Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera's Business Update and 2025 Guidance. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the two. Thank you. I would now like to turn the call over to Rahul Pandey, Senior Advisor of Investor Relations. You may begin.
Thank you and good morning. Joining me today will be Dean Setoguchi, President and CEO, Eileen Marikar, Senior Vice President and CFO, Jamie Urquhart, Senior Vice President and Chief Commercial Officer, and Jarrod Beztilny, Senior Vice President, Operations and Engineering. I would like to remind our listeners that some of the comments and answers we will be giving today relate to future events. These forward-looking statements are given as of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, please refer to Keyera's public filing available on SEDAR+ and on our website. I will now pass it over to Dean.
Thanks, Rahul. Good morning, and thank you for joining us today. Eileen, Jamie, Jarrod, and I will be sharing a presentation, after which we'll host the Q&A portion of the call. The list of items you see on the slide are key points taken from this morning's news release, and I'm going to highlight a few of them. We're on track for another strong year, so first, I'll provide a quick look back at our successes to date in 2024. Second, I'll be walking you through the macro context for our future business, then I'll talk about our new EBITDA growth target, with Jamie and Jarrod taking us through the supporting building blocks for this growth. Finally, Eileen is going to discuss our 2025 guidance and our near-term capital allocation priorities. I'm very proud of our performance in 2024. We set out a clear strategy, and our team executed well.
I'll hit on a few highlights. We continue to deliver strong safety performance, with a Lost Time Injury Frequency rate of zero as at the end of November. Our business continues to perform very well. We are on track to deliver record realized margins from our Fee-for-Service business segments, leading to expected record annual EBITDA. We maintain financial discipline, giving us the lowest debt leverage amongst our peers. This gives us tremendous optionality to allocate capital to increase shareholder value. And finally, we continue to grow our Fee-for-Service cash flow, which has allowed us to deliver another dividend increase of 4% in August. We have a long history of delivering value creation by leveraging our asset base and exercising financial discipline.
You can see from the light blue line along the bottom of the slide that even throughout significant market events, we've consistently managed our balance sheet within or below 2.5x-3 x net debt to EBITDA. You can also see our strong track record of focusing on and delivering DCF per share growth. Since 2008, we've delivered a DCF per share CAGR of 8%. It is this track record of growing DCF per share which has driven consistent dividend growth of 6% per year on average since 2008. Our sustainable dividend framework is anchored with growth and stable Fee-for-Service cash flow and a payout ratio of 50%-70% of DCF. As at Q3 of this year, our payout ratio was 61%. Historically, our dividend has grown in step with DCF per share growth.
Since going public as an income trust in 2003, we have returned over CAD 4.8 billion in dividends to our shareholders. Now, I want to step back and spend a few moments framing the macro context in which our strategy will be delivered. As you can see from the picture on the right, Western Canada has one of the largest hydrocarbon resources in the world. These resources are also very cost competitive, as shown in the chart on the bottom left. Because of this, every past addition to oil and natural gas egress capacity has been filled. We can see that historical trend continuing today as oil sands production grows to meet the new TMX capacity. There are many decades of future production ahead of us. As the map illustrates, with TMX and Coastal GasLink, our basin now has additional access to high-value overseas markets.
Canada also ranks among the best in the world in all three aspects of E, S, and G. As a company and as an industry, we continually strive to get better. For all these reasons, it's logical for Canada to help supply the growing global need for energy. Within this context, Canadian production has visible near and long-term growth. Producers who are our customers have never been stronger. Years of low commodity prices and constrained egress have made the Canadian energy industry very cost-efficient. As you can see in the chart on the top right, producers are expected to continue to generate ample free cash flow. With debt approaching zero, they are well positioned to invest and grow production. This is expected to drive continued basin volume growth for both oil and gas, as shown on the bottom right. Now, let's run through what this means for Keyera.
With growing gas production comes higher NGL production. The chart on the left shows that NGL volumes are expected to grow 6% annually over the next several years. Transporting and processing NGLs is what Keyera does best. We are one of only two fully integrated NGL infrastructure platforms. As the map on the right shows, we are connected from the prolific liquids-rich Montney and Duvernay formations to Canada's NGL hub in Fort Saskatchewan, where we hold a core asset position. Montney and Duvernay drilling economics are driven by NGL and condensate pricing rather than AECO gas pricing. For this reason, producers continue to invest in growing production in this region. For context, our north G& P assets continued to hit record throughput this year. Not only will there be supply growth, but we also expect an increased demand pull for NGLs.
