Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Keyera Corp's third quarter 2021 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 would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. Thank you. I would now like to turn the call over to Mr. Dan Cuthbertson, Director of Investor Relations. You may begin.
Thank you and good morning. Joining me today will be Dean Setoguchi, President and CEO, Eileen Marikar, Senior Vice President and CFO, Jamie Urquhart, Senior Vice President and Chief Commercial Officer, and Jarrod Beztilny, Senior Vice President, Operations and Engineering. We will begin with some prepared remarks from Eileen and Dean, after which we will open the call to your 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, please refer to Keyera's public filings available on SEDAR and on our website. With that, I'll turn the call over to Dean.
Thanks, Dan, and good morning, everyone. The steps we've been taking to increase the competitiveness of our assets enhance our integrated value chain are setting us up well for the future. With commodity prices at multi-year highs and positive industry momentum, we're seeing an increase in demand for our services. In the Gathering Processing segments, we have available capacity at our plants, which allow us to capture increasing volumes and generate incremental margins. The optimization program in our south region produced a consolidated portfolio of our most efficient plants. This translates to lower per unit costs and higher per unit margins, making us more competitive. The Nordegg River Gas Plant was originally planned to be shut down next year as part of our optimization program. However, because of increased demand in our capture area, we have now canceled the suspension of this facility.
This means the optimization program we launched in 2020 is now complete. This resulted in increased plant utilization in our southern region, CAD 50 million in ongoing annual cost savings to be fully realized in 2022, and a 12% reduction in absolute emissions compared to 2019. With the program complete, we can now better direct our future investments to the remaining plants to drive further efficiencies, including emissions reduction. In the north region, Pipestone continues to set new quarterly highs. At Wapiti, we quickly regained momentum after a planned maintenance outage. There continues to be work at Wapiti aimed at increasing reliability and long-term performance. This work will progress while the plant operates and is expected to cost about CAD 5 million in the fourth quarter. Moving now to our liquids infrastructure segments. Our assets continue to be highly utilized and generate stable cash flows.
We're seeing continued high demand for our fractionation, cavern storage, and transportation services. At our KAPS project, construction is well underway. The pipeline is a critical link that will further integrate our value chain, expanding our service offerings for our customers. It's an end-to-end solution that will deliver value to producers and margin growth for Keyera. As we already know, the Montney is set to drive the next era of growth for Canadian natural gas and NGL production, and TAP is positioned to be an integral part of enabling this growth. Visible catalysts include growing export capacity for natural gas, NGL, and crude oil; increased in-basin demand from coal to gas switching; an expanding petrochemical industry in Western Canada, including a new net-zero ethane cracker announcement; and the startup of LNG Canada in 2025.
Our marketing business continues to enable Keyera to deliver premium returns by leveraging our infrastructure assets and employing a disciplined risk management program. With strong year-to-date performance and our ability to lock in margins for the remainder of the year, we are once again raising our guidance for the segment, where we now expect to deliver between CAD 300 million and CAD 320 million for the year. Turning to our ESG priorities. During the quarter, we issued our 2020 ESG performance summary. Highlights include a year-over-year 15% reduction in absolute emissions. In the coming weeks, we'll release our first climate report, which will include emissions reduction targets and other information aligned to TCFD. With more tailwinds than we've seen in quite some time, I'm excited about the outlook for our business.
The hard work we've done during the downturn has positioned us well to capture the upside of the industry recovery. Now I'll turn it over to Eileen to provide an update on our financial performance.
Thanks, Dean. Adjusted EBITDA for the quarter was CAD 214 million. This was impacted by CAD 25 million in realized hedging losses on product inventories.
These losses are expected to be more than offset by physical sales over the next two quarters. Distributable cash flow was CAD 149 million and net earnings were CAD 70 million. The gathering and processing segment delivered realized margin of CAD 76 million. This result was impacted by a planned maintenance outage at the Wapiti gas plant, as well as reduced ethane volumes at Rimbey. The combined impact was about CAD 8 million for the quarter. The liquid infrastructure segment delivered a quarterly realized margin of CAD 98 million, with high utilization across our key assets. Performance was impacted by lower seasonal propane loading and a planned outage at a third-party facility in which we own a minority interest. The marketing segment contributed realized margin of CAD 59 million.
