Earnings Call: Q4 2016

Feb 15, 2017

Good morning. My name is Jody, and I will be your conference operator today. At this time, I would like to welcome everyone to the Keyera Corp. 2016 year-end results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to 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, press the pound key. Thank you. Director of Investor Relations, Lavonne Zdunich, you may begin your conference. Thank you, and good morning. It's my pleasure to welcome you to Keyera's 2016 year-end conference call. With me today are David Smith, President and CEO, Steven Kroeker, Senior Vice President and CFO, Bradley Lock, Senior Vice President, Gathering and Processing business unit, and Dean Setoguchi, Senior Vice President, Liquids business unit. In a moment, David will provide an overview of the year, followed by an operations update from Brad and Dean. Steven will then provide additional information about our financial results. We will open the call for questions once we complete our prepared remarks. Before we begin, however, I would like to remind listeners that some of our 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 the understanding of our business and the environment in which we operate. Because forward-looking statements address future events and outcomes, they involve risks and uncertainties that could cause actual results to differ materially. Some of these factors and uncertainties include general economic market and business conditions, fluctuations in supply, demand, inventory levels, and pricing of natural gas, NGLs, iso-octane, and crude oil. The activities of producers and other industry players, operating conditions, 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 and capital, and other risks as are set out more fully in our publicly filed documents available on our website and SEDAR. We encourage you to review the MD&A, which can be found in our 2016 year-end report published yesterday and is available on our website and on SEDAR. With that, I'll now turn it over to David Smith, our President and CEO. Thank you, Lavonne, and good morning, everyone. While 2016 was a challenging time for our industry, Keyera had another successful year. Both our gathering and processing and liquids infrastructure business segments delivered record financial results in 2016. Our capital investment program has expanded our infrastructure and continues to generate cash flow growth. The marketing segment also contributed to Keyera's performance, but results were reduced compared to the very strong results in 2015. This was due to the 8-week turnaround at Alberta EnviroFuels and lower margins for iso-octane in 2016. Overall, I am very pleased with Keyera's performance. In 2016, we delivered adjusted EBITDA of CAD 605 million, distributable cash flow of CAD 460 million, and net earnings of CAD 217 million. With confidence in our strategy and our industry, we increased our dividend 6% during the year. Since going public in 2003, Keyera has delivered 15 consecutive dividend increases and an 8% compound annual growth rate in the dividend per share. Steven will speak more about our financial results later in the call. Looking ahead, we are beginning to see indications of an industry recovery. Compared to a year ago, commodity prices have improved by approximately 50%, and the active drilling rig count in the Western Canada Sedimentary Basin is up over 60% year-over-year. The number of well licenses in the Western Canada Sedimentary Basin has increased by about 40% in the last three months compared to the same three-month period a year ago. The recent Crown land sale in Alberta was the strongest since October of 2014. At Keyera, we are beginning to see increased activity in several areas, particularly around our Simonette gas plant. We continue to make good progress on Keyera's growth projects and opportunities. We have three significant joint venture projects, the Norlite Pipeline, the South Grand Rapids Pipeline, and the Base Line Terminal, that are well underway and nearing completion and will begin generating cash flow in the next 6-12 months. I am pleased to report that costs on these major projects are trending lower than originally budgeted. Beyond these projects, our new Keylink NGL gathering pipeline system, the liquids handling expansion project at the Simonette gas plant, our new land position in the Industrial Heartland, and the proposed Wapiti gas gathering and processing complex all represent exciting new growth opportunities for Keyera. With that, Brad Locke will now discuss our gathering and processing business unit. Thanks, David. The Gathering and Processing business unit delivered a record operating margin of CAD 290 million in 2016, representing an increase of 12% over the prior year, as we are generating incremental cash flow from capital projects brought online midway through last year, and incremental ownership interest in our gas plants. For the year, gross throughput volumes decreased by 4% to 1.43 billion cubic feet per day due to the combined effects of less drilling activity around our facilities, given the low commodity price environment. Natural decline rates of existing wells tied into our gas plants and curtailments on third-party sales gas pipelines. In the fourth quarter, gross average throughput volumes were 1.36 billion cubic feet per day, consistent with the volumes recorded in the third quarter. As David mentioned, we are optimistic as we look ahead into 2017 based on the early signs of a recovery emerging. In November, as NGL prices improved, our producer returned their volumes back to Rimbey after diverting a portion away earlier in the year. With increased capital budgets and drilling plans in 2017, several producers have recently