This is because of oil sands growth and the need for more condensate to be used as diluent, increased West Coast LPG exports, and growing petrochemical demand. By having the assets and the expertise that connect customers to key supply and demand markets, Keyera is well positioned to continue to enable basin growth. We deliver value for customers while also driving strong returns for shareholders. This morning, we introduced a new target for a fee-based adjusted EBITDA CAGR of 7%-8% from 2024 to 2027. This target is supported by two types of margin growth. The first is filling available capacity. As you can see from the chart on the right, this is where most of the growth is coming from. We view this as the best type of margin growth as it requires modest incremental capital. The second is capital-efficient growth projects.
Here, we're pursuing bolt-on projects, including the KFS Frac II debottleneck and KAPS Zone 4, further strengthening our integrated value chain. Beyond the 2024 to 2027 timeframe, KFS Frac III is expected to be in service in 2028. I'll now pass it over to Jamie, who will walk us through how we expect to continue to fill our available capacity. He'll be followed by Jarrod, who will take us through our capital-efficient growth projects. Jamie?
Thanks, Dean. This visual shows our fully integrated value chain. I'll go from left to right. Let's start with our gas plants. In several of our G&P assets, we are seeing growing demand for our services due to increased drilling activity, change of land ownership, and in some instances, the emergence of new plays. Our north G&P volume growth helps fill available capacity on KAPS and also benefits the rest of our downstream value chain. On the right-hand side of this slide, it illustrates that as condensate supply continues to rise in response to increasing oil sands customer demand, we expect to benefit in our condensate storage business and our industry-leading condensate system. Next, I'll go through each of these growth opportunities in more detail, starting with our Rimbey complex. As many of you are aware, the South Duvernay is an emerging play in the Rimbey area.
You can see from the chart in the middle, Duvernay NGL yields are significantly higher than those in the Deep Basin in Montney. This characteristic has attracted certain operators to build large land positions over the last few years. This is shown on the map on the right. Many of these operators are already connected to our Rimbey complex. Rimbey has about 28,000 barrels per day of frac capacity, which is currently supplied by NGLs extracted from the raw inlet gas volumes delivered to the Rimbey gas plant and our Keylink NGL pipeline. Expected natural gas liquids growth in the area presents a unique opportunity for us to accommodate by diverting Keylink volumes to KFS via our Rimbey and Fort Saskatchewan pipeline systems.
As a result, this will allow Rimbey customers to realize their growth while continue to access strong netbacks, plus allow Keyera to backstop future frac expansions at KFS. Moving up north to Wapiti. As shown by the land map on the right, there are several large producers with core land positions in the area. Production in the catchment area has been growing steadily, as shown by the middle chart. As a result, our Wapiti gas plant throughput has also been trending upward. We anticipate this growth to continue for several reasons. First, we have signed new integrated deals. To integrate these additional volumes, we have invested in new plant inlet and gathering system tie-in points and added more power supply to unlock our ability to fully utilize existing capacity. These integrated deals also allow us to increase current throughput by up to 30% out to 2027.
We've also identified several optimization projects that will allow us to further increase plant capacity. More volumes at Wapiti means potential margin growth on KAPS and across Keyera's integrated system. Turning now to Simonette. In the last few years, E&P majors have sold their non-core Montney land positions in the area to players who view these lands to be core. As you can see from the top center chart, in the last year or so, new entrants are driving increased production in the Simonette area. Simonette throughput is expected to continue to grow for several reasons. We continue to sign new integrated contracts. We have work underway that could potentially increase available throughput, and production growth in the area is currently constrained by sour gas processing capacity, and Simonette is one of the only plants with available capacity. Finally, this plant is connected to KAPS, benefiting our entire value chain.
Moving downstream to KAPS. As I mentioned, we continue to add new integrated deals for volumes at our north region gas plants, which also flow through to KAPS. KAPS continues to ramp up as per our expectation. This asset has improved our competitiveness in the basin, where we can offer our customers a fully integrated service. As a reminder, KAPS will continue to ramp up steadily until the end of the decade and beyond. Finally, moving on to our condensate business. This business will continue to benefit from rising oil sands production, which in turn creates more demand for condensate. If you look at the chart on the top center, you can see the expected growth of the oil sands over the next several years. This growth is being driven by continued filling of TMX and the debottlenecking of other major crude export lines supported by compressed price differentials.
