Earnings Call: Q2 2018

Aug 9, 2018

Good day. My name is Jack, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Keyera Corp. 2nd Quarter 2018 Results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Lavonne Zdunik, Director of Investor Relations, you may begin your conference. Thank you, and good morning, everyone. It's my pleasure to welcome you to Keyera's Q2 conference call. With me are David Smith, President and CEO Stephen Kroeker, Senior Vice President and CFO Brad Lock, Senior Vice President of the Gathering and Processing Business Unit and Dean Setiguchi, Senior Vice President of the Liquids Business Unit. In a moment, David will provide an overview of the quarter, followed by an operational update from Brad and Dean, and then Steven will provide additional information about our financial results. We will open the call to questions once we have completed our prepared remarks. Before we begin, I would like to remind listeners that some of the comments and answers that we will be providing today speak to future events. These forward looking statements are given as of today's date and reflect events or outcomes that management currently expects to occur based on their belief about the relevant material factors as well as our understanding of the business and the environment in which we operate. Because forward looking statements address future events and outcomes, they necessarily involve risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties include general economic market and business conditions fluctuations in supply demand inventory levels and pricing of natural gas, NGLs, isooctane and crude oil the activities of producers and other industry players, including our joint venture partners and customers our operating and other costs the availability and cost of materials, equipment, labor and other services essential for our capital projects contractor performance, counterparty risk, governmental and regulatory actions or delays, competition for, among other things, business opportunities in capital and other risks as are more fully set out in our publicly filed disclosure documents available on our website and SEDAR. We encourage you to review the MD and A, which can be found in our 2018 Q2 report published yesterday, and it is available on our website and SEDAR. With that, I'll turn it over to David Smith, our President and CEO. Thank you, Lavonne, and good morning, everyone. Keyera continued to record healthy financial results in the Q2 of 2018 with all of our key financial metrics increasing over the prior year. Adjusted EBITDA was $210,000,000 an increase of 58% over the Q2 of 2017. Distributable cash flow was $0.75 per share, which represents a 32% increase over the same period last year, and net earnings were $0.52 per share or 44% higher than the prior year. Our quarterly financial performance was driven by solid results from our fee for service businesses, complemented by our marketing services. Our growth capital program continues to generate incremental revenue from projects such as the Norlite pipeline that became operational in mid-twenty 17 and the Baseline Terminal where we started up 6 tanks in the first half of this year. We continue to expand and enhance our integrated network of assets. During the quarter, we announced a number of capital investments that advanced both our liquids rich Montney and Duvernay focus and our U. S. Strategy focused on major liquids hubs. In 2018, we expect to invest between $1,000,000,000 $1,100,000,000 in growth capital, and we are well positioned to fund this capital program. With a disciplined strategy, strategically located assets and a strong balance sheet, Keyera continues to build long term shareholder value. With that, Brad Lock will now review our Gathering and Processing business unit. Thanks, David. The Gathering and Processing business unit delivered an operating margin of $64,000,000 in the Q2 of 2018. During the quarter, we completed turnarounds at our Stracon, Nevis and Brazo North gas plants for a combined cost of $16,000,000 In conjunction with the turnaround at Stracon, we shut down the facility's sour gas processing equipment to reduce the operating costs for our customers. We also purchased a new pipeline that connects our Stracon to our Racinas gas plant. This pipeline not only brings Racinas into the Kiara network of interconnected gas plants, but also provides area producers who are actively drilling liquids rich glauconite geological zone with added flexibility and a low cost processing solution. Overall, our quarterly gross processing throughput volumes were 1.53 Bcf per day, 6% higher than the same period last year. Volume growth at both the Simonette and Elder Flats gas plant more than offset the impacts of plant turnarounds and weak natural gas prices in the Q2 that caused some producers to shut in production. With improving prices for natural gas liquids over the past year, producers are continuing to focus on growing production from the liquids rich areas of the Western Canada Sedimentary Basin, most notably in the Montney geological zone in Northwest Alberta. During the quarter, Keyera continued to increase its presence in the Montney, announcing a new pipestone plant, the second phase of the Wapiti plant and an expansion at our Simonette plant. Once completed, these three gas plants will provide 950,000,000 cubic feet per day of sour gas processing capacity and 90,000 barrels per day of condensate handling capacity in one of the most attractive geological developments in the Western Canada Sedimentary Basin. Our long term plan