AGM 2019

May 14, 2019

Press Release

Good afternoon. Still a few seats here for women that are standing in the back that would like to sit down. So at least a dozen. My name is Jim Bertram. I'm the Chair of the Board of Directors of Keyera Corp. And on behalf the Board and management, it's my pleasure to welcome you to our 2019 Annual General Meeting. We are very pleased that so many of you are able to join us here in Calgary and also warm welcome to those joining us via the webcast. As it is now 2 o'clock or slightly thereafter, I will call the meeting to order. Joining me today at the podium is David Smith, Director and our President and CEO. I'll be acting as Chair for the meeting and David will be acting as the Secretary. Before we begin the formal part of the meeting, I would like to take this opportunity to introduce the members of the Board of Directors and the management team who are here with us today and thank them for their hard work and dedication to Keyera. If each of you would stand and be recognized as I say your name from our Board of Directors, we have Doug Hagee, who's our Independent Lead Director Jenna Manis, Don Nelson, Tom O'Connor, Charlene Ripley, Bill Stedman, Janet Woodruff and Michael Norris who is unable to attend today in person. Bill, Mr. Stedman is not standing for reelection this year, so I would like to take a moment and thank him for his contribution to Keyera. Bill has played a very important role in the history and evolution of Keyera, having served as a Director since 2003 when we went public. In fact, Bill would be our 1st independent director that Dave and I went on our knees to beg to join. So Bill, thank you. Bill's wisdom, perspective and insight around the boardroom table have been very, very valuable. On behalf of everyone at Keyera, employees who you mentored and to Board members, we wish you and extend our sincere thank you and wish you well. Bill, you will be missed. From our management team, we have David as I mentioned who is our President and CEO Stephen Krieger, Senior Vice President and Chief Financial Officer Brad Locke, Senior Vice President, Chief Operating Officer Dean Setiguchi, Senior Vice President, Chief Commercial Officer Mike Freeman, Vice President, Commercial Strategy and Liquids Business Brian Martin, Vice President of Business Development Liquids Infrastructure Jan Kossiak, Vice President of Human Resources and Corporate Services Eileen Merrickar, Vice President of Finance Rick Koshman, Vice President, Corporate Development Jared Distilling, Vice President, Operations, Gathering and Processing Jamie Urquhart, Vice President, Marketing Kelly Hill, Vice President, Information Technology John Hunzinger, Vice President, Operations, Liquids Infrastructure and Graham Balsam, Operations Vice President, Operations, Liquids are both unable to be here today in person. Before I move, I'd like to make note that Mike Freeman will be retiring shortly. And I'd like to personally, along with other members of the Board and management, thank Mike for his incredible work here over the last, I'm going to say 18 years, I'm guessing Mike, but 21. Okay, time flies. Mike was our Vice President of Marketing and made an incredible difference to this company. He was one of our I always call them one of my enigmas, but maybe one of the best leaders we ever had in our officer team. I know his people are going to miss him. And Mike, we're going to miss you, but we know you're not going to be far away. So congratulations. CARA's achievements and our ongoing pursuit of our vision to be a North American leader in delivering midstream energy solutions would not be possible without our employees. We are very proud of their commitment to provide safe, reliable, cost effective services. I know there are a number of employees in the room and I'd ask those to stand to be recognized that are already standing. So thank you for your hard work. We have a number of items on our agenda today. Once we have concluded the formal business of the meeting, we will bring the AGM to a close. And I will invite David to the podium for a management presentation followed by a question and answer session. Following the question and answer session, you're all invited to stay for light refreshments in the reception area. With those introductory remarks, we can now turn to the formal part of the meeting. Conor Doyle and Erica Rao of Computershare Trust Company of Canada, Guerra's Register and Transfer Agents are in attendance today and I point them to act as scrutineers for the meeting. This meeting has been called as an annual meeting of the shareholders of Cara Corp to deal with the items of business specified in the notice of the meeting and accompanying information circular, which was mailed April 10, 2019 to all shareholders of record on March 25, 2019. A copy of the notice and the circular has been filed on SEDAR and all the documents concerning the calling of this meeting will be filed with the official records of the corporation following the meeting. Based on the preliminary scrutineers report on attendance both in person and represented by proxy at the meeting, I confirm that a quorum is present. Our agenda for the afternoon includes the following items. 1, receiving the financial statements for the fiscal period ended December 31, 2018, along with the accompanying records of the auditors, all of which were filed on SEDAR and delivered to those shareholders who requested them. We also have copies available here in the meeting. No motion is required on this matter. 2, the appointment of Deloitte LLP as auditors of Care Corp for the ensuing year. This motion is being conducted by ballot and requires a simple majority. 