Our condensate business is made up of two main components, which are each expected to benefit from this growth. First, our storage business, where we are creating additional capacity. Second, our industry-leading condensate system, which is the main industry hub for condensate. About 70% of oil sands diluent is delivered via our system. As you can see from the map on the top right, FSCS is connected to all of the diluent receipt and delivery systems, including KAPS and other pipelines transporting diluent from the United States. This system still has some available capacity, and as it fills up, we will look to pursue options to complete a capital-efficient debottleneck. As a reminder, we also own a 30% minority interest in the Norlake diluent pipeline. I'll now pass it over to Jarrod, who will cover our capital-efficient growth projects.
Thanks, Jamie.
Let me bring you back to the visual that shows our fully integrated value chain. Over our 2024 to 2027 time horizon, we have two projects that contribute to our new growth target. They are KFS Frac II debottleneck and KAPS Zone 4. KFS Frac III is progressing toward sanctioning and is expected to come into service in 2028 and would contribute to incremental margin growth beyond the target timeframe. I'll provide you with an update on each of these projects. Demand for fractionation capacity is expected to continue to grow. As you can see in the chart on the top right, even with all the new announced frac projects, available fractionation capacity will remain tight. This supports our two potential upcoming frac expansion projects. Our position at KFS allows us to add superior value to our customers.
We have an unmatched storage position, superior connectivity that has been built over decades, and have space secured for brownfield expansion, as shown on the aerial shot of our KFS complex. Turning now to our projects, the KFS Frac II debottleneck will add up to 8,000 barrels per day of capacity. We have already ordered long lead items, and as it's well supported by customer contracts, we expect to sanction this project in early 2025 with an in-service date in late 2026. At KFS Frac III, which will be a twin of the debottleneck Frac II, we will be adding up to 47,000 barrels a day of new capacity. We expect this project to be in service in 2028. We are well on our way to securing the appropriate contracting for the project to move ahead. We've also completed the pre-FEED work and are now advancing through FEED.
Together, these two projects will increase Keyera's overall fractionation capacity by about 60%. We are also continuing to progress KAPS Zone 4, where we are working towards securing appropriate contractual backing to move ahead. If we decide to proceed, we expect to be in service in mid-2027. To give you some perspective on the scale of this project, you can see from the map on the left that Zone 4 is significantly shorter than KAPS Zones 1 - 3. Zone 4 is 85 km long, versus KAPS Zones 1 - 3 being nearly 600 km. Also, this project will be built across better terrain than some of the challenging areas we had on KAPS Zones 1- 3. We are feeling good about skilled crew availability, given that other major projects have now been completed. FEED has been completed on this project, and we continue to progress commercial support.
If built, this project will allow Keyera to provide competitive integrated service for customers in both Alberta and BC. We've gone through the building blocks that underpin our new EBITDA growth target out to 2027, both in terms of filling available capacity and the near-term growth project opportunities, so let's now look further out. While we've been focusing this morning on the period out to 2027, there's also no shortage of good investment opportunities beyond this timeframe. I'll now touch on some of the interesting potential new growth opportunities that we're working on.
These would include expanding our north region G&P capacity to meet the strong demand for liquids-rich gas processing services, further liquids extraction opportunities, expanding logistics and rail egress as supply of spec products grow, debottlenecking AEF to increase capacity between 5%-10%, and we continue to evaluate the economic potential for growth projects on our Josephburg lands. This could include conventional energy and low-carbon opportunities, which would also connect to the expanded logistics and rail egress in the region. I'll now pass it to Eileen, who will explain why our Marketing segment is a key advantage for Keyera, followed by our 2025 guidance and capital allocation priorities.
Thanks, Jarrod. Let's start off with our Marketing business, because it has provided about a third of our margin in the past few years. Compared to our peers, this is unusually large, so I think it's important to provide some further context about how we think about this segment, why we like it, and how it fits within our integrated business model. I'll direct you to the top left of the slide. First, it's important to understand that Marketing is a physical business that efficiently connects customers to high-value markets, thereby enhancing their netbacks. We do this in two ways. First, by leveraging our physical assets, such as our storage assets and AEF's unique ability to convert butane to much higher-value iso-octane. Second, by leveraging our logistics and marketing expertise. This is all underpinned by our disciplined risk management hedging strategy.
