher for us. And for us to move forward with the monetization, their MVP is the one asset that we've obviously been patient with. And now that it's operational, we're actively moving forward to be able to monetize that. And that is a process that's, that's kicked off for us. And we're gonna, we're going to pursue those. And as we said in our prepared remarks, we are in, we are in active discussions there.
Speaker Change: Yeah, Rob, it's James here. I mean, obviously, with with Blythe, we do see a constructive backdrop in California. And right now, the
Speaker Change: Retention value is higher to us than for us to move forward with the monetization, there. MVP is the one asset that we're obviously we've been patient with, and now that it's operational, we're
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question comes from Robert Cotelier, CIBC Capital Markets. Robert, please go ahead.
Robert Cotelier: Hey good morning everyone. I just wanted to focus a little bit on the midstream volumes starting with
Robert Cotelier: from what you disclosed in the prior quarter.
Robert Cotelier: It seems to imply a stronger volume outlook for the global export business. Can you just comment on that change? It's small, but I'm just curious what your volume expectations are going forward.
Robert Cotelier: Robert, our volume expectations are the same for the year relative to our guidance. We have seen some of those volumes shift into the first part of the year. I mean, in the back part of the year, we could be out there procuring some volumes on, I don't know.
Speaker Change: on a spec basis for merchant volumes, but the percentages are pretty small in terms of the change from Q1 to Q2 in the back half of the year.
Unknown Speaker: Right. I mean, I would imagine he didn't take any of your hedges off.
Speaker Change: I would imagine you didn't take any of your hedges off, so it kind of implies higher volume. And tied to that, the extraction volume growth was very strong. Can you just give some detail on what happened there?
Unknown Speaker: So it kind of implies higher volume, but And tied to that.
Speaker Change: Hey Rob, it's Randy Toone. The extraction volume growth is really around Pipestone 2 C3 plus volumes.
Speaker Change: So those are new volumes for this year.
Unknown Speaker: It seems like there's a little bit of ongoing uncertainty between the Blueberry River First Nation and the B.C. government in implementing their agreement. I'm just curious how you see that impacting the company's growth plan.
Speaker Change: It seems like there's a little bit of ongoing uncertainty between the Blueberry River First Nation and the B.C. government in implementing their agreement. I'm just curious how you see that impacting the company's growth plans.
Speaker Change: Specifically, the North Pine expansion. Do you still think that's possible by the end of the year?
Speaker Change: Yeah, let me start and then Randy can.
Randy Toon: provide a little bit more detail. I think we're in a great position up there because we have existing agreements with the Blueberry, and we're outside of the scope of this current lawsuit.
Randy Toon: You'll have seen in our materials that we've been able to optimize North Pine and add 5,000 barrels a day of fractionation.
Brandon: And we're working through stakeholder and regulatory issues now to go ahead with that expansion. But anything else you want to add, Brandon?
Brandon: Yeah, like Vern said, we've had a great relationship with the Blueberry over the years. We are looking at a larger frac expansion at North Pine, but it's all within the existing footprint.
Speaker Change: And so there won't be any, you know, cumulative effects or disturbance to any land. And we actually just put in our amendment into the...
Speaker Change: BC Energy Regulator recently, and so we're progressing that expansion, and we're still working on commercial underpinning, but we're hopeful to do an expansion there in the next coming years.
Speaker Change: Okay, just, you know, just on the rating agencies.
Speaker Change: You know, they've had some changes post-Reef. I'm just curious, you know, how you view that and, you know, what impact that has on asset sales? Has it increased impetus to make the sales or is it still taking the same point of view there?
Rob Hope: Yeah, I think it's important to look at the reasons for the change in outlook at each of the the agencies there, Rob. I mean if you look at
Speaker Change: S&P, you know, we've always been transparent about major projects with with all stakeholders including the rating agencies and S&P obviously highlighted that
Rob Hope: with the change to the Negative Outlook, they were concerned with us executing two large projects concurrently in Reef and Pipestone 2. As we've shared in our prepared remarks, we have a strong track record of execution on these projects.
Rob Hope: We feel that we're well positioned to be able to remove that negative outlook as we we execute on that project and As we make forward progress and we've highlighted some of that
Speaker Change: in terms of both the construction de-risking and the commercial de-risking that we've undertaken.
Rob Hope: so far this year, and we expect that to continue as the year unfolds.
Speaker Change: If you look at Fitch, obviously MVP is going to be...