3, electing the directors of Keyera Corp. The directors are elected individually by ballot in accordance with Keyera's majority voting policy. And finally, 4, considering a non binding advisory resolution with respect to Keyera's approach to executive compensation. This motion is also being conducted by Ballot and while is non binding, the result will be taken into consideration as appropriate in making future decisions with respect to executive compensation. All items of business are described in detail in the notice the meeting and the accompanying information circular. As we move through the items of business, please refer to the information circular for full text of each resolution. For those attending in person, we'll also be showing the resolution on the screen at the front of the room. We also have extra copies of the information circular available here. So if anyone in attendance would like a copy, would you please raise your hand? In order to move the business of the meeting along in a timely manner, a number of proxy holders, all of whom are Keyera employees, have volunteered to move or second the items of business. We will announce the results of the votes at the conclusion of the meeting. With that, I declare this meeting to be properly constituted transaction of business. Any shareholder or proxy holder with a question on a specific item of business is welcome to ask it when that item of business is considered. However, if you wish to make a general comment or ask question not directly related to the matter under discussion, please raise it during the general question and answer session after the management presentation. Finally, when asking a question or making a second making or seconding a motion, please state your full name and use the microphones that have been provided so that everyone here at the meeting and those listening to the webcast can hear the question or motion. Unless there is any objection, we will dispense with the reading of the minutes of last year's annual meeting. 1st item of business, 2018 financial statements. We can now turn to the first item of business, which is to receive the financial statements and the auditor's report for the year ended December 31, 2018. The Board of Directors on advice of the audit committee has approved the financial statements. Are there any questions about the financial statements? Since no motion is required and seeing that there are no further questions, we will move on to the next item of business, which is the appointment of the auditors. Deloitte LLP have been Keyera's auditors since inception and the Board of Directors on advice from the audit committee recommends their reappointment. May I have a motion that Deloitte LLP be appointed auditors of Care Corp to hold office until the close of the next annual meeting of shareholders or until their successors are appointed. Christy St. James and I'm a proxy holder and I so move. Thank you. My name is Kurt Couture. I am a proxy holder and I second that motion. You've heard the motion which has been second. Is there any discussion on this motion? This vote will be conducted by ballot. If you are a proxy holder and did not submit your ballot on this motion, you may when you entered the meeting, but wish to do so now, please raise your hand and the scrutineers will collect your ballot. The next order of business is the election of directors of Keyera Corp. The number of directors to be elected meeting today has been set at 9. I now open the meeting to nominations. My name is John McGonigal. I am a proxy holder and I nominate the following individuals to hold office until Keyera's next annual meeting or until their successors are elected or appointed: Jim Bertram, Douglas Hagee, Gianna Maines, Donald Nielsen, Michael Norris, Tom O'Connor, Charlene Ripley, David Smith and Janet Woodrow. Are there any further nominations? There being no further nominations, I declare the nominations closed. As the number of nominees is the same as the number of directors to be elected, may I have a motion in respect of the individual election of each of the nominees? My name is Kristen Ragest. I am a proxy holder and I so move. My name is Laurie McFarland and I am a proxy holder and I second the motion. Thank you. You've heard the motion, which has been seconded. Is there any discussion on the motion? Shareholders are entitled to vote individually for each director in accordance with Keyera's majority voting policy. The voting is by ballot and so if there are any proxy holders who have not yet submitted a ballot and wish to do so now, please raise your hand for the scrutineer. The next item of business is the advisory resolution of Keyera's approach to executive compensation. May I have a motion that the advisory resolution on Keyera's approach to executive compensation as more particularly described in the information circular be accepted? My name is Carter Lederhouse. I'm a proxy holder and I so move. My name is Laura Purcell. I'm a proxy holder and I second the motion. Thank you. You've heard the motion which has been seconded. Is there any further discussion on the motion? This vote will also be conducted by ballot. If you are a proxy holder and did not submit your ballot on this motion, when you entered the meeting, but wish to do so now, please raise your hand and the scrutineers will collect your ballot. That is the final item of our agenda today. The voting results have been tabulated by the scrutineers and I'm pleased to announce the following results. With respect to the appointment of Deloitte LLP as the auditors of Keyera Corp, I confirm the motion is carried. At this time, I'd like to introduce Mandeep Singh and Michael Monachello. Please, could you stand? Thank you. With respect to the election of directors, all the directors nominees have been elected with a majority of the votes cast. Could all the directors please stand as well? Ladies and gentlemen, please join me in