will be to interconnect these 3 gas plants to providing producers with increased flexibility and reliability. In addition, to meet the needs of our producers in the area, we have finalized a water disposal solution at our Wapiti gas plant capable of disposing up to 30,000 barrels per day of produced water. The water disposal system will generate incremental EBITDA and is expected to be operational with the start up of Phase 1 of the Wapiti gas plant in mid-twenty 19. Our recent announcements related to our Pipestone, Wapiti and Simonette plants align with our strategy in the liquids rich Montney and Duvernay regions where we are focused on growing our infrastructure and services. I will now turn it over to Dean to discuss the Liquids business unit. Thanks, Brad. We're very pleased with the performance of the Liquids business unit in the Q2 of 2018 with solid results from our Infrastructure segment and outstanding results from our Marketing segment. Operating margin in the Liquids Infrastructure segment was $77,000,000 up 14% over the same quarter last year, primarily due to contributions from the Norlite pipeline and the first 6 tanks at the baseline terminal. The 7th tank was recently placed into service this week and the remaining 5 tanks are expected to be completed by the end of October. This storage facility is fully contracted with take or pay agreements up to 10 years in length. Turning to our marketing segment, we generated an impressive realized margin of $90,000,000 in the 2nd quarter compared to $23,000,000 in the same period last year, largely due to isooctane. During the quarter, our iso octane business benefited from higher sales volumes as AEF operated above nameplate capacity compared to a utilization rate of 82% in the same period last year when we had an unplanned outage. In addition, our iso octane margins were exceptional, primarily due to high octane premiums from strong short term demand. Looking to the Q3, our outlook remains positive, but iso octane margins are expected to return to more typical levels as we will continue to be affected by the seasonality of propane sales as we build inventory during the second and third quarters to sell in the high demand winter months. During the quarter, we announced 2 investments in the U. S. Where we are selectively extending our liquids infrastructure into key U. S. Liquids hubs. Cushing, Oklahoma is the largest crude oil storage and trading hub in North America. Here, we will develop the Wildhorse Terminal, a crude oil facility focused on providing storage and blending services. The terminal is backed by fee for service take or pay storage agreements and will generate additional margin from blending services. The terminal will have 4,500,000 barrels of working storage capacity and is expected to be in service by mid-twenty 20. In June, we acquired the Oklahoma Liquids Terminal that is situated approximately 50 miles from the Wildhorse Terminal. This terminal receives blends and delivers diluent by pipeline from Mont Belvieu to the Chicago area and ultimately into the Alberta market, which we know well. Again, we plan on leveraging our operational, logistics and commercial expertise at this terminal to provide significant opportunities to capture marketing margins. As part of this transaction, we'll also gain exclusive access to a rail facility in the area. The acquisition closed in mid June and the terminal has been generating incremental cash flow since then. Our whole terminal is now pipeline connected to Mount Bellevue, allowing Keyera to transport NGLs in and out of North America's largest NGL hub, providing commercial opportunities for our marketing business. In the Q2, we began delivering Western Canadian Propane to hull, enabling us to access the high value market at Mont Belvieu. These three assets provide the foundation for Keyera's strategy to expand our U. S. Business in the U. S, leveraging our expertise and focusing on niche opportunities with future growth potential. With that, I'll turn it over to Stephen to discuss the financial results in more detail. Thanks, Dean. As mentioned earlier, we had a successful quarter with all three business segments delivering solid results compared to the same period last year. The Gathering and Processing business segment delivered operating margin of $64,000,000 slightly down from the $67,000,000 reported in the same period last year. While the Simonette gas plant achieved record processing throughput during the quarter, the financial effect of this was offset by lower throughput volumes and operating margin at certain other facilities, largely due to plant turnarounds and shut in gas production, both of which are temporary in nature. During the quarter, production increases from the completion of Phase 2 of Alder Flats in May had minimal incremental margin due to take or pay contractual arrangements already in effect. The Liquids Infrastructure business segment posted a strong quarter compared to the Q2 of 2017 due to the start up of Norlite and Baseline Terminal, as Dean mentioned, plus the overall growth in demand for Keyera's condensate network, including transportation and storage services. The Marketing segment's realized margin, which excludes unrealized gains and losses from hedging contracts, was an impressive $90,000,000 $68,000,000 higher than the Q2 of 2017. This large increase was a result of record quarterly iso octane margins and strong contributions from the liquids blending and condensate businesses. The strength of the marketing segment can also be seen in the fact that these strong results