Good morning. My name is Anas, and I'll be your conference operator today. At this time, I would like to welcome everyone to Keyera Corp.'s year-end conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press star, then the number two. Thank you, I would now like to turn the call over to Calvin Lok, Manager of Investor Relations. You may begin.
Thank you and good morning. Joining me today will be Dean Setoguchi, President and CEO, Eileen Marikar, SVP and CFO, Jamie Urquhart, SVP and CFO , and Jarrod Beztilny, SVP , Operations and Engineering. We will begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions. I would like to remind listeners that some of the comments and answers that we will provide speak to future events. These forward-looking statements are given as of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, refer to Keyera's public filings available on SEDAR and on our website. With that, I'll turn the call over to Dean.
Thanks, Calvin, and good morning, everyone. I want to start by reflecting on the past year and recognize the success we achieved delivering several new financial and operational records. The 2021 results reinforce our strategy and they highlight the value we can create for customers and shareholders. Along with higher commodity prices and a more favorable industry outlook, our strong results were a direct result of our focused efforts in five key areas. First, we improved our safety performance and decreased our total recordable injury frequency, while nearly doubling the number of hours worked compared to last year. Second, we demonstrated ESG leadership by setting meaningful emissions reduction targets and advanced our diversity and inclusion programs. Next, we maintained financial discipline through conservative leverage metrics and incorporated a revised and more rigorous capital investment framework.
We increased our competitiveness by completing the optimization program of our South Gathering and Processing portfolio, which has led to lower per unit costs and higher per unit margins. We also improved reliability across the business, most notably at AEF, where we set a new annual production record. We strengthened our integrated value chain by bringing on more underground cavern storage and building a direct propane supply connection to the Heartland Petrochemical Complex near Fort Saskatchewan. We also made meaningful progress on KAPS, which comes into service in the first quarter of 2023. While we advanced our strategic priorities, the business delivered strong financial results in 2021. In Gathering and Processing, we delivered record annual realized margin and processed 1.5 BCF per day of gas in the Q4 , volume levels we haven't seen since early 2019.
Contributing to these results were the Pipestone plant, which ran at above 90% capacity through the second half of the year, higher throughput at our Wapiti gas plant, and continued positive momentum in the South region. The Liquids Infrastructure segment also delivered record margin for the quarter and the full year. Record volumes flowed through our industry-leading condensate system, and our underground storage business delivered its best-ever margin contribution. We also had strong performance from fractionation business, which continued to operate near capacity. With highly contracted and consistent cash flows, these assets form the cornerstone of our NGL business. We'll see the strength of this segment further enhanced when the KAPS pipeline is complete. The Marketing segment delivered CAD 323 million of realized margin, which exceeded the top end of our guidance. Shifting to our priorities for 2022, we've identified several key priorities.
They include a continued focus on safety performance, maintaining a strong financial position, successfully executing the KAPS project materially in line with our sanction expectations. The project is currently over 40% complete and on schedule to start up in Q1 of 2023. Continuing to optimize returns on previously deployed capital by filling and debottlenecking capacity while continuing to improve reliability and effectively managing costs across our business. Now I'll turn it over to Eileen to provide an update on our Q4 and 2021 financial performance.
Thanks, Dean. Adjusted EBITDA was CAD 294 million for the quarter and CAD 956 million for the full year of 2021, the highest annual adjusted EBITDA ever, as both the Gathering and Processing and Liquids Infrastructure segments delivered record margins in 2021. Marketing delivered contribution of CAD 323 million for the full year, exceeding the top end of the guidance of CAD 320 million. Net earnings were CAD 90 million for the Q4 and CAD 324 million for the full year of 2021. Dividends declared and paid for the year were CAD 1.92 per share, resulting in a dividend payout ratio of 63%, which remains well within the company's targeted range of 50%-70% of distributable cash flow. Now moving on to capital spending.
Growth capital spending was CAD 438 million for 2021, which is below the previously provided annual guidance range of CAD 460 million-CAD 490 million. The difference is mainly due to a timing difference of approximately CAD 45 million in spending, largely related to the KAPS project that was expected to occur in 2021, which will now occur in 2022. As a result, the capital guidance range for 2022 is being revised upwards to CAD 570 million-CAD 610 million. Our year-end 2021 return on invested capital was 14%. All other previously provided guidance for 2022 remains unchanged. We exited the year in a strong financial position.
