Ladies and gentlemen, thank you for standing by and welcome to Keyera's 2019 Year-End Results Conference Call and Webcast. At this time, all lines are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, please press star then one on your telephone keypad. Please be advised today's conference is being recorded. If you require further assistance, please press star zero. I would now like to hand the conference over to our speaker today, Lavonne Zdunich, Director of Investor Relations. Please go ahead.
Good morning, everyone. Thank you for joining Keyera's year-end conference call. Our speakers today will be Dean Setoguchi, who is going to be promoted to President and Chief Commercial Officer in just a few days. Steven Kroeker, Senior Vice President and CFO. Brad Lock, Senior Vice President and COO. Also joining the call for the Q&A section at the end will be Jamie Urquhart, our VP of Marketing, Brian Martin, VP of Business Development, and Eileen Marikar, our VP of Finance. Unfortunately, David Smith, our CEO, will not be on the call today due to the passing of a family member. David, our condolences to you and your family. As we released our financial results yesterday, the focus of our call this morning will be on our business strategy, operations, business development opportunities and financing. After our prepared comments, 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 also refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, please refer to our public filings available on SEDAR and our website. With that, I will turn it over to Dean.
Thanks, Lavonne. Good morning, everyone. 2019 not only marks the end of another strong year for Keyera, but also the conclusion of a transformational decade. Despite numerous challenges in the last five years, our industry has grown stronger and is now even more financially, operationally, and socially responsible. Keyera's foundation is strong. We're well-positioned to capitalize on the long-term growth opportunities within the Western Canada Sedimentary Basin. In 2019, we delivered impressive financial results. Each of our three business segments generated record results. On a combined basis, delivered CAD 1 billion in realized margin. We also achieved record adjusted EBITDA and net earnings, delivered distributable cash flow of CAD 277 per share, and a n impressive return on total in-service capital of approximately 14%. These results reflect the value of our integrated services and the new capital projects completed over the last 12 months.
With confidence in our business, we maintain our dividend track record with a 7% increase last August. At Keyera, we remain committed to responsible growth, including achieving the highest standards of operational excellence throughout the organization. During 2019, we continued to reinforce this commitment, achieving important performance milestones in safety, reliability, and environmental stewardship. As I look forward, I'm very confident in Keyera's future. We have a significant capital program underway that remains on schedule and on budget. Our midstream services remain in high demand. Our fractionators at Fort Saskatchewan have operated at capacity for the past two years, and each year we continue to handle more volumes through our condensate hub. Our two new gas plants at Wapiti and Pipestone, along with our KAPS NGL pipeline project, are all highly contracted with long-term agreements. I'll now turn it over to Brad to discuss our operations.
Thank you, Dean. During the year, we continued to safely operate our facilities and advance our capital program. We completed several capital projects to service the needs of customers active in the liquids-rich Montney and Duvernay, including phase I of our Wapiti Gas Plant, the North Wapiti Pipeline System, and an expansion and other enhancements at our Simonette Gas Plant. Phase I of the Wapiti Gas Plant continues to ramp up, with phase II on schedule to be completed mid-year. In 2019, we invested almost CAD 1 billion in capital projects, which also included four gas plant turnarounds and maintenance outages at AEF and KFS. I am pleased to report that all of our turnarounds and maintenance work was completed according to plan and without a lost-time injury.
In addition, we managed the six-week unplanned outage at one of our fractionator units at KFS without interrupting the critical services that we provide to our customers. I'll now pass it back to Dean to talk about our business development opportunities.
Thanks, Brad. This is an exciting time for Keyera. We continue to execute on our significant growth capital program with the second phase for our Wapiti Gas Plant, Pipestone Gas Plant, KAPS Pipeline project, and our Wildhorse Terminal at Cushing, Oklahoma. KAPS is on schedule to start up in the first half of 2022. We recently ordered the mainline pipe for the project, all of which will be sourced and manufactured right here in Alberta. Our project team is focused on finding the most cost-effective and timely solutions. It does add to our excitement when our capital projects are providing direct benefits to the Alberta economy. KAPS is a strategic asset for Keyera as it enhances our portfolio of infrastructure assets, integrates our upstream and downstream operations, and establishes a platform for growth beyond 2022.