are after including realized hedging losses of $18,000,000 during the quarter. As a result of all areas of our business performing well, adjusted EBITDA for the last 12 months ended June 30, 2018 was $735,000,000 Similarly, distributable cash flow for the last 12 months ended June 30, 2018 was $593,000,000 and the dividend payout ratio for the same 12 months was 56%. Cash taxes for 2018 are now expected to be approximately $35,000,000 down from an expected range of $40,000,000 to 45,000,000 dollars Maintenance capital for the Q2 was $23,000,000 compared to $10,000,000 for the same period last year. This was due to plant turnarounds conducted in the Q2 and the total maintenance capital for 2018 is still expected to be in the range of $40,000,000 to $50,000,000 From a capital perspective, we have invested $493,000,000 in growth capital in the first half of the year, well along the path to the $1,000,000,000 to $1,100,000,000 estimate for 2018 that David mentioned earlier. In addition, dollars 222,000,000 has been invested in acquisitions during the first half of the year. Our current growth capital program of over $2,800,000,000 net to Keyera and as described in our quarterly report, as is focused on several projects that have or will come into service at varying times over 2018 to 2021. Given the capital spend so far on the program and assuming the capital guidance we've given for 2018, over $1,100,000,000 is to be invested over 2019 to 2021 to complete these projects, with the vast majority expected to be spent in 2019 2020. We are well positioned to fund this ongoing capital program given our strong balance sheet reflected by our net debt to EBITDA multiple of 2.5 times, our low payout ratio and our access to capital as seen by our recent $400,000,000 10 year inaugural public note offering. In addition, our financial flexibility is expected to be supported by EBITDA resulting from the capital program. For example, in 2019, we expect to have full year cash flow contributions from several projects, including the Baseline Terminal, the Simonette Liquids Handling Expansion Project, the Oklahoma Liquids Terminal, the KeyLink NGL Gathering System, the Encana Pipestone Liquids Hub and the South Grand Rapids diluent pipeline. In 2019, we also expect to start seeing cash flow contributions from Phase 1 of the Wapiti plant and from the North Wapiti pipeline system. That concludes my remarks. David? Thank you, Stephen. As our second quarter results demonstrate, demand for Keyera's products and services continues to be strong. We continue to focus on maximizing cash flow from our existing asset portfolio, building a strong footprint in the liquids rich Montney and Duvernay developments in Northwestern Alberta and pursuing opportunities to expand and integrate our value chain, both in the Western Canada Sedimentary Basin and in the U. S. Given the strength of the business, we are increasing our monthly dividend by 7% to $0.15 per share or $1.80 per share annually, beginning with our dividend payable on September 17, 2018. This extends Keyera's track record of consistent dividend increases since going public in 2003 and shows our commitment to providing shareholders with stable long term dividend growth. On behalf of Keyera's directors and management team, I would like to thank our employees, customers, shareholders and other stakeholders for their continued support. With that, I'll turn it back over to the operator. Please go ahead with questions. Your first question comes from the line of Linda Ezergailis with TD Securities. Your line is open. Thank you. Good morning and congratulations on a strong quarter. I'm wondering how you can maybe give us an update on Alberta Envirofuels so far, how it's running in Q3. I realize that margins are returning to more normal levels, but are you have you been able to continue running it above nameplate capacity? Hi, Linda, it's Dean. I would say that AEF continues to run very strong so far in the 3rd quarter. Again, very strong operating capacity, but I would mention that with the hot temperatures, sometimes that affects the run rates relative to maybe the Q2. So we may be off a little bit, but still above main plate capacity. That's helpful context. Thank you. And it appears there's a lot of demand for isooctane. So maybe you can just walk us through your thoughts on at what point you might choose to expand Alberta and viral fuels? What sort of factors inform that decision? And do you look at beyond demand, just have a view on long term pricing outlook and confidence on that front. And maybe as you grow bigger, the risk of taking on a project like that becomes smaller as well? That's a lot of questions. We've certainly looked at a lot of different opportunities to expand capacity at the facility. And probably what would be most economic would be an expansion as opposed to a pure twin of AEF. And we've done a fair bit of work on that. Part of the consideration is timing and also trying to hit a turnaround window if we decide to do that. 2020 is coming very fast at us and that's probably unlikely timeframe if we were to decide to do that. Overall, our view on octane demand in the future still remains very strong. EPA requirements are continuing to increase, which is resulting in more turbocharged high compression engines, which also require higher octane fuel. So I think that's all positive for future demand for octane. But again, as of this time, we evaluate the opportunity, but we it's nothing that we've decided on so far. That's helpful context. And maybe just beyond expanding Alberta Envirofuels, can