The company ended the year with net debt to adjusted EBITDA ratio of 2.4 ×, which is stronger than the target range of 2.5-3 ×. We will continue to actively manage our leverage profile in 2022. As we continue to fund KAPS, we expect our net debt to adjusted EBITDA to temporarily go above our target range of between 2.5 ×- 3× . That said, we expect our debt leverage metric to return to the target range in 2023 as capital expenditures are reduced and KAPS in other areas of the business generate incremental EBITDA. We also continue to look at opportunities to recycle capital into higher return and more strategic opportunities. For example, last month, the company closed the sale of the Hull terminal.
Net proceeds to Keyera were $40 million, which includes approximately $32 million for the asset and $8 million for the value of the inventory. Proceeds from the sale will be applied towards further strengthening the company's balance sheet. I'll now turn it back to Dean.
Thanks, Eileen. To wrap up, we see several macro factors that support a positive longer-term view of our basin and our business. These include Canada's abundant low-cost supply of natural gas, combined with natural gas broadly gaining recognition as an important fuel for a lower carbon future. Continued egress expansion to high-value markets, fueling strong demand and increased investment in the basin. Lastly, strong government support for petrochemical sector growth and for emissions reduction initiatives such as carbon capture and storage. All of these factors combine to create a multitude of opportunities for Keyera to leverage our existing footprint to generate strong returns for decades to come. We can play a key role in Canada's energy future. On behalf of Keyera's board of directors and our management team, I thank you for your continued support. With that, I'll turn it back to the operator for Q&A.
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 touchtone phone. You will hear a three-tone prompt acknowledging your request, and your question will be pulled in the order they're received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Robert Hope with Scotiabank. Please go ahead.
Morning, everyone. First question is on KAPS. What are the natures of the cost pressures that you're seeing there? And can you remind us some of the puts and takes that you're seeing on costs, and then, sorry, and then remind us how much of the costs you have seen locked up so far?
Morning, Robert. It's Jarrod here. We are seeing some cost pressures on KAPS, certainly. I think, you know, despite that, we don't materially expect it to differ from our sanction estimate. I think one important thing to note is that we've talked about before is escalation in steel costs, and that's largely behind us. We expect all our pipe to be in hand by the end of this quarter, so that's a significant challenge that's no longer on the table for us. In terms of locked-in costs, we're on the order of about two-thirds that have been secured. I think it really speaks to the early contracting strategy we used when we were initiating construction, and that's been beneficial for us.
Again, we remain on track to come in not materially different than our guidance.
All right. Appreciate that. Just moving over to the Pipestone and the Wapiti plant. You know, we're seeing Wapiti being held back by its water handling. Pipestone's operating at high utilization rates. You know, how are the conversations moving along to potentially debottleneck or expand these plants?
Yeah, Rob, maybe just as a starter, I'll take it before I turn it over to Jamie. That is a very desirable area, and we certainly see a lot of activity already and you know talk to a lot of producers, not just our existing customers, but other customers as well that have plans to grow in the area. We think that's incredibly you know exciting for our facilities and especially where they're located. Yeah, we continue to have those discussions and you know we don't have anything firm to report at this point, but you know we certainly feel encouraged. Do you have anything you want to add, Dean?
Yeah, Rob, it's a great question. The focus right now is on the debottleneck at Pipestone. We consciously put in a larger refrige unit than we thought necessary just to get after the liquids, because that's a big part of our business. That gives us an opportunity now to pursue a debottleneck at the facility. We're in meaningful conversations right now with what that would look like contracting-wise. On the expansion, yeah, we have to be just really disciplined around how we contract for that expansion to ensure that, you know, if drilling plans change in the future with our customers, that we're ensured that we're gonna get the desired rate of return on that capital spend.
Expansions can be very quickly filled up and then very quickly actually become very empty if you don't have the right contracts in place.
Maybe just to add to that. At Pipestone, we are working at a small demo-debottleneck project there that is backed by a contract.
Thank you.
Your next question comes from Robert Kwan with RBC Capital. Please go ahead.
Great. Good morning. If I can start by coming back to CapEx. I'm just wondering, are you over the CAD 800 million by a modest amount at this point, or are you just signaling that you've maybe eaten through the contingency, and you're just seeing the pressures out there?