welcoming your 2019 Board of Directors. Thank you very much and congratulations. I look very forward to working with each one of you over the course of the next year. I'm also pleased to report that the advisory resolution on executive compensation was approved and that this motion is therefore also carried. For those interested in additional details with respect to the number of votes cast, Keyera will be filing its report on voting results on SEDAR. Alternatively, you may request particulars from Computershare after this meeting. That concludes the scheduled business of the meeting. On behalf of Keyera, I would like to thank you for attending our AGM. As there are no other business, I hereby declare the meeting terminated. I would now like to invite David to the podium for the management presentation and questions and answer session. I look forward to joining you for you joining us after the presentation for some light refreshments in the foyer. Once again, thank you for attending. Thank you, Jim. Welcome to everyone joining us today for Keyera's Annual Meeting, whether you are here in person or online through our webcast. Before I begin the presentation, I would like to remind everyone about the risks associated with the forward looking statements and non GAAP measures included in this presentation. I may talk about the future a little bit. 2018 was a milestone year for Keyera, marking our 20th anniversary as an independent company. While it was an incredibly busy year for us, we did take time to celebrate our accomplishments and this exciting milestone, 2 decades of taking care of business. We are proud of our track record and have built a strong foundation upon which to pursue our vision of being the North American leader in delivering midstream energy solutions. As we continue to execute our business strategy, we know the importance of anticipating trends and opportunities, being responsive to our stakeholders, effectively deploying capital, and delivering safe, efficient, and cost effective services for our industry. Since our initial public offering, we have been committed to delivering value for our shareholders. I'm pleased to say that we have delivered a total shareholder return of 19% compounded annually since 2003. We have established an integrated business which connects upstream molecules to downstream markets and our team brings a level of expertise and customer service that is unparalleled in industry. We pride ourselves on being responsible stewards of capital and our priorities remain the same focus on finding solutions for our customers and ensure safe and reliable operations. Our commitment to our dividend and cash flow growth is a testament to the financial strength of our integrated business. Although our industry continued to face challenges in 2018, Iara achieved record financial results. Net earnings per share, distributable cash flow per share, and dividends per share all set new records in 2018. This strong performance was driven by our core fee for service businesses and growing contributions from our capital projects that have come into service over the last few years. Our 2018 results were driven by strong financial and operational performance across our 3 business segments. We handled record volumes at our Simonette gas plant, our Fort Saskatchewan fractionation facility and through our condensate system demonstrating growing demand for our services. In addition, we carried out the largest capital investment program in our history, investing approximately $1,300,000,000 in growth capital projects and acquisitions. Our facilities and gathering systems are complex and most of our plants operate 24 hours a day, 7 days a week. Safety is a priority for us every day And I am proud to say that we had 0 employee lost time incidents in 2018. Our business is based on providing essential services to oil and gas producers, which allows us to create value in fluctuating market conditions. We have been through a number of business cycles particularly over the last decade and we remain committed to generating long term shareholder value through disciplined capital allocation. With confidence in our business outlook, we maintained our dividend track record increasing our dividend per share by 7% in 2018 marking 15 years of sustained dividend increases. Since our initial public offering in 2,003, we have delivered per share cash dividend growth of 8% compounded annually, per share cash flow growth of 12% compounded annually, and total shareholder return of 19% compounded annually. If you invested $100 in Keyera in 2,003, it is now worth over $1600 I am proud of Keyera's conservative management approach, which has served us well through the economic peaks and valleys of the last 2 decades. After a record year in 2018, Keyera's midstream services remain at high demand and we are well positioned to deliver a strong year ahead. Just a few moments ago, we released our Q1 results for 2019. We achieved record gross natural gas processing volumes and our fractionation units operated above nameplate capacity at our Fort Saskatchewan facility. We did experience an unplanned outage at our AEF facility in Edmonton during February and as a result our Q1 results were lower than we anticipated. We delivered net earnings of $34,000,000 adjusted EBITDA of $164,000,000 and distributable cash flow of $0.51 per share. As I look forward to 2019, Keyera is well positioned to deliver another year of strong financial performance as we are completing a number of new growth capital projects. As well, market fundamentals support higher fractionation fees and higher iso octane margins for the remainder of the year. We recently completed the first phase of the Wapiti gas plant, which I'll talk about more in a moment. This is an exciting achievement as it kicks off the