you give us an update on the new project existing footprint, but are you seeing some interesting opportunities in certain geographies over others? Linda, it's Dave Smith here. I'll take this one. I think we have quite a list of potential investment opportunities, both acquisitions and organic investments. I think our focus is to build upon the capabilities and synergies within the existing asset portfolio. To be more specific than that at this point, I think is something that we're just a lot of this is just too preliminary. Okay. Thank you. I'll jump back in the queue. Your next question comes from the line of Rob Hope with Scotiabank. Your line is open. Yes. Good morning, everyone. I was hoping you could add some additional color on your outlook for the U. S. In your prepared remarks, you did mention that Hull, WildHorse and Cushing were 3 key liquids hub that would provide a foundation to build off of. I guess the question is, are you looking for additional liquid hubs to build out? How you view your competitive positioning in the U. S. And I guess longer term, how much capital or how big of a business do you think you could have in the U. S? Rob, it's Dave again. I think I'll put some context around this just to say that I wouldn't expect that you're going to see us make a major sizable investment in a short period of time in the U. S. I think our approach will continue to be gradual and incremental. We've looked at lots of different opportunities over the years in the U. S. What we find is in a lot of places, it's already very competitive and you've already and you've got some very well established, fairly aggressive competitors. And so our focus is really to try and find the niches where we have capabilities and expertise that we think we can leverage into strong returns. And I think that's why we have focused on the liquids hubs, generally speaking, places like Mount Bellevue and Cushing. We will continue to look for other opportunities, but I think in the short term, our focus will be on executing well on the things that we have on our plate now. All right. Appreciate that color. And then maybe just a follow-up on Linda's question and the commentary Q3, we have seen significant variability in Q3, we have seen significant variability in terms of your marketing margins. I just kind of want to get some maybe some goalposts on what normalized levels would be? I think we're going to duck that one Rob. The reason I mean, there is no question that we see variability in the margins associated with isooctane and that's one of the reasons why we resist the temptation to try and provide any kind of quantitative outlook. I think what I would say is that our outlook for 2018 is still pretty strong given the margins that we're seeing on the iso octane business. As long as the plant continues to perform well, we expect that the margins will be better than we've seen in 2018 over the relative to the last couple of years. Yes, Rob, it's Deane. Sorry, go ahead. I think there are some market indicators so that you can follow that will give you some insight as to how profitable our iso octane business will be. And part of that is the butane to WTI spread. And obviously with higher WTI prices this year that benefits us and we're still seeing a fairly high WTI price today. So that's positive. You can look at the RBOB cracks, which obviously trade you can track what those trade at and those are still relatively strong. I mean the driving season ends typically at the end of September. So it starts to soften a little bit in the Q3, but overall they're still relatively strong. And the Canadian U. S. Exchange rates, obviously the weaker the Canadian dollar that also helps those U. S. Sales as well. All right. Thank you. I'll hop back in the queue. Your next question comes from the line of Ben Pham with BMO. Your line is open. Hi, thanks. I wanted to continue on the last question and more to clarify the Q3 isooctane soft guidance there. Is that more your overall view on the isooctane facility production, RBOB margins on isooctane? Or is it simply looking at the spread over RBOB that you're referring to that's going back to normal levels? The spread over our Bob is what we're specifically referring to. Okay. So And again, that's just short term demand that we're able to capture higher than normal premiums in the Q2. But again, if you look at the butane to WTI spread, that still looks fairly positive. The facility is running very well, so that's positive above nameplate capacity. And again, the Canadian dollar is relatively weak. So again, that benefits us because the sales are denominated in U. S. Dollars. Okay. So you're not really making a call on RBOB really. I mean there's to the extent that moves even higher in the here, there's some upside or vice versa. It's more just I know it's the same question, but just more clarifying, it's more to margin. I'm looking at Q2 and just taking that out and going towards a more normalized level? That's right. Yes. And as Dean this is Steven here. As Dean mentioned before, you just have to remember that September, that 1 month in the quarter, is typically past the driving season. So that's by definition, is a little bit weaker quarter compared to Q2. Okay. All right. That's good color. And then you talked about the debt deal that you did and the rates you got seem pretty attractive. Has that made you change your thinking anyway on debt to EBITDA levels, capital structure, how you stacked up financing? Or is it or has nothing really changed as you went through that process? Yes. I think the simple answer