Speaker Change: an asset that we're going to monetize and that's the first step in getting to the targets that they've set for us at the end of 2024 and then the target that we need to achieve at 2025.
Speaker Change: That'll be one of the levers that we have to pull to be able to get to that 6x debt FFO that they've set for us at the end of 2024. And then obviously at the end of 2025, we'll continue to make progress with the balance sheet by considering potentially other minority sales or even hybrid capital if we need to, to be able to achieve the metrics that they've set for us to hold on to the BBB rating.
Operator: Thank you, ladies and gentlemen. As a reminder, should you have a question, please press Star 1 on your touchtone phone. Your next question comes from Robert Kwan, RBC Capital Markets. Robert, please go ahead.
Speaker Change: Okay, thank you.
Speaker Change: Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star 1 on your touchtone phone. Your next question comes from Robert Kwon, RBC Capital Markets. Robert, please go ahead.
Robert Kwon: Thank you, good morning.
Robert Kwon: If I can just start with the guidance, and you have a couple of new headwinds. You talked about the July rail outage, but can you just address...
Robert Kwon: What you might expect or what mitigation you would have to the extent there's a rail strike and then just around the rip it turn around. That's now showed up. Is that something where you've identified an issue? And you expect to have to go in and queue for just what's the nature of that.
Randy Toon: Maybe I'll start. The RIP-IT turnaround was in our budget the entire, was part of our budget, Robert, so that's nothing new. That's just regular maintenance. Randy, do you want to talk about the mitigations we've done for a potential rail strike?
Randy Toon: The wildfires did have an impact on our supply chain to exports, and we're through that now, and we're preparing for a potential rail strike.
Randy Toon: what it looks like it would be mid to late August.
Randy Toon: And so we're putting in contingency plans, which really is this working, making sure our storage levels are...
Randy Toon: are adequate at both ends. So, low at the upstream end, we have a lot of empty rail cars and then high at our export terminals with lots of loaded cars there. So, we are preparing for it and what we've seen historically, rail strikes don't last very long.
Randy Toon: and we think we have adequate measures in place to mitigate.
Speaker Change: Yeah, maybe the only time that I... I'm sorry, go ahead.
Speaker Change: And then we're trying to move as much supply as we can to have extra loaded cars.
Speaker Change: Got it, that's helpful. So if a strike is inside of a week, we shouldn't expect a major impact if you can achieve that. But Vern, can I just come back to you with a comment? If it was in the budget, then why is it a headwind?
Unknown Speaker: on the Trigon dispute outside of just that minor decision where you just didn't get standing in the on.
Speaker Change: on the Trigon dispute outside of just that minor decision where you just didn't get standing in the ongoing case.
Vern Yu: Sure, I can handle both of those. So, we've been able to contract
Speaker Change: a fairly decent chunk of volume. Some of it is with producers. Some of it is from aggregators, so it's a combination. And as we go forward, as we put in our prepared remarks, we have lots of
Unknown Speaker: active discussions that are really, I would characterize them as very late stage with multiple counterparties, both producers and midstream aggregators, and end users. So we're excited about the prospects of being able to sign more of these commitments as we go through the rest of this year.
Speaker Change: active discussions that are really, I would characterize, very late-stage with multiple counterparties, both producers and midstream aggregators and end-users. So we're excited about the prospects of
Speaker Change: being able to sign more of these commitments up as we go through the rest of this year.
Speaker Change: Sorry, I forgot the other guy.
Speaker Change: Oh, Trigon. Yeah, Trigon.
Robert: Yeah, I think, Robert.
Speaker Change: This obviously Trigon's dispute is with PRPA.
Robert: and it gets down to
Robert: The land
Robert: the port's authority to make decisions about exclusivity and how they develop the port site.
Speaker Change: PRPA is obviously defending this very, very rigorously, and they believe they have some very strong legal precedents for their case, particularly in the Port of Vancouver.
Speaker Change: So I think we were trying to get just added as.
Speaker Change: and a potentially affected party.
Robert: because obviously
Speaker Change: There could be some impact to us.
Robert: That is going to be that decision you talked about we are we are planning to appeal so stay tuned for that and
Speaker Change: I think PRPA is very committed to the fact that they're
Speaker Change: It is important on how they manage the port because it takes a significant amount of time and money.
Speaker Change: to develop a potential use of the port. So for example, with Reef, it was seven years of consultation.
Robert: and permitting to get us to FID.