With KAPS in service, we expect to attract additional volumes to our Liquids Infrastructure segment, where we will continue to focus on long-term growth opportunities. We also continue to review our portfolio of assets to ensure we are maximizing our returns. For our southern portfolio of 14 Gas Plants, we're currently reviewing various optimization strategies in order to reduce redundant costs, attract volumes to our most efficient facilities, increase liquids recoveries, and ultimately increase customer netbacks and profitability for Keyera. As an example, in the fourth quarter, we suspended operations at the Gilby Gas Plant and redirected substantially all of the volume to the Rimbey Gas Plant with existing pipe. We expect to realize the cost savings associated with the Gilby turndown over the next year. As we finalize the optimization plan, we'll provide updates. With that, I'll turn it over to Steven to talk about our financial results.
Thanks, Dean. As Dean mentioned, Keyera had a record year in 2019, achieving realized margin of more than CAD 1 billion. Of this amount, the fee-for-service realized margin increased CAD 74 million or 12% to CAD 670 million in 2019. This fee-for-service growth largely resulted from full-year results at Baseli ne Terminal and the Pipestone Liquids Hub, partial year results from newly commissioned assets such as the Wapiti plant, continued growth in demand for Keyera's condensate services, and higher NGL fractionation fees. The marketing segment generated record realized margin of CAD 373 million, surpassing our revised marketing guidance of CAD 320 million-CAD 350 million. The record results were largely due to strong realized margin from the sale of iso-octane, which benefited from strong product premiums and lower market costs for butane feedstock.
Demand for iso-octane remains strong as it is a low-vapor pressure, high-octane, clean-burning gasoline additive, making it very attractive to refineries to help meet new gasoline specifications. We expect to release updated marketing guidance with the release of our first quarter results. Our growth capital program of CAD 2.9 billion is almost 60% complete, with CAD 1.2 billion remaining to be funded over the next two years. We continue to forecast growth capital investments of CAD 700 million-CAD 800 million in 2020. We expect to fund the remainder of our current program without issuing common equity, aside from the existing DRIP program. Our simplified net debt-to-EBITDA ratio at the end of the year was 2.7 times. As a reminder, for this calculation, we include in- net debt 50% of our existing hybrid debt.
Our financial strategies continue to focus on allocating capital in a disciplined manner, preserving financial flexibility, and growing shareholder value. Looking forward to 2020, our distributable cash flow per share is expected to benefit from a ramp-up of volumes through our new assets and from significantly lower cash taxes and maintenance capital. We now expect a current income tax recovery of between CAD 15 million and CAD 25 million for 2020, compared to a CAD 98 million current income tax expense in 2019. Finally, we expect maintenance capital in 2020 of between CAD 35 million and CAD 45 million, which is significantly lower than the CAD 105 million incurred in 2019, as we only have two smaller gas plant turnarounds planned in 2020. With that, I'll turn it over to Dean.
Thanks, Steven. Looking ahead, Keyera will continue to be a safe, reliable and environmentally conscious operator while generating long-term value for our shareholders. We're focused on successfully executing our growth capital program, including the KAPS pipeline system. We have plans in motion to maximize utilization and increase the competitiveness and profitability of our Gathering and Processing segment. We're continuing to look at opportunities within our Liquids Infrastructure segment for future growth, where we have significant competitive advantages. On behalf of Keyera's Board of Directors and management team, I'd like to thank our employees, customers, shareholders, and other stakeholders for their continued support. With that, I'll turn it back to the operator. Please go ahead with questions.
At this time, if you'd like to ask your question over the phone lines, please press star then one on your telephone keypad. We will now pause for a moment to compile the Q&A roster. Your first question comes from Matt Taylor of Tudor, Pickering, Holt. Your line is open.
Hey, thanks. I have a question here. You mentioned a 14% return on service capital there in 2019, which is at the top end of your 10%-15% guide there. Can you just speak to what went well there in 2019 and what you need to see to hit that guidance range sooner than what you had talked about in 2022?
Sure, Matt. Steven here. Again, that would be sort of a carry-on discussion from our messaging that we had at the Investor Day, where back then we as well showed the participants in that day what our historical return on capital has been. Again, it's just in line with that same messaging. The reality is as we continue to spend capital, it continues to put fresh capital into the denominator of that calculation compared to the historical capital that's been in the calculation and what Keyera has invested over the years. At the end of the day, it really is just continued strong projects that we have implemented in terms of the G&P side as well as the Liquids Infrastructure side. It's a weighted average capital for the year.
