Q4 2024 Keyera Corp Earnings Call
Joelle: At this time, I would like to welcome everyone to the KIERA 2024
Your end conference call.
Joelle: All lines have been placed on mute to prevent any background noise.
Joelle: After the speaker's remark, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad.
Joelle: If you would like to withdraw your question, please press star 2. Thank you. I would now like to turn the conference over to Dan Cuthbertson, General Manager of Investor Relations. You may begin.
Dan Cuthbertson: Thank you and good morning. Joining me today will be Dean Setaguchi, President and CEO, Eileen Marikar, Senior Vice President and CFO, Jamie Urquhart, Senior Vice President and Chief Commercial Officer, and Jared Beztilny, Senior Vice President, Operations and Engineering.
Speaker Change: We'll begin with some prepared remarks from Jeanne and Eileen, after which we will open the call to questions.
Speaker Change: I'd like to remind our listeners that some of the comments and answers that we will give today relate to future events.
Speaker Change: These forward-looking statements are given as of today's date and reflect events or outcomes that management currently expects.
Speaker Change: In addition, we will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, please refer to CARES public filings available on CDAR and on our website. With that, I'll turn the call over to Dean.
Thanks, Dan, and good morning, everyone.
Kira had an outstanding year in 2024.
Speaker Change: We continue to execute our strategy and deliver value to both our customers and shareholders by leveraging the strength of our integrated value chain.
Speaker Change: In terms of safety, we were pleased that we had no lost time incidences for the second year in a row.
We also set new volume records across many core assets.
Speaker Change: This led to record margin contribution across all three business segments and record annual adjusted EBITDA and net earnings.
Speaker Change: We entered the year in a strong financial position, giving us the flexibility to allocate capital in a way that will maximize value for our shareholders.
Speaker Change: We also raised our dividend by 4% and received approval for a normal course issuer bid.
Speaker Change: With their guidance in December, we announced a new target of 7-8% fee-based EVA dog growth.
Speaker Change: This growth is mostly driven by filling available capacity where we're already making great progress.
Speaker Change: In our North GNP segment, Wapiti and Pipestone hit record annual volumes.
Speaker Change: In our liquids infrastructure segment, CAPS continues to ramp up and attract new customers. At KFS, our FRACs delivered record annual margin contributions, and our condensate system also set volume records.
Moving on to Girls' Projects, which continue to progress well.
Speaker Change: We're pleased to announce today the sanctioning of the KFS FRAC 2 Debaldment Project.
Speaker Change: This project will add about 8,000 barrels per day of capacity and is now expected to be in service in mid-2026.
The project will generate strong returns on a stand-alone basis.
We're also advancing contracting and engineering for KFS FRAC 3.
Speaker Change: We expect to sanction this project later this year for it to be on stream in 2028.
Speaker Change: For Cap Zone 4, we have completed engineering and we're working towards securing sufficient contractual backing to move ahead.
Speaker Change: We decided to proceed. This project is expected to be in service in 2027.
Speaker Change: Beyond 2027, we continue to progress potential growth opportunities, including expanding rail and logistics solutions to accommodate higher spec product volumes.
Speaker Change: On this front, last week we announced long-term commercial agreements with EltaGas, which helps support these GROWS projects.
Speaker Change: The deal also efficiently extends our value chain, allowing us to expand market access and diversification for our customers.
Speaker Change: You would have seen in our release this morning that we will be taking AEF offline in spring for approximately six weeks to address an unexpected operational issue.
Speaker Change: This work is necessary to ensure continued safe and reliable operations.
Speaker Change: The margin impact of this outage is expected to be about $40 million.
Speaker Change: We continue and expect to deliver our long-term based marketing guidance of $310 to $350 million this year and we'll update our annual marketing guidance in May.
Speaker Change: I also want to take a moment to address the threat of U.S. tariffs.
This is a much-needed call to action.
Speaker Change: Rarely have we seen our federal and provincial governments so aligned on the need to improve Canada's competitiveness and diversify our market access.
Speaker Change: Ultimately, this could be very positive for Canada, the energy industry, and Kiara.
For KIERA overall, we don't expect a material impact.
Speaker Change: Our fee-for-service segments are volume-based and much of the cash flow is under long-term contracts.
Speaker Change: Within our marketing segment, we expect tariffs on iso-octane will mostly be offset by lower butane input costs, higher RBOB spreads, and beneficial FX movements.
Speaker Change: Will tariffs create some near-term uncertainty? I'm confident in our ability to continue to deliver shareholder value.
Speaker Change: With that, I'll turn it over to Eileen to provide a further update on our quarterly and annual financial performance.
Thank you, Dean.
Speaker Change: Adjusted EBITDA was $313 million in Q4 and a record $1.3 billion for the full year, compared to $339 million and $1.2 billion for the same period last year. These results were largely driven by record annual margin contributions from all three of our business segments.
Speaker Change: Distributable cash flow was $168 million in Q4 and $771 million for the full year, compared to $234 million and $855 million for the same period last year.
Speaker Change: The year-over-year decrease in distributable cash flow is mostly due to higher cash taxes.
Speaker Change: Net earnings were $89 million for the fourth quarter and a record $487 million for the full year, compared to net earnings of $49 million and $424 million for the same periods last year.
Speaker Change: In 2024, corporate return on invested capital was 16% and the dividend payout ratio was 61%.