Yeah, Robert, I'd say that, you know, we are feeling that pressure, but we still got a long way to go in the project. You know, as Dean noted, we're 40%, a little over 40% through, so we've still a lot of work to go. We're in the midst of our peak construction season right now. This winter is key for us, so we'll know a lot more next quarter. Again, at this point we don't see anything significant from that CAD 800.
All right. On that comment that two-thirds has been secured, is that two-thirds of what's left to spend, or is that two-thirds of the total, call it just CAD 800, but you've already spent CAD 328 of it? If you can just comment in terms of the one-third that's exposed, like, what are the major buckets, you know, within that one-third, such as construction?
Yeah. The two-thirds Robert was intended to represent the overall cost of the project. You know again in terms of the materials I think that's a piece that's largely behind us. What's really left to go now is labor and the construction effort. A good portion of that's locked in, but there's still a number of variables, weather, COVID, factors like that that could influence productivity.
Got it. Okay. Might I just finish with a question on the way you're approaching returns. You know, it seems like there's a little bit more focus here on ROIC. Ultimately, the question relates to how you're thinking about project deployment of capital going forward, with respect to your comfort with deploying capital, with returns that maybe just are a little bit more on the come versus via partially contracting, similar to what you did with CapEx. What's your comfort level with that? Or we should expect more of a take or pay fully contracted approach going forward?
Yeah, I mean, you know, Eileen's on us all the time, so she cracks the whip. Yeah, definitely, Robert. You know, I think the amount of risk that we're prepared to take on a given project would be certainly less going forward. We're gonna look for a much higher contracted return in order for us to deploy capital in the future.
Just how do you think about using ROIC, though? Because when you look at the definition, it benefits from shrinking the denominator, and this quarter's has a couple of different things in that, in selling, you know, an underperforming asset in Hull or the impairment at Rimbey. You know, all things being equal, that improves ROIC, yet it's not really improving profitability.
Yeah. You know, I'll let Eileen comment about this as well. You know, I guess what I can say is that we have different investment hurdles internally. You know, I think for simplicity and something that people can calculate based on public information, we've used something, a simple calculation. We put a lot more rigor in terms of, again, the financial hurdles that we, you know, expect to achieve internally.
Okay. Great. Thanks.
Your next question comes from Matt Taylor with Tudor, Pickering, Holt & Co. Please go ahead.
Great. Thanks for taking my questions here. I just wanted to go back to Wapiti, Dean. Can you start filling that phase two today, or do you have the liquid handling bottlenecks? I just wanna be clear on that point.
You wanna answer that, Dean?
Yeah. Matt, thanks for the question. We certainly have the ability to fill phase two today. We did some work back in December with one of our customers that assisted in some of the water handling bottlenecks that we had at the facility. You know, obviously, our customer and us invested some capital to enable their growth aspirations and, you know, we've obviously seen some of that materialize early in this year, but we fully expect that we'll see further growth. Now, you know, there is limitations with respect to how much we're gonna be able to grow without having to handle some additional bottlenecks at that facility.
Our expectation is we'll start to see some inlet volumes that would be in excess of the first phase, which is 150 million a day at Wapiti.
Yeah, yeah, Matt, if I could just add to Jamie's comments. I mean, certainly we can use a portion of the second train capacity, but we would have to invest more capital to use the full capacity of the second train. You know, I think the things that Jamie's team's been working on is, as he mentioned, you know, we're trying to also use third-party facilities in the area. We're trying to minimize the amount of capital that we have to deploy to fill that white space. As Jamie said, we've actually tied into a third-party water disposal facility. And instead of us, again, making that investment, let's use someone else's facilities and bring the gas to our facility. That's one of the strategies.
Another thing that's also maybe gonna help us in our favor a bit going forward is one of our customers where they're drilling now is gonna be in more of a gassier area and with lower liquids cuts, including water. Again, that just helps us bring more of a pure stream of natural gas to the plant. You know, not creating further bottlenecks in areas that are already tight. Those are some of the things that, you know, I think that we have kind of going in our favor that, you know, might help us add more volume to that facility.
That's great. Thanks for that. Just in terms of using a more temporary solution and a third party versus getting to that full capacity on phase two of having to spend CapEx, is that something that's contemplated in your CapEx guidance today? Or do you need to, you know, assess how much that may cost and your customers' needs and then update the market at some other point?