This ability to create value for our customers means we can also capture value for ourselves. While we don't rely on Marketing cash flow to fund the dividend, it has enabled us to consistently produce higher-than-average after-tax corporate return on invested capital. You can see this in the chart on the bottom left. Now, if I can move your attention to the wheel on the right, the cash flow generated from marketing is recycled back into growing stable Fee-for-Service cash flows. This, in turn, supports further dividend growth and other forms of shareholder return. Now I'll move on to our 2025 guidance and capital allocation. Starting off with our 2025 guidance, we will continue to equity self-fund our growth capital program. For the time being, our marketing margin contribution will be equal to our long-term base guidance of CAD 310 million-CAD 350 million.
As is our usual practice, we will revise this with our Q1 results in May at the end of the marketing contracting season. Our growth capital for 2025 is expected to range from CAD 300 million-CAD 330 million. This includes investments to advance the KFS Frac II debottleneck, KFS Frac III, and KAPS Zone 4. We are also investing in enhancements at AEF and further optimization work across our portfolio. Maintenance capital is expected to range within CAD 70 million-CAD 90 million. Cash taxes for 2025 are expected to be CAD 100 million-CAD 110 million. Moving on to capital allocation, we will remain financially disciplined and adhere to our financial framework. Our first priority is preserving our financial strength. This means maintaining our investment-grade credit rating and keeping debt leverage within our target range. Currently, we are well below our targeted range.
We see this as a competitive advantage, as there are ample opportunities for us to deploy capital. In terms of growth investments, whether it be new projects or M&A, they will be aimed at opportunities that strengthen our existing value chain in Western Canada. For project-level returns, we've said in the past that we are aiming for a return on capital in the range of 10%-15% before tax. We're currently aiming to achieve returns at the high end of this range. Turning now to shareholder returns. Ultimately, dividends need to be paid out of distributable cash flow, and we aim for a payout ratio of 50%-70% of DCF. The stability and growth of our dividends is supported by the high-quality cash flow from our Fee-for-Service business segments, which continues to grow.
Finally, regarding share buybacks, they are an additional tool that we now have available to us. We will constantly weigh this option against other capital allocation opportunities. As we've said in the past, our preference is to reinvest in growing our underlying business and continue to compound returns throughout our integrated value chain. So really, to sum this all up, the continued strength of our balance sheet gives us maximum optionality to allocate capital in a way that will maximize value for shareholders, whether it be organic growth investments, M&A, or share buybacks. With that, I'll pass it back to Dean.
Thanks, Eileen. In closing, Keyera provides essential value-added services for customers using our integrated asset base and expertise. We have a long track record of leveraging our integrated platform, combined with financial discipline to deliver strong investment returns for shareholders. Today, we shared with you the building blocks that will enable us to continue on this trajectory. In addition, our industry-leading financial position enables us to pursue further value-accretive options as they come available. On behalf of Keyera's board of directors and management team, I want to thank our employees, customers, shareholders, Indigenous rights holders, and other stakeholders for the continued support. With that, I'll turn it back to the operator for Q&A.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, should you have a question, please press star one on your telephone keypad. The first question comes from Maurice Choy at RBC Capital Markets. Please go ahead.
Thank you and good morning. Maybe if we could start off with your 7%-8% target. I wonder if you could dissect that even further. From what I gather, obviously, there's quite a bit of torque from your north assets, but you've also listed Rimbey as being the first on your press release. So is there any further upside from the south in terms of utilization and into your EBITDA if gas prices do improve in the coming years?
Yes. Good morning, Maurice, and yes, thank you very much for the question. Your question with respect to our south G& P assets, we're very excited, particularly about the Duvernay play, and historically, a lot of our south portfolio, while liquids-driven, have been more off of propane butane, and so with the emergence of the Duvernay play, we're seeing more of a crude-weighted play, crude and condensate-weighted play, which helps the economics, and so we think that that's really good, and the other thing is that it's very rich gas, so as we try to create more value for our customers, extracting those NGLs is an important part of that value equation, and I do point out that we do have our Keylink pipeline that connects NGLs from our gas plants in our south region.
