Earnings Call: Q1 2021

May 12, 2021

Good morning. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera Corp's First Quarter 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your question, please press the pound key. Thank you. I would now like to turn the call over to Dan Cuthbertson. You may begin. Thank you, and good morning. Joining me today will be Dean Setiguchi, President and CEO Eileen Maricar, Senior Vice President and CFO Jamie Urquhart, Senior Vice President and Chief Commercial Officer and Bradley Locke, Senior Vice President and Chief Operating Officer. We will begin with some prepared remarks, after which we will open the call to questions. I would like to remind listeners that some of the comments answers that we will provide speak to future events. These forward looking statements and 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 now turn the call over to Dean. Thanks, Dan, and good morning, everyone. I'd first like to take a moment to acknowledge frontline workers and those working to administer vaccines in the fight against COVID. We appreciate your efforts and dedication. I would also like to acknowledge our employees, Many still working remotely for their commitment to safety and their continued efforts to keep our assets running safely and reliably for our customers. At Keyera, our top priority continues to be the health and safety of our people and the communities in which we operate. About this time last year, global energy markets faced significant uncertainty. I'm pleased to share that Keyera remained resilient. And in this last quarter, we've seen encouraging signs of recovery. That's reflected in strong performance across all three segments of our integrated business and in our Q1 financial results. Volumes in our gathering and processing business increased by 7% compared to last quarter, including 5% growth in our South region, leading to strong financial performance from the segment. This result represents a year of hard work and close collaboration with our customers, which aligns with our goal of being number 1 in customer recognition. Our Liquid Infrastructure segment delivered record results for the quarter, resulting from continued high demand oral services, including strong deliveries from our industry leading condensate system. Our liquid segment provides essential services to a wide range of customers throughout the basin and continues to deliver the best returns in our portfolio with stable contracted cash flow. These attributes will remain our focus for future growth capital, which includes the CAPS pipeline project. We also had solid performance from our marketing segment, supported by strong pricing across the commodities we service. Yesterday, we announced a significant increase to our 2021 guidance for the segment, which Jamie will speak to shortly. We're pleased to deliver these 1st quarter results, but we also continue to focus on our goal of delivering superior shareholder returns over the long term. And that means we must continue to maintain our strong financial position, Keep improving our safety and reliability, delivering our efforts to maximize efficiencies and prepare for energy transition. A strong balance sheet and financial discipline have long been the hallmarks of our business. Our conservative coach Again, has again served us well through this last commodity price downturn. Today, our balance sheet remains in good shape with low leverage and ample capacity to fund our CAPS pipeline project. We continue to take steps towards improving our safety and reliability performance. We recognize the importance of full factors in delivering superior customer recognition and total shareholder returns, and we continue to hold ourselves accountable. We continue our pursuit of being the most efficient operator for our customers and growing margins This allows them to get their products to the highest value markets. We also see opportunities to apply technology and Innovation to improve safety, reliability and lower emissions. We recognize the world is undergoing a transition Towards a low carbon future. Investor supports and government policy are further enabling this transition. We believe the Canadian Energy Industry has an advantage in its ability to continue to responsibly deliver the energy the world needs. At Keyera, we want to be part of the solution and view this transition as an opportunity. Later this year, we will set emissions targets that will consider a wide range of efforts that we have underway. To close on a more general note, the Canadian Energy Industry is also showing some positive signs that point recovery. For the first time in many years, pipeline export capacity for both oil and natural gas will soon be adequate to meet industry needs. And with growing local demand from the petrochemical industry and better connections to overseas markets, the trends for natural gas liquids such as propane also look encouraging. In addition, recent consolidation amongst producers are also good for our industry as it creates stronger players who are better positioned for the long term. I'll now turn it over to Jamie to provide an update on our commercial activity. Thanks, Dean, and good morning. As Dean mentioned, we have increased our 2021 marketing segment guidance. The higher guidance is based on year to date performance, disciplined hedging program and follows the conclusion of successful negotiations for natural gas liquid supply agreements for the contract year beginning April 1 and ending in March 2022. As a result, we have raised our 2021 realized margin guidance The marketing segment to between $260,000,000 $290,000,000 This replaces our previous guidance range of between $180,000,000 $220,000,000 The Marketing segment continues to contribute to enhance our overall corporate returns and provides funding for investments in more highly contracted infrastructure assets. I'll now take a moment to provide some broader context for our return expectations on KAPS. KAPS is transformative for Keyera. The project is highly desired by industry and it provides a link in our value chain that fully integrates our business. It brings a much needed alternative transportation solution for condensate and natural gas liquids from the Montney and Duvernay Place in Northwest Alberta, The Keyera's Liquids Hub in Fort Saskatchewan. The initial capacity remains 70% contracted under long term transportation agreements with an average term of 14 years. Based on our engagement with new and existing customers and the expected ramp up in industry activity, We remain confident that we'll be able to secure the additional contracted volumes to meet our return expectations of 10% to 15% by 2025. A reminder that this return is for the project on a standalone basis. I'll now turn it over to Brad to provide an update on how preparations are going for CAPS project and also speak to other operational highlights. Thanks, Jamie. I'm pleased to share that during the quarter, we've made significant progress on the CAPP project in preparation for mainline construction kickoff this summer. In Q1, we completed clearing almost 150 pipeline right away and pipe fabrication is well underway. The project is a great made in Alberta story. The clearing work involved 5 local indigenous owned and affiliated contractors who delivered outstanding performance And pipe fabrication is currently being done in Camrose, Alberta. At the WildHorse crude oil storage and blending terminal in Cushing, Oklahoma, Mechanical completion was declared on January 29 and commissioning activities are underway. Our operations team continues to make steady progress and we expect that facility will be fully operational this summer. At Wafiti, there's been a lot of great work done by the team. We've had strong safety and reliability performance so far this year and we continue to grow facility volumes. In the Q3, we'll have a short planned outage to further ensure the future long term reliability of this asset. We also have scheduled 10 day turnarounds at Zetta Creek in June and the Brazo River Gas Plant, which is currently underway. I'll now turn it over to Eileen, who will run through our financial results. Thanks, Brad. Keyera delivered solid first quarter financial results with strong performance from each business segment. Adjusted EBITDA for the Q1 of 2021 was $225,000,000 while distributable cash flow was $165,000,000 net earnings were $86,000,000 The Gathering and Processing segment delivered margin of $79,000,000 as we reached new throughput highs at both the Wapiti and Pipestone gas plant. We delivered a record $105,000,000 of realized margins in our Liquids Infrastructure business. This performance can be attributed continued high demand for all services, including increased storage activity and strong delivery from our condensate system. And our marketing segment delivered a realized margin of $61,000,000 We continue to maintain a solid financial position. We ended the Q1 with a net debt to adjusted EBITDA ratio of 2.7 times. This is within our conservative target range of 2.5x to 3x on a covenant basis. The company has $1,500,000,000 in available liquidity with minimal near term debt maturity. In addition, we completed a $350,000,000 hybrid note offering in March. This positions us well to fund our 2021 growth capital program of between $400,000,000 $450,000,000 The majority of this growth capital will be directed towards the construction of the CAPP pipeline project in the second half of the year. With that, I'll hand it over to Steve for some closing comments. Thanks, Eileen. Keyera's value proposition It continues to be the delivery of a sustainable dividend underpinned by low debt leverage and a deep inventory of investment opportunities aimed at expanding distributable cash flow per share. Looking ahead, Keyera will continue to be a safe, reliable and sustainable operator Dedicated to serving our customers and generating value for our shareholders. We're excited about the future And we're confident we have the culture, people and assets for continued success. On behalf of Keyera's Board of Directors and our management team, I thank our employees, customers, shareholders and other stakeholders for their continued support. With that, I'll turn it back to our operator for Q and A. And your first question comes from Rob Hope with Scotiabank. Yes. Good morning, everyone. First question is on caps. Just given the improvement in commodity price environment as well The other dynamics that we're seeing in the basin. Have discussions for additional contracting capacity accelerated there? And then as well, are you seeing incremental interest from producers in Northeast BC with Some potential to get Northeast BC volumes down into Alberta there as well. Maybe I'll just ask your second question first. I mean, the announcements and the notification that was filed by North River Midstream, It's an independent system. That's a BC system. Our independent system, which is in Canada. Both systems are open access. So we like the whole concept of more competition in our basin. It's just good overall. And so we're happy to see that project continue to develop. Certainly, with more volumes being collected in In BC, obviously, that's the potential for us being able to capture some of that volume and caps is more promising. But again, And maybe on the contract and Frank you can touch on that, Jim? Yes. So certainly, as we've