Yeah, like, you know, like we were saying, I mean, Matt, we have more capacity that we can add to that facility without adding capital. That is gonna be step one. As we get to the point where we think we need to debottleneck, we think that that's some point in the future, like, you know, maybe second half of next year or maybe 2024. You know, we'll address it at sort of that time. Our first priority right now is to utilize the capacity that we have available.
Great. Thanks for that, Dean. I just wanted to move over to liquids. Really strong print there. Wanted to get some sense. I know you've messaged previously, you know, a decent run rate is about CAD 100 million a quarter, just in terms of us thinking through that business versus what you printed there in Q4. Can you give us some sense of how much of that performance was tied to higher storage revenues from a good pricing environment and higher interruptible condensate volumes above your take or pay levels and try to get a sense of how much of that you could continue to see above in 2022 above that run rate, CAD 100 million dollar level?
Maybe I'll start, and then Jamie can certainly add in. There is still a little bit of seasonality. Typically in that Q4 to Q1 period, there tends to be a bit of a pop, mainly because of the propane. Like Josephburg is certainly more active with all of the propane that's moving out. That's what we tend to see, you know, in that Q4 to Q1 period.
Yeah. Just the underlying fundamentals, Matt, is that, you know, you touched on them. You know, I mean, obviously we're starting to experience some record volumes through our condensate system. You know, frack capacity is tight in the province, regardless of the Plains outage. You know, we fully expect, as we have in the last couple of years, to have our Fort Saskatchewan assets fully implemented. Storage continues to be, you know, valued by our customers in high demand. You know, really, it's all of the above. You know, just our customers are. You know, commodity prices are very strong, and our customers are seeing the benefit of that, and as a result, so are we.
Great. Thanks for that, Jamie. One last one, if I may, on U.S. butane blending. You mentioned in the report there that margins are currently economic and that you might see some underutilization at Wildhorse, which might push out the returns on that project there. My understanding is most of that is contributions that would show up in Marketing. Is that impacting the way you're thinking about run rate guidance? Obviously, you know, more to come on that, whether or not you release run rate guidance. I'm just trying to think in terms of, you know, some of these facilities on the U.S. butane blending side that might not be normal and how that might be impacting your thinking on Marketing.
Yeah. As you point out, look, I mean, we'll be in a better position at Investor Day in six weeks to give, you know, guidance. We'll be through our contracting season in Western Canada, which really drives the primary contributions to the organization. As it pertains to the U.S., yeah, certainly the fact that butane has softened substantially in the U.S. is going to be a favorable contributor to, you know, the commercial value that a terminal like Wildhorse contributes. You know, having said that, you know, it's still a challenge that that facility, you know, is gonna be challenged to really provide, in my mind, a strong contribution consistent with what we would've assumed at sanction based on the huge backwardation of crude right now.
It's like it's a challenge to make money, you know, on the crude blending side. You would see right now Cushing, the storage levels at Cushing are at a historic low just because of that fact.
You know, we're still confident in the asset going forward. Certainly, you know, there's a challenge for the conventional blending operations, how to cushion given the current conditions. Those conditions are very favorable for other parts of our business, but for this specific part of our business, you know, I would say better days ahead with respect to Wildhorse.
Great. Thanks, Jamie. Thanks for taking my question.
Your next question comes from Patrick Kenny with National Bank Financial. Please go ahead.
Thank you. Good morning. Just on this asset sale program, could you provide any color on which other assets might be considered to be non-core? Curious if Wildhorse would be in that bucket, just given the cash flow challenges you mentioned relative to the potential price tag there, and then I guess the credit accretion on that one. Also if you could maybe comment on your Edmonton assets, you know, thinking at Base Line. Just wondering how you're thinking about your crude oil terminals in general being core to the business, or not at this point.
Hey. Good morning, Pat. It's Dean. You know what? We're not in a position right now to sort of share with a lot of detail, I guess what we plan to dispose of. You know, I think generally what I can say is that we're trying to get more focused in our operations though, and really focused on the parts of our business that are just very highly integrated. Again, where areas that we can continue to grow at and also transition. That would be just sort of a general overview. We're trying to match that also with, you know, again, just the ideal of timing for the crystallization of value of assets so that, again, we're maximizing that value for our shareholders as well.
We're just trying to marry some of those factors together. Overall, we do have a sort of ongoing disposition program.
Pat, I might just add to that.
Yeah, thanks for that.