is nothing has really changed. We have always benefited from strong, I think, cost of financing on the private note side. We were able to now see it on the public debt side. As we said before, we tend to operate in that 2 to 3 times net debt to EBITDA range. And so again, nothing has really changed. We were happy to see the strong demand for the public debt deal. Okay. All right. Thanks, everybody. Your next question comes from the line of Robert Kwan with RBC Capital Markets. Your line is open. Good morning. If I can come back to AEF and just on the directional on Q3, when you're talking typical, I'm just wondering, are you is typical to you more 2015 levels or is it more the 2016, 2017 type margins? Robert, we can't be any more specific, I don't think, than what we've been. What I would say is that I think we all understand some of the challenges that we had in 2016 2017 both with the outages as well as with the margins. I think 2018 is looking stronger certainly than 2016 2017. Okay. Maybe if I can just describe it and make sure I've got it captured and correct me if I'm wrong. So it sounds to me like what you're trying to say is there was an exceptional second quarter around kind of a flare up and call it spot demand. And that Q3 is expected to be lower than Q2, but you referenced a number of the underlying markers which are still quite strong. So still quite strong in the underlying business, but don't carry Q2 over. Is that kind of the key message here? I think that's a reasonable summary, yes. Okay. Stephen here. The only other thing I would add is the we did try and highlight that the marketing results did benefit from 2 other contributors as well, which was the liquids blending and the condensate. And so those were strong contributors as well. So you have to keep that in mind as you're how much you're attributing to isooctane, etcetera. We can't go into a lot of details, but just to help you realize there's 3 different business lines that we're doing quite well. Understood. On the propane side of things, now that you've got whole access and with that Bellevue access, with new NGL years, are the contracts directionally still the same, I. E. You're buying based on a Conway index, but now you've got this great access into Bellevue to capture that incremental spread? Yes. I think what we see setting up for 2018 is similar to what we saw in 2017, Robert. I think we now have the additional tool of being able to use Halt as an outlet for some of the propane volume. And right now, the spread in propane prices between Bellevue and Conway is quite positive. And so that's helping. I wouldn't want to suggest that that's going to be a material impact on the results, but it is certainly a positive. Got it. And maybe if I can just finish. And maybe just elaborate a little bit further. I mean, I think when we look at our marketing performance in general and as Stephen commented, it's largely attributed to isooctane, but there's other parts of our marketing business that were strong as well. And I think you have to just remember that we have the assets that enable us to generate strong marketing margins when the right market conditions exist. And that's because we have a lot of access to NGLs through our integrated system. But also we have access to high value markets and part of that is because we have a lot of really good rail logistics expertise. So when you see weak market conditions in Conway like we're seeing now, we can really take advantage of that and take those barrels to higher value markets to capture a margin. Got it. And maybe if I just finish here with funding. Marketing is doing well. You're getting some of this extra cash flow. You've got the DRIP. With the credit rating, you've got hybrid equity. And Stephen, you mentioned just kind of broadly access to capital. So I'm just wondering, when you look at your base capital plan and you referenced $1,100,000,000 of CapEx from 2019 through 2021 with your retained cash flow drip, access to debt and hybrids, I guess very specifically, does your base plan have any need for a discrete common equity issuance? Yes. We're always cautious on how we talk about that. For now, we do believe we're well positioned. And for the most part, we don't believe we need discrete common equity. If you look at the $1,100,000,000 over 2019 to 2021, that's a pretty manageable number to manage, especially as EBITDA is growing or we expect that to grow over time as capital come capital products come into play. Yes, that's great. Thank you. Your next question comes from the line of Andrew Kuske with Credit Suisse. Your line is open. Thank you. Good morning. If I could maybe start with a pretty narrow specific question just on the water disposal system and the Wapiti. That seems like an interesting business, especially given some of the trends of the wells in Western Canada. Is that just going to be specific to Keyera's existing asset base or is this a business you could prospectively scale beyond your assets? Andrew, this is Brad. I think certainly initially the focus of our water disposal business is going to be to support the Wapiti gas plant. So it's a service offering that we provide to our producers, not only gas processing and condensate stabilization, but also water handling for the significant amounts of produced water that come out of their production. So that's going to be the initial focus. Is there an option? There's certainly an option, but that's certainly not something that we're focusing on today. Okay. Thank you. And then just a broader question. How do you think about just the