As Dean mentioned, we are increasing our 2021 marketing segment guidance and now expect to deliver between CAD 300 million and CAD 320 million this year. We expect strong performance from the marketing segment into Q4 and Q1 of 2022. This provides incremental cash flow that ensures the continued strength of the balance sheet as we execute our growth capital plan. Moving on to capital spending. We've revised our expected CapEx for 2021 to range between CAD 460 million and CAD 490 million. The increase is mostly due to higher costs to complete the South Cheecham sulfur facility. We also increased maintenance capital spending to range between CAD 40 million and CAD 50 million. The increase is mostly due to maintenance work being conducted at the AEF facility.
We also provided 2022 capital spending and cash tax guidance in this morning's news release. Maintenance capital for next year is expected to be between CAD 100 million and CAD 120 million. About CAD 60 million of this is for planned six-week maintenance outage at the AEF facility in the third quarter of next year. Growth capital is expected to be between CAD 520 million and CAD 560 million, of which about CAD 450 million is related to the KAPS project, and cash taxes are expected to be between CAD 15 million and CAD 30 million. For reference, there is a detailed maintenance turnaround and outage list included in this morning's news release. We exited the quarter in a strong financial position.
Net debt to Adjusted EBITDA was 2.7 x, well within our targeted range of 2.5x-3 x. We have CAD 1.4 billion in available liquidity. I'll now turn it back to Dean.
Thanks, Eileen. We're feeling encouraged and optimistic about the future. We have strong macro backdrop, fully funded growth projects well underway. Our balance sheet remains strong and our customers have never been in better shape. 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 conduct a question- and- answer session. As a reminder, if you would like to ask a question, please press star followed by one on your touch tone phone. If you would like to withdraw your question, please press star two. One moment please, for your first question. Your first question comes from Rob Hope of Scotiabank. Please go ahead.
Morning, everyone. I know it's early days, but you know, looking out to 2022, especially Q1, how much of the marketing margin have you locked in there in terms of propane? Then how are you thinking about higher butane costs or the, I guess, or how do you think butane costs will trend through the winter and then into the new NGL year?
Thanks for the question, Rob. This is Jamie Urquhart. On the propane side, yeah, we've locked in essentially the margins that we would historically be realizing in the winter season. We're well positioned on that side of our business. On the butane side, you know, lots of different dynamics going on in butane right now with respect to increased exports out of North America, but also just seasonal winter demand that has prices elevated.
Based on our current outlook and others of the third parties that would publish their views and ultimately the forward curve in North America, you know, we would expect, and I think we've been telegraphing this over the last year or so that we'll get back likely to more historic butane levels for the upcoming supply season.
All right. Appreciate that. Turning over to the GMP side of the business. The decision to keep Nordegg running, you know, are you seeing, you know, an acceleration of growth at your plants? Especially, you're getting a little bit tight at the northern plants. The southern plants have been moving up. Maybe some commentary on how you think volumes trend into 2022.
Yeah, Rob. It's Jamie still. Yeah, I think that's bang on. I'd put it pleasantly surprised with respect to how quickly our producers have got their balance sheet in order and getting after drilling. Obviously, commodity pricing is a big part of that. You know, the fact that we've got Cal 22 AECO pricing north of CAD 4 and also 2021 north of CAD 5.50. You know, we've seen producers obviously accelerating their drilling programs, you know, even in 2021 to take advantage of that strong winter pricing. Those things all went into our decision to keep Nordegg running at least for the next four years in its turnaround cycle. That's a reflection of activity throughout the south, right?
Like, I mean, everybody hopefully is reminded that we have very strong interconnectivity between all those facilities in the south. As a result of that, Nordegg is just an element of the overall network that we operate.
Yeah. Rob, maybe just to add to Jamie's comments, is that, you know, we did have discussions with the producers in that area behind that facility. You know, based on their plans, you know, we thought that was the right decision to keep going, which is great for us and them as well.
All right. That's great. I'll hop back in queue. Thank you.
Thanks.
Your next question comes from Matt Taylor of Tudor, Pickering, Holt. Please go ahead.
Yeah, thanks for taking my questions here. Going back to GMP, just following up on Rob's question there. With the north region largely contracted besides Simonette, when you guys are talking about capturing this upside, are you talking about more gas-directed drilling in the south region, or are you looking at doing some bolt-on expansion opportunities? I'm thinking about Pipestone since it's already fully utilized.