contracted for incremental gas processing capacity at a few of our gas plants. One of our partner customers, Bellatrix, announced their intent to invest in increased drilling and completion activities in 2017. Assuming their drilling proceeds as planned, throughput at Keyera's Minnehik-Buck Lake and Brazeau River gas plants could increase throughout the year. Keyera is also encouraged by the robust drilling activity in the Montney geological zone, where volumes at our Simonette gas plant have remained stable in spite of the low commodity price environment. To meet the growing needs of our customers here, we are proceeding with a project to expand the liquids handling capability at the Simonette gas plant. Upon completion of this project, the condensate handling operational capacity at Simonette is expected to be approximately 27,000 barrels per day. Based on our current estimates and schedule, we expect to complete the project by mid-2018 at an estimated cost of CAD 100 million. This project is intended to maximize producers' netbacks by increasing liquid recoveries at the facility and in turn, providing long-term growth opportunities for Keyera. Regarding the potential Wapiti gas plant project that we announced in May, regulatories for the acid gas injection well were received, and front-end engineering work was completed in the fourth quarter of 2016. The current estimated cost for the Wapiti project, including gathering, is approximately CAD 625 million, with the ability to process up to 300 million cubic feet per day of sour gas and 25,000 barrels per day of field condensate. We are continuing to work closely with our customer towards sanctioning of phase one, which would consist of 150 million cubic feet per day of processing capacity, the associated gathering system, and an acid gas injection well for an estimated cost of CAD 470 million. Keyera is also negotiating with other producers in the area to commit additional volumes. I will now turn it over to Dean to discuss the Liquids business unit. Thanks, Brad. The Liquids business unit also performed very well in 2016. The Liquids infrastructure segment's operating margin was a record CAD 246 million, up 12% over the prior year, primarily due to contributions from projects completed in 2015, including the KFS frac expansion completed in May, and growing volumes through our industry-leading condensate network. Over the past several years, Keyera has continued to focus on developing major strategic projects that are expected to provide Keyera with sustainable growth and long-term fee-for-service revenues to enhance shareholder value. As David mentioned, over the next 6-12 months, the Norlite Pipeline project that will deliver diluent from the Fort Saskatchewan area to the oil sands, the South Grand Rapids diluent pipeline project between Edmonton and the Fort Saskatchewan area, and the Base Line Terminal crude oil storage project will begin to generate cash flows. To add to this growth profile, we recently approved the construction of a new NGL gathering system called Keylink, which provides customers with a safe, reliable, and economically improved alternative to trucking NGL volumes across central Alberta. Keylink will consist of over 240 km of both newly constructed and repurposed pipelines for an estimated cost of CAD 147 million. The system will transport NGL mix from several Keyera gas plants, including Brazeau River, West Pembina, and Minnehik-Buck Lake, to our Rimbey gas plant for fractionation into specification products. From Rimbey, NGLs can then be moved by pipeline to either our Edmonton Terminal or our Fort Saskatchewan fractionation storage complex. We're pleased with the progress we have made with our engineering work as well as our regulatory and construction plans. Our goal is to have Keylink operational in mid-2018. Keyera will also be considering a number of future growth opportunities given the recent acquisition of approximately 1,300 acres of land in the industrial heartland area near Fort Saskatchewan. The property is located adjacent to our Josephburg rail terminal, which is connected with multiple pipelines to our Fort Saskatchewan fractionation storage complex. It is already zoned heavy industrial with proximity to both major Canadian railways. In addition, Keyera owns the salt rights under much of the acreage, providing flexibility to develop underground storage caverns. Our marketing segment generated operating margin of CAD 101 million in 2016, or CAD 137 million before unrealized gains and losses. Propane, butane, and condensate all contributed positively to the segment's results, though to a lesser extent than 2015. Iso-octane contribution was lower year over year. Yearly sales volumes were down over 15%, primarily due to the scheduled four-year maintenance turnaround that lasted from early September to early November. Iso-octane margins were also lower due to weaker gasoline prices and lower iso-octane premiums in the second and third quarters of 2016. In contrast, iso-octane premiums were considerably high during the same period in 2015. For the fourth quarter, specifically, iso-octane sales volumes represented roughly half the productive capacity of the facility because in addition to downtime during the turnaround, it takes time to return to full operating rates, build inventory, and transport the product by rail to markets. Looking ahead, the future for the Liquids business unit is very positive. As we complete a number of capital projects underway, advance work on the Keylink pipeline, and continue to develop new opportunities for future growth. With that, I'll turn it over to Steven to discuss the financial results in more detail. Thanks, Dean. As mentioned earlier, we had a successful year with