Speaker Change: We ended the year in a strong financial position with net debt to EBITDA of two times on a covenant basis.
Speaker Change: This gives us the flexibility to allocate capital to maximize value for shareholders, either through dividends, growth investments, or share buybacks.
Speaker Change: Looking forward, our 2025 guidance remains unchanged. Growth capital expenditures are expected to range between 300 million and 330 million.
Speaker Change: Maintenance capital expenditures are expected to range between $70 million and $90 million.
Speaker Change: Cash taxes are expected to range between $100 million and $110 million.
Speaker Change: For the time being, our Marketing Realized Margin Guidance will be our long-term base guidance of $310 to $350 million. As is our usual practice, we will revise this with our Q1 results in May at the end of the marketing contract season.
Speaker Change: As a reminder, our marketing cash flows are reinvested into long-life infrastructure projects, in turn driving growth in high-quality fee-for-service cash flows. I'll now turn it back to Dean.
Thanks, Eileen.
We remain confident in the Basin's continued volume growth.
Speaker Change: Canada has one of the largest oil and gas reserves in the world coupled with a very competitive cost of supply.
Speaker Change: Our customers are in strong financial positions and have a proven track record of adapting to changing market conditions, supporting further volume growth.
KIERA is an essential enabler of this growth.
Speaker Change: On behalf of CIRA's Board of Directors and Management Team, I want to thank our employees, customers, shareholders, Indigenous rights holders, and other stakeholders for the continued support.
Speaker Change: With that, I'll turn it back to the operator for Q&A.
Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2.
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 Rob Hope with Scotiabank. Your line is now open.
Rob Hope: Good morning, everyone. Maybe the first question is on the recent AltaGas agreement. Can you maybe, you know, speak to the genesis and kind of the background of that agreement, and more importantly, the potential that it could be further expanded in the future, just given the synergy between the two asset bases?
Good morning, Rob, and thanks for the question.
Speaker Change: You know, first of all, you know, when we think about our business
Rob Hope: You know, we think about how do we make our, we're a service company, and how do we make our customers and our energy, our industry more competitive?
Rob Hope: And that's what we should be focusing on, and if we do that, I think as an industry we have an opportunity to supply the world with more energy.
Rob Hope: And so when it comes to accomplishing that, if we can create a more efficient service, that's a win-win for our customers and for partners.
Rob Hope: We're happy to work with other partners to make that happen.
Rob Hope: So, you know, when we think about AltiGas, they have assets that are complementary to our integrated value chain.
Rob Hope: And so we're very happy to work with Vernon and his team.
Rob Hope: to create a win-win and, you know, they're supporting our infrastructure including our frack and, you know, we'll be moving their barrels to our downstream.
you know, terminals.
user storage.
Rob Hope: and ultimately rail a lot of product out to Elte Gas's site on the West Coast.
Rob Hope: So I think it's a win-win for everybody where we can provide a more efficient integrated service.
Rob Hope: and, you know, bring more volumes to our system, but also support EltaGas's system and everybody wins.
Rob Hope: And we, you know, and maybe to your second part of your question, I mean, we have a great relationship with Healthy Gas and, you know, for sure, we want to find opportunities to continue to work together, again, to provide a better service for industry where, you know, we can all, we can all benefit from.
Jamie, is there anything else you want to add?
Okay, I'll see you then.
Speaker Change: All right. I appreciate that. And then maybe just switching over to volumes. It seems like volumes at CONACYT, KFS were very, very strong. Was this in anticipation of tariffs or are we just seeing the base kind of liquids volume growth stronger than we originally expected? And then I guess maybe some commentary on how you think volumes progressed through the year and into 2026.
Yeah, well, first of all, I mean
Speaker Change: You know, when we see basin growth, and we expect to see more basin growth over the next five, six years with...
Speaker Change: Again, Coastal Gas Link and TMX, which is probably going to fill up faster than
than everyone anticipated because of the threat of tariffs.
When the basin grows, we help enable that growth.
Speaker Change: And what that means is more demand for our services and volume to our system.
And that's exactly what you're seeing.
Speaker Change: You know, when natural gas volumes grow, it's going to grow in the most economic parts of the basin. And we're situated there, both in the deep basin and up in the Montigny-Duvernay fairway near Grand Prairie.
Speaker Change: So, we're seeing that increased volume growth and with it a lot of liquids, and that liquid flows downstream through our pipes, and our CAHPS pipeline obviously is a big service that we provide there to supply our frack business.
Speaker Change: and also to supply condensate which is used for diluent for the oil sands.
Speaker Change: So, both parts of our business, our upstream natural gas processing and NGL business, and also our oil sand services businesses, have been performing very, very well, again, to service the growth that we're seeing in our industry.
Speaker Change: Yeah, no, the only thing I'd add, Dean, is that, you know, I think we have a lot of focus on the North and obviously we've got some very key assets in the North and we're looking to expand our position in the North. The North GMP, yeah. The North GMP, yes, sorry. But also, you know, we've seen some really good activity and a changing of the guard in some transactions that have happened in the last few months.
Speaker Change: in our Central Alberta assets, which we're excited for. And we've got strong relationships with those parties and we expect to hopefully enable their growth as well as we progress into 2025.
Thank you.
Speaker Change: Your next question comes from Maurice Choi with RBC Capital Markets. Your line is now open.