Matt, it's Jamie again. Yeah, I think all of the above, right? Like, I mean, certainly we're seeing continued elevated activity up in the north and continuing to find ways to maximize the utilization of those assets as well. Pipestone would be right in the heart of what we view as being the best geology in the Alberta Montney. Yeah, then back to the south, it's just a function of you know, strong commodity pricing, allowing people to access really good geology very close to existing infrastructure, and therefore can get their production on in a quick manner.
Yeah, Matt, and maybe to add, at Wapiti, we actually do have a fair bit of capacity left that we can contract. Again, we think there's opportunities there. You know, the production of that region is very liquids heavy. We're looking at ways to handle the increased liquids volume and utilize the infrastructure that we already have in place, which is the gas plant. You know, we've had a number of discussions with different customers in the area. Again, we think that there's some good opportunities. I think down south of Wapiti, which is in Simonette region, again, we have more capacity there as well.
You know, as you'd know, I think there's starting to be some early developments, more so in the Duvernay. I guess we'll see how that you know, plays out in 2022 and beyond. Certainly at these price levels, there's more attractiveness to see that play.
That's great. Thanks for your answers there. Just as a follow-on to that, is it a function more of upside coming from excess capacity and you being able to push volumes through there? Or is there a margin component here too, with some of the cost saving initiatives that you've done, where you'd be able to earn more on each molecule that's going through your plant?
Yeah, I think, you know, if we just think of things overall, I mean, you know, it was pretty tough circumstances over the last few years, right? You know, as our contracts come up for renewal and, you know, with the commodity prices where they are, I think over time, it provides an opportunity for us to restructure some of our contracts that could be more beneficial for us and our shareholders, which is, you know, again, reflective of the commodity price environment that we're in today.
Okay, great. Thanks for that. One last one, if I may. Maybe a question for you, Dean. You've talked about future capital being weighted towards the liquid segment. Wondering if you could comment on the mix you'd be willing to do there, whether it's development and/or M&A to grow that business, and how you're focused and what you're focused on there. If it's just acquiring or developing contracted assets, or do you see some strategic value in maybe buying or developing assets that may be less contracted but help you capture more volumes for KAPS and give you some downstream optionality?
Well, you know, definitely we do wanna increase our contracted base. Returns are first and foremost for us, so, you know, our allocation of capital is first and foremost. We won't do anything unless it's a value add for our shareholders. It certainly has to be strategic, you know, in terms of our greater footprint. You know what? I think we could see opportunities in different parts of our business, you know. As Jamie said, I mean, we're seeing a lot of demand in our northern Montney gas plants. Could we make some investments there?
Yeah, it's very well possible, but we're gonna make sure that we have the contracts and the contractual certainty to back those types of investments if we, if we, you know, if we're gonna pursue them. I think it, you know, post-KAPS, you know, I think the strength of our company is in the, is in the Industrial Heartland, between Edmonton and Fort Saskatchewan. We have an incredible footprint there that is also capable of helping the industry transition. If you think about, you know, some of the petrochemical developments that, are likely to happen in the future, some of that probably aren't announced yet. You know, they're gonna require services like, what we could provide, which is, you know, feedstocks, you know, fractionation, storage, de-ethanization kind of services.
We see a lot of opportunity in the Industrial Heartland, where we have a big advantage already because of the footprint that we have.
Okay, thanks for that. Thanks for taking my questions, everyone.
Thanks, Matt.
Your next question comes from Patrick Kenny of National Bank Financial. Please go ahead.
Thank you. Good morning. Just wondering, guys, if you can provide an update on how the outage at the Plains PFS facility is impacting your business. You know, whether you're having to manage any bottlenecks upstream or on the flip side, if there's been any incremental volumes coming your way until the facility is back fully up and running.
That is Jamie. Yeah, certainly the challenges Plains has had has tightened up the frac market in Alberta. And that's created some challenges for primarily you know industry in general and the customers that we collectively deal with. You know, the opportunity we see is we're working with those customers that maybe have been impacted by the outage and just ensuring that their production and the value of their production is maximized. You know, that's the opportunity in the short term. Ultimately, our ability to help those customers out hopefully will translate into longer term relations and value for our shareholders.
With KFS operating at full capacity, and given the outlook for drilling activity, are you in discussions today with customers regarding an expansion of KFS, or when might we hear of some development there?