Robert: and the project had to spend something in the order of $50 million to get it to that point, so...
Speaker Change: people aren't going to invest the proper amount of capital and time unless there's a clear line of path on how they're going to be able to use their facility.
Speaker Change: To the, I know it's hypothetical, but to the extent the Port Authority won the final decision.
Speaker Change: how much volume do you think might actually now turn around and come to you for Reef?
Speaker Change: Well, I think at the end of the day, people...
Speaker Change: We have a real project where we have the right to export liquids.
Unknown Speaker: Trigon has the right to export dry bulk, but that legal challenge is going to take years. So the reality of it is that we
Speaker Change: Trigon has the right to export dry bulk.
Speaker Change: So it's a hypothetical project that has to get through its legal challenge.
Speaker Change: if you even imagine them being successful in their legal challenge, they would have to start the permitting process once that legal challenge was completed.
Speaker Change: That legal challenge is going to take years. So the reality of it is we
Speaker Change: We don't believe that there's something real there.
Speaker Change: That's great. Thank you very much.
Speaker Change: Thank you. Your next question comes from Ben Pham, BMO. Ben, please go ahead.
Ben Pham: Hi, thank you. Good morning. I'm maybe going back to your comments on your expectation that utility ROE by
Unknown Speaker: Yiran, can you comment on that hunger basis point? You're expecting a football 100 basis points, how that compares to... Benchmark.
Yiran: Yiran, can you comment that hunger basis points, you're expecting a football hunger basis points, how that compares to a North American utility?
Speaker Change: Benchmark.
Speaker Change: and in your five-year plan.
Speaker Change: Are you assuming that ROE eventually...
Speaker Change: normalizes to the allowed.
James Harbillis: Ben, it's James here. So the 100, you know, we'll be under 100 basis points with a full year run rate on the savings that we've been able to
Ben Pham: to capture with some of the cost actions we took. And if you look at us under 100 basis points, that basically puts us very much in line with the average North American utility that operates in jurisdictions that have historical test years. And as a result, there's rate lag, right? So the one thing that I didn't touch on that
Speaker Change: I can highlight now is that another way for us to be able to get closer to the allowed is through our asset optimization programs which we share with the customers 50-50. So if you add the returns that we're able to generate
Speaker Change: our share that it gets us to allowed inclusive of asset optimization. But there's obviously some active steps that we're taking to be able to file a new rate case in D.C., which is the one jurisdiction where we experience the most regulatory lag so that we can make sure that our rates
Speaker Change: reflect the considerable capital investment that we make in the system and obviously it's reflective of our cost structure as well.
Yiran: So those are some of the steps that we take.
Yiran: Okay, got it.
MVP: And maybe, MVP, you mentioned your...
Speaker Change: You're undergoing a violation.
Speaker Change: Can you comment when you expect that to finish and?
Speaker Change: Are you looking at something other than selling MVP?
Yiran: Well, we've been pretty consistent in identifying as non-core and also very consistent in the fact that we wanted to wait for it to flow gas as a way for us to maximize value and
Speaker Change: We've cleared that hurdle now, it's no longer a gating item, so obviously we're going to actively pursue interest in our share of the pipeline, and we would look to monetize it. I don't think we're considering a minority sale of our minority sale, if that's your question.
Speaker Change: Okay, so your evaluation just means you're advancing at a sale, as what you said in the past.
Unknown Speaker: Correct.
Speaker Change: Okay, got it. And then you also mentioned earlier in your remarks around minority interest sales. Can you...
Speaker Change: unpacked out a bit of that.
Speaker Change: And is that taking or observing the First Nation?
Unknown Speaker: JV Opportunities, and is that more on the mid-stream side that you're...
JV Opportunities: JV Opportunities, and is that more on the midstream side that you're...
Yiran: evaluating and looking at.
Speaker Change: Yeah, and just to be clear, I highlighted that as another lever that we have to pull after we sell MVP for us to be able to address any remaining concerns that Fitch has in 2025 with respect to the five and a half times
Speaker Change: that FFO target, so that's where we would consider those type of transactions and yes, First Nations transactions would be very much in the mix and we would look at doing that within the midstream platform, given the ongoing relationships we have with First Nations in our footprint within Western Canada.
Speaker Change: Okay, got it. Thank you.
Speaker Change: Thank you. There are no further questions at this time. Please proceed.
Speaker Change: Thanks everyone for joining today's call. You may now disconnect your phone lines.