Again, just continues to give you a real look as to what the returns are as we go forward. We would expect that as volumes continue to ramp up in our new facilities, that we would continue to have strong performance in that area.
Yeah. Thanks for that, Steven. On 2020 marketing earnings being above the base level there, commentary in the MD&A suggests you're baking in significantly higher butane costs. What sort of assumptions are you making on product premiums and crude pricing, given that we're seeing a massacre in oil pricing here over the last couple of weeks?
Maybe I'll talk to that first, and then Jamie might have a couple of comments on that as well. No doubt, in 2019, we did benefit from very favorable market values for butane in terms of as a feedstock being lower than what it typically is. We are expecting, as we go forward into 2020, and we are seeing it, that butane, as a percentage of WTI, will return more to historical levels. What I would point out is when that relationship is more like a historical level, swings in WTI don't tend to be the primary driver for cash flow out of that asset, because butane is also priced off of WTI. The strength of that asset really does come from the premiums that we collect off of that asset. We continue to see a very strong demand for octane in the U.S.
Maybe Jamie, you might have a comment on that.
Yeah. The only thing I'd add, Steven, is that we continue to follow a disciplined risk management program, and as such we're quite confident in 2020 that we've set ourselves up well for the calendar year.
Great. That's really helpful. Last one, if I may. You mentioned both your fracs are operated above nameplate. What's your 2020 outlook there for utilization of the facilities and just fees when they get recontracted in April?
Matt, it's Dean. It's a little bit premature to discuss that. We have our annual contracting. Some of our frac contracts are long-term, and some of them are short-term that are year to year. In the year to year portion, those are the ones that we sign up starting from April to March of the following year. That's the contract season. We think that our frac business continues to be pretty strong, but we can't give you a lot more detail at this point.
Okay. That's helpful. Thanks, guys.
Thank you.
Your next question comes from the line of Linda Ezergailis of TD Securities. Your line is open.
Thank you. I'm wondering if you can give us a sense of what sort of impact the rail disruptions have had on your business so far, and what are the bookends of what impacts there might be over the next couple of months as some of these disruptions unwind themselves? Is there risk also, furthermore, to some of your physical hedging in place that there might be a mismatch in terms of timing of deliveries, et cetera, that might compound the physical rail disruption beyond just the lengths of transit?
Linda, it's Jamie. Thanks for the question. To date, the rail disruptions have had not a material impact on our business. The only commodity that would be impacted, frankly, is propane. Those would be shipments, whether it be to the West Coast or the East Coast. We're confident that although it's going to have some impact on sales in Q1, assuming that those rail disruptions are resolved, we fully expect that those volumes will be delivered within the calendar year. We don't expect that there will be any material impact to our business as a result of the rail disruptions.
Linda, it's Dean. Maybe I could just add on top of that. I think it also benefits us that we have four terminals that are pipeline connected. That would be Rimbey, our Edmonton terminal, our ADT terminal, and also our Josephburg terminal in Fort Saskatchewan. All those terminals have a tremendous amount of flexibility. Again, with our pipeline connectivity and our access to both rail lines between that mix of terminals gives us tremendous flexibility to make sure that we can move our product as efficiently as possible.
The other thing would be, Linda, would be the fact that we've got storage to be able to accommodate being able to get that product delivered later in the calendar year.
Okay. Despite the flexibility and your storage, it sounds like you're not going to be able to capitalize on the unfortunate circumstances, but instead it would be viewed as a headwind for Q1.
It would be a minor headwind, if any headwind at all.
Okay. Maybe just moving on to your Gathering and Processing business. You've accommodated two customers to date in terms of reducing their fees and in exchange for extending the duration of their commitments of volume. Are you in discussions with any other customers in that regard? Do you expect maybe to be approached prospectively as well with more requests for those types of amendments?
Linda, it's Dean. We have to be competitive, so in some circumstances, we have to sometimes give some accommodation to extend a term for our contracts. Overall, I wouldn't say that there's anything significant other than what we've already disclosed.
Okay. That's helpful. Maybe just maybe on the financial side, can you give us a sense of how we might think of your cash tax outlook beyond 2020? You've got a recovery this year. Is it reasonable to expect modest cash taxes for the medium-term? I guess part B of that question is your maintenance capital, would 2020 be a reasonable run rate going forward, or should we expect a step up in 2021 with some of your planned maintenance there?