Sorry, it's Eileen. You know, I think you can think about it, the criteria that I think we use is like, you know, we think about how is the asset contributing currently and in the future? You know, how does it impact our leverage metrics? How does it fit within our overall emission reduction targets and goals? And then, you know, how does it fit with our goal of increasing stability of cash flow and not take or pay. So those are some of the things we'll think about as we think about divestment.
Yeah. Thanks, Eileen. This may come out at Investor Day, but would you be looking to establish perhaps a target range with respect to total sale proceeds that you'd be looking to bring in over, say, the next 12-18 months?
Probably not something at this point that we can talk about, but maybe more at Investor Day.
Great. Moving over to carbon sequestration. Can you just confirm if you guys did participate in the Industrial Heartland RFP process? If not, maybe what other sequestration opportunities across your portfolio might be, say, on the front burner through 2022?
Yeah, you know, Pat, I guess we won't comment on, I guess, maybe confidential kind of situations like that, whether we participate or not. Generally, I can say that we are interested in CCUS and, you know, we do have a strong asset position already in the Industrial Heartland that we think we can leverage, also for CCUS as well. You know, we do have interest generally in that area. We think that we have other areas of interest in our operations in the south G&P portfolio and also in north as well.
Okay, great. Last one from you guys. Just on the contracting front for KAPS, this is probably another confidential one, but just directionally, can you provide a bit of an update as to, you know, how much of the initial capacity is spoken for? I believe you were at 70% this time last year. Maybe just any comment on whether or not there's been any change to scope or the reach of the project, given, you know, some of the activity levels that you've been witnessing over the past six months or so?
Yeah, we haven't updated our initial guidance, Pat. You know, I guess I'll let that stand. Generally, as we've been saying is that the discussions that we're having with our customers have been more and more engaging for sure. I mean, if you just look at their balance sheets, you know, they're starting to think a lot longer term now versus obviously a year ago. You know, we obviously follow the Blueberry, you know, First Nations and also the government of B.C. and what's happening there. When we talk to our customers, we get a sense that they're feeling a lot more confident in terms of, you know, some resolution happening here in the visible future.
With that, I would just say on both sides of the border in terms of that Montney Fairway, there's just more optimism. Again, that's just leading to more engaging discussions with our customers and CapEx.
All right. That's great. I'll leave it there. Thank you.
Thank you.
Your next question comes from Andrew Kuske with Credit Suisse. Please go ahead.
Thanks. Good morning. If we could maybe focus just on the interplay of your business activities and just some of the increased exports of butane and propane off the West Coast. You know, you don't necessarily have direct involvement all the time in that business, and you don't own the assets that ship it. How do you think about the tension there of, is that a threat or an opportunity? Maybe related, did you have any benefit or burden from just the flooding activity that happened in British Columbia during Q4?
Hi, good morning, Andrew. You know, first of all, we think it's great that there's access to higher value markets for all of our products in Western Canada. I mean, it's something that we've lacked for forever. It's never been about the amount of resource that we have in our basin. It's just again, it's market access. You know, when we think about NGLs in particular, it's great that we have access to Asia off the West Coast of Canada. We see volumes continuing to increase in our basin. In our asset base, our strategy has always been to give our customers maximum flexibility.
Most of them like to be able to access a basket or a portfolio of markets, just so they're not captive to one place. Also, logistically, you know, they don't wanna be maybe just, you know, fully exposed to the logistics of getting, you know, their products by rail to the West Coast either. You know, we can offer again access to the West Coast to the U.S. markets. Mid-Continent has been very strong. Also local markets, including, you know, obviously, there's a PDH facility that's about to start up as a local industrial propane market. We see a growing demand for solvents, propane and butane solvents in Western Canada that, again, we think it's an opportunity that we can serve in the future as well.
Again, our strategy has been to offer our customers maximum flexibility to access all those markets, and we think it's good for the basin.
Okay. That's very helpful color and context. Just upon the flooding, did you have any detriment or benefit in the quarter?
Andrew, it's Jamie. No, it did not impact us. In fact, it probably was a slight benefit based on where our flexibility, as Dean said, with respect to the markets that we're able to hit.
Okay, great. Just to follow up on what you mentioned a little bit of this PDH that's coming up and running later on. Have you seen any behavioral difference just from willingness to contract or just a way of doing business with, you know, the new owner of those assets and Cochrane and everything that goes with it, you know, versus the past and what you dealt with?