next phase of our cash flow growth. With our strong balance sheet, we intend to continue to invest in our future for the benefit of our shareholders. In 2018, we invested approximately $1,300,000,000 in growth capital projects and acquisitions. And in 2019, we plan to invest between $800,000,000 $900,000,000 mainly focused on expanding our footprint in the liquids rich Montney area of Alberta. We maintain a disciplined approach when investing and expect our capital program to earn an annual rate of return on capital of between 10% 15%. In the past few weeks, Keyera's new Wapiti gas plant has been commissioned and is now generating incremental cash flow, signifying the next phase of growth for Keyera. The North Wapiti pipeline system, Phase 2 of the Wapiti gas plant, the Simonette gas plant expansion and the new Pipestone gas plant are all currently under construction and we'll continue to add to this growth as they are completed over the next 2 years. We are also completing the Wildhorse terminal in Cushing, Oklahoma, which will build on our logistics and commercial expertise to generate attractive returns from storage and blending. When Phase 1 of the Wapiti gas plant with Phase 1 of the Wapiti gas plant operational, we are now focused on completion of the North Wapiti pipeline system expected to be in service later this year along with the execution of Wapiti Phase 2 which is expected to be operational by the middle of next year. The Simonette gas plant continues to achieve new record processing volumes we are expanding the processing capacity of the plant yet again to 450,000,000 cubic feet per day. We bought this facility in 2010 when it was processing only about 50,000,000 cubic feet per day of raw gas. By the end of this year, Simonat will be our largest gas processing plant. In addition to this plant expansion, we have a number of other investment projects underway at Simonette to enhance operations. Solidifying our strong position in the liquids rich Montney development of Northwestern Alberta, we are working with Encana to develop the Pipestone plant West of Grand Prairie. The Pipestone development includes a liquids hub with condensate handling capacity of 14,000 barrels per day, which was completed in September of 2018. The gas plant will have 200,000,000 cubic feet per day of sour gas processing capacity and 24,000 barrels per day of condensate handling capacity and is scheduled for completion in 2021. We recently contracted additional capacity at Pipestone with a new customer and have now contracted 100% of the Phase 1 capacity. Keyera's industry leading condensate system continues to be a very valuable contributor to Keyera's success. In December, we handled record volumes through the system and demand continues to grow. To meet this growing demand, we continue to expand and enhance the capabilities of the network. In 2018, we completed the South Grand Rapids pipeline, which increases the capacity to flow condensate between Edmonton and Fort Saskatchewan. Our marketing business generates cash flows by effectively utilizing Keyera's storage, fractionation and transportation capabilities to move ethane, propane, butane, condensate and isooctane to markets across North America. Isooctane, a premium gasoline additive, has become the largest contributor to our marketing results. It is produced at our Alberta Envirofuels facility and shows the value of Keyera's integrated value chain. We take butane, a low value commodity produced in Western Canada and convert it to a high value product much of which is exported to the U. S. Today, we are very pleased to announce that we are proceeding with the development of the key access pipeline system, a project that lays the foundation for Keyera's growth beyond 2021. We have partnered with SemGroup and KKR to develop this highly desired NGL and condensate gathering system. The pipeline system is expected to be in service in the first half of twenty twenty two and will transport NGL and condensate from the liquids rich Montney and Duverde developments in Northwestern Alberta with initial connections into Keyera's fractionation assets and condensate system at Fort Saskatchewan. The project is anchored by several long term agreements averaging 14 years in length with high take or pay commitments as well as specific facility and area dedications. The customer base is broad and includes investment grade counterparties. GAAPs, as we're calling it, is expected to provide Keyera with secure long term fee for service revenues and strong project returns. CAF provides Keyera with an important link between its Wapiti, Simonette and Pipestone gas plants in Northwestern Alberta and its strong liquids infrastructure network at Fort Saskatchewan. And it creates a platform for numerous future growth opportunities. Keyera continues to maintain a conservative balance sheet with a net debt to EBITDA ratio of 3 times and a payout ratio of 62% over the last 12 months. With this strong financial position, we expect to fund the remaining portion of our capital program including caps without issuing discrete new common equity apart from the existing dividend reinvestment plan. Our business wouldn't be what it is today without the dedication and commitment of our team, many of whom are in the room today. We were honored to be named a top employer in Canada in 2019 for the 2nd year in a row and a top Alberta employer for the 8th consecutive year. These awards reflect our commitment to a safe and healthy workplace, to extraordinary customer service and to a culture of integrity, trust and teamwork. I am very proud of the entire Keyera team. I'm also proud of how our company and our employees support the communities where we operate. We have established long term partnerships with groups that help to develop safe, vibrant and thriving