Finalized and confirmed our commitment to CAPS and as we shared, starting to clear trees, manufacturing pipe, That in our customers' eyes has made the project solidified as a real project. So certainly, we've Had more meaningful conversations with respect to incremental volumes. Would just temper people's expectations around timing of when we might be in a position to make Further announcements around additional contracting is most customers really do want to see a line of sight as to when that project is going to be complete. And Yes. We hope and we will continue to keep our customers apprised of the development of that project. To remind everybody that, that project is scheduled to be complete Q1 2023. We certainly expect that's going to be the case. But to reconfirm, yes, much more conversation happening with our customers, more meaningful conversation, particularly at the top end of our pipeline up in the Pipestone area. Yes, Rob. I mean, overall, We've seen some pretty robust results from our producers in this basin. And Obviously, projections are that their balance sheets are going to be pretty healthy here in another quarter or 2. There's just a lot more discussion about future drilling plans and growth. And obviously, that only Yes, it makes it more encouraging for our capital pipeline and the rest of our business. Excellent. All right. And that leads me to kind of my next question. Taking a look at the northern plants, good to see the volumes ticking up there. How are volumes tracking to take or pays? And At what point do you start having discussions about the incremental capacity at Wapiti becoming available? Yes, Rob. I mean, we've always said that, that Fairway and the Montney is It's not the most economic. It's certainly top tier within the Montney. And we're actually surprised at how quickly Drilling activity has responded based on our sort of some of the communications we had with our producers just in the fall. So we think that's very healthy. But again, this commodity price environment remains, which we feel pretty good about. We think that's only going to increase in the fall. So there's some producers in the area that aren't even delivering to us that We are now much more engaged about the potential of reactivating drilling plants and Potentially delivering to our gas plants. So again, that's very positive. And again, we've always said we're in the best stretch of the Montney, and We should be able to capture more volumes over time. Yes. The only thing I'd add is that there are some new players in the Wapiti area that We have made some acquisitions in the Cara Wapiti area that we are very familiar with in other parts of our business. So We're upbeat obviously with respect to the Wapiti gas line. Thank you. Your next question comes from the line of Linda Ezergailis with TD Securities. Thank you. I'm wondering if you can elaborate a little bit more on your experiences over the past year with respect to leveraging technology and transforming your some of your business processes that way. Clearly, many of us have accelerated our use of technology in many ways during a pandemic. And I'm wondering, what practices You might keep as permanent and further evolve the business to realize efficiencies and opportunities beyond what you currently have in your plan. Maybe I'll start with first of all, good morning, Linda. Yes. I think the pandemic, there are some benefits that came from that in terms of just us understanding what we could do remotely. We've operated our business very well, especially last year through very challenging conditions. And I credit Our technology team for enabling us to do that. So as we look forward, we're really thinking about how do we leverage off of that in the future. And So we will have some more flexible sort of work environment. We do like to collaborate still together. So We'll make sure that we continue to do that on some basis, but we will add some more flexibility. But overall, as a company, We think that technology and innovation is something that's a big opportunity for our company and something that we want to leverage in a much bigger way in the future. So maybe with that, I can just maybe pass it over to Jim or Brad and you can maybe talk about some things in your areas that you're looking at. Hi, Linda. I think certainly from an operations side, utilizing data management And data access to more centralized some of our operations and business process is something that we're spending a lot more time and energy on right now. And I think over the long term that has a real opportunity to reduce our operating costs and ultimately provide more value add services To our customers on that line. So Yes. So on the commercial side, Linda, we've got a couple of projects that were In the latter stages of implementing with respect to using some machine learning to allow our people to make better business decisions, We deal with a lot of data and asking people to be able to process that data and make the best business decisions possible. They do a great job, but using machine learning and artificial intelligence Just allows our people to make better business decisions. So we've got some applications as it pertains primarily to our commercial marketing team That we're implementing and we've seen some positive results out of that so far. Yes. And just maybe Absolutely, Linda. I think from a safety perspective, I think that, again, the technology we've been using just to communicate virtually It's been very effective. So especially in the cold winter months here in Alberta, I think it's a big benefit if we don't have as many people on the road We can do things virtually and for the safety of our people. Thank you. And on a separate