Earnings Call: Q4 2014

Feb 12, 2015

Good morning. My name is Lita, and I will be your conference operator today. At this time, I would like to welcome everyone to the Keyera Corp. 2014 year-end results conference call. 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 the pound key. Thank you. I would now like to turn the call over to Mr. John Koch. You may begin, sir. Thank you, Lita, and good morning. My pleasure to welcome you to Keyera's 2014 year-end results conference call. With me are David Smith, President and Chief Executive Officer, Steven Kroeker, Senior Vice President and Chief Financial Officer, 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, Brad and Dean will discuss the business, and Steven will provide additional information about our financial results. After that, we'll open the call for questions. Before we begin, however, 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 beliefs 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 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, our operating and other costs, the availability and costs of materials, equipment, labor, and other services essential for our capital projects, governmental and regulatory actions or delays, general economic conditions, and other risks as are more fully set out in our publicly filed disclosure documents available on SEDAR and on our website. We encourage you to review the MD&A, which can be found in our 2014 year-end report published yesterday and is available on our website and on SEDAR. With that, I'll turn it over to David Smith, President and Chief Executive Officer. Go ahead, David. Thanks, John, and good morning, everyone. Thank you for joining us today. I am pleased to report Keyera enjoyed its most successful year ever in 2014. For the second consecutive year, all three of our business segments delivered record operating results and contributed to our unprecedented financial performance. During the year, we also completed a number of strategic growth initiatives and announced several acquisitions to complement existing operations. We expect these initiatives to contribute growing cash flows to Keyera's results in 2015 and beyond. I'll speak first about our fourth quarter results. Total operating margin in the fourth quarter was CAD 188 million, compared to CAD 102 million in the fourth quarter of 2013. Our Gathering and Processing Business Unit reported an operating margin of CAD 52 million, compared to CAD 38 million in the same period of 2013. Operating margin in our NGL infrastructure business segment was CAD 55 million, up CAD 21 million from the fourth quarter of 2013. Our marketing operating margin was CAD 68 million compared to CAD 29 million in the same period in the previous year. These fourth quarter numbers contributed to the exceptional results that we recorded for the full year. Net earnings for the full year were CAD 230 million, or CAD 2.80 per share, 56% higher than in 2013. Adjusted EBITDA was CAD 530 million, 40% higher than the prior year. Distributable cash flow was CAD 389 million, or CAD 4.73 per share, and dividends to shareholders were CAD 207.3 million, or CAD 2.52 per share, which resulted in a payout ratio of 53% for the full year. In May 2014, Keyera raised its dividend by 7.5%, and yesterday we announced another dividend increase of 7.0% beginning with our March dividend payable in April. These increases are consistent with our objective of providing stable and growing dividends to our shareholders. Steven will talk more about our financial results later in the call. 2014 was also a record year for growth initiatives, as we invested almost CAD 1 billion, including acquisitions, to enhance our network of integrated plants, pipelines, facilities and services. It is this network that allows our customers to access services across our entire value chain from the wellhead to market. Our recent investments are consistent with our strategic direction, and as I've said, will deliver incremental cash flow in 2015 and beyond. With that, I'll turn it over to Bradley Lock to discuss our Gathering and Processing Business Unit. Thanks, David. As mentioned, 2014 was a record year for the gathering and processing business unit, both due to increased demand for our services and increased throughput at many of our facilities. In West Central Alberta, where several of our larger plants are located, producers are having success drilling a number of geological formations, including the Mannville, Spirit River, Cardium, and Glauconite horizons. The resulting production is driving throughput growth at our facilities in the area. In the Deep Basin around our Simonette gas plant, the Montney zone continues to be the primary focus for most producers, though the Duvernay continues to garner significant interest. In the fourth quarter, several of our facilities, including Rimbey, Strachan, Nordegg River, Simonette, Minnehik-Buck Lake, Pembina North, and Brazeau North, were operating at or close to their effective capacities. Overall, gross processing throughput in the fourth quarter was 1.6 billion standard cubic feet per day, up 10% from the third quarter of 2014 and 22% from the fourth quarter of 2013. In 2014, we enhanced our customer service offerings in the gathering and processing business by acquiring working interest in the Cynthia gas plant located west of Drayton Valley in our core processing region, and the Ricinus gas plant located south of our Strachan facility. We also agreed to participate as an owner in two new plants that are under construction, including the Alder Flats plant being constructed by Bellatrix Exploration and the Zeta Creek plant being constructed by Velvet Energy. All these plants are located in West Central Alberta, an area where producers are seeking additional processing capacity and will help alleviate existing capacity constraints. Keyera also continued to expand