It's all pipe-connected to our Rimbey gas plant, which has field fractionation, and that is connected by pipe all the way up to Fort Saskatchewan. It's a very good integrated system for NGLs from our south portfolio. Jamie, is there anything you want to add just overall?
Yeah, Dean, the only thing I'd add is, yeah, there is some upside. It wouldn't be as big of an upside as Rimbey, and that's why we emphasized it. But we are doing a sales compression project right now at Brazeau River, which could unlock some additional opportunities in the Spirit River. And similarly, at Strachan, we have a little bit of capacity that we expect as natural gas prices improve. We'll get back to a full utilization that we would have seen in 2023.
Understood. If I could finish off with a question on the CapEx plan. Given the inclusion of some of these projects, such as KFS Frac II, KAPS 4, into the plan for the next few years, can I ask if you will have sufficient contracts to underpin the 10%-15% target range on a standalone basis from these contracts without the incremental downstream benefit?
Yes, that's a great question. And we will be very disciplined about contracting to support any future capital investments. And with what we talked about in the earlier part of our call, is that we see a tremendous amount of growth in our basin. And with that, you need essential infrastructure like what we have to help enable that growth. And so we see certainly demand from our existing capacity to fill that, but also opportunities to build new assets like zone 4 and more fractionation. Fractionation, in particular, is in very, very tight. It's very high demand right now, and capacity is very tight. So contracting has been progressing very well there. And if you remember our last update, which was almost a year ago, I think it was in February of last year, we announced about 33,000 barrels a day of contracting, long-term contracts under frac.
That has continued. That momentum has continued throughout 2024. So we'll provide an update on that when applicable. But also, Zone 4, we've continued to advance that as well. Just like zones one to three, customers want a competitive alternative. And that's what KAPS Zone 4 and the BC Connector will do for industry. We certainly believe there's going to be a lot of growth in the BC Montney. And so there's a lot of demand for that competition and service. So we're excited about the momentum that we have with customers. But again, we will not sanction those projects without sufficient contracting.
Got it. Thank you very much.
Thank you.
Thank you. The next question comes from Robert Hope at Scotiabank. Please go ahead.
Morning, everyone. This is Jessica Hoyle on for Robert Hope. Thanks for taking my question. So just to start, a follow-up question on the new 7%-8% fee-based EBITDA growth CAGR. It looks like the majority is based on improving returns from existing assets. So can you talk a little bit more about what magnitude of volume change underpins your guidance?
Yeah, good morning, Jessica, and great to hear your voice. Sounds much better than Rob's. No, that's a great question, and certainly, a lot of our cash flow growth and the growth trajectory that we announced this morning, the 7%-8%, is from filling our existing assets, and a lot of that is up in the north. We talked specifically about Simonette and also Wapiti, and so we see great demand there, and as we just mentioned, in the south at Rimbey as well. But on top of that, our team is really working hard to improve competitiveness across our entire business, so you can talk to any one of our employees, and they can tie what they're doing to how it makes our company more competitive.
And so that may mean improvements in costs, efficiency, reliability, improvements in just overall how we can provide more value to our customers and increase margins. So that is a big focus as a company. And we've made some great strides in 2024, but we're going to go even more aggressively in 2025 on that front. Anybody have anything else they want to add?
Okay, great. Thanks. Appreciate the color. And then just moving on to M&A. So you have a large organic opportunity set. But how do you think about tuck-in M&A opportunities in the context of this strengthening organic growth outlook?
Yeah, M&A is a great question. And first of all, I mean, with our integrated business, we have a very competitive service, but we're always trying to improve our overall service offering to our customers. We certainly believe that with growth in the basin, there's going to be more opportunities to build, but also to acquire assets. And that could be anywhere on our integrated value chain. But we'll be very focused, strategic. We certainly have the balance sheet that can help support any acquisitions that we may want to pursue. And we think that our access to equity would be very strong if needed. But certainly, we have a lot of dry powder in our balance sheet today. And with the opportunities we see going forward, we'd like to use some of that to grow our business.
Thanks very much.
Thank you. The next question comes from Spiro Dounis at Citi. Please go ahead.
Thanks, operator. Morning, team. I wanted to start on CapEx if we could. Dean, it sounds like in your comments there, a lot of the growth between now and 2027 is really going to be driven off of filling off that white space. And so it sounds like, conversely, a lot of the CapEx being spent here is really going to be a 2028-plus benefit. So to the extent that's right, I think just adding up the math here, y'all are talking about spending about CAD 1.1 billion of growth CapEx through 2027. Any way to just maybe give us a sense of how much of that is something that you're going to get benefit for kind of post-2027?