note, Another trend that we're seeing is inflationary pressures on many fronts. And I'm wondering how you can comment on whether you're starting to See that in your operating or capital expenses. And if you can specifically comment on what percentage of your costs For CAHPS, it's been locked down, both in terms of what's incurred to date, but as well as more importantly prospectively and also confirm that there's no scope change contemplated for CAPS at this point. So from an operating cost perspective, I think it is fair to see that we're seeing some inflectionary pressures. Certainly, Power is one of those components. I think we do have like all of our other commodities, we do have we do actively manage our power price And hedge that out over time to take to mitigate some of the impact of that. So that's a benefit to us. Certainly, other commodities like steel and copper and some raw materials are seeing inflationary pressures as well. We're fortunate With CAPS, the fact that we had a 1 year delay allowed us to really lock in some of those opportunities So we had ordered our pipe over a year ago and secured that under a contract. Now it doesn't take all the inflationary pressure out of there, but Takes a lot of it out. So that's been real positive for us. On CAPS, we've locked down our pipes, we've locked down our mainline contractors, we've locked down another A number of key services as well. So I don't have an exact number, but it's going to be well north of 50% of our costs are already locked in For that project. So we're feeling pretty good about our confidence in delivering that within the budget that we have contemplated. And may I ask what contingency you've got embedded in that budget? Now we don't usually disclose that. But certainly, we use good project management principles To assess contingency on the basis of, thoroughness of engineering to date. Thank you. It was worth asking. Maybe, on a separate Note, your presence in the U. S. Has expanded with WildHorse. It will be operational soon. Has your expectation for the facility changed since it was originally contemplated given that we're going through a pandemic, there was the unfortunate winter Yuri, and maybe there's some changes in some of the market dynamics there as a result among other considerations. Can you comment on, I guess how WildHorse fits into your approach to the U. S. And what how it might have evolved? Yes, Linda, thanks for the question. Nothing's changed As a result of the business thesis of WildHorse, we're still very encouraged and excited about getting that facility up and running And being part of our vertically integrated value chain and enabling us to find highest value markets For the products that we do market on behalf of our customers. In particular, our U. S. Assets, WildHorse will be very integrated with our OLT asset that's been we've been very pleased with since we started owning that asset. And so yes, no, we're there's no change as a result of anything that's happened over the last 12 months. Thank you. I'll jump back in the queue. Your next question comes from the line of Matt Taylor with Tudor, Pickering, Holt Coal. Yes. Thanks for taking my questions here. I wanted to first start on your run rate marketing guidance. We've now seen 3 consecutive years of guidance revised higher with the major reason being those low butane costs. So can you talk about those assumptions? Do you think they're still relevant or do you think the run rate level is actually higher? Yes. Well, we will be Likely at the end of the year, looking to revise that base guidance, Matt. I think, well, I know one of the reasons why we're hesitating to do that is To get a better line of sight with respect to the contributions that both Galena Park and WildHorse will make to our marketing business, but also It's a significant contributor to our liquids infrastructure side of our business as well. As it pertains to butane, The contracting year that we just completed, a successful contracting year, but butane prices Within North America, we look at it, they're still dynamic with respect to the demand of butane within Western So those things do play into ultimately how marketing is going to perform going forward, Specifically as it pertains to AEF. So we're obviously looking to Having the ability to stabilize the marketing contribution as much as possible, but just recognizing that butane pricing is Still dynamic and fluctuates year to year. That's great, Jamie. Thanks for those comments there. And then, I wanted to address, You mentioned a standalone comment on your CAHPS returns projects expectation. So I just wanted to clarify that. So the opportunity to source volumes From this other open access pipeline is not considered in your return guidance. And then maybe more broadly, Does this give you an opportunity to pull forward your assumption of earning that return by 2 years after in service? Well, our return expectations are based on our forecast with respect to bringing volumes into that pipeline. And when we say returns on a standalone basis, it's just looking at that pipeline, that investment that we've announced. Obviously, there would be upstream benefits potentially with respect to some of our gathering and processing assets That would feed into that pipeline or some of our downstream assets that ultimately that pipeline will feed into and that's what we're referencing when we say standalone. Was that your question, Matt? Yes. And then just to extend a bit further, so then yes, if you're looking at your own integration on the value chain side. If there's more volumes from a separate system coming in, obviously, that's not considered. And So there might be some wiggle room in moving within that