public and private market values of assets given we've seen a few transactions in the market and really both sides of the border? And then more specific to Western Canada just with Brookfield stepping in on the Enbridge portfolio, how do you think about your own valuation and just the relative comparisons of the assets that traded versus the assets you have and the ones that you're building? Andrew, it's Dave here. I think it's a great question. I think the way we looked at the Brookfield acquisition of the Enbridge portfolio is we saw that as a very positive read through for the value of Keyera's interconnected, well located gathering and processing business. I think we've worked hard to be focused in the right locations and have an interconnected network of facilities. And when we saw the, if you like, the private market valuation that was put on the Enbridge portfolio, I think that certainly reflects well on the value of the gathering and processing portfolio that Keyera owns. And then how do you think about just U. S. Values given we've seen a few trades in the U. S. Also? Yes. In the U. S. Gathering and processing business, we've looked at some opportunities from time to time in the U. S. And we consistently find that it's pretty competitive. The prices that are paid, especially in the really strong resource development areas like the Permian and the Eagle Ford and the Marcellus, the price of entrance is pretty high. And that's why we've tended to focus more on the liquids opportunities that you've seen us pursue rather than jumping into the gathering and processing business. Okay. Thank you. Your next question comes from the line of Robert Catellier with CIBC Capital Markets. Your line is open. Hi, good morning everyone. I was just curious, your outlook on your rail capacity. Do you have enough capacity to meet your needs, given the expanded presence you have in the U. S. And similarly the growing north south flow? Well, we have a lot of interconnected rail facilities, particularly in the Edmonton area and also up to our Josephsburg terminal in Fort Saskatchewan. So we do have a lot of capacity of by rail. We have a very large fleet, the largest that we've ever had. We have over 3,000 cars in our fleet today. So that and a lot of it is dependent on service to rail service obviously and how fast they can and efficiently they can provide that service. So that's always a little bit of a wildcard, but I'm told that the rail lines have both staffed up and added more locomotives to provide better service this year relative to last year. So hopefully, all those things come together and we'll have very efficient rail movements this year. Yes. I was more curious, Dean, on the actual terminal capacity that you have, understanding that the rest of it is a little bit out of your control, but it sounds like there's enough capacity for you here? Yes. Yes, I mean Rob, I would say this is Dave. I would say that as far as our Canadian terminals are concerned, we have the capacity we need for the business that we anticipate. We may move some things around just to try and improve the logistics, smooth out the logistics a little bit. The one place where quite honestly we wouldn't mind having a few more loading spots is at Hall right now given the business that we're doing there, but it's early days and we may look we've got lots of room there to expand the facility if the longer term outlook indicates that that's an appropriate thing to do. So that's something we may look at. Okay. That's helpful. And then, you mentioned a couple of times, you're very targeted in your approach in the U. S, understandably so. But there's probably a larger suite of services you can offer that would be helpful. So I'm wondering if there's an opportunity to partner in there. What's your updated thoughts on partnering given the level of competition and difficulty going it alone against well established competitors? It's certainly something that we have looked at and we have lots of very positive relationships in the U. S. Our partner on the connection to Mount Bellevue is Targa. We don't it's not a joint venture per se, but we have access to Target's facility for transportation, for storage and for fractionation. And so as we build on those relationships, there may be some opportunities like that. So, compatible capabilities to the table. I think it's something that, that we're not going to be able to compatible capabilities to the table, I think it's something that we're certainly willing to look at. So that is a possibility, but there's nothing that's sort of imminent right now. I think what's also important, Rob, is that we're already in the U. S. Markets already and we buy and sell a lot of NGLs in the U. S. So it's a market that we're very familiar with already. And right now we're we've obviously acquired or sanctioned some assets that will support our business down there. So we're very cautious of what kind of opportunities we'll pursue. We obviously want to generate a strong return from our investments down there. So we're looking at niche opportunities that have an opportunity to grow from there. So we'll continue to try to expand on the footprints that we have already. Sure. That makes sense. And just finally for Brad, I think the BC Oil and Gas Commission put out new measures agreement in the Blueberry River First Nation Territory. I'm wondering if you're expecting those to have any impact on business development? Well, we don't have any production in BC. So there's no direct effect. I think we continue to be proactive on our First Nations negotiations