both of our infrastructure segments generating record results. Our performance over the past year is a reflection of Keyera's integrated value chain as well as our customer-oriented approach. Not only did our assets perform strongly, but our operating cost-saving initiatives improved the customer's economics as Keyera's gas processing operating fees are substantially structured on a flow-through basis. When assessing this year's financial results, it is important to recall that last year's results included a non-recurring cash gain of approximately CAD 40 million on the settlement of risk management contracts associated with 2014 year-end inventory. Adjusting for this non-recurring gain in 2015, 2016 adjusted EBITDA of CAD 605 million was approximately 9% lower than in 2015. Making the similar 2015 adjustment, 2016 distributable cash flow of CAD 460 million was 4% higher than in 2015. Distributable cash flow in 2016 benefited from significantly lower cash taxes, CAD 15 million versus CAD 88 million, and lower long-term incentive plan costs, CAD 16 million versus CAD 32 million. On a per share basis, distributable cash flow per share for 2016 was CAD 2.56, which is slightly lower than in 2015, once the non-recurring hedging gain is backed out. Keyera announced a 6% dividend increase in August 2016 and continued to have a conservative dividend to distributable cash flow payout ratio, averaging 60% for 2016. Net earnings for the year were CAD 217 million, compared to CAD 202 million in 2015. Consistent with Keyera's growing business, general and administrative expenses, depreciation and amortization expenses, and financing costs increased year over year. 2016 net earnings also reflected lower foreign exchange losses on U.S. debt, lower long-term incentive plan expenses, and a net impairment expense of CAD 12 million. A net impairment expense of CAD 12 million for 2016 reflects a CAD 45 million write-down of Keyera's investment in the sulphur handling fertilizer project at the Strachan gas plant, and a CAD 33 million recovery to reverse previous impairment losses associated with the Brazeau River and West Pembina gas plants. The recovery is possible because of new gas gathering systems that increased throughput at the plants. In 2016, Keyera invested CAD 502 million, mainly in our liquids infrastructure segment, to advance our three joint venture projects. Acquisitions during the year totaled CAD 190 million and included an additional 35% interest in the Alder Flats gas plant from Bellatrix. With respect to 2017, we now plan to invest between CAD 600 million and CAD 700 million, which includes growth capital for the newly approved Keylink NGL gathering system and the Simonette liquids handling expansion. In addition, maintenance capital is forecast to be between CAD 30 million and CAD 35 million in 2017. Cash taxes for 2017 are estimated to be between CAD 5 million and CAD 10 million. Keyera estimates its tax pools at December 31st, 2016, were approximately CAD 2 billion. Keyera continues to benefit from a healthy balance sheet, as reflected in its covenant net debt to trailing EBITDA multiple of 2.67x. Keyera also continues to benefit from a low payout ratio and strong participation in its dividend reinvestment plans. That concludes my remarks. David, back to you. Thanks, Steven. As our 2016 results demonstrate, demand for Keyera's products and services continues to be strong, and I am pleased with our performance. We continue to strengthen our competitive advantages and position the company for growth. We have successfully reduced operating costs in our Gathering and Processing business segment by 13% year-over-year. We've strengthened our balance sheet and continued to focus on operational excellence. We have a strong foundation, and I am optimistic about the future given the early indications of recovery, our major capital projects well underway, together with our recently announced new projects, and other business opportunities that we continue to evaluate. 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. At this time, if you would like to ask a question, please press star and the number one on your telephone keypad. Your first question comes from Linda Ezergailis from TD Securities. Your line is open. Thank you. I'm wondering if you could provide us with some more details around the commercial attributes of Keylink and your expected returns. Are there any third-party contracts or agreements specifically underpinning that? How quickly would you expect volumes and contributions to fill up from that, and what the basis of those kind of commitments or volumes might be? Hi, Linda. It's Dean. We don't disclose the specific rates or returns of our projects, but essentially what we're accomplishing initially with Keylink is we're tying in eight of our gas plants. With that, we're mainly replacing volumes today that are being moved by truck, NGL mix that is being moved by truck to our fractionation sites, mainly at Rimbey. This is a much safer and economically advantaged means and a reliable means of transporting our NGL mix to the Rimbey plant. We can fractionate it there. It is pipeline connected to our Edmonton rail terminal. We can move product out of that terminal, or we also have the flexibility to move it by our pipelines up into our Fort Saskatchewan fractionation storage complex. In addition to our eight plants, we are actively working with a number of producers at other facilities to handle their volumes as well through this pipeline system. We have nothing to announce at this point, but we're encouraged with the discussions that we've had. The initial economics would be the delta between the cost of shipping by pipe versus truck, and not fully full, and then third-party producer