Maurice Choi: Thank you and good morning everyone. Just to follow up on the AltaGas arrangement, which you characterized as a win-win situation here. I guess my question is about timing. Were there past situations where such an arrangement couldn't happen and why right now is the right time to do such an arrangement? And separate to that, are there any other entities that you also see yourself having a win-win arrangement?
Good morning, Maurice, and thanks for the questions.
Speaker Change: You know, first of all, with Eltegas, you know, we have been exporting product through their terminal at Ripit.
And, you know, like any service, we...
Speaker Change: You know, we probably start smaller to understand how it works, understand the markets.
Speaker Change: the logistics behind it, and before we jump in in a bigger way.
Speaker Change: And, you know, that worked out very well, both from, again, just from a logistics perspective, from a business and relationship perspective. So when we look at our business now, and, you know, the likelihood of our frac,
Speaker Change: expansions likely getting sanctioned and we sanctioned our FRAC 2 debottlement today.
Speaker Change: You know, we see the need to clear more product. We'll have more spec products in our system, and we have to access the highest value markets.
So, we've always...
Speaker Change: We've always thought that it's great to have a diversified market access so we can offer access to IPLs PDH
the local industrial markets, the mid-continent, and the U.S.
Speaker Change: But certainly the market on the West Coast is going to continue to grow and be a valuable market for us to clear product out of.
Speaker Change: So, you know, we thought it was a good opportunity to work with EltaGas to...
increase our ability to export out of the facility.
Speaker Change: and we think it's just a great arrangement for both parties. So, anything else you want to add? No, Dean, I think you hit the nail on the head. It's just to emphasize the fact that we've been flowing barrels through Repit since day one. But, as Dean said, it's a new market to us.
Speaker Change: needed to get familiar with the market and understand the intricacies and the logistics associated with being able to maximize the value of being in those markets.
Speaker Change: And the thing I'd also identify is we've, you know, we've publicly stated how much incremental capacity that we're taking out at the Ripit and Reef facility, but there is a phasing in over.
Speaker Change: the time period of our ability to be able to access more capacity, and that will start in 2025.
and Dan Cuthbertson. Thank you. Thank you.
Speaker Change: Thanks and just to go ahead yeah just answer the second part of your question
Speaker Change: Without going into specifics, to my earlier comments, we're always looking for opportunities to make the base and the industry more efficient. And we're open to work with other parties to make that happen where we can create win-win situations. And so I'll leave it at that, but we do see other opportunities as well.
No, that's great.
Do we just finish up?
Speaker Change: I want to see if you could elaborate a little bit more on your comments about tariffs.
Speaker Change: what impact for that on your isooctane business. You touched on the feedstock costs, the RBOP spreads and FX. Could you speak to the market dynamics that could influence the isooctane premium such as competition for alternatives and also the quality differentials?
Speaker Change: Yeah, well listen, I'll let Jamie comment on this as well, but...
Speaker Change: To my earlier comments, the bottom line is we don't think there's a material impact.
Speaker Change: the demand and the balance of octanes in North America. North America is net short octanes. So what it means is that they have to import octanes from a place like us, or they also import from Europe and Asia. So from our perspective,
Speaker Change: you know, we might get hit with the 10% tariff, but if everybody is tariffed at the same level, at least at the same level, we're not disadvantaged.
Speaker Change: And so if Europe and Asia, they have to pay a 10% tariff as well, what we think happens, because again, they're going to have to track those incremental barrels into North America, is that the price of octanes is going to actually reprice higher to compensate for that 10% tariff.
Speaker Change: So we don't know exactly how that trades, but that's a possibility, just because North America is short tariffs. And the other comment I wanna make is that even if we have to pay a 10% tariff directly from Kira,
Speaker Change: The couple days leading up to when everyone thought tariffs were going to put into place.
you know, up to February 1.
Speaker Change: The market started to trade as if that was happening, and again, you know, during those couple of days before when people expected tariffs to be in place,
Speaker Change: We saw FX widen. We saw the price of butane and Edmonton fall off
Speaker Change: and we also saw WTI strengthen, so those are all offsetting factors that would offset the cost of a tariff if we had to pay it.
Speaker Change: Is there anything else you want to add? Eddine, you're doing great this morning. Not much to add other than, as you pointed out, North America is that net importer of octanes. And just to put it into perspective, we produce 14,000 barrels a day of isooctane.
Speaker Change: The octane demand in North America is in excess of a million barrels a day.
Speaker Change: So, as we think about the markets that we've established over the years, these people value our product and the superior nature of our product, and we expect to retain those markets regardless of whether tariffs come into place or not.
Speaker Change: Just a quick follow-up. So now that you're approaching the conclusion of your NGL contracting season for 2025, has those prices, particularly the feedstock costs, already priced in a tariff such that those costs have come down?
Yeah, you know what, that's a great question and.
Speaker Change: What I'd say is that this year the contracting is happening a bit later and I guess that's it to be expected just given the uncertainty around tariffs.
Speaker Change: So, you know, we will, we will work towards, you know, having all the contracts in place in April. They're just happening a little bit later in the cycle than they normally would because of the uncertainty.
It makes sense. Perfect. Thank you.
Speaker Change: Thank you. Your next question comes from Robert Cassellier with CIBC Capital Markets. Your line is now open.
Robert Cassellier: Hey, good morning, everyone, and congratulations on your ongoing strong safety record. I just wanted to follow up quickly on the tariff issue here. I have really two questions. I just want to understand how you're approaching the NGL marketing year in light of the tariff uncertainty. In other words, trying to get a sense of what level of exposure
you might be looking for. In other words, are you...