Yeah, no, it's a good question, Linda, and we appreciate it. It's a little bit more difficult when we go from expense to recovery. Obviously, we brought in a lot of capital in 2019 into service. Using that helped us obtain a tax recovery in 2020. I think it's a reasonable assumption. We can't really comment just yet on future tax, but I think it's a reasonable assumption to believe that there's an ongoing benefit of bringing that much capital into service. We will continue to be bringing in projects this year into service as well. That's about all I think I can really say right now.
Maintenance capital would be a step up again in 2021, or how might we think of the magnitude of that?
Yeah. Sorry. Yeah. Maintenance capital in 2021 would start to reflect the AEF turnaround as it was deferred from this year into 2021 because we had done some work back in 2019 already.
Okay. Thank you. I'll jump back.
Linda-
Oh, Dean, you had a comment here.
Linda, just maybe to go back to your other comment regarding our G&P business, we did have an update yesterday from one of our customers, Steven, maybe you can just provide a little bit of a comment on that.
Yeah. It wasn't a direct fee reduction question there. We did get notice yesterday that Bellatrix had disclaimed its commercial arrangements with us at Alder Flats. That was late in the day yesterday. Just for some background, Bellatrix is a 25% owner in the Alder Flats plant, and the operator currently of that plant. We have about 70% interest in that. It's still early days trying to fully understand their commercial needs, but that's our goal is to continue to work with them to understand their commercial needs. In our view, we still believe there's a high incentive for them to bring volumes to their own facility that they have a material interest in. We do have to work through what replacement type of arrangements will be put in place for that production if they want to continue bringing production to that facility.
While we do expect a decrease in the future revenue from Bellatrix due to this event, we do not believe it'll be a material number to Keyera as a whole in our business. We thought we should just give that update.
Thank you.
Your next question comes from the line of Rob Hope of Scotiabank. Your line is open.
Morning, everyone. Just in regards to the Bellatrix, can you give a ballpark how much net volume is accruing to you?
Yeah. I'll turn over to Brad and he can talk about that.
Yeah. We flow about 140 million a day of gas to that plant over the last few months. We would expect that to continue. They still have a need to flow their volumes, and this is a preferred plant for them, so we don't expect to see those volumes move too much in the near term.
All right. That 140, that would include some third party, wouldn't it? Do you know how much would be?
Yeah. There's some associated third party with that, but it is predominantly Bellatrix production.
Okay. Just moving forward into the marketing outlook for 2020. With the outages that we saw in AEF in 2019, is it reasonable to assume that we should be able to get that low-cost butane into a good portion of Q2 as well?
Rob, it's Jamie. Certainly, we've got some inventory that is associated with the lower-cost butane that will benefit our results in Q2. Given the fact that we have had very good runtime since our scheduled outage in late 2019, our inventory would be probably more in a historical level of the butane that we would have that we carry over into Q2.
Okay. Just finally, just on the DRIP. If we do have a good marketing contribution in 2020 and you remained, let's call it in the range of your debt-EBITDA metrics, and you do see a decline in CapEx profile moving forward, how are you looking at the DRIP longer term? Do you want to keep it on, or could we see it shut off in 2020?
Good question, Rob. I would suggest that our answer is not really, in our messaging around this, not really any different than we had at Investor Day. At Investor Day, we tried to show that at the end of 2021, there are obviously different scenarios that could unfold, and we indicated that if living within cash flow without the DRIP on, it would be that CAD 500 million-CAD 600 million of capital, and if we had the DRIP on, it would be CAD 800 million-CAD 900 million. It's sort of really a function of what capital program continues to get developed or looked at. Obviously, we want to grow shareholder value. We're obviously trying to be sensitive to different questions that people might have or investors might have on things like the DRIP.
At this point, I think we just want to continue to be flexible in how we look at things. As you point out, it really does depend on, are there different shifts in cash flow that the company's generating in terms of fee for service or marketing? I think I would just leave it at that.
All right. Thank you.
Your next question comes from the line of Ben Pham of BMO. Your line is open.
Okay, thanks. Good morning. I just had a couple questions on the optimization evaluations that's ongoing. Maybe just using Gilby as an example, you're moving flows to a different plant, saving maintenance and costs. Is the net impact of that, are you expecting absolutely that to generally be consistent with what Gilby was generating before?