the capture area of our existing plants through construction of additional gathering pipelines. During the year, we completed an expansion of the Carlos Pipeline and construction of the Wilson Creek Gathering System, both of which deliver gas to the Rimbey gas plant. The Twin Rivers Pipeline Project is well underway with the backing of many producers who have active development plans in the area. When completed, the pipeline project will deliver liquids-rich gas to our Brazeau River and West Pembina gas plants. We anticipate the initial portions of the project involving modifications to existing pipelines and initial segments of new line will be completed this quarter, which will allow us to immediately access unutilized capacity at our West Pembina plant. The southern portion of the new pipeline segment is expected to be on stream by the second quarter of 2015, which will complete the entire network. At our Simonette gas plant, we have extended the capture area of the plant to support producers drilling in the liquid rich Montney zone. Construction of the Wapiti pipeline system was completed in the third quarter, and the raw gas gathering pipeline began operation in September. The plant expansion to add 100 million standard cubic feet per day of processing capacity and enhance condensate handling is nearing completion. We anticipate that these projects will be operational by the end of the first quarter 2015, at which time we will bring the condensate pipeline that was constructed as part of the gathering system online. At the Rimbey Gas Plant, installation of the 400 million standard cubic feet per day turbo expander plant is progressing well and is on track to be completed around the middle of this year. During the fourth quarter, the demethanizer and deethanizer towers were lifted into place, significantly changing the plant landscape. The new facility will increase recoveries of ethane and other NGLs from the raw natural gas stream. We believe we are well-positioned for 2015. Our fee-for-service business provides essential services to our customers, and our recent capital investments will begin to generate incremental revenue this year. Our fee structures don't have commodity price exposure, and our extensive network of facilities provides us with geological, geographical, and customer diversity. I will now turn it over to Dean to discuss the Liquids Business Unit. Thanks, Brad. The Liquids Business Unit also reported record results in 2014, with strong contributions from both the NGL infrastructure and marketing segments. We continued to see growing demand for fractionation, storage, transportation, and other liquids logistics services in 2014, as producers increased production of both liquids-rich natural gas and bitumen from the oil sands. The growth in demand for NGL processing and handling, as well as oil sands services, highlights both the diversification of our service offering and the value that our integrated operations provide for our customers. To meet this increase in demand, Keyera expanded its infrastructure and improved market access for Western Canadian producers by adding two rail and truck terminals in 2014. The Alberta Crude Terminal has capacity to load up to 40,000 barrels per day of crude oil pursuant to a contract with Irving Oil. Our Hull, Texas terminal, now in operation, provides access to the largest NGL market in North America. The Josephburg Rail Terminal is under construction and is expected to be operational by mid-2015. This terminal is a critical piece of infrastructure for our customers as it will provide additional propane egress from Western Canada. The industry's ability to move propane from Western Canada to market was challenged in 2014, given the increase in propane supply and the conversion of the Kinder Morgan Cochin Pipeline to condensate service in July. At Keyera's Fort Saskatchewan fractionation and storage complex, we have a number of projects underway to meet customer demand. Construction of our 30,000-barrel-per-day deethanizer is almost complete, and we expect to start up the facility by the end of the first quarter. Our share of capacity is contracted under a long-term take-or-pay agreement. Work is also underway on the construction of a second fractionator, which will more than double our C3+ fractionation capacity at Fort Saskatchewan to 65,000 barrels per day. We have received all regulatory approvals, and based on current construction schedule, we plan to be up and running in the first quarter of 2016. To address the continued demand for diluent storage, we recently completed construction on our fourth brine pond. Our 13th underground storage cavern is nearing completion and is expected to be in service by mid-2015, with washing of the 14th cavern currently underway. The next phase of our storage capacity expansion is progressing as we recently completed drilling the wellbore for our 15th storage cavern, and washing is expected to commence mid-year. Keyera remains focused on expanding our diluent logistics business in the Edmonton-Fort Saskatchewan area and we continue to have customers committing to these services. To further enhance the services we offer in this part of our business, we're planning to add four 60,000-barrel condensate tanks at our Edmonton terminal. This additional storage capacity will add flexibility and enhance operational efficiency for our Fort Saskatchewan condensate system. We anticipate that the cost of this project will be approximately CAD 9 million. Engineering work is continuing to advance on the Norlite diluent pipeline with Enbridge. The completion date is expected to be mid-2017. The project provides many synergies with our condensate system in the Edmonton, Fort Saskatchewan area. Our marketing segment also had an exceptional quarter, delivering record results for the quarter and the year. A big factor was the performance of our