Robert Cassellier: maybe paring down your exposure a little bit because of the uncertainty or is it business as usual? And then on the customer side, just in terms of supporting new infrastructure, does the threat of potential tariffs
cause customers to hesitate in supporting new infrastructure?
and Dan Cuthbertson. Thank you. Thank you.
Speaker Change: Good morning, Rob, and thanks for the questions. I'm going to answer your second question, and I'll turn it over to Jamie to answer the first one.
You know, overall...
You know, no one really knows what will happen if...
Speaker Change: 10% tariff were applied to our energy industry, and whether the buyer absorbs that or it's the producer or the seller of the product, or it's some combination in between. So, I think that remains to be seen. But
Speaker Change: At the end of the day, our basin in Western Canada is a very low-cost
produce producer
environment.
Speaker Change: You know, we have some of the best reserves and we can produce them at the lowest cost. And so, will 10% actually make a difference in terms of what gets produced in our basin? I doubt it. And we're not getting a sense from the producers either.
So, you know, when we look at infrastructure that's required,
Speaker Change: We still see a lot of development in the Deep Basin and for sure in that Montigny-Douvernay Fairway. We see more development extending into BC, which is why there's a lot of interest in our Cap Zone 4 project.
Speaker Change: And right now in our basin, one of the most significant bottlenecks is fractionation capacity.
Speaker Change: And because we have CAPS, and because we have an integrated service that we offer now,
Speaker Change: With all of our integrated deals, again, in our system, we have a lot of demand for incremental frack capacity. So again, I don't think tariffs would affect any of those projects in a material way.
Speaker Change: And we see a strong demand based on the conversations and contracts we've signed with our customers.
Speaker Change: Jamie, do you want to address the first question? Yeah, so Rob, thanks for the question on the contracting season. As Dean alluded to, because of the tariffs, it's really
Jamie: put a pause on contracting throughout industry. It's not unique to Kiera. And, you know, I think as we've had conversations with our customers, you know, their understanding ultimately of
Jamie: you know, 2025, and frankly, probably from here on out, because, you know, like, I mean, Trump is going to be in office for the next four years. And, you know, we just never know what, where his mind might be taking him on any given day. But, you know, as we look at it from the perspective of the different commodities, on the C3 side, it points to the value of our access to the West Coast.
Jamie: And also then, as we think about C3 leaving down into the U.S., traditionally our model is to sell that product at FOB Edmonton. So we don't take a lot of risk on the C3 side of our business. And then on C4, because Alberta is a net utility,
is a net exporter of butane out of Western Canada.
Jamie: You know, we just look at tariffs as likely resulting in a reduction in the value of butane molecule in Alberta, given the fact that
Jamie: Kiara is a consumer of butane in our business and in that short you know we're we're going to benefit from that if if
Jamie: you know, tariffs are come into place, but really at the end of the day, we're striving to get the maximum value for our customer, but also, you know, recognizing that the risk should be borne by the appropriate party within our contract and structure.
Speaker Change: Okay, that's a helpful and fulsome answer. I want to just move on to GEP for a minute here. Obviously, the volumes have been very strong in the North region, less so in the South, which is not a surprise, but I'm curious what
Speaker Change: what you think needs to happen to increase throughput in the South region, and maybe you can provide updates on the South Dune a play and development at RIMBy and
Speaker Change: Any other development you think is possible for the Keeling Pipeline system?
Speaker Change: We're excited about the emergence of the DuVernay Play in the South.
Speaker Change: We've talked about it before. It's great to have more oil-weighted plays, oil condensate-weighted plays, down in our Central Alberta portfolio. That way, the producers have more than one way to win. It's not just off of natural gas.
Thank you.
Speaker Change: and you know that gas is very rich so you know we're always very interested in the NGLs that are get extracted and we have capabilities to do that so we think it's a great development but overall, Jamie, you want to talk about our self-portfolio?
Jamie: We talk a lot about the DuVernay and we're very excited about the development of the DuVernay in the Rimby area, but also as it trends up towards Drayton Valley and some of the assets that we have.
Speaker Change: up in the Drayton Valley area as well. And as Dean alluded to, is that play is really about the condensate or the light oil that's coming off of that play, but the natural gas that comes along with it is very high in ethane and C3+. So...
Thank you. Thank you.
Speaker Change: But in the Spirit River, which is the primary play for the rest of our South assets,
Speaker Change: You know, the economics for drilling those wells are very robust, even at the gas prices that we're seeing right now, because as Dean says, they've got a lot of natural gas liquids in them. And as I alluded to in a previous question,
Speaker Change: is that we've seen some of our key customers sell themselves and basically roll over into other...
companies' hands that really they're
Speaker Change: that these are becoming their tier one assets. So if you look at some of the presentations of the companies that have done some acquiring over the last six to 12 months, you'll see that they bought those assets.
because they've now become their Tier 1.
Speaker Change: And as a result of that, their intent is to get after developing those assets where the previous company perhaps just had run the course.
Speaker Change: and had been positioned themselves for a sale process. So the economics are good for those plays and now with the right players and a willingness to work with an infrastructure provider such as Kiera, we see that there's lots of opportunities for future growth in 25 and beyond.
Okay, thanks everyone.