Ben, this is Brad. I think what we hope is going to happen with consolidations like Gilby and others, is that we're going to be able to preserve as much of that EBIT as we can. In some cases, we certainly hope that we can increase that through adding incremental services or reducing our operating costs that producers pay that makes their economics look more attractive and also provide incremental to us. I think our target initially is to enhance our business and just continue to create a more efficient business in the long term, preserving as much of that value as we can.
Okay. I guess there's situations where the EBITDA might see some pressure, but maybe free cash flow sees a nice bump because of the maintenance CapEx savings. Maybe just comment on that. How do you guys look at just diversion of flows versus monetizing assets? What are some of the things you guys look at, pros and cons?
Well, I think the advantage we have in our Central Foothills region is that over the last 20 years, we've built a high degree of interconnectivity between those assets. What that allows us to do is hopefully move gas to the most efficient plants with the minimum amount of capital, thus preserving that in time. I would hope that we're going to continue by doing that. We're going to continue to reduce our maintenance capital opportunities that go with that. I think there's positives to be had for both ourselves as well as the customers that flow to us.
Yeah. Maybe Ben, this is Dean. Just to add to that, obviously, we think that there's financial benefits for not operating as many plants and providing relatively same level of service. Again, there's some opportunities to, in some circumstances, pass that, some value on to our customer. We think a lot of that can be retained by our company and for our shareholders as well. On top of that, we see some very good opportunities to reduce our overall greenhouse gas emissions, because again, it's a lot less energy-intensive to operate fewer gas plants. We think that's a positive from an ESG perspective. Overall, our optimization program, we're looking at a variety of different alternatives, but at this point, we can't provide more clarity than what we're providing now.
We think we'll have more updates sort of towards the mid and later part of this year.
Okay. It sounds like I know you mentioned asset sales in the package, but that doesn't seem to be a likely route at this stage, especially with Seven Gens pulling their package.
Yeah. Like I say, we're considering lots of different alternatives, but I can't comment any further at this point.
Okay. Just a last, maybe just detailed question. The 14% return, I just want to clarify, you're including CapEx on projects that aren't in service yet. I guess, is that correct? How do you guys think about the marketing EBITDA in that number?
Thanks for the question there. Yes, no, that is meant to capture in-service capital so that people can have a true reflection of when they see EBITDA being generated, where's that coming from? We use in-service capital. Projects that are not yet in service, capital associated with those projects are not in there. It's a weighted average through the year in terms of how you're spending your capital in order to try and get, again, as close a number as possible to reality. The EBITDA, the numerator, that does include whatever commercial cash flows come in as well from marketing.
Okay. We certainly believe that that's the right way to calculate it. We have to remind ourselves that our marketing business is a physical business, and we generate that margin based on the assets that we have and utilizing our own assets. I think that's the right way to look at it.
Okay. All right. Thanks a lot, guys.
Thanks.
Your next question comes from the line of Robert Catellier of CIBC Capital Markets. Your line is open.
Hey, good morning. I wondered if we could just follow up on the marketing for a second. With what's going on in the marketplace for iso-octane and RBOB, how long do you expect you'll be able to maintain the relatively strong premiums?
Robert, it's Jamie. From an iso premium off of RBOB, we continue to see the strength that we've seen over the last year or so. We're confident, based on the fundamentals of the demand for octanes within North America, for that premium to be intact. Recently, as with WTI, RBOB has fallen off in the forwards. I'd just reinforce the fact that we have a very disciplined risk management program. We continue to be very disciplined as we have in past years, and very confident that 2020 is shaping up to be a strong year.
Okay, just on KAPS, I believe the commentary was that you've ordered the pipe. Is there any comment you can provide on how you've scoped the project? I believe there was some scope as to what you might put in the trench, one pipe or two. Is there any updates you can provide there?
Brian Martin here. The project's being advanced at this point in time as the two pipes, one for C3+ and one for the condensate, that holds to be the case. We continue to have discussions with parties, trying to create the business to help enable and maybe put a third line out there for C2+. At this point in time, it remains just a C3+ and a C5+ system that we'll be building initially.
Okay, just finally, curious as to what caused the 2020 expectation for a tax recovery. Is it really just the capital, or is there something else there like the impairment or something else?