Yeah, we're always obviously looking to expand our business. As Dean said, though, you know, we need to make sure that we've got the contracts in place to make sure that that's a good investment for the company and our shareholders. Yeah, we're always talking to customers and looking forward with respect to when we think frac capacity is gonna be required off of our network. Certainly, KAPS is a big part of that as well when that gets in service and ultimately provides another you know, alternative for customers for bringing NGLs down into the Fort Saskatchewan area. Sorry for the long-winded answer, yeah, we're obviously in conversations with all our customers.
Yeah, Pat, you know, certainly we see further growth in our basin, you know, because of some of the drivers that I talked about before. You know, certainly a lot of increased egress for our basin, which is fantastic. You know, our KAPS pipeline is gonna grow over time and deliver more of, you know, mixed volumes to Fort Saskatchewan. You know, we do think that industry is gonna require more frac capacity at some point in the future. We are very well positioned. I mean, we have obviously a very competitive site. A brownfield development obviously is much more economic than someone else trying to build a greenfield one somewhere else. We have the best connectivity at that site, which obviously makes it valuable.
Again, we're very well positioned when the time comes to, you know, to increase frac capacity.
Okay, thanks for that. Maybe last follow-up for me, just maybe you can just help us distill the opportunities that you see for Keyera, related to Dow's net-zero project announcement.
Well, you know what, first of all, I mean, Pat, I think that this is incredibly exciting. I mean, it's not sanctioned yet, but I think it's incredibly exciting potential for Canada, for Alberta to have the world's first net zero ethane cracker. You know, I won't specifically speak to them. I think there's other companies that are looking at petrochemical developments in the Industrial Heartland. But obviously, as a big driver of feedstocks, I mean, we have a lot of feedstocks in our system. It's part of our strength of our company, you know, in terms of all the assets that we have and our expertise. Yeah, we have feedstocks, we have de-ethanization, we have fractionation, we have storage capacity and expertise around that and transportation.
All infrastructure and expertise that would help enable projects like the SNEP project that Dow is doing. Generically, we think that we're very well positioned to capture some of that upside in the industry.
Excellent. Thank you for that. I'll jump back in the queue.
Your next question comes from Linda Ezergailis of TD Securities. Please go ahead.
Thank you. Maybe I can just build on Pat's question and ask for a bigger picture vision of how Keyera might participate in the pet chem value chain. The AEF facility also could be expanded brownfield. There are potentially opportunities for extension down the value chain as well. Maybe you can provide some guardrails as to size, how willing you would be to partner with others, whether it be on brownfield facilities or new greenfield facilities, and how ultimately that might translate into a shift in your business mix overall.
Thanks for the question, Linda. That's a lot. You know what? Overall, I think our industry has to get better at, you know, developing strategic partnerships. Part of that is that we have to think about how our basin and how Canada and how Alberta is gonna be competitive globally. I think to be competitive, you have to be super efficient in terms of your cost to be competitive, but you also have to be a leader in terms of ESG and emissions. I think that we can solve for both, but to be really good at it, we have to work together. In Industrial Heartland, you know, we always have active discussions with different players that are looking at developments there.
As I said before, there will be a need for more petrochemical feedstock, and whether that's ethane or propane, you know, obviously butane is a big part of our integrated value chain. We can be a big supplier for that. I think over time, there's gonna be demand for lower carbon versions of that. You know, when we think about our gas plants, our frac facilities, our DF facilities, over time, you know, we'll work to to you know, lower the carbon footprint of those facilities so that the products that we process are a lower carbon version, which is gonna you know, help feed the the you know, the future low carbon petrochemical development. I think there's opportunities there.
We have great pipe connectivity between Edmonton and Fort Saskatchewan. Again, that existing pipeline infrastructure we can continue to leverage in terms of you know transportation that's required within the Industrial Heartland. Whether that's you know hydrogen in the future, which I think that you know there's good potential for that or you know CO2 that's possible, but we do have some capacity to make some of that happen. You know I think any petrochemical development certainly needs storage. We have the largest underground storage position in Fort Saskatchewan already. It's a very core part of our expertise. In our industrial undeveloped land Heartland land we have 1,300 acres there, which we have most of the underground storage rights to.
Again, as the industry needs more storage capacity, we can build it right there. As it relates to AEF, you know, we already have a premium gasoline additive and again, we think that we can continue to increase the value and demand for that product if we go down a path to decarbonize it, which again, we're looking at opportunities to do that there as well.