iso-octane business, with both higher sales volumes and higher margins. During the year, we focused on increasing iso-octane delivery options, which allowed us to expand markets for this product across North America. As a result, our Alberta EnviroFuels facility operated at close to capacity for the entire year. With that, I'll turn it over to Steven to discuss the financial results in more detail. Steve? Thanks, Dean. As David mentioned earlier, we are very pleased with how well all segments of our business performed this year and with the record results achieved in each segment. Keyera generated a total operating margin of CAD 644 million from our three core business segments. Of this operating margin, 63% was derived from the fee-based segments. Our gathering and processing business unit delivered record operating margin of CAD 218 million during the year, 39% higher than for 2013. These results can be primarily attributed to continued growth in throughput at many of our facilities, including Rimbey, Strachan, Simonette, Brazeau River, and Minnehik-Buck Lake. The recovery of costs associated with the turnarounds at the Strachan, Caribou, West Pembina, and Cynthia gas plants. In addition, we had incremental volumes and revenue from the Wapiti raw gas gathering pipeline that started operating in the fourth quarter. The Liquids Business Unit also delivered record results in 2014. For the year, operating margin in the NGL Infrastructure segment was CAD 189 million, or 53% higher than the CAD 123 million reported in 2013. This increase reflects strong demand for NGL fractionation and storage services, higher pipeline volumes and tariffs, an increase in volumes on our Fort Saskatchewan pipeline and on our Fort Saskatchewan condensate system, as well as incremental margins at the South Cheecham and Alberta crude rail and truck terminals, which began operating in October 2013 and October 2014, respectively. The NGL Infrastructure segment also continues to benefit from fees charged to the marketing segment for the production of iso-octane at the Alberta EnviroFuels facility and from the high utilization rate at that facility. The marketing business generated exceptional results in 2014. Operating margin was CAD 237 million, or 79% higher than the prior year, reflecting stronger iso-octane volumes and margins and an effective risk management program. Keyera's risk management program was effective in protecting its NGL inventory from the effect of falling commodity prices in 2014. As a result of the decline in commodity prices in the fourth quarter, Keyera had an inventory write-down of approximately CAD 59 million, which it deducts in calculating operating margin and distributable cash flow. This inventory write-down was substantially offset by both realized and unrealized gains on risk management contracts. Realized gains on our financial risk management contracts in the fourth quarter were significant, at approximately CAD 68 million. A portion of these gains were associated with inventory still held at December 31st, 2014. The majority of Keyera's CAD 51 million in unrealized gains on risk management contracts as of December 31st, 2014, also relate to inventory held at December 31st, 2014, and are expected to settle in the first quarter of 2015. Consistent with Keyera's growing business, general and administrative expenses, depreciation and amortization expenses, and long-term incentive plan costs increased year-over-year. Our finance costs of approximately CAD 51 million were slightly lower than the prior year due to the capitalization of interest on certain capital projects under construction. Keyera incurred CAD 32 million of current taxes in 2014 compared to only CAD 2 million in the prior year. This increase was due to the growth in Keyera's business, which increased taxable income and exceeded our available capital cost allowance deductions. Keyera's 2014 income tax largely relates to 2013 taxable income from the Keyera partnership, a wholly owned subsidiary and Keyera's main operating entity. For 2015, Keyera currently estimates that its cash taxes will be between CAD 85 million and CAD 95 million, representing approximately 20%-23% of Keyera's 2014 pre-tax distributable cash flow. We anticipate cash taxes for 2016 will benefit from the completion of several large growth capital projects in 2015, which will allow higher capital cost allowance deductions. The expected completions in 2015 of the Rimbey turbo, Simonette expansions, deethanizer, and Josephburg rail terminal alone are expected to make approximately CAD 590 million of capital available for use. Our 2014 net income also includes a non-cash impairment expense of CAD 80 million, of which CAD 49 million relates to a reduction in the carrying value of three gas plants, and approximately CAD 31 million relates to the Cynthia and Minnehik-Buck Lake oil and gas reserves. Despite the write-down of reserves, CAD 27 million in other income was generated from the reserves in 2014. Our capital liquidity continues to be strong, with a net debt-to-EBITDA ratio of 2.16 times at the end of the year, compared to our strictest covenant of four times. As a result, Keyera is well-positioned to execute its 2015 capital plan of CAD 700 million-CAD 800 million and to selectively pursue acquisition opportunities. In addition to the dividend increase that David mentioned earlier, we announced yesterday a two-for-one split of Keyera's shares. Keyera shareholders of record on April 1st, 2015, will receive one additional common share of Keyera for each common share held. No action is required to be taken by shareholders. Share certificates will be mailed out to registered shareholders, and beneficial shareholders' brokerage accounts will be credited for the additional shares representing the split on or about April 2nd, 2015. The share split will not have unfavorable tax consequences. Keyera