It's Jamie again. I wouldn't say we've noticed any noticeable difference, certainly around the PDH facility. We've already, as Dean said, we've got an interconnection there and we're helping our customers facilitate being able to access that market. You know, on the other parts of the business, you know, certainly there's opportunity in our eyes to do business with Inter Pipeline regardless of whether it was the previous management team or the current management team. We continue to have dialogue with Inter Pipeline on what might hold value for both our organizations.
Okay. Thank you very much.
I think.
Oh, sorry, Dean.
We have a good relationship. Yeah, we have a good relationship with Brookfield and both their entities, you know, NorthRiver and now Inter Pipeline. You know, we see them as a valued partner.
Okay. Thank you.
Your next question comes from Linda Ezergailis with TD Securities. Please go ahead.
Thank you. Just wondering if you could maybe give some high-level thoughts around the guardrails of your financing plan the next couple years, not just to fund CapEx, but also refinancing some maturing debt securities. In a potentially or very likely rising interest rate environment, how do you balance maybe like pre-financing, pre-funding, locking in long-term capital financing versus potentially retaining some flexibility depending on how your asset sales work out? I guess the two-prong question to that is how are your discussions with the rating agencies kind of influencing how you think of those guardrails and what your options are?
Yeah. Thanks, Linda. Yeah, as we think about our guardrails, I mean, that 2.5-3 × leverage is kind of what we use. That keeps us very well in line with the rating agencies. So those, you know, we have good relationships with both DBRS as well as S&P and have had recent reviews with both of them. As I think about, you know, 2022, certainly we do see that debt level going up toward the end of the year, especially, you know, with AEF coming, having their six-week outage and then the maintenance capital. We do see that coming back down in line.
When we think about capital allocation and our priorities, you know, we would look to reduce our debt through 2023 to bring that back into, you know, those guardrails of that 2.5-3 ×. Then it's looking at, you know, our other options between weighing it, you know, as we look into 2024, 2025, growth capital versus returning capital to shareholders. Those are kind of how we're looking at it. In terms of interest rates, yeah, absolutely. You know, the good thing is we don't have anything material really coming due until 2024, so that's very, very positive for us. You know, I think about we were about, you know, a little over CAD 250 million drawn on our line of credit at the end of the year.
Certainly, I think, you know, we always look to term out debt, and so potentially it makes more sense to do that earlier in the year versus later when there are several interest rate hikes expected.
Thank you. Recognizing that capital markets can change and how you return capital to shareholders will change over time, any thoughts evolving around the merits of discrete dividend increases potentially tied to new assets coming into service versus maybe a smooth profile over time?
You know, again, I step back and I think our, at the end of the day, our goal is to focus on increasing that distributable cash flow on a per share basis. We will weigh all of those options. Again, grow capital, dividends, share buybacks. I'll leave it at that.
Okay. Thank you. I'll jump back in the queue.
Your next question comes from Ben Pham with BMO. Please go ahead.
Okay. Thanks. Good morning. Maybe I can start to go back to the non-core asset conversation, asset recycling. Maybe I can ask it in a way, are there any assets in your portfolio that are highly core to you, sacrosanct, and that you would never sell at any price? You mentioned integration is important for you, but maybe I'll take it from the perspective of core assets.
Well, I guess we'll say never say never, because we're always trying to add value for our shareholders. You know, really, I'd say the nucleus of our asset base is Fort Saskatchewan. I mean, you know, that's a product of probably 30 or 40 years of all the connectivity that's been built over that time period to get to where, you know, that property is today. Obviously we have those same advantages now because we have great connectivity to the, you know, to the Josephburg undeveloped land that we acquired in 2017. You know, that would be sort of core to our business.
As Eileen said, I mean, we're also looking at areas where, you know, first of all, that we have very strong competitive advantages, but where we can bring more of that contracted cash flow into our business and also feed the whole integrated value chain. 'Cause that's really the benefit of Keyera is that every time we touch a molecule and it moves through our integrated value chain, we generate a fee or we earn a margin at the end. We wanna continue to build on that sort of concept in that part of our business. KAPS will be tremendously important once that's in place. We certainly think that our Montney assets are actually very, you know, very valuable as well.
Again, you know, we're also looking to try to continue to increase our long-term contracting on the G&P part of that business.