Thank you. As a follow-up, as you look at the opportunities related to energy transition, is there potentially a way to accelerate that through acquisitions to either gain capabilities or new assets that maybe can't be achieved through innovative partnerships? Conversely, might there be a rationale for divesting of some assets that might be of higher value to other energy infrastructure or energy participants that can maximize the value in other ways, beyond what you can do with the assets?
Yeah. You know, first of all, we are absolutely looking at our portfolio and assets that are not core to our future. Certainly we'll look to dispose of some of those. You know, again, when we think about energy transition, I think that our best opportunity is to leverage with what we already have. The Industrial Heartland is not going away, and in fact, there's gonna be more development there. What we need to do is help that industry again with the feedstock they need, but also to decarbonize the products that we handle and also help to decarbonize the industries that are within that fairway. We see great opportunities to do that.
Again, it's leveraging off of the infrastructure we already have and the expertise that we already have.
Thank you. I'll jump back in the queue.
Thank you, Linda.
Your next question comes from Ben Pham of BMO. Please go ahead.
Hi. I had a question on the KAPS project. In your report, you've mentioned more pressures on your broader business with utility costs and power costs and whatnot, and you had the Cheecham project also experiencing CapEx pressure. Are you still confident in terms of that CAD 1.6 billion CapEx budget for KAPS?
Yeah. Hey, Ben, it's Jarrod here. The project's tracking on plan in terms of cost and schedule and, you know, certainly, we are seeing some inflationary pressures, I'd say particularly around the labor market. We're monitoring those closely, but really nothing material at this point. You know, the other portion of that we've been monitoring throughout the project has been steel costs. Again, the majority of that's been contracted already and our pipe production will be complete in early 2022. The remaining exposure in that regard is limited. A long way to go yet, but we're feeling pretty good about where we're at from the cost perspective.
Okay. That's great. You mentioned the utilization improvement in the South. What are your thoughts about phase two on Wapiti, Simonette and potential timing?
Ben, it's Jamie. You know, as Dean was saying is that, you know, our
One of the characteristics of the Wapiti Montney formations is high liquids loading of the production as those wells come on. We've seen that over time, where, particularly, water, the water cut has come on quite significantly at the beginning of bringing wells on, and ultimately has leveled off into what we would've expected when we built that facility. As the producers are developing up around that area, that is one of the challenges that we face.
As we, you know, continue to see more maturation of the wells that are being drilled there, you know, and we are finding alternative mechanisms by which to handle the water, that's giving us more line of sight as to how we're going to be able to fill up Wapiti. That's a progression. You know, we fully expect that by mid 2022, we'll have the first phase of Wapiti full from the processing side, and ultimately then get some momentum into starting to fill up phase II.
Okay.
Maybe I...
Yeah.
Maybe if I can just add to that, Ben. You know, generally we see a lot of demand in the area and from producers that have been you know inactive, now they're getting more active in the area, which is great. We have more diversity of potential customers. You know, our philosophy is that we wanna fill that second train with the least amount of capital. It might require some capital to develop some parts of the infrastructure that feeds it. We're also trying to leverage off of infrastructure that exists in the area. You know, there's a third- party service provider that has a water disposal facility in the area.
Let's go fill up their facility first without deploying more capital, and so that we can direct more gas to our gas plant. That's our overall strategy. You know, the demand's there. The question is how do we fill it with the least amount of capital?
Oh, yeah. That helps a lot more. I just wanted to clarify on the additional CapEx. I mean, didn't you already spend monies to facilitate that phase? Or maybe I have that wrong.
Sorry, I'm not sure if I understood your question, though, Ben.
Yeah. Well, Wapiti phase II, you've spent close to CAD 1 billion for entire phases, and you've added some water disposal infrastructure at the same time. I would think as the volumes come into the Montney, those areas, that wouldn't just be an immediate benefit to you, but that would help any CapEx.
I mean, from what Jamie, you know, sort of what Jamie said is that, you know, what the liquids capacity at that facility in some areas, some parts of it is nearing capacity. We don't have enough liquid handling capability to, you know, to maximize the capacity of the gas plant itself. That's where, again, we're trying to use third-party facilities for that liquid handling to, again, just try to utilize our gas plant more.
Okay. I got it. I understood. Sorry about that. Maybe my other question is you looked towards 2022, like where do you think you're gonna trend on debt to EBITDA? Where does it peak? Have you talked to credit rating agencies around that temporary bump up before it trends lower into 2023?