Thanks.
Speaker Change: Your next question comes from Aaron McNeil with TD Cowan. Your line is now open.
Hey, morning all. Thanks for taking my questions.
Dean, maybe just to build on Maurice's question.
Speaker Change: You mentioned that the U.S. market is short octanes, and obviously the market's quite large relative to AEF, but can you speak to Valero's announcement that it will increase its production by 6,000 to 7,000 barrels a day in 2026?
and potentially others.
Speaker Change: Good morning, Aaron, and thanks for the question. You know, overall, when we look at the gasoline pool, which is nine plus million barrels a day, and I think with what's happening in the U.S. with President Trump and likely, you know,
Speaker Change: a clawback of all incentives for electric vehicles. It just means that there's just going to be a lot more ICE vehicles sold for a much longer period of time.
Speaker Change: So, you know, overall, we think that gasoline demand is going to remain strong and the whole scheme of things, 7,000 to 8,000 barrels or 10,000 barrels of octane is going to be strong.
It's just really a drop in the bucket.
Speaker Change: So, we don't think that that has a material impact at all. The other thing I guess I continue to point out is that we have a very superior product with our iso-octane.
Speaker Change: The customers that we have that buy it now, they are very used to working with our product. So, you know, I think there's some stickiness in terms of demand for it.
Speaker Change: So we feel pretty confident overall. We're aware of what's happening. We also know that there's going to be some refineries that are shutting down in the U.S. too, so that's also going to change the balances. So overall, again, we want to reiterate, we don't think it's a big impact on the market.
Speaker Change: Yep, makes total sense. And sort of switching gears to timing of potential FIDs, I'm probably reading too much into this, but, you know, during the December update, I think you had characterized FIDs for Fract 3 and Zone 4 as
Speaker Change: a potential first half of 2025 event. And then, you know, the language this morning for FRAC 3 was sometime later this year. I know the in-service dates, the timing for that hasn't changed. So again, probably reading too much into it. But could you give us, you know, a sense of
you know, if those timelines have remained the same.
Speaker Change: I'll confirm you're reading too much into it. No, I don't know.
Speaker Change: Overall, you know, starting with Zone 4, we feel pretty good about the project. I mean, we've always thought there's going to be more development along that Zone 4 fairway and into BC.
and certainly with LNG Canada wrapping up.
Speaker Change: You're hearing the BC Premier talking about fast-tracking some energy projects, which, when's the last time you heard that? So I think there's a lot of optimism, what's going to happen there.
Speaker Change: You know, customers along that fairway, they want competition. And, you know, it's also good to have a new pipe and service from an integrity perspective and reliability of service. So, you know, that's our alternative that we're providing to the market.
Speaker Change: You probably would have read that North River Midstream received their provincial approval last month.
So,
you know, from, uh, from, uh...
Speaker Change: From a project perspective, the class 3 engineering is all complete, all the regulatory approvals have been received by both us and North River Midstream, so we have a shovel-ready project, and again, that's very meaningful to potential customers.
Speaker Change: So, what I can say is that we continue to contract customers and volumes on that system.
and we have a lot of momentum, so...
Speaker Change: We still think that we get to a sanctioning decision here sometime by the middle of this year and that's also to meet the end service date.
Speaker Change: On FRAC 3, you know, Jamie and his team have done a phenomenal job and, again, really leveraging and providing our integrated service offering to our customers.
Speaker Change: So, what that means is that, you know, we're touching the energy molecule many times to our system, and again, to provide an efficient service for our industry. And with that, it means that we're contracting a lot of volumes on the downstream side with our frack business.
Speaker Change: So, you know, we continue to advance our engineering, and contracting is going very well. So we think that we'll get to a sanction decision sometime in the middle of this year as well.
Anything else you want to add?
Thanks for the clarification.
Thank you for the questions.
Speaker Change: Your next question comes from Ben Pham with BMO. Your line is now open.
Ben Pham: Hi, good morning. May, just to start out with the Allied business, and you've reached a new high watermark in Q4. Can you talk about quarter over quarter, how much was frack and storage drive that increase? And related to that, do you think the Q4 contribution is routable going forward?
Speaker Change: Yeah, thanks for the question, Ben. And before I turn this over to Eileen, I just want to emphasize, you know, when we're building caps,
Speaker Change: People are asking about, well, what is the benefit of CAHPS? And again, I just want to really emphasize, and this exemplifies it, our results exemplify what we were accomplishing, is that this basically integrates our upstream gas gathering and processing business and our downstream fact business.
And I can tell you
Speaker Change: Pretty much every deal we sign is now an integrated deal. So with caps in place, we're adding more volumes on that system, but it's also supporting our downstream fractionation, storage, our trimmeling business. And then again, as we said before, our oil sand services business has been very strong as well. But Eileen, please.
Go ahead.
Speaker Change: Sure. Thanks for the question, Ben. Yeah, the only thing I would add is that absolutely what Dean said, you know, in the fourth quarter, all assets, especially in LI, were, you know, running really, really well. FRAC utilization, we're doing more contracts, longer-term contracts through our condensate system, storage. So all the things that we've been saying are coming to fruition. The one thing I would note, you know, when you're looking at other quarters is FRAC utilization tends to be higher in the winter. And
And in the summer, it does tend to come down.
Speaker Change: continue to have lots of confidence in being able to meet our IPA target going out to 2027.