volumes would fill it up? Or was there an ability to kind of expand the capacity to accommodate future producer volumes? Yeah, we do have extra capacity to handle more volumes through the system. It would not be operating at anywhere near full capacity at the beginning. We would be able to have the ability to add additional pumping at future stages if we wanted to add more capacity in the future as well. Linda, it's Dave here. Just to clarify, the economics on the pipe are based on the tariffs that are charged either directly or indirectly on the volumes that are going through the pipes. The advantage for our customers is that those tariffs will be lower than what the trucking costs are today. The economics aren't based on the delta. They're based on the actual tariffs that are charged on those volumes. Okay, for Keyera volumes, it would be presumably the delta. Anyway, sorry, just to move on. Okay. Can we talk a little bit about the liquids handling expansion and kind of how we might think of the economics of that without getting too specific? Certainly. Linda, this is Brad. The Simonette liquids handling expansion serves a couple of purposes. One, it allows us to enhance liquid recoveries at the plant by moving more ratably products out of the facility. Secondly, it allows us to handle increased volumes of unstabilized condensates that our producers are developing in the field. A lot of those volumes are actually served by existing contracts that they plan to ramp up over the next little while. There is still potential to add new volumes to that to provide additional revenues. Will that be fully contributing to its potential once in service, or should we expect to see a bit of a ramp over time? I would expect to see a ramp over time. We're certainly building capability into that to handle future volumes as well as existing contracted volumes. Great. Thank you. Your next question comes from the line of David Noseworthy of Macquarie. Your line is open. Great. Thank you very much. Maybe I can just start off on Keylink and add a couple questions there. Did you provide a capacity of the new Keylink system? And in terms of shippers, do you have any sort of numbers that you're expecting? I think it's premature to give you that kind of an indication, David. We can probably do that at some point down the road once some of the commercial arrangements are a little bit more finalized. In terms of capacity, it's a little bit of a difficult number to kind of pin down because it's not a single pipeline. It's sort of a network of pipelines connecting a number of different plants. We may be able to provide you with a better volume indication down the road, but not at this point. Okay. In terms of the assets that you're going to repurpose, does that have any impact on EBITDA? Is there a bit of taking EBITDA out here and adding it through the Keylink, or is this all 100% incremental? This would be 100% incremental. The pipelines that we're repurposing aren't in use today. Okay. All right. In terms of the Wapiti plant, I think before earlier in 2016, there had been some sort of expectation of reaching a Final Investment Decision sometime in Q1. Is that still the timeframe we're aiming for or has that moved? I think we're certainly still hopeful of a Q1 sanctioning decision. We're working closely with our partner to get all the conditions put in place to allow that to happen. It's a large project with significant commitments from both sides. It's certainly complex to get there, but we're certainly hoping for a Q1. Fair enough. In terms of when you reach FID, is there an expectation of securing third-party volumes before that, or is that kind of maybe that'll happen, maybe it won't happen, but it's not necessary for FID? I think if we can reach agreement with our original partner, we can FID the first train on those volumes. I think incremental third-party volumes would allow us to sanction the second train. Perfect. Last question. Keir highlighted that capital costs for Norlite, Grand Rapids, and Base Line are coming in below budget. Can you remind us who assumes the capital risk on those projects and therefore who benefits from the lower budgeted capital costs? Base Line Terminal, the benefit goes to us. The Norlite Pipeline, the benefit would go to us as well. Sorry, was the last one Grand Rapids you asked about? Yes. Yeah. All three of those would be to our benefit. Perfect. Thank you very much. Your next question comes from the line of David Galison of Canaccord Genuity. Your line is open. Good morning, everyone. Thanks for taking my question. Just on the Gathering and Processing segment, your commentary is very encouraging. Just wondering, considering the improvements that you're seeing in the drilling activity and also in the context of your turnarounds for the year, how should we think about volumes improving throughout the year? This is Brad Lock. We don't provide guidance on volumes going forward. I think it's safe to say we're encouraged by the drilling activity that is taking place. We are hopeful to see growing volumes as the year goes on, but we don't provide any guidance on that. Okay. Just in the context of the current commodity price environment, how are you thinking about your hedging strategy for 2017? Is it going to be roughly similar, or are you going to think about making any changes to it? I guess I'll take that one, David. Our strategy and our objectives haven't changed. With respect to most of the products, our intent is to protect the value of the inventory for the most part. With respect to the iso-octane margin, what we're trying to do is to look forward and protect the elements of the margin that we can actually hedge, and I'm speaking specifically about the RBOB spread over WTI