Hi, this is Eileen here. It's basically that we have CAD 1 billion of capital projects, largely from the G&P segment, that came into service in 2019. These have very attractive CCA rates. We were able to basically create a tax loss that we could carry back to last year and recover some of the taxes that we paid in 2019.
Okay, thank you.
Okay.
Your next question comes from the line of Robert Kwan of RBC Capital Markets. Your line is open.
Hey, good morning. If I can start on G&P. Just wondering, when you take the fee reductions to extend term, are there extra protections within the contract to protect the future cash flows? Any form of security?
Usually, there's no additional kind of securities put in place, but we have usually been successful in putting Letters of Credit in place, and as well, netting arrangements. Because a lot of times we're buying NGL mix off the producers coming through a plant. We can, in certain circumstances, net it to the processing fees versus what we owe them for the NGLs. Those are the kind of protections we put in place there.
Got it. Do you get a step-up in the LCs when you take the fee reduction, or is it just having the LCs and the netting agreements in place [crosstalk] prior?
Yeah, no, I wouldn't say it's a driver in terms of a material change in how it's approached.
Okay. Just turning to marketing, you've got the guidance that you expect 2020 to be better than your base plan, not as good as the 2019 results. If you're able to kind of just talk about the major drivers, is it pretty much all AEF that's driving above the base plan, but just not having as good of a year on 2019, or are there other factors, whether that's propane or conde that we should be thinking about as well?
Maybe I'll take the first cut at that answer. I think we've always benefited in our marketing segment by having a diverse set of products, and as well as the liquids blending business in that segment. I know iso-octane gets a lot of the air time, and it is a very large contributor. We are very happy that we do have multiple products like condensate and propane and liquids blending that contribute to that as well. I would say that in terms of the out-performance in 2019, a lot of that is led by iso-octane, but again, a very specific year this year in terms of favorable market pricing for butane, at least from a feedstock point of view, for us is one of the key drivers.
You know what, t his year, just the overall demand for octane in North America, when at the same time octane supply was dropping off, that really did lead to strong premiums on the octane side. As Jamie mentioned before, we continue to see that going into 2020.
Got it. Is there anything reasonable that could occur in 2020 for you to actually beat 2019, or is that just pretty much completely out of the question?
Well, our commercial guys are pretty smart and pretty bright, and they always find things. I think you have to remember that the significant decrease in market value of butane this past year, and it coming back to more historical levels. That was a significant temporary event. We'd love to continue to see that again, but we also recognize that the producers behind our plants rely on strong butane pricing as well for their net backs. I think that's all we can say on that right now.
Okay. If I can just finish with, within the G&A line item, there was a small CAD 4 million option termination. I am just wondering some background behind that. Just to clarify, you paid CAD 4 million to terminate somebody else's option on that land?
Yeah, that was simple. When we bought the 1,200 acres in the Fort Saskatchewan area, as part of that arrangement, we had given the vendor an option to use some of the land. For CAD 4 million, we were able to just buy him out of that option and bring that land back to us.
Got it. Is there something that has come a little bit more to the front burner that you've got some big plans that may be crystallized in the relatively near future to use that?
Nothing that we can really announce at this point in time, but as we percolate things, so to speak, it's just clearer in our minds if we don't have that option outstanding. The one thing is pipeline right of ways through the land as well. We are connecting to Inter Pipeline's PDH facility, and it helped enable us to do that a little bit easier. Otherwise, we continue to have discussions, and it's cleaner in our minds if that option's not out there.
Got it. Great. Thank you very much.
Your next question comes from the line of Patrick Kenny of National Bank Financial. Your line is open.
Yeah, good morning. Just wanted to clarify on the iso-octane business and zoning in on the positive pricing impact from IMO 2020. Can you just remind us if this tailwind is a short-term temporary phenomenon or perhaps more structural in nature based on some of the discussions you may be having with your refiner customers?
Patrick, it's Jamie. Yeah, I would characterize it more the latter. We believe that it is a structural change based on Tier 3 sulfur content in gasolines and also IMO 2020. The fundamentals of the demand for octanes for various reasons, our view is that this is a sustainable phenomenon in North America.
Okay.
Sorry. On top of that, Pat, I think what we're seeing as well is that the feedstocks are getting lighter because of the light oil shale plays. Those light feedstocks are sub-octane. To actually get to gasoline spec, you need more octane to blend into the refined product to get it to spec. If that makes sense.