plans to maintain a monthly dividend policy adjusted to take into account the stock split. More details on the share split and the dividend increase can be found in our 2014 year-end report, available on our website or on SEDAR. Note, the declared dividends for February and March are to be paid on a pre-share split basis. Finally, we've included our fourth quarter supplementary information on our website concurrent with the release of our financial results. This information includes both operating and financial data for each segment of our business. You can reference our 2014 year-end report for details on how to access the supplementary data. That concludes my remarks. David, back to you. Thanks, Steven. As our 2014 results demonstrate, demand for Keyera's services and products continues to be strong. More than ever, our customers are benefiting from the integrated services of Keyera's three business segments, delivering increasing amounts of natural gas to Keyera's processing plants and contracting for additional capacity at the facilities in our Liquids Business Unit. That said, we expect 2015 will be a challenging year for the oil and gas industry. Over the past several months, we have seen significant declines in the prices of crude oil, natural gas, and the other related commodities, and our customers are reducing their capital expenditure plans accordingly. At Keyera, we expect that the near-term impact on our business will be modest because our cash flow is largely driven by fee-for-service arrangements and throughput volumes, and many of our capital projects are underpinned by long-term contracts. In times of capital constraint, producers tend to focus on drilling their best prospective zones, such as the Cardium, Glauconite, and Montney, and in areas close to existing infrastructure so that they can maximize their netbacks and turn reserves into positive cash flow quickly. We believe this favors the locations, flexibility, and capabilities of Keyera's facilities. Demand for our oil sands service offering remains strong as bitumen production continues to grow with the new major projects coming on stream this year. As Keyera is a service provider to the energy sector, we will work with our customers during this challenging time to ensure a cost-competitive environment that is beneficial to both Keyera and our customers. We will continue to make progress on the next phase of infrastructure investments that the industry will need. We take a long-term view of our business, and we believe that we are well-positioned today and for the future, given the locations of our assets within the Western Canadian Sedimentary Basin, our integrated service offering, and our experience gained in previous business cycles. We have a strong balance sheet and a conservative payout ratio, which provide the funding for our current capital program and allow us flexibility to pursue selective acquisitions. Before I conclude, I would like to take the opportunity to recognize and express our appreciation to Jim Bertram, who has been our Chief Executive Officer since we started the company in 1998. Keyera's success today is a reflection of Jim's vision, values, leadership, and work ethic over the past 16 years. During that time, it has been my pleasure to work alongside Jim, and I look forward to continuing our relationship as he moves into his new role as executive chair of Keyera's board of directors. John, that concludes my comments. Thanks, David. Operator, please go ahead with the questions. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from Linda Ezergailis. Your line is now open. Congratulations on the strong quarter. I apologize for my voice. A few questions. I realize 2016 is a long way out, and there's a lot of moving parts to the outlook. You're in discussions more with producers than all of us on the phone, I think. I'm wondering if you could give us a potential bookend of What's possible for your capital expenditures, obviously, it's a function of commodity prices and other things, but maybe you can walk us through how you're thinking about what 2016 might look like from a growth capital perspective? Linda, it's really too early, I think, for us to tell. We certainly are still quite comfortable with the guidance that we've provided for 2015, CAD 700 million-CAD 800 million. The bulk of that is in projects that we've already announced that are already well underway. We continue to have discussions with producers, both in the Gathering and Processing Business Unit and in the Liquids Business Unit, about further expansions of capacity and additions to our facility network. At this point, those conversations continue to progress. I think it's really just too early to tell whether the timetables for some of those projects may be affected. I think we'll be in a much better position to be able to judge that in the next couple of quarters. I realize it's still early days on the M&A side as well, but do you expect, or are you seeing more midstream assets being put up for sale by producers? Well, we've had conversations with producers over a long period of time. The three transactions that we announced in the fourth quarter were sort of, I think, indicative of the kinds of things that we would be interested in doing. It wouldn't be appropriate for me to comment on anything specifically at this point. Okay. This is maybe more a question for Steven. Again, I realize cash taxes in 2016 will be a function of your results in 2015. Can you give us a sense of how much cash taxes might come down in 2016 versus 2015 as a percentage of a cash tax rate maybe, or where it might fall in between 2014 and 2015 taxes? Yeah. Unfortunately, we try and avoid giving too much guidance on go forward taxable income or tax statements themselves because people can read backwards into income. But we tried to highlight that the amount of capital, the CAD 590 million