and the butane feedstock cost. We inform ourselves with sort of the benefit that we have of understanding the fundamentals on both sides. We will go out as much as 12 months and in some cases more. At the same time, we're somewhat opportunistic about the timing of putting those hedges in place. You can read the amounts in the financial statement note. Okay. Just one more question on the cost reductions. You were able to secure about 13% this past year. Are there still opportunities out there that you're evaluating or are you pretty much reached the potential there? I think we continue to look for operating cost opportunities through 2017. We're certainly very pleased with the achievements that we've made in 2016. We're going to focus on trying to enhance those in 2017. It'll be a little hard to say what's going to happen with supply costs as the industry starts to recover. Typically, when the industry recovers, the cost for goods and services starts to climb a little bit as well. Preserving what we have is a good result as well. Okay, thank you very much. Your next question comes from the line of Ben Pham, BMO. Your line is open. Okay, thanks. Good morning. I wanted to continue the questioning on Keylink. I wanted to clarify, I may have missed it, and I think Lynn was trying to ask this, too, but is the Rimbey utilization on the frac side, do you anticipate that to increase with Keylink, or is that NGLs already moving there via truck? A lot of the product today is moving by truck into Rimbey. We do hope to, with that, it's a more reliable and economically feasible means of moving NGLs into Rimbey. We are hopeful that we can attract more third-party volumes into that system, which would mean more volumes coming into Rimbey over time. Okay. Thanks for clarifying that. Ben, it's Dave here. I would add, you might recall, two years ago we expanded the frac capacity at Rimbey, and so we've got some room there. In addition, if we're successful with building volumes, as Dean described, with Keylink, we always have the option to move the NGL mix up the Rimbey pipeline into our Fort Saskatchewan fractionation capacity. Getting the NGL mix to Rimbey by pipeline gives us a lot of options. Okay. At Rimbey, we have about 28,000 barrels of fractionation capacity there today. Okay. Buying some of the land, a lot of acreage you're picking up. Was that driven by a specific industry event that occurred over the last few months, or you've been eyeing something for a long time strategically? I'll take that one. The land is a parcel that we've had our eye on for quite some time. It was most recently owned by Sasol, and their intent had been to build a gas to liquids facility using their proprietary technology. I think they concluded that the economics didn't support that investment. We were able to arrange a deal with them to take that land off their hands. We don't have a specific plan for the site at this point, but it's right in the middle of the industrial heartland, adjacent to our Josephburg site. There's a number of options that we're looking at. I wouldn't say there's anything imminent. With the advantages of the site that Dean described, I think we're pretty excited about what the long-term potential is. Okay, maybe I can ask the last one on the quarter, specifically and with marketing. There was commentary about just filling up the line and delay in that between iso-octane production and sales volume. With the results, your sales volumes did increase year-over-year. It looks like there's something else that you were moving through the quarter and benefiting from, but it didn't really show up in the results at all. I was wondering if you could provide a bit of color on that. Ben, I'm not sure we understand the question. I was wondering why you mentioned, I think it might've been Brad, that iso-octane production, there was a mismatch between that and some of the sales volumes that you were moving down south. Yeah. Just because the line fill wasn't picking up. I would think that your sales volumes that you've recorded in Q4 would have been at least tempered relative to last year. It seems like you might've been moving propane or condensate or something else in it that was driving the volumes higher, but the margins were still relatively contained. Oh, yeah. You're probably looking at our table on the second page of our quarterly report, and those sales volumes would represent all liquids, and certainly a large proportion of that would be propane, which is a low-margin product. Obviously, iso-octane, we sold relatively few barrels of iso-octane during the quarter. On a relative basis, most of the product is represented by propane. Okay. I guess you didn't benefit from the bit of a spike in December then, on the pricing side for propane. A lot of our propane sales volumes, we would have recognized in January and into February. Okay. Got it. Okay. All right, thanks for taking my questions. Your next question comes from the line of Rob Hope with Scotiabank. Your line is open. Yes, good morning. Just two questions. First, I want to follow up on the Sasol piece of land. It's a very large piece of land, really in center ice of Fort Saskatchewan, on top of some large-diameter pipelines. Are you looking to do some more heavy industrial large infrastructure projects there potentially, maybe looking at some additional iso-octane PDH or something of that scale for that piece of land? Well, we are certainly open to opportunities that would enhance and be consistent with our current business plan. We do like the opportunity to extend our value chains, and some of the types of projects that you described are things that we may consider. We have demonstrated that we are good partners, so we do have a number of joint