Speaker Change: Yeah, maybe one thing I just want to add to, we've been talking about being at full capacity at AFRAX for the last few years.
Speaker Change: And what's different, I'd say, is that, and give a lot of credit to Jared and the team at KFS,
Speaker Change: is that when they've had maintenance outage, they've found ways to find small de-bottlenecks so that we could run sort of higher capacity limits at that site. So, you know, with the work that they've done and with very good reliability, you know, that's helped us generate strong results at campus and our frac business.
Speaker Change: Okay, so other than just some seasonality, it sounds like if utilization range is strong, Q4 is a good routeable number going forward.
Yeah, yeah, yeah.
Speaker Change: Yeah, I mean, what Eileen said is we're able to run our fracs at higher capacity levels, so the cash flow is going to be higher in the winter months because of the cooler ambient temperatures there. So there's a little bit of seasonality, but it's not super significant.
Okay, got it. And think about the AF outage and...
Speaker Change: This spring, do you plan or anticipate to roll that into the potential 2026?
Outage as well?
Speaker Change: I'll turn that question over to Jared. It's a good question, Ben. It's unfortunate that we've had an outage the second year in a row. What's important to note, too, is that the circumstances from last year to this year are different. The plants otherwise have operated very well for us over the past couple of years, and you've seen that reflected in the results.
Jared KFS: There's nothing we found last year, expect to this year, or see otherwise with how the plant's performing to suggest that we'd require another outage before our 2026 turnaround. So the plan is to go down this spring and address what we need to, and then come back up and try to have a strong run to the 2026 turnaround.
Speaker Change: Okay, got it. Maybe a clean-up question on a tariff. So I know that ice-octane product, pretty much all of it goes to the U.S., but can you clarify what else you're exporting? I'm thinking propane is in the mix there. Is there anything else? And just general, just percentages going to the U.S.?
Speaker Change: I'll turn that over to Jamie to respond. Yeah Ben, so yeah, iso-octane, the majority, 85% of iso-octane sold into the U.S. and then as I alluded to is that, you know, on the C3 side, you know, we, on propane, sorry, hopefully everybody understands what C3 is, is on the propane side, you know, that would be the other product that we would be exporting to the U.S. and
Speaker Change: To repeat what I said in a previous question is that the way it's structured is traditionally we sell that product to another counterparty in Edmonton, and they ultimately would take the risk associated with tariffs.
Understood. Okay. Thanks for clarifying that.
Thanks, have a good day.
Speaker Change: Your next question comes from AJ O'Donnell with TPH. Your line is now open.
Thank you.
Speaker Change: Morning everyone. Maybe just shifting gears a little bit. I was hoping I could talk about capital allocation.
Speaker Change: Given the strong performance to end 2024, really no change in spending guidance for 2025 and flexibility on the balance sheet, how are you guys thinking about using the NCIB in 2025? Have your views changed at all?
Speaker Change: In the last year, our net debt was reduced by about $185 million.
Speaker Change: So, again, we have plenty of optionality. But, Eileen, please go ahead. Sure. Thanks for the question. Yeah, you know, we're happy that this is a tool that we now have available to us. And if anything, we would look to use it opportunistically, especially with more market volatility. It's nice to have this option. But, you know, as we said before, the preference continues to be to grow our underlying business and build infrastructure that's going to be around for decades.
Speaker Change: again with the macro environment being so positive, there's just several opportunities. So I think we can deliver higher returns than.
Speaker Change: Great, thanks Eileen. Maybe just one more on the Bottleneck project and that moving forward.
Speaker Change: I think you guys have already highlighted a few times about how tight the frack market is. I'm just trying to think about how we should view that facility ramping up.
Do you kind of see that?
Speaker Change: Filling up almost immediately, will it take some time? And then just as a tag along, I don't wanna get too far ahead but if we do see KFS-3 get FID'd or sanctioned soon, can we see the timing of that project pulled forward as well?
Speaker Change: So thanks for the question. Yeah, to confirm the de-bottleneck project, we expect that it will be fully utilized when it comes into service, just based on the demand growth within our basin.
Speaker Change: And then on Fract 3, the in-service date of 2028 that we've communicated, there would be very little opportunity to pull that forward. We've been progressing that project to be able to hit that date, but there's very little opportunity to be able to accelerate that.
Okay, I appreciate the color. I'll turn it back.
Thanks very much.
Speaker Change: Your next question comes from Theresa Chen with Barclays. Your line is now open.
Theresa Chen: Thank you and good morning. Looking at the collapse in octane spreads recently beyond what would be seasonally implied based on butane being in the gasoline pool during the cooler months, based on what you are seeing, what do you think is driving this?
Theresa Chen: So you're morning Teresa, I just want to make sure I understand your question. So you want to talk about a premium and then detain
Speaker Change: No, no, no, no. Premium, less regular gasoline, the collapse in the octane spread in gasoline specifically.
Bye.
Speaker Change: Well, you know what, first of all, what I'd say is that in 2023 and 2024, the octane spreads were exceptional. Like, those are the highest that we've ever seen since we've owned that facility since
Is that 2012?
Speaker Change: So, you know, I think those are exceptional years and we shouldn't expect octane creams to be in that range. But, you know, in the winter months, the octanes are usually traded at a lower value and it gets stronger as you get into the summer driving season. That is just a seasonal trend that you see every year.