range. Is that the right way to be thinking about that? I guess, Matt, when we I think we've always been sort of open to say that we have a base level for contracting, 70% initial capacity. And to get to our 10% to 15% hurdle rate, we still need to secure more volumes. And We have a number of different ways that we can do that. We can capture a larger market share. We're talking to more producers on the upper side of the border about additional volumes That we hope to contract as well. And also there's a potential for VC volumes. So we're not specifying exactly where it comes from, but we think on a risk basis Through those three sort of sources that we're going to get to that 10% to 15% threshold. That's great. Thanks And one last thing, if I may. We saw an announcement by a competitor this morning on a new NGL system. Does that any thoughts there on how this may impact your pet feedstock strategy or any downstream conversations you're having on new frac capacity or just even more broadly, What this means in terms of the Alberta petchem strategy, just generally? I think more supplies of NGLs and feedstock are good for our basin. And we know the people that I presume you're referring to Wolf Windstream. We know them very well. And if there's any opportunities for us to work together to Increase enhance the efficiency of NGL extraction and delivery. We're happy to work with them. But overall, it's good for our basin. And The competition is what attracts more business to our province, which is what we want. Yes, Matt, as you're aware, those are incremental volumes that will be straddled Off of the natural gas systems. So we don't view those as being competition with respect to Our designs to potentially expand KFS in the future. Yes. I was referring to Competition in the sense of competing sources of feedstock for hedgehog players. Yes. No, fair point. Yes, thanks guys. I was also referencing the fact that they're looking to build out a frac as well. Yes. So, yes, thanks for addressing that question there. I'll jump back in the queue. Thanks. Thanks, Matt. Your next question comes from the line of Chris Tillett with Barclays. Hey guys, good morning. I guess, the first question, just to sort of follow-up on something Matt was asking. Given the Return of activity that we're seeing in the basin today, does it make sense at this point in time to sort of contemplate maybe expanding CAPS further west out of Gordondale into Northeast BC. Is that Something you guys are actively investigating, do you think maybe that's something that would make sense to do further down the road? Just curious to hear kind of where your heads Well, our cap system is an Alberta only based NGL solution transportation solution. So If there's demand to build it to the border, whether it's the producers that are up in the Gordale area or whether There's a pipeline system in D. C. That wants to connect to our system. It has to be underpinned by contracts to justify the incremental capital. So, do we think there's potential for that? Absolutely, but we will not make investments unless we have adequate special support for Understood. Okay. The rest of my questions have been asked. Thanks guys. Thanks, Chris. Your next question comes from the line of Patrick Kenny with National Bank Financial. Yes, good morning. Just on the Colonial Pipeline outage here and the impact we're seeing on RBOB, Any comments on how this situation is playing into your spot isooctane margins? And I guess maybe just to confirm if this short term tailwind For Q2 at least is baked into your new marketing guidance range for the year. Yes, Pat, it's Jamie. Thanks for the question. Yes, as you're aware, our above popped a little bit over the weekend and It's settled primarily. I know it popped again a little bit this morning and we expect there's going to be some volatility in the short term. It really will be determined on the extent of I think it's fair to say those that can take advantage of optionality tend to benefit from this type of disruption. And we build our business off of the ability to lock in stable cash flows, but also Be able to take advantage of optionality when it presents itself. So hopefully that answers your question. It does. Thanks, Jamie. And then maybe just looking out more on a sustainable basis for the isooctane business, Perhaps you can just walk us through some of the opportunities around clean fuel standards and what this emerging demand trend could mean for your Realized premium going forward relative to historical? Yes, sure. Happy to. Yes, certainly, we're looking at the clean fuel standard at AEF and the opportunities that it does present to us, particularly around some potential efficiencies at that site to get Our carbon intensity down at that facility. So a little early days on that, but we certainly see once again an opportunity at AEF with respect to that clean fuel standard. Part of that clean fuel standard and we look at this and I think we've telegraphed this To the market is that we are focused on trying to find higher value markets within North America. Traditionally, we've sent a lot of product down to the Gulf of Mexico and sold it out of there where we've realized higher margins, frankly, if we can find sales points within North America, both from a rail cost perspective, but also just frankly from a realized So that's going to be a continued focus for us. We've actually hired an individual that's dedicated To AEF and increasing margins out of that facility. So it's obviously really important to us. On a margins perspective, we're still seeing we're not back to sort of the levels we were Pre COVID with respect to the octane premium component of pricing of our iso octane. Certainly, crude