venture situations. Sometimes those situations, they may present opportunities as well to develop on that land. Okay. That's helpful. We do think it is one of the best pieces of developable land in the industrial heartland. We're very excited about it. Great. Just to maybe ask one final question on Keylink. When you're connecting those 8 plants into Rimbey, it's my understanding that at least a couple of those plants would already have NGL pipeline connectivity. Is the expectation there to move some of those volumes away from the third-party pipeline and back into Keyera's Rimbey plant? There's a couple of issues. A, we do believe that we provide a competitive alternative in those situations. Second of all, there are some capacity constraints in the competing system, and so I guess there's restrictions as to how much of the product they can actually take without further capital investment as well. Again, in some of the facilities, the couple of facilities that you're talking about, some of that product is moving out by truck today because of that. I think the short answer is yes. We do expect that some of that volume will come off that pipe. Okay. No, that's helpful. Just one kind of clean-up question. You mentioned some new contracts that you had signed up with producer customers for G&P. Any order of magnitude you can provide to us? This is Brad. I wouldn't say they're meaningful in size. The more significance, I think, is the sign of industry recovery. As we went through 2016, there wasn't a lot of producer activity, and there wasn't a lot of volume commitment. Having producers even step up with any new incremental volumes is a positive sign in today's environment. That's really the encouragement that we see out of that. That's my questions. Thank you. Your next question comes from the line of Patrick Kenny of National Bank Financial. Your line is open. Yeah, good morning, guys. Just back to the Simonette expansion and tying in the condensate barrels into the Peace Pipeline. Just wondering if you can comment on whether or not this initiative replaces your previous vision of building your own NGL pipeline network down into the Fort. If not, what sort of NGL volume do you need to see in order to justify building your own pipe? Well, I'll talk to the Simonette side, and maybe I'll turn it over to Dean on the NGL pipe. Really, the project that we're doing here is really irrespective of delivery pipeline. What we're trying to do is actually satisfy customer needs for raw condensate processing and maximizing the NGL production out of the raw gas that's coming in. That's what the project that we're proposing here. Pat, we don't talk a lot about projects that we're working on, but certainly, a pipeline into that area would be something that would be of interest to us. We always look at opportunities to expand our business, but that would be something that would be attractive. Just to confirm, on the Wapiti plant for phase one, would phase one be able to process half of the 25,000 barrels a day of field condensate as well? The base design for the Wapiti plant includes a single condensate stabilizer. The stabilizer would be built for the full 25,000 barrels a day capacity. Okay. Great. Just one final question here on the marketing business. Appreciate the comments with respect to iso-octane margins getting back to 2014 levels. Not to get too granular on marketing guidance here, but just if you can comment directionally on any other moving parts across the other products or perhaps on sales volumes relative to 2014. Pat, maybe I'll take that. I think our sales volumes continue to grow as we expand facilities and add more capability and capacity to our network. It allows us to continue to grow volumes, and I think you've seen that in the marketing sales volumes as we report them. With respect to iso-octane particularly, the second half results for iso-octane were a fair bit lower for the reasons that we've explained. But as we look at 2017, as we sit here in mid-February, things are certainly looking stronger than what we saw through 2016, and the plant itself is performing very well. We're optimistic. Okay, great. Thank you very much. Yes, Steven here. The only thing I would add to that is that we do provide the financial note in the financial statements, and that gives you a little bit of indication as to where the forward market is looking for in terms of our above hedges and just how much we have hedged there. Again, that just should be able to inform your decisions there or thoughts there. Great. Thanks, Steven. Your next question comes from the line of Robert Kwan of RBC Capital Markets. Your line is open. Morning. I guess maybe just coming back to Keylink here. In essence, is your confidence in moving forward here really just a function of, they're your plants, so you know the NGL volumes coming out the back of it, and you know the trucking rates. Kind of as you put that together and the capital investment that you're making, that there's sufficient cushion, making good money and deliver better service to the customers? I couldn't describe it any better, Robert. You should be sitting in my chair. Well, I guess then that comes to the question of why now? Is it because you're seeing growing liquids hitting the plants? Has it been waning service levels from third-party providers? What has caused you to kind of get to the point where you could make this investment given kind of those dynamics in general have been out there for some time? One of the components we haven't talked about is that we're certainly seeing a period now where it's a good time to construct, and we certainly believe we can construct this pipe. We've looked at it for a long time, and never have we had the confidence to build