as we do have those interactions in the Simonette, Wapiti, Pipestone area, and I think we're pleased with how those are progressing and the relationships that we've been able to build. Okay. That's it for me guys. Thanks. Your next question comes from the line of Patrick Kenny with National Bank Financial. Your line is open. Good morning, guys. Just given your fractionation capacity is full once again this year, and I know there's still some white space out there at other plants, but just wondering if you have an update on when you might have to start thinking about another expansion up at Fort Saskatchewan, especially in the context of adding quite a bit of processing capacity up in the Montney over the next couple of years. Do you try to cash those incremental barrels or do you just allow frac fees to normalize? Pat, it's Dave here. I think, obviously, we monitor the growth in NGL volumes throughout the basin. You're quite right that right as we sit today, the industry has more frac capacity than we need, but we would expect that as NGL volumes grow that there will be a need for more capacity at some point in the future. I don't see that as imminent. I think as we complete the gathering and processing investments in the liquid rich area of Montney and Duvernay, I think that will certainly position us well to be able to be part of the provision of additional liquids fractionation capacity. But it's a little difficult today to predict when or how much or how that unfolds. Okay. And then just over to Rimbey here and on the reduced ethane sales, is that all demand related or was that some sort of gas composition issue in the first half of the year? And then maybe just an overall comment on your outlook for Rimbey volumes, given KeyLink and some of the drilling activity you're seeing in the Duvernay? So I think, first on the ethane side, I think it's certainly not a plant performance issue from our side. The issue is really from the ethane take side. There's limited markets for ethane and any operational offsets by any of the takers of ethane causes a ripple effect through the business. And I think that's a little bit what we saw from Rimbey in Q2. I think going forward, we're certainly encouraged by some of the Duvernay drilling around Rimbey. There's certainly going to be some volume opportunity to come with that though recognize the targets there are predominantly oil. So and the GORs associated with that are not huge. So there's certainly some gas opportunity, but the gas opportunity will be modest. The nice thing about it is the gas there that is produced is very liquids rich. So the opportunities for those producers to land volumes at Rimbey would be attractive due to the high levels of liquid recovery that we get there versus standalone gas plants. Your question also mentioned Pat, you also mentioned KeyLink in your question and we're quite pleased with how KeyLink has increased the utilization of the fractionation facility at Rimbey. The volumes on that are meeting our expectations. So the liquid side of the Rimbey plant has been well utilized. The gas processing side of Rimbey has not yet recovered from the decline in drilling activity that we've seen over the last couple of years. Your next question comes from the line of Ian Gillies with GMP. Your line is open. Good morning everyone. It would appear that some of the E and P cash flows are probably going to be a bit better than some would have thought in the back half of the year. And with that in mind, would you expect some recoveries in the volumes in the GMP business, absent obviously some of the turnarounds that happened in 2Q that will lead to volumes coming back? I think we're certainly hopeful. Gas prices are looking to strengthen as people get into the back half of the year, and we're hopeful that that's going to drive a certain amount of activity. The stronger cash flows is with producers focusing on living within their cash flow. If they have an opportunity to generate incremental cash flows through stronger liquids prices, they will, in all likelihood, look to reinvest some of those dollars back into the drill, but which would also be positive in terms of future volumes. Okay. Thanks. That's helpful. And with respect to the new gas plants or the expansions happening in the Montney and now handling, call it, 90,000 barrels a day of condensate, Are you able to maybe talk about some additional opportunities that may come forward because of, I guess, that outcome? Well, I think, certainly, the production of condensate in that area has continued to grow. I think producers continue to be impressed and their results are being exceeded by their gas condensate ratios. So consequently, what they're finding is some of those condensate ratios are higher than they may have originally anticipated. So that's certainly positive for future developments as they build out their drilling programs that we can already be supporting with our existing gas processing infrastructure and potentially looking at further expansions of our liquids handling infrastructure. Okay. Thank you very much. I'll turn the call back over. This ends the Q and A portion of our call. I would now like to turn it back over to Lavonne Zdunik for closing remarks. Thank you. This completes our Q2 conference call. If you have any other questions, please call either Kelvin or myself. And our contact information is in yesterday's release. Thank you for listening and have a good day. This concludes the Keyera Corp. 2nd quarter 2018 results call. We thank you for your participation. You may now disconnect.