Yeah, good morning. And that's a great question. Yeah, you know what? And first of all, I do want to mention the other asset that I forgot to mention earlier that's going to contribute to our growth is our KAPS pipeline. So we've made some big investments over the last several years, and our KAPS pipeline will continue to grow volumes and cash flow right to the end of the year, along with our condensate system. And that's been performing very well as well. So maybe just to give you a little bit more color on the CAD 1.1 billion and what we'll be contributing, I'll pass that over to Eileen.
Sure. Thanks, Spiro. Yeah, I'd say the majority of the spend is, as we've talked about, it's related to the Frac II, the bottleneck, as well as Zone 4. And those will be contributing by 2027. Certainly not in a very big, meaningful way. That will continue to ramp beyond that time period. Frac III is the other piece of it, which is going to be some pretty big capital spend. And again, that will contribute beyond that 2027 time period. And then there are the other buckets of projects that we've talked about this morning. And again, without getting into specifics about it, there is engineering dollars and capital that we've kind of earmarked for those types of projects. Like we said, there's lots and lots of opportunities.
And there's some modest capital associated with even unlocking capacity at certain gas plants, whether it be Simonette on the liquids handling, etc. So again, the majority of that growth rate in EBITDA is coming from those existing assets and the capital that's already been spent. But there's a lot more runway in terms of EBITDA beyond that 2027 time period.
Got it. Understood. Second question, maybe just going to egress. You mentioned egress as a potential next step kind of post-2027. I think the comment's really largely focused around rail, but maybe if I could just get your latest thinking around the need to maybe extend even further into seaborne exports with all this supply coming?
Yeah, that's a really good question, and certainly, as our basin grows, it's really great that we have TMX in service, and Coastal GasLink is going to be delivering greater volumes to LNG Canada very quickly, and as you extract all those liquids, those liquids have to clear the markets because the market is going to be even more oversupplied in Western Canada, so we have the assets to clear that product to the highest value markets. Some of that, for sure, will go to the West Coast, and we do export some of our product there already, but we do have the capability to deliver to the local industrial markets, to IPL's PDH facility where pipe connects is there, and also to rail product into the U.S., which sometimes it gets backed up in the Mid-Continent, or they're short in the Mid-Continent, so we're able to backfill that.
So we do have a lot of flexibility, but we do believe that the West Coast is going to be a clearing mechanism, a high-value market for mainly propane and butane in the future. And again, we work very closely with AltaGas on that front.
Great. I'll leave it there. Hope you all have a - sorry.
Thank you.
I'll leave it there. Hope you all have a great holiday season.
Yeah, thank you. You too.
Thank you. The next question comes from Robert Catellier at CIBC Capital Markets. Please go ahead.
Hey, good morning. Sounds like all the fun questions were asked, so I'll ask about tariffs. So what are you assuming for tariffs in your outlook provided today? And should the U.S. impose tariffs on Canadian energy, how does that impact your approach to marketing? So for contracting the marketing season and hedging?
That's a great question, and before I turn over the marketing part to Jamie, it's an interesting situation, and first of all, I never underestimate what incoming President Trump will do, but hey, everybody knows he's a negotiator, so see where he's trying to position himself, but overall, if he's very concerned about the U.S. economy and he wants affordable and reliable energy, certainly Canada is a big part of that equation. Obviously, it's well known that our heavy crude is very well suited to the refineries on the U.S. Gulf Coast, so that's a very good match, and so if they want to import heavy barrels offshore, it just cuts into the reliability and the cost to also transport it there, so it's hard for me to understand a situation where they would try to create a disadvantage for the feedstocks for their supply of energy.
The other thing you have to remember too is that if there's a higher feedstock cost for heavies coming into the United States, into the U.S. Gulf Coast, they export a lot of refined product. So they're going to disadvantage their exports on refined products, again, because their feedstock cost is going to be higher. So hard for me to understand that. The other thing too on the natural gas side, I mean, certainly they have a lot of ambitions to aggressively increase their LNG export capacity. So while a lot of the gas produced in the United States is going to make its way to the U.S. Gulf Coast, I think it's going to leave an opportunity for Canadian gas to backfill some of that in the U.S. And again, to keep it well enough supplied so that it's affordable for Americans. So that's my take on it.