Got it. Okay, thanks for that. I know you guys will be coming out with more formal marketing guidance in a few months, but perhaps a comment or two on just how Q1 is shaping up, at least directionally relative to Q4 from a propane perspective, just given some of the rail disruptions and perhaps warmer weather so far.
Yeah, Pat, we can't provide any further guidance other than what we've put out there already. As you heard Jamie earlier, the rail disruptions haven't affected us in a material way, at least at this point. So, we think that it's going to be a reasonably good quarter.
Okay. Also on propane. Just wondering if there's been any update on landing on your West Coast propane strategy. I know at Investor Day, you mentioned you're assessing both options in terms of securing capacity at third-party terminals versus potentially developing your own site. Just curious if there's been any change in how you're thinking about that strategy today versus a few months ago.
Yeah, you know what, Pat? We continue to look at alternatives. Long term, we still fundamentally believe that the increase in demand for the long term is going to be in Asia. There's certainly going to be a growing supply that a lot more of that supply will be delivered from the West Coast of Canada. It makes a lot of sense because of the bottlenecks that are developing in the Panama Canal. We think that that makes a lot of sense long term. We are still evaluating different options, and as we know, there's a lot of different developments happening that are going to affect propane demand in Western Canada. Some of that is exports, some of that's solvent, some of that is PDH facilities. We're just assessing all of that and how we want to position our company.
Okay. Just last one. Last one if I could to you guys. Just back to the DRIP. Looking at my screen here. If this broader market sell-off does get worse before it gets better, would you consider adjusting the 3% discount or perhaps dialing back the premium component just until some of the macro risks subside here or perhaps could you look at other funding levers to pull other than the DRIP?
Yeah. Appreciate the question. Yeah, we too have been looking at the screen today and don't want to look at the screen today.
On the DRIP, we are actually with the March dividend, we are moving to a 2% discount on that. As you can appreciate, with CAD 1.2 billion of capital still to be spent, we still believe it's prudent to keep the DRIP on, at least for the next couple of years. We will continue to monitor it, depending on how business units perform, et cetera. We are moving to a 2% discount for the March dividend declaration.
Okay, fair enough. Thanks, Steven. Thanks, guys.
Thanks.
If you would like to ask a question over the phone lines, please press star then one on your telephone keypad. Your next question comes from the line of Elias Foscolos of Industrial Alliance Securities. Your line is open.
Good morning.
Morning.
I've got a couple, in a sense, follow-up questions. The first one has to do with rail and EBITDA guidance. I'm not focused on the rail disruptions per se, as much as the Transport Canada regulations on Key Train. First of all, is that having much of an impact? In other words, is it causing some sort of a slowdown or delays, and is that built into your EBITDA guidance, if it is?
Elias, it's Jamie. We have not seen much material impact as a result of the ministerial order. The majority of the product that we're moving, specifically at this time of year, is either coming up from the U.S. or going down to the U.S. The amount of physical kilometers that are impacted relative to the entire journey is a relatively small percentage.
Okay, great. Thanks very much for that clarification. Next short one. I'm assuming that AEF went down. It's currently up, correct?
Correct.
Okay.
Yeah, it's been running nicely since our preventative maintenance outage back in November. Yeah, no, it's been running very well.
Okay. I thought I read that it was down in February. Was that-
That was last February. D ue to that cold snap.
Oh, okay. Last thing, I'm going to try to poke a bit on capital projects. Is it likely, you think, that we might get an announcement on some sort of capital project before the end of the year? There were some that you mentioned at Investor Day, but I know you've got a good trap line of capital, but I want to try to push it a bit.
Yeah, we certainly see opportunities. It's certainly possible that we have other projects to announce. I would say, though, it fits within our spend profile, where the CapEx program that we have sanctioned today, we have funding plans in place with our DRIP and our cash flow. Any new projects are likely the material capital that would have to be invested associated with those projects would likely be 2021 and beyond. It would fit nicely with our cash flow and our ability to fund those projects.
Great. Thank you very much. That's it for me.
Thank you.
There are no further questions over the phone lines at this time. I turn the call back over to the presenters.
Thank you everyone for listening in on our call today. If you have any additional questions, please feel free to give myself or Calvin a call, and we will be happy to help you. Thanks. Have a good day.
This concludes today's conference call. You may now disconnect.