Speaker Change: So, when we think about norms of where octane spreads are right now, we think it's in a very normal range, which still generates a very healthy margins for that business.
Jamie: Jamie, do you want to add? Yeah, no, a hundred percent. Like, I mean, versus historical,
Speaker Change: The octane premiums that we're realizing for our product are, frankly, slightly ahead of what we would have seen pre-COVID. They're not to the levels, as Dean said, where we would have seen over the last couple of years. But those were extraordinarily strong years. The other thing I would say is that, you know, sometimes people do focus on there. There typically is a suppression of
Speaker Change: octane premiums when we go from a summer spec to a winter spec on gasolines and that's very short-lived. That's probably a two-week anomaly of which we just then
Speaker Change: to hold on to our product. It happens every year. We hold on to our product and ultimately then re-engage back into the market once that market has corrected itself.
Speaker Change: Trisha, one thing I'd like to add just on octanes that I think it's important to understand is that we've seen a growing trend of demand for higher octane blends in the gasoline pool.
Speaker Change: That's because most of the ICE vehicles that are being produced today are being produced with turbocharged engines with high compression.
Speaker Change: So, for example, last year about half of the vehicles manufactured had a gasoline spec of over 90 octane.
Speaker Change: requirement for the engine. So, you know, we think that the demand for higher octane blends of gasoline, that trend continues to increase over time.
Speaker Change: Got it. And just to clarify what I was talking about, butane being in the gasoline pool during the cooler months, I was referring to that RVP change, the spec change between summer and winter.
Speaker Change: Going to the medium-term outlook for octane, and you alluded to this a bit earlier, Dean, so in addition to the incremental alkylate production that Valeros bring online,
Speaker Change: What's also interesting to us is the planned NAFTA cracking capacity coming online globally. So when that low-octane NAFTA comes out of the gasoline pool and serves as a peptican feedstock instead, this would presumably decrease the need for high-octane blendstocks to counterbalance as a result and could likely be a headwind for octane economics. So how are your assets positioned with this in mind?
J.B.: Yeah, like I say, I mean, you know, I'll let J.B. respond as well, but.
J.B.: Overall, there are a lot of factors that affect the gasoline pool, octanes, yes, we're aware of that, you know, I mean, NAFTA can be used for different purposes as well versus, you know, going into gasoline feedstock.
J.B.: You know, overall, we feel pretty confident, though, that the trend for higher octane blends of gasoline continue to increase over time. And on that basis, and also the strength of overall gasoline demand.
J.B.: We just think that because we have a premium product, that it will always be in pretty high demand. And some of the places that we sell it to in the mid-continent, we are the best source logistically for them to receive it off.
J.B.: A lot of the places we sell are not on the U.S. Gulf Coast where they can receive it from the local refiners or local service providers there or off the water. So I think for all those reasons, we feel pretty good.
Thank you. Okay.
Speaker Change: Your next question comes from Patrick Kenny with National Bank Financial. Your line is now open.
Speaker Change: Thank you, good morning. I just wanted to go back on the performance of the condensate infrastructure in the corridor.
Speaker Change: Obviously well positioned as TMX was ramping up there. Just wondering, you know, how we should be thinking about additional upside from here or, you know, white space available without having to spend material dollars going forward.
Speaker Change: or if and when we see further egress expansions come to light, whether it's down the mainline or Trans Mountain, would that call for incremental investment into your condensate capabilities over the next couple of years to handle that additional wave of volume?
Speaker Change: That's a great question Patrick and you know I'll turn that over to Jamie but one of the things that I'd like to point out is that you know the beginning of 2023 when we bought an additional 22% interest at KFS
Speaker Change: Really, we focused on the frack capacity that we're acquiring because that was in such high demand. But with it, we also received 0.2% of 17 million barrels of cavern storage.
Speaker Change: So that gives us some capacity to provide additional services for
for the oil sands as an example.
Speaker Change: and we do have the hub for for for diluent. You know about 70% of all the diluent that goes up to oil sands
Speaker Change: originates from our system. So as demand increases for diluent, certainly we see you know that demand and volumes on our system increase.
Speaker Change: I would also point out that that we have our NORLAI pipeline.
Speaker Change: which is a joint venture with Enbridge, we own 30% of it. So, you know, we see increasing demand there as well. So overall, we're pretty well positioned to help service the oil sands business and also help it enable growth.
Speaker Change: Yeah, the only thing I'd add to that, Pat, is that we have a really good handle on, obviously,
Speaker Change: the system, our condensate system, our Fort Saskatchewan condensate system, with respect to what would be required to accommodate that growth. And, you know, we've
Speaker Change: identified it would be nominal dollars or, you know, it's going to take some dollars but not big dollars and ultimately there'll be very high rate of return dollars to invest in expanding the capacity of that system.
Speaker Change: Okay, that's great guys, and then I guess with the balance sheet in great shape, maybe this is for Eileen
Speaker Change: There's no need to sell anything, obviously, but I'm curious, given...
where the Canadian dollar is.
Speaker Change: if there might be any opportunity to monetize any non-core or perhaps underperforming assets in the U.S.
Speaker Change: especially with your four and three quarter U.S. notes coming due later this year. Just curious if the plan is to roll those over and keep a small level of USD debt within the cap structure or again perhaps look to dial that back.