this pipeline system for this kind of price level. Certainly in any time in the last several years. We think it's the right time to build. We certainly like the facilities that we're going to be adding to the system, the discussions that we've had with also third parties that we think we could attract over time to bring volumes to that system. We just believe for those reasons, now is the right time to put it into place and, again, generate more business over time. Okay. Robert, I would add that I think your assessment is correct, though, that we certainly are seeing stronger volumes from this area and a stronger outlook for future volumes at this point, maybe than what we would have seen three or four or five years ago. The throughput volumes at Brazeau River and West Pembina are up considerably. The Zeta Creek plant is new. I would also add that the liquid composition of the gas in the area has been increasing as well because of the zones that the producers have been focused on. All of those are contributing to a stronger volume outlook, as well as the factors that Dean mentioned. Understood. If I can maybe then tie Keylink back to an answer you had earlier of directionally still being interested in building a longer liquid system into the Fort. Should we think of Keylink as a pre-build of a larger system? It is quite a bit further south of where at least ALPS was initially envisioned. Today, the vision of Keylink is to connect most of our existing gas plants and bring that volume into Rimbey. There is always a possibility that we could move it into a northern system if we thought that that was something that was more economically feasible in any way. Today, it's strictly a system that's designed to bring barrels into Rimbey. Okay. Maybe just last on this topic. Is it fair that because with the Simonette expansion, you are intending to tie it into Peace, that really that should maybe be a sign that there's nothing imminent with respect to any headway you might be making on your own liquid system coming out of the same area? I wouldn't conclude that, Robert. I think the other liquids pipeline that we're talking about is still something we're working hard on. Even if we were to give that a go-ahead right away, it would still be at least two years away in terms of commissioning. I think Simonette would certainly be part of our plan for a liquids pipeline into that area. Today, the only alternative is Peace. Got it. Maybe I'll just finish with your outlook on butane. If you think about it over the medium to longer term, do you have any comments on the isobutylene project in Bellevue? Do you see this as a start of a bit of a trend as we saw investment just as all of the NGLs started to come off, whether that was things to solve ethane and then infrastructure to solve propane? Do you see this now kind of expanding within the butane complex? I would say to a much lesser extent, because the butane feedstock is obviously more expensive than the propane, and I would say it's not quite as long as propane. If you look at Enterprise's project, they're just basically building feedstock. They're not actually making alkylate out of it. It can be used for a number of different other finished products. I think what they're doing is they're anticipating probably further demand for products like alkylate in the future, just given maybe the outlook with what's happening in the U.S. Yeah, I'm thinking just a little bit more in terms of creating incremental demand for butane and what that might do to your outlook for butane as it relates to the feedstock in the AEF. I think your comment is probably a fair assessment. With respect to all of the NGLs, industry throughout North America has been looking for ways to create more demand for the increased production of NGLs, ethane, propane, butane, and condensate across the board. We've seen a lot of capital invested in projects to take up the ethane and the propane, not so much on butane because there's kind of fewer options. I think it is possible that that would contribute to some additional demand for butane, that project that you're referring to. We've seen butane prices a little bit stronger lately than they were in 2015. We're still relatively optimistic that the butane feedstock for AEF will be at a pretty reasonable cost for the foreseeable future. Okay. That's great. Thank you for your comments. Your next question comes from the line of Robert Catellier of CIBC World Markets. Your line is open. Good morning. Just a quick follow-up here on Keylink. It sounds to me that you do have an appetite to take some of the economics on spec here rather than have it fully contracted. Is that correct? I think that's fair, Rob. We have, as Dean already mentioned, the initial volumes for the pipeline come from eight plants that Key operates. Clearly from a volume point of view, we have a high degree of confidence. What we're planning to do with respect to tariffs is to make sure that it's more economically attractive than the other options, so it benefits our customers in that way. Yeah. Understood. We also believe that the base volumes that we'll track from our eight gas plants will generate a base rate of return that is acceptable to us, that we certainly want to build off of from there. Yeah. I'll throw my hat in the ring in wanting some sort of gauge of volume capacity on the line. When you get around to putting it into the market, understanding it's a system, maybe just focus on the trunk line and the part that can actually feed into Rimbey, how much capacity might be able to go into Rimbey. Moving on to another question here, what do you see the implications of a long-term fixed price agreement on the TransCanada Mainline to Keyera's operations? Well, do you know