Maybe I can follow up. Would you ever consider, without naming a core asset, like would you consider selling down, say, 10% small slice, charging an operating fee to... You mentioned around boosting returns. Would you be open to something like that?
Bill, again, without going into specifics, we're here to create value for our shareholders. You know, can we be creative in looking at different alternatives? Yeah, we'll look at everything, but it's going to be, again, a net value add for our shareholders.
Okay.
Not just for today, but long term.
Maybe one more for you. On going back to the KAPS project. Has your view on how the volumes and returns are ramping up when you first announced it changed at all? Just seeing how the trends have been. Do you think or do you that there could be maybe repositioning on scope in response to maybe some of the petrochemical build up that you could be seeing?
You know, like I said before, I mean, I think we feel pretty good about KAPS and the interest in KAPS based on the discussions that we're having. Again, the outlook that we have for the basin and the need for competition, a competitive alternative for NGL pipeline transportation out of the Montney. We do believe that KAPS, you know, could create other opportunities like, you know, potentially providing ethane feedstock as an example in the future. Again, the only way we would pursue that type of opportunity is if it were highly contracted to secure our rate of return in advance.
Yeah. Maybe just to clarify that point, I mean, the returns you're targeting is 10%-15%, and you've maintained that even with the last CapEx increase. You also, I think, when you first announced that, there was a phased return approach over three years or so, is that still what you're expecting? Or maybe you pulled forward a better return in the front end?
Yeah, it's still phased. Again, you know, again, the target range, the simple range is 10%-15% return on capital.
Okay.
Again, back to like KAPS, you don't get all your volumes on day one. There's certainly a ramp up to that profile.
That's just on the pipe. There's all the downstream benefits as well on top of that.
Okay. All right. Thank you.
Your next question comes from Robert Catellier with CIBC Capital Markets. Please go ahead.
Yeah. Good morning. Only a couple follow-up questions, Loch. In the CEO message, you mentioned implementing a new rigorous capital investment criteria. Can you please describe that and you know, what's really changed there?
Yeah. You know what? If we're perfectly honest, you know, we probably invested in some areas that we wouldn't invest today. I know there's a lot of background noise on the line, but maybe mute your line. Yeah. Sorry, Robert, we first of all wanna be more focused in terms of the type of businesses that we invest in or assets that we invest in. As I said before, we're looking for a much higher contracted portfolio profile before we sanction a project. Again, we're not willing to take as much risk as we did in the past.
We really wanna focus on, again, assets that are really integrated and probably more so focused on our Canadian business now. Again, with all the egress that is getting built, has been built and getting built, we certainly see more growth, you know, in our basin. We're very well positioned here and have a lot of competitive advantages. We wanna continue to build on that. Obviously, KAPS is a great example, but we see a lot of good downstream opportunities like in Fort Saskatchewan, and some of that is like fractionation storage that Jamie referred to earlier. Beyond that, you know, we think we can continue to find great opportunities in that area with good counterparties.
Okay. That's helpful. There's also a comment about, you know, increased supply of octane blending components being imported to U.S. Can you provide more color there? You know, do you think this is an ongoing impact? What do you expect from this development?
Sorry, I missed the first part of what you just said. Could you repeat that, please?
I think the MD&A had a comment about increased supply of octane blending components being imported into the U.S. My interpretation was that's you know some product competition for AEF. Can you describe what you're seeing there and whether there's an expected to be an ongoing impact?
Yeah. Robert, it's Jamie. I wouldn't characterize it as it's a competing product for our product because, you know, our product is a superior product from an RVP perspective and an octane perspective. It certainly weighed temporarily on the premium that octanes have in the North American market. That frankly is just as a result of gasoline demand not responding and recovering as quickly on other parts of the world as it did in North America. As a result, the refineries that were creating octanes as part of their process saw North America as a higher value market. That product was diverted to North America for that period of time.
What we've seen in the last couple months, however, is that those octanes are now staying frankly where they belong, which is where they're produced. As a result of that, we've seen a rebalancing in the North American market and premiums have come back to historical levels, which is a positive outcome obviously for our isooctane business. Because once again, that product is, you know, we don't have any issues selling the product. It's just ultimately, you know, the price that we're gonna garner as a result of what those isooctane premiums are.
Yeah. Thank you very much. That's a good color.
Thank you. There are no further questions at this time. Mr. Lok, you may proceed.
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