Speaker Change: Hi Pat, I'd say overall in the USD debt, relative to our size today, it's not super material. I mean, it's something that we're always looking at, whether it is to roll it over or just pay it down. Again, given where the balance sheet is today, I think we have lots and lots of flexibility, and that's a great place to be. I think it's a huge competitive advantage for us.
Speaker Change: In terms of dispositions, Pat, you saw that in 2024 we did sell off a number of our smaller non-core assets.
Speaker Change: And that's to make sure that we can focus our attention on assets that are more core to our business.
Speaker Change: both today and into the future. So, you know, we're pleased with that. And I just say overall, we continue to evaluate our portfolio and we will continue to high-grade it over time.
Speaker Change: Okay, perfect. So last one if I could on the AEF outage. Apologies if I missed it but I just wanted to confirm that this
Speaker Change: new operational issue. It doesn't give you any pause as it relates to that debottlemaking opportunity you were looking at.
Speaker Change: Or maybe on the flip side, might this six weeks of downtime just give you a chance to do some prep work and perhaps accelerate the timeline for the five to 10% expansion?
Speaker Change: Thanks, Pat. It's a great question. It would be nice if we'd be able to do that. What I would say is the outage work we need to do doesn't really impact the DeBottleneck project in any way. We continue to still develop that. As far as pulling things forward to try to do that in this outage, whether it's related to DeBottleneck or even the turnaround in 2026, there just isn't time to do that. It's unfortunate. It'd be great to do that. We try to whenever we get an outage, but it's really going to be just specific to the work.
Speaker Change: that we need to do now and then to turn around 2026 so that the bottleneck project will stay on their original timelines.
Okay, that's great. I'll leave it there. Thanks everybody.
Thanks. Have a good day, Patrick.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Nate Haywood with ATB Capital Markets. Your line is now open.
Nate Haywood: Thanks very much. Good morning all. I just wanted to turn the focus back to the GNP business and I appreciate your comments.
Speaker Change: around the DuVernay and Spirit River, but focusing more on the north.
Speaker Change: We saw in the commentary that there's some additional spending towards connections for new customers at WAPITI, and we saw really strong volumes to close out the year in the northern region in December, which was a really big step up from volumes we saw earlier in the quarter. So I just wouldn't mind getting your take on the volume outlook from the region and maybe if the exit 2024 rate is a good utilization going into 2025.
Thank you.
Speaker Change: Good morning, Nathan. Thanks for the question. I'll turn that over to Jamie to respond.
Jamie: Yeah, Nate. So, yeah, we have had some really good positive contracting momentum around all our northern GMP assets, but certainly around Wapiti, we've
Jamie: We've gotten to a point now where we're fully contracted on the initial capacity of that facility. And the reference is we did some tie-in work back in the fall during one of the routages, and we've got one more customer that we've contracted for that's going to be delivering volumes in 2026.
Jamie: and that's what that tie-in is referenced to. But fundamentally, obviously, the Monteney is a world-class resource. And as we look at...
Jamie: how we're going to be able to work with customers to be able to satisfy their growth aspirations. You know, we're really looking at how can we optimize around our Simonette facility that has available sulfur processing capacity and front-end capacity at that facility. And we've got a lot of interconnection and pipe in the ground that allows us to shift some volumes around in that Wapiti, Gold Creek, Simonette area.
Jamie: also looking at greenfield opportunities as well, or expansion opportunities at our existing facilities. So lots of conversations going on, very positive and constructive conversations.
Speaker Change: And again, I just want to emphasize that all the opportunities that Jamie's team is working on, they're also working on integrating those deals. So it's not just GNP, it's also CAPS, FRAC, and our downstream business, including marketing.
God, I appreciate the commentary.
Speaker Change: Just maybe turning back to the capital projects with KFS3 and CapZone 4, sounding like they're making good progress. I just wanted to know if you can provide some detail around the construction environment you're seeing going into the latter half of 2025 and into 2026 and maybe some considerations around cost inputs.
Nate Haywood: That's a great question, Nate, you know, given the, you know, our plans and
Nate Haywood: plans of others across the province and, you know, particularly in the heartland. But I'd say it's not a new challenge. You know, we've had times in the past where there's been periods of high activity that have really challenged the availability of resources. And, you know, in the recent past when we were doing CAHPS,
Nate Haywood: There was significant other pipeline construction in Western Canada at the time. So, you know, I think a key is looking further out and both around construction and operations personnel that we'll need when those projects are done. And the earlier that we identify those needs and the sooner we can get on it. So, you know, a couple of things that come to mind are contracting strategies in terms of
Nate Haywood: who we use and how we structure those arrangements. So, you know, it'll take some creativity to ensure we can get the quality workforce we need. And, you know, in terms of our own operations, folks, you know, I think about even just the importance of culture. You know, we know workers have.
Nate Haywood: choices in this environment and we want to be an employer of choice. So, you know, it's a good problem to have, since it means we've got line of sight to growth, but it's definitely top of mind for us as we develop those projects.
Thanks very much. I'll turn it back.
and Dan Cuthbertson. Thank you. Thank you.
Nate Haywood: There are no further questions at this time. I will now turn the call over to Dan for closing remarks.
Nate Haywood: Okay, thank you all once again for joining us today. For any remaining questions, just feel free to reach out to the Investor Relations team. I hope everyone enjoys a nice long weekend for those who have the extended weekend here.
Thank you.
Nate Haywood: Ladies and gentlemen, this concludes our conference call for today. We thank you for participating and ask that you please disconnect your lines.