something I don't know? Just curious. That's been the subject of lots of speculation, Rob, and I'm no closer to it than anybody else. I think certainly we believe that the Western Canada Sedimentary Basin is very competitive from a cost point of view with all of the resource plays throughout North America. The issue for the producers is the cost of transportation to market. If we can get a solution that leads to a lower tariff on the TransCanada system, that would be positive for the entire basin, I think, and indirectly for us. The TransCanada system has lots of capacity. It's just a matter of pricing that unutilized capacity at a level that makes sense and makes the producers in Western Canada competitive with the producers from elsewhere in North America. If there's a revised tariff and maybe rekindling volumes there, it is meant to address the Empress to Dawn. Do you think there's more competition from the straddle plants then at that point, or is there still plenty of liquids being taken out in the field? We don't see the straddle plants as competition for our field processing. The precedent is well established that our plants are all field plants, and we and our customers, the producers, have the full rights to extract whatever NGLs make sense, and to meet the pipeline specifications. We don't see any change in the TransCanada tariff to Ontario as being something that would affect that. I think the bigger impact would be the improved economics for the producers that I think would eventually lead to more activity and more volume. Okay. Thank you. You got to all my questions. Thanks. Your next question comes from the line of Joe Gemino of Morningstar. Your line is open. Thank you. My questions have been answered already. I appreciate it. Thank you, Joe. Your next question is from the line of Andrew Kuske of Credit Suisse. Your line is open. Thank you. Good morning. Maybe just a little bit of clarity on the actual location of the 1,290 acres you bought. Is it west of Range Road 214 and south of Township Road 554? That's a little specific. East of our Keyera Fort Saskatchewan site. Okay. Dow has a pretty significant property to the east of us, and we're on the other side of Dow. Okay. Again, it's about 1,300 acres. One of the things we really like about that land is that it's right adjacent to our Josephburg rail terminal. From that site, it's fully connected to our Fort Saskatchewan frac and storage complex. We can access everything, all the connections that we have at our Fort Saskatchewan sites at the Josephburg rail terminal. Having this extra land there makes it even more valuable. Andrew, we can help you. We can pull out a map and help you understand where it is, but it's south of Shell's Scotford refinery. It's west of the TransCanada Heartland Terminal, just adjacent to our Josephburg terminal and just east of our Fort Saskatchewan facility. It's really right in the heart of the industrial heartland and with a number of existing large-diameter pipelines through the site. As Dean mentioned earlier, it's right next to the highway. It's right next to the CN main rail line. It's just a tremendous location. It's actually very close as well to Inter Pipeline's proposed PDH facility as well. Just as a follow-up to this, and I think, Dean, you mentioned you've got the ability to do salt caverns here. If you could just maybe wrap the scale of the 1,290 in the context of what you've already got at Fort Sask and just your physical footprint there, how big is that footprint, just by way of comparison? Ooh. Yeah, it's about 4 times the size of our Keyera Fort Saskatchewan facility today or site today. It's very large. From a permitting standpoint on the salt caverns and the rights you have on that, what would be the parallel? On a comparative basis between what you could potentially do and what you have at Fort Saskatchewan. Well, first of all, we haven't fully developed the capacity of our salt caverns at our existing Fort Saskatchewan site. When that is fully developed, it'd be more than double the capacity. We could develop caverns for decades. There's a lot of capacity on that site. Okay. That's very helpful. Thank you. You have a follow-up question from the line of David Noseworthy of Macquarie. Your line is open. Thank you. Just two quick questions. One, are there any opportunities to expand the Base Line Terminal should TMX be successfully expanded, or is that property already fully built out? No, we do have room for additional tankage, and I could give you an exact number. I believe that it's about 3 million barrels of additional capacity that we could add on existing site. Do you have any idea in terms of timing that you might look at something like that? Is it still very prospective, or is that something that we might see in the next year or so? Well, it's obviously driven by customer demand. Certainly, if the Trans Mountain pipeline expansion continues to advance, I think that would be promising, again, for the demand for above-ground storage. Perfect. Last question, this may be too early, so if it is, no worries. Are you getting any indications where fractionation rates will be going post April 1 compared to the 2016, 2017 rates? It's early to tell. I guess all I can say at this time is, it is a competitive environment just because of all the frac capacity that's been added over the last couple of years. Perfect. Thank you very much. There are no further questions at this time. Thank you, Jody. That completes our year-end 2016 conference call. If you have any questions, please feel free to call the investor relations team. Our contact information is in yesterday's release. Thank you for listening, and have a great day. This concludes today's conference call. You may now disconnect.