But like I say, we'll have to see more of how things develop. But with that, I'll just turn it over to Jamie, and maybe you can talk a little bit about marketing strategy.
Yeah, Robert. I think just to reiterate what Dean said in a previous answer is that one of our sort of the bedrocks of our business and our Marketing business is being able to hit different markets and higher value markets. And so if we do see some form of tariff in some manner, we just look at it as we're going to have to pivot with respect to what markets that we're looking to hit. And we're confident that we'll be able to continue to hit the highest value market regardless of what the United States does with respect to tariffs.
Okay, those are very thoughtful answers. So what I took back from it is you're not planning to mitigate or reduce the amount of commitments you're making on the procurement side in Marketing? You'll just pivot on the disposition side as needed?
Yeah, so we're expecting our fracs are going to continue to be full. That's really what the basin needs to continue its growth and ultimately feed the growth of the basin, and it's not like we're going to be waiting to see what if something happens, what are we going to do? We're very much proactively thinking about what we would do and how we'd execute our plan if tariffs come into place.
Okay. Next question. I'm curious about how the Dow ethylene cracker fits into your growth outlook. How does that influence what you've provided to us today?
Yeah, certainly we wouldn't have a lot of growth baked in for anything incremental with Dow, partly because their cracker won't be on until later in our time cycle that we're forecasting for. But as I said before, I mean, we're very well positioned with our KFS site being right across the road. I mean, you could hit the yard with a nine-iron golf ball right in their yard. That's how close we are. We have very good pipe connectivity through their lands already with 10 pipes. We do provide some services to them already, some ethane from our de-eth at KFS and storage services. So we're very well positioned to help enable Dow with their net zero ethane cracker projects. And that's all I can say right now. And we will continue to work closely with them with their needs.
Okay. Last one for me. I'm just curious, given that you've kind of penciled in KFS II and KAPS Zone 4 as part of your longer-term targets here, what are the, I guess, the drop-dead dates in terms of sanctioning those projects to be able to meet the guidance?
Yeah. I mean, certainly, as I said before, I mean, we feel very optimistic about the discussions and advancement of contracts with customers on both of those projects. And we're talking about Frac III and Zone 4. And we see great demand for both projects. But again, we need income paper to actually sanction them. We think that that's likely to happen in the first half of 2025. And Jarrod and his team have done a tremendous amount of work to advance engineering. I mean, the Class 3 is already done on Zone 4, and we continue to advance engineering on the Frac III project. So both are advancing from a commercial aspect and also from an engineering perspective. And we certainly hope to get there in the first half of 2025. But good momentum.
Okay. Thanks, everybody. Enjoy the holidays.
Yeah, thanks. You too, Rob.
Thank you. The next question comes from Ben Pham at BMO. Please go ahead.
Hi. Thanks for the morning. As you think about KAPS fill up over time and all your debottlenecking projects you've highlighted, where do you expect your take-or-pay composition to land at the end of 2027?
That's a good question. And first of all, we like that cycle of increasing our Fee-for-Service cash flow. This drives our dividends. And the more volume we have in our system, it helps our Marketing business generate more cash flow. And we take that Marketing cash flow and reinvest that in Fee-for-Service investments. So it's a great cycle. Eileen talked about that, but maybe I'll just pass it over to Eileen to elaborate further.
Sure. Thanks, Ben. We expect on an absolute basis, our take-or-pay will continue to grow as we add more of these Fee-for-Service projects like Zone 4, the bottlenecks, etc. They all have high take-or-pay components to them. Now, that said, on total, right, our overall EBITDA, that means also more marketing opportunities. And as I said earlier, we see that as a good thing. That's why we're able to deliver outsized corporate return on invested capital. What I would say is that, again, back to on an absolute basis, it's going to grow. I think it also goes back to the rating agencies. We were upgraded to BBB stable last year because they had line of sight on all of this growth in that cash flow that they really like.
Okay. That's great. Just maybe back to KAPS, and you mentioned some return expectation overall for your projects. Has anything changed there with the KAPS' returns and just how quickly you can achieve the returns you highlighted previously?