Ben, it's Eileen. Based on our forecast today, we're quite comfortable funding capex from, you know, cash flow and using the balance sheet. We don't see any requirement for any discrete common equity. There's always other levers that we can pull, such as the sale of non-core assets, as Dean already spoke about. That's something that we are always looking at. Again, you know, in general, we are okay to go above our 2.5x-3x leverage target for a short period. As capex ramps up in 2022, the leverage comes in line quite quickly as capex starts to generate cash flow. There have been no issues with rating agencies based on our forecast.
Okay. That's great. Thank you.
Your next question comes from Robert Catellier of CIBC. Please go ahead.
Hey, good morning, everybody. Most of these are gonna be follow-ups, but I just wanted to dig into the Dow opportunity a little bit more. It doesn't seem like the timing is perfectly aligned for KAPS in terms of getting an ethane pipe in that KAPS trench. So maybe you could just talk to that, how the timing lines up with some of your current projects and the ability to maybe get an ethane pipeline in the KAPS system.
Good morning, Rob. Yeah, I mean, if there were demand for an ethane plus line, ethane mixed line, NGL mixed line, yeah, it would not be able to be built, constructed with the timing of KAPS, because obviously we're building it today. We would never pursue that project though again, unless it were contractually underpinned where we could achieve our rate of return with that contract. If so, we could build it. Incrementally, you know, whether we built it with existing two lines or we built it separately, we've looked into it and the cost isn't significantly different. You know, if there's demand for it, we could absolutely create a solution. Yeah, hopefully that answers your question.
Yeah. Just do you have a sense of big picture understanding that Dow hasn't officially sanctioned the project, but it does sound like it's gonna be a reality, but just in terms of timing, in terms of when they would need supporting infrastructure and have to start contracting for that?
You know what? I can't speak to Dow deeply at this point. I mean, I think more generically, Rob, is that we're obviously in the business to provide services to our industry and we are very well positioned. You know, whether it's Dow or anybody else, if you look at our infrastructure in the industrial heartland, and if you wanna use Dow as an example, I mean, they're sandwiched. We're sandwiched on either side of them, you know, with our undeveloped land to the east at Josephburg and our KFS land. You know, we have a lot of pipe connectivity that goes right through their land. You know, again, we have a lot of infrastructure in the area that can enable petrochemical development, whether that's Dow or anybody else.
Right. Just moving on to the drilling here, just to follow up a bit on your decision on Nordegg. Maybe you can mention which producers, but if you don't wanna talk about your customers that way, then which plays and which other plants are seeing the most activity there are supporting the decision to keep Nordegg open?
Yeah. Robert, it's Jamie. Yeah, I hope you can understand why we wouldn't share any specifics around what producers, but you know, like, I mean, anybody with AccuMap or geoSCOUT can figure out who's drilling around those facilities. That is, you know, the formation is primarily the Spirit River, a very economic play, you know, especially in today's commodity price environment. You know, the facilities around Nordegg, Brazeau River, Nees-Ohpawganu'ck plants, that we're partners with Spartan Delta, the Strachan gas plant, those are all in the fairway of you know, the developments and the activity that we're seeing.
I would say that there's one pretty active private company in the area. Again, I think their strategy is maybe a little bit different than the public owners. I mean, they see the commodity prices today and the economics they can generate and they're taking full advantage of it.
Yeah. It's gotta be irresistible at this point. I just want to follow up on the AEF business and the isooctane margin compression. I mean, the curve itself speaks to compression of those margins 'cause of the higher butane costs. I'm wondering how much of that you think is structural. I think your earlier comments referred to going back to more traditional levels of pricing for butane. Do you think there's anything structural going on based on pet chem demand, butane exports that might actually cause prices for butane to go higher than what you've seen traditionally?
Yeah. Robert, there is just a ton of things going on in the world right now that's, you know, a function of why butane pricing is where it's at right now. You know, maybe we could take that offline with Dan and his team 'cause we'd be happy to share our thoughts. You know, I could eat up the next 20 minutes talking in detail about all the global dynamics that's driving butane demand and ultimately pricing.
Okay. Fair enough. We can take that offline. Just, I noticed there was some recontracting on the condensate side for storage and other services. I wonder how much of the book was recontracted and, you know, is it similar terms, or what can you tell about the relative change in any of the economics there?