of capital that I was trying to refer to, we would've loved to have had that in 2015. I think if you look at those numbers, I think you can draw some pretty good conclusions about how cash taxes will be impacted in 2016. Your next question comes from Robert Hope. Your line is now open. Good morning, and congratulations on another solid year. Thank you. Thank you. Maybe I was just hoping for some additional color on your comments that you'd be working with your customers in these challenging times. Are you looking to potentially already adjust some fees, or are you looking to delay projects and have your long-term kind of take-or-pay contracts? I just want to confirm that there's been no discussions around them. No, Rob, I wouldn't expect that the existing take or pay contracts would be affected. I think both parties to those agreements understand the economic basis for those. We've been through at least two of these cycles before, and it's our experience that we would see certainly some discussions with customers about slowing down plans and some concerns about fees in limited specific instances. I wouldn't think, again, based on our prior experience, that those will be material. Okay. Maybe just as a follow-up on that, assuming that there is no recovery in NGL prices or any of the commodities right now, how do you think your volumes would change over the next 12-24 months? It's very hard for us to predict that. The color that I've tried to provide in my comments is that we expect that in the near term, the prospects that the producers will be focused on will likely favor our facilities. They're going to be focused in areas where they can get the gas on quickly, and that means existing infrastructure. The strong net backs from some of the zones, like the Glauconite that we've seen over the course of the last two or three years are still positive. We think that in the near term, that's good for us. Longer term, it's a bit more difficult to predict, but what I would say is that if you look at our history of throughput over the course of a couple of down cycles, it's a lot more stable than a lot of people tend to expect. We're not really too concerned about it. Ask me again in a year if we still see commodity prices at this level. Your next question comes from David Noseworthy. Your line is now open. Hi, Mike. Congratulations to the group here. Maybe just following on Rob's question, what sort of winter drilling activities are you seeing around your gas plants, and are there any areas of concern or optimism? David, this is Brad. We still see activity around our plants. It's certainly reduced from what we saw through the early part of 2014. That being said, we haven't seen a hard stop on drilling. I reiterate David's comments that most of the producers we talk to like the prospects that they have behind our gas plants, so they continue to see those as attractive places to drill in today's environment. Appreciating that you have a full portfolio, so not everything is great. Are there any areas that, obviously Powder River is a bit of an exception, but are there any areas where you're saying, "Well, that's falling off a little bit more"? Yeah, I would say it's a little early to tell. A lot of the production that gets tied into our plants is drilled in previous quarters. Consequently, the impacts that we will see in the near term will be previous activity. Going forward, it's a little harder to tell. I guess, the one place that we continue to see volume declines is around our Nevis facility. We've known that for a while, that's on the eastern part of the basin, which is a little bit less prospective. That being said, that facility continues to be an attractive site due to the NGL infrastructure and fractionation business that we're continuing to mature around that facility. Fair enough. Maybe just on your CapEx. You've announced a number of new prospective projects, the oil terminals, pipelines connecting Duvernay and Strachan, and also another pipeline between Zeta and coming north. Are these projects included in or incremental to your CAD 700 million-CAD 800 million 2015 CapEx? Those projects you mentioned are all included in the outlook that we've provided. Your next question comes from Carl Kirst. Your line is now open. Thanks. Good morning, everybody. Actually, just maybe to start, I want to just follow up on David's question on the CAD 700 million-CAD 800 million of 2015 CapEx and the CAD 90 million, I guess, that's now been going forward on the four condensate tanks. Has the lower end of that, the CAD 700 million, I guess, with the addition of the CAD 90 million, has that now lower band been committed? Or maybe a better way to ask is, how much of the CAD 700 million-CAD 800 million is committed, and what still needs to come over the commercial transom? I guess I'm trying to figure out if conversations have slowed down in the current environment for that perhaps last little tiny sliver. No, I think the lower end of the range is pretty much all now projects that we're moving forward on, Carl. Now, having said that, of course, there's some uncertainty with respect to the timing of the spending on some of the longer-term projects. That could affect that somewhat. We're pretty comfortable with that guidance at this point. Excellent. Just to better understand the condensate tanks, is that for Keyera's own diluent service offering, or are those contracted to third parties? No, I would characterize those as primarily for operational purposes. As we have continued to add customers to the condensate network in the Edmonton-Fort Saskatchewan area, and as we've continued to add connections, we realized that with the ups and downs and the inflows and the outflows, we need a certain amount of operational storage. Having said that, we do expect that there will be fee income associated with the customer contracts that we will have. Great. Just