Yeah. I just say that we continue to contract more volumes on KAPS. We're not in the 10%-15% range there, but we're certainly moving towards that. And our cash flow growth from our KAPS pipeline is part of our forecast out to 2028. And as we mentioned earlier, we expect our cash flow to grow to the end of the decade. So it'll be a growing contributor to our cash flow base for years to come. But it certainly helps us be more competitive. And Jamie's team, every deal that they're signing or almost every deal, we're doing integrated deals with KAPS, G&P, and our downstream business. So it's a great service offering for our customers, but it's also helping us generate outsized returns as an entity.
Okay. Got it. Thanks for that. I just want to clean up a question. I think I got the answer to this, but just to double-check, the 7%-8% EBITDA growth, you don't need any M&A to achieve that, right?
Correct. There's no M&A included in that 6%-7%, sorry, 7%-8% EBITDA growth.
Okay. Got it. Thank you.
Thank you.
Thank you. The next question comes from Patrick Kenny at National Bank Financial. Please go ahead.
Thank you. Good morning, everybody. I'm just curious, Dean, how you're thinking about utilizing partnerships to help fund and perhaps accelerate the timing of some of this organic growth potential that you've highlighted over the coming years, whether it be financial partners, strategic partners, and which projects or opportunities might be the best candidates for teaming up with the right partner?
Hey, good morning, Pat, and thanks for the question. Yeah. Partnerships, we have existing partnerships, as you know, in different parts of our business. Probably the most notable one is with Stonepeak, of course, where they own 50% of KAPS, and we work very closely with them, so we certainly have the ability to work with partners where it makes sense. But as we highlighted earlier, our balance sheet is very strong. I mean, it's well below our guidance range of two and a half to three times debt to EBITDA. We're sitting right now at 1.9, so in terms of everything that we've talked about today in terms of our capital opportunities, we can self-fund that very easily with our existing balance sheet and cash flow, free cash flow, so we don't need a financial partner for the things that we're talking about.
But if it makes sense where we can create a win-win to create incremental value and a better solution for customers, we will obviously consider that.
Okay. Great. And assuming you do sanction Zone 4 next year and extend your reach into Northeast BC, does that perhaps open the door to looking at beefing up asset footprint in BC, whether it be through M&A or looking at some greenfield opportunities?
Yeah. That's a really good question. I mean, obviously, right now, we do not have assets in BC. We believe that the BC Montney will get developed in a much greater way over the next decade. And so it's certainly something that we would consider under right circumstances. But we're always looking for opportunities where we can integrate our existing business so that we can provide a superior service offering for our customers where we're handling their molecule right from the wellhead as it enters our gas plant. And we handle that molecule all the way through to our Fort Saskatchewan asset base and through our logistics and marketing business on the downstream side. So we likely would not or we wouldn't buy any assets or look for any assets in BC that, again, didn't have a connection to the rest of the assets that we have in Alberta.
Got it. That's great. And then just a quick follow-up on the Marketing business. Is the incremental iso-octane production from debottlenecking AEF, is that destined for a specific market? And does this 5%-10% increase in capacity represent the maximum potential you see at the site, or could there still be other larger expansion opportunities of the facility that you might be able to look at down the road?
Yeah, Patrick, it's Jamie. Thanks for the question. Yeah. The 5%-10% increase in capacity at AEF, right now, we would envision that that's destined for the Gulf Coast. That would be where our marginal barrel right now is hitting. Now, we've mentioned in the past, we're making really good progress in being able to find sort of term sales into higher value markets, sort of Mid-Continent, the Midwest, Rockies area. And as we look to be able to continue that momentum, I would see that that product would ultimately, hopefully, be able to land in those higher value markets, particularly in the summer driving season. As to additional capacities, we've been just chipping away slowly over the last few years at AEF, just getting the capacity of that facility up in increments in the single-digit area.
So I wouldn't say that we've stopped, but there wouldn't be anything sort of beyond the single-digit sort of increments that we've been able to get out of that facility other than just looking at twinning the facility. And that's something that we constantly are looking at. But we'd have to get comfortable that the market would be there if we were to take that big of a step to twin or make a significant expansion at AEF.
Okay. Thanks for that color, Jamie. And thanks, everybody, for the update today.
Thanks. Thanks, Pat. Have a great holiday.
Thank you. There are no further questions at this time. I will now turn the call back over to Rahul Pandey for closing comments.
Thank you all once again for joining us today. Please feel free to reach out to our investor relations team with any additional questions you may have.
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