On the condensate side?
Yeah.
Yeah. I mean, you know, there were two meaningful contracts within our book. Can't really share from a percentage perspective what percentage that they would account for, but all those contracts are long-term contracts. This was an opportunity to work with a customer, frankly, that had an existing contract that made sense for them and made sense for us to extend that contract out and provide some flexibility for their business that also made sense for Keyera.
Is this a blend and extend type deal?
Yeah. I can't really get into the details other than to say.
Okay.
It made sense for us, and it made sense for them.
Okay. Thank you.
Your next question comes from Andrew Kuske of Credit Suisse. Please go ahead.
Thank you. Good morning. I'll apologize in advance because this question is going to have a lot packed into it. And it really sort of speaks to the nexus of your strategy, your operational performance, and just the finances in relation to emissions profile. And just how do you think about, you know, paying a carbon tax, you're generating offsets, or buying offsets, and what's really the dynamics around your decision process, you know, now on a go-forward basis? And then maybe a collateral question to that is, you know, does Canada need a 45Q-like credit system to really stimulate investments now?
It's a big macro question. You know what? I think, too, you know, I won't comment specifically on what policies will work or not, but certainly with the increasing carbon taxes, you know, they go up to 170% by 2030. It's certainly gonna motivate companies to find ways to reduce their carbon footprint. So for us, we model all of our facilities and how we can continue to improve. As we said, we're gonna be issuing our reports under TCFD reporting standards here later this year, starting in November. So that's gonna be up shortly, I guess, in the next couple weeks. We're gonna outline sort of our targets of
Which I think are very meaningful of what we're gonna do concretely in the near to medium term and in the longer term. You know, it's sending the right behaviors. You know, we think Canada can be a very responsible country in terms of resource development and also competitive from a production extraction cost as well. You know, as a midstream service provider, you know, we think that we can offer services that help enable that. So again, I guess maybe to answer your question is, I think the carbon taxes already are gonna drive us to a path of carbon reduction.
Us and the rest of our industry is already heading down that path.
Okay. That's helpful color and context. I guess, you know, when you look at your portfolio of assets right now, just from an emissions reduction standpoint, would you target investments on your emissions reductions activity, whether they be CCS or something else, on your fractionators and your gas processing facilities, just because the high intensity of the emissions that come off?
Yes, absolutely. You know, part of that could be power, part of that could be CCUS. You know, low carbon power, CCUS. I think what's also gonna evolve is that, you know, we certainly believe that to have low carbon feedstocks in our system is gonna be also a competitive advantage because the end purchasers, you know, they're gonna have to look at, you know, all scopes of their emissions, you know, and if they have a low carbon product sale, they will be able to achieve a premium for it, I believe. You know, it backs up for us, you know, how do we get a low carbon product feedstock in our system to deliver to them? Again, we'll get a premium for that as well, I believe, in the future.
If I may sneak in just one more, and it's related, and it's really, do you see a bridging of your efforts on your carbon and emissions reporting with your capital program in the next, you know, year or two?
Yes, very much so. I think, you know, as Dean said, the emissions targets that we will be disclosing in a few weeks, it very much drives strategy. When I talk about strategies, you know, what are we going to be investing in in the future, and what might we be divesting of as well to fit those emissions targets, I would say, overall. As Dean already alluded to, you know, we have the assets that can really be an important part of the overall solution.
Okay. That's very helpful. Thank you very much.
Your next question comes from Robert Kwan of RBC Capital Markets. Please go ahead.
Hey, good morning. Let me just start with a question just on the NGL market as you think out to 2022 and a bit of a recontracting season. Just with you know, frack space getting tight, whether that's just in general or with the Plains outage and the NGL mix in market getting a little bit sloppy here, what do you think we'll see for frack fees next year?
Yeah, Robert, it's Dean. Oh, sorry. Did I cut you off?
No. Yeah, obviously, you're probably not gonna give us a specific number, but just if you can frame it like you did on butane, you know, where we are today versus where you think we might be going into 2022.
Yeah. Like, I mean, certainly, even without the Plains outage, we're starting to see a tightening of frack capacity versus demand as we see growth in the basin. You know, simple economic supply-demand is that obviously if demand is outstripping supply or getting close to supply, then you know, one logically could look to be able to increase fees. I think we look at it probably longer term, Robert, with respect to you know, how can we work with our customer to develop maybe a longer term relationship or commitment that would enable us to solve the underlying problem, which is frack capacity in the basin.
You know, like, I mean, it's not to say that there's not an opportunity maybe to charge slightly higher fees or maybe it's an opportunity to recontract and put some term on it that would enable us to be able to backstop an incremental investment. There's lots of different ways that we might be able to take advantage of the current situation.
Got it. Just thinking long term and having that in a give and take relationship, as well, just with the mixed market, again, getting a little bit sloppy. Is that feeding into just your commentary around butane returning to more historical levels versus the very favorable levels we have this year, notwithstanding that historical levels are still pretty meaningfully below the butane to crude relationship we're seeing right here, right now?
Yeah, correct. Like, you know.
At historical levels, our business is still an attractive business based on historical butane costs. We've had an environment where the pricing is being, you know, below those historical levels, and that's obviously been beneficial to our business. You know, once again, we look at it from a longer-term perspective. Ultimately, you know, to reiterate, you know, we believe that based on, you know, all the different dynamics within the butane market in North America in particular, that we would expect that, you know, we'll be able to contract at historical levels next year on the butane side.
You know, propane, you know, obviously, interesting, you know, commodity as well with respect to the impact of exports, but also, you know, ultimately, significantly low storage levels in North America right now and a huge backwardation in the curve into 2022. You know, we look at that and just from a fundamentals perspective, see opportunity as well for, you know, being able to contract, you know, propane at prices that would allow us to, you know, make historical margins off of that commodity as well.
Got it. If I can just finish with a higher level question. There's been a lot of discussion on the call about all the different potential projects you can be involved with, in the Heartland area, whether that's traditional or energy transition. You have that large, spare land position. You've been in no rush really to move on it. I think you've just been trying to get the highest value creation and the right contract structure. I guess, how far out do you think, you know, based on the different projects that you're looking at and discussions you're having, that we might, you know, hear more about, development on that spare parcel?
Well, that's a good question, Robert. You know, certainly we have a lot of discussions on the land, so it's not like it's been sitting dormant and we haven't been trying to create opportunities on it. We actually do see opportunities. The timing of that, I think that, you know, we're looking within sort of the next five years. You know, when there could be more announcements on there, you know, it's hard to say. I mean, we have a lot of very engaged discussions with different companies with, I think some really exciting opportunities. You know, it's just a question of, you know, the timing of our customers' plans and how definitive they are with them. You know, we do see a lot of opportunities.
We think that there's momentum that's gained. You know, we'll have to see just how this plays out. You know, we certainly see good opportunity there.
Again, it still sounds like it's something that's a little far out. Obviously, if somebody steps up with an offer you can't refuse, then obviously something could happen sooner. Is that kind of the right way to think about it? Though your base plan is still several years out.
Well, you know, I'm not sure how you're thinking about it from an offer perspective, but the way we think about those lands is that we wanna create an industry hub there where you know, we wanna build economies of scale. We already have great connectivity at that site. We have underground storage. Pretty much any development you need, you need to be able to have underground storage to help support almost any kind of service. We can access both rail lines from that site and put unit train tracks on there. So, you know, in terms of the infrastructure and what we'd require for a really large scale industrial development, we have all the pieces for it, you know. If you look at the proximity, I mean, we're right adjacent to Dow.
We're kitty-corner to IPL/Brookfield and their PDH facility. Shell Scotford is to the north. We have pipe connectivity all the way down through the industrial heartland right down to Edmonton. You know, we have, I think, a very attractive piece of land to attract development to there and we provide services to enable it. You know, in terms of what you might describe as an offer, we're just trying to help enable development in our province, in that industrial heartland, and I think we have the pieces to help make it happen.
Yeah. The only thing I'd add, Dean, is that, you know, KAPS runs right through that piece of land as well. So, you know, that's a component of our overall strategy and offering as well.
That's great. Thank you.
Thanks for your question.
Ladies and gentlemen, there are no further questions at this time, so I would like to turn the conference back over to Dan Cuthbertson. Please go ahead.
Well, thank you all again once again for joining us today. Please feel free to reach out to the investor relations team for any additional questions, and we're happy to help you go through your modeling after the call here. Hope everyone has a good day. Thank you.
Ladies and gentlemen, this does conclude the conference call for today. We thank you all for participating and ask that you please disconnect your lines.