communities across Alberta. We supported over 150 charitable organizations in Alberta in 2018. I believe that our people are the best in the industry and their commitments shine not only in our workplace, but in the communities where we operate. Can find them volunteering in classrooms, coaching a hockey team, or cleaning up trails and parks. In 2018, Keyera employees donated over 8,200 hours volunteering in their communities. Since 2003, Keyera has been committed to operating safely, providing unparalleled customer service, finding opportunities to expand and enhance our network, all while delivering strong returns to our shareholders. One of our primary focuses since 2016 has been the implementation of operational excellence across our organization, implementing consistency in our operations and business practices to reduce risk every day. We are also committed to improving our environmental environmental and sustainability performance across our operations and we have reduced our greenhouse gas emissions intensity 28% since 2016. Our people emphasize teamwork, integrity, safety and customer service in everything we do. And we are proud of the results that we have delivered since our inception. I am very excited about the opportunities that we have ahead of us as a team and I know we have the team to execute them safely and successfully. On behalf of Keyera's executive management team, I would like to thank you all for joining us today at our Annual Meeting. At this time, I would like to open the floor to any questions from the audience. Please raise your hand and wait for a microphone before asking your question, so those listening online can hear it. I have a question right here. Can you explain how you've managed to reduce greenhouse gas emissions by what you said around 28%? I don't have all of the details here at my fingertips, but it's a combination of creating greater efficiencies through our facilities, greater throughput, that reduces the amount of energy that's required on a per unit basis. We've implemented necessarily reduced the overall emissions at each facility, but we've reduced the emissions on a per unit of production basis. Can you wait for a microphone please? It's to partially of the gentleman's question too, the carbon tax that we currently face or what we paid last year, do you have any number on that at all? I'm sorry. Do you have an idea of what our carbon tax levy was or paid in 2018? I'd have to get back to you with the actual number. I know it's gone up a little bit over the last few years. I think with the proposed changes in the proposed changes in the regime with the new government, we expect it will go down somewhat. One more question. The baseline terminal that we have with KML or Kinder Morgan as you well know, Do we have access to their line to Burnaby? Indirectly, we have access to the Trans Mountain pipeline to Burnaby, yes. The tanks that we have at our Alberta and Varfuel site, as you point out, it's a fifty-fifty joint venture with Kinder Morgan. Those are directly connected into the Kinder Morgan terminal in East Edmonton, which in turn is connected to the Trans Mountain pipeline. So our customers at that storage facility can access the Trans Mountain pipeline, yes. So you're saying we could ship liquids to Burnaby and sell there? Our customers could ship liquids to Burnaby. Thank you. Could I have one more question, please? We own and operate a plant at Nevis. Is that a profitable plant? Nevis is in a part of the basin, as many of you are aware, where we've seen very limited drilling activity over the course of the last number of years. And as a result, the throughput has been steadily declining at that facility. I would describe it today as being a marginal operation. It's not generating very much cash flow. It's not losing a lot of cash flow either at this stage. I realize working there, it's a very old plant. Are we stuck with demolishing or taking that thing down? Sierra has provided for the end of life costs associated with every one of our facilities in the reclamation liability that's represented on our balance sheet. So yes, we are faced with end of life costs at Nevis like we are with all of our other facilities. But the cost is fully captured in the liability as it's represented on our balance sheet. Okay. One last question. You talked about the Alberta ethanolfuels facility in Edmonton or in Strathcona. You indicated too that it has problems or it had problems in the Q1 of 2019. Is that being rectified or is what do you see for 2019 for that plant? So the Alberta Empire Fuels Facility is a facility that manufactures isooctane, which is a high quality gasoline additive. We had an outage in February that lasted for 17 days. Unfortunately, it's at a time when demand for premium gasoline is ramping up. So it we lost the margin associated with that lost production. But the issue that we had with plant was quickly isolated and repaired. It's just that the timeframe because of the complexity of facility, there's a fair bit of time involved in shutting it down and then restarting it when you have a repair like that. To answer your question, as we look forward right now, we're quite confident that the plant will operate at its nameplate capacity. And our next scheduled turnaround for that facility is in the fall of 2020. Thank you. Are there any other questions? Well, I think seeing no more hands, what I would mention is that if you do have any further questions, please do not hesitate to contact us. You can contact either Lavonne or Calvin from our Investor Relations team and their contact information is on the back of the quarterly report that we released today. I hope those here with us today in the room will be able to join us for some light refreshments in the lobby. And once again, thank you all for coming.