and RBOB are At historic high, certainly on the RBOB side. But the premiums still are they're decent, but they're not back to those levels. And frankly, our view is that they're not going to get back to the historic levels until octane Worldwide gets more balanced. We're still seeing a lot of octanes coming from the rest of the world into North America because octanes are priced off of RBOB and RBOB is very, very strong in North America right now. But until we see demand for gasoline In the rest of the world, catch up to the production capabilities of the rest of the world, we're going to continue to see octanes being pushed into North America And keep those premiums at the current levels. So we expect that's going to happen, probably going to happen over the next period of time as the vaccines take hold and we see that global demand get back to normal levels. Hopefully that helps give some flavor to how we see our iso octane business. Okay. Thanks. Yeah, that's great color. Last one for me, I guess for Eileen, wondering if there could be credit rating updates here on the horizon with S and P, just given I I believe the downgrade last year was largely related to the lower commodity prices at that time, which of course, we're now back to Pre pandemic levels, not sure and I guess they would also view the recent hybrid issues being Positive to your credit ratio. So just curious on the potential timing for a rating review? Yes. Thanks, Pat. There, S and P is actually currently undergoing their annual review. And based on our So far, everything is significantly more positive certainly than it was a year ago, especially as we showed 2020 results Much stronger than they always tend to forecast. Overall, we don't expect any significant changes from where we are today, But overall, very really positive in terms of their outlook. Okay, great. I'll leave it there. Thanks. Your next question comes from the line of Andrew Kuske with Credit Suisse. Thank you. Good morning. I guess it's a big broad question where we've got an environment where egress is improving across product spectrum out of Western Canada. Commodity prices have clearly improved, volumes have improved across the board for producers. So when you start to think about the environment on a go forward basis, how does your risk management activities either stay the same We're changing evolve and adapt the market that we see now. So overall, I mean, we want to remain disciplined, Andrew. And we know that there's always a risk of So we want to we definitely want to generate upside returns, but we also want to protect our downside too. And obviously No one predicted the pandemic last year. And who knows there could be further wave OpEx Maybe not be as aligned as they are today. Other factors could happen. So we're just trying to be very responsible to our shareholders. So when we look forward, if we see sort of point prices that we can lock in better than sort of 5 year averages, We started to take advantage and layer in some of that, recognizing that prices could go even higher, but again, just securing that base. Okay. That's helpful context. And then just maybe a bit of discussion on what you view as being More captive volumes or committed volumes across your portfolio versus areas where you have maybe a bit more of a competitive dynamic? You mean you're asking like a percentage or? Rough percentage or whatever way you'd like to characterize it. I mean, I think from a G and P perspective, I mean, I don't have the exact numbers. Generally, in the north, In our North facilities where we've made new investments, particularly at Wafi and also at PriceStone, I mean, it's contracted. So we do have some of our producers that are producing above their initial commitments, which is always nice to see. As we said earlier, there are other players in the area that we're talking to that could be contracted volumes as well. In the South, they're more typically on an evergreen basis. I mean, we do we have been locking up more for longer term, generally less than 5 years. But once they're captive to your system in a lot of circumstances, not always The bonds are competitively priced, chasing the bonds are pretty stable. So I know those are just general comments. We could follow-up with A bit more specifics after this call, if it's important to me. That's helpful. And then maybe one final one, if I could just sneak it in. Along the lines of just egress improving, what are your thoughts on just baseline expansion with line of sight on Trans Mountain. Yes. Andrew, great question. We're talking and we're not the operator of baseline, but we're very connected with the And obviously, we through our condensate system, we have all the major players As customers, so we have great relationships with them and we'd love to bring those relationships to our 50% ownership in baseline. Baseline is in our mind going to have great connectivity to Trans Mountain. And as a result, we see that There's no reason for us not to benefit off of TMX and the expectation of additional storage requirements off of that system. Okay. That's great. Thank you very much. I'd also mentioned that our baseline terminal, I mean, we can add another It's about a few million barrels of capacity, about 1,800,000 barrels of capacity. And that capacity is going to a lot lower cost than the original base. That's because all the infrastructure like the flanges and the pipe racks and bridges and things like that are already in place. So We think that we can be very competitive as demand increases with TransAl pipeline. That's great. And your next question comes from Robert Kwan with RBC Capital Markets. Thanks. Can you start with the G and P segment And the South region, specifically your guidance of moving utilization from below 50% to roughly 70% by mid-twenty 2. Just as time has progressed, you've done some of the work and the basin recovery continues, like how much of that move up in utilization. Do you think we'll just be consolidating from your existing plants versus volumes Do you think will be produced or be migrating from competitor plants? Can you tell me how much of that is locked in from your view? Yes. It's interesting. A lot of it is just by putting redirecting Volumes from the facilities that we're going to be suspending to our most efficient facility. Now having said that, Last year, where we had basically 3 quarters of virtually no drilling, obviously, volume fell off more than our original expectations. Great thing is that we've seen that volume base sort of stabilize and producers are starting to drill. So the lost volumes, we expect to recover that in the next year or 2 as producers resume drilling. So I'll look at a player like Spartan, who is one of the more active players in the South. One of the taglines On the release from our research report was their Spirit River wells are paying out in less than 6 months. And that's not surprising to me based And the other thing is that we've helped economics a lot with our optimization program and the competitive fees That we've offered to our customers, it's really going to incent them to drill. So we're just seeing a little bit of that in the Q1. Again, producers are strengthening their balance sheet, but I'm really interested to see what happens in the fall here and into 20 22. It sounds like though, the vast majority then of move from 50 to 70 I don't want to say it's locked in, but highly confident just in moving the molecules around. Yes, a lot of it is, yes. Yes. And again, we have to make up now from the declines from last year. Right. If I can go come back caps in contracting and recognizing you don't want to be too granular as to where these additional contracts or volumes are going to come from. But based on your answer, Are you expecting anything to come off of Northeast BC Connector? Or do you think That's really just gravy and could actually underpin an expansion. Do you think there's enough stuff on the Alberta side to change full contracting? We think that there's enough volumes on the Alberta side. But again, I mean, when we look at Our projections, we're just taking a risk view of the basin and what's likely to happen. So it could come from Alberta, But it would certainly enhance the project if we're able to capture volumes from the Alberta BC border From a connecting system there. Again, our system is just the Alberta based solution. Right. Understood. And maybe just to finish then turning to marketing and specifically for WildHorse, have you hedged out Any of that in the second half or just as a new facility, are you leaving it open to make sure it runs smoothly from an operational perspective to give you confidence Yes, Robert. No, I can verify we haven't hedged anything out of WildHorse. And just To remind everybody that the value of WildHorse, the players that are leasing capacity out of WildHorse Our more traders and blenders, right? So if there's contango in the market, which there isn't right now, They certainly that would be within their toolbox to be able to realize value. But traditionally, that terminal would turn products a month late and it would be as a result of blending That is the way people make money out of crushing. That's great. Thank you. And your next question comes from the line of Elias Foscolos with Industrial Alliance. Good morning and thanks for taking my call. A little bit of a follow-up, I guess, on Rob's I wanted to maybe dive into the GP segment. We do have or you printed an improvement in operating margin improvement of $20,000,000 to $30,000,000 run rate in the future. I'm wondering, Although you've sort of printed the number, how do you feel about that as you are partway more than partway through it? Do Do you think that might be trending towards the upper end, middle end and would you give an update at some point? Thanks, Elias, for the question. So far, everything is trending according to plan. As we've said earlier, Yes, we are starting to see the benefits as these plants have touched to shut down and we're consolidating volume and those operating costs are coming out of our system. We really expect to see the majority of that benefit by the end of the year and to be well within that range. Elias, sorry to interrupt. I think we're probably going to be more towards the lower end of the range and some of that is because Some of our optimization work is going to be done in 2022. So that savings is going to be ongoing. The other thing I'll mention is, we refer to that reduction, it's controllable costs. So as you heard from Brad earlier, Obviously, things like power, there's only so much that we can mitigate exposure to rising costs. So It's just mainly our controllables that we're addressing. Great. Thanks for that color, I understand the increased volumes potentially and all sorts of offsets like power, but I was simply trying to use calibration points off The number of plants that are shut down and being the analyst being very high level using that as sort of a ratio. But I appreciate the color. And that's it for me. At this time, there are no further questions. Do you have any closing remarks? This is Dan Cuthbertson. And just thank you all again for joining us today. Feel free to reach out to the Investor Relations team if Anyone has additional questions or contacts that they're seeking. Have a great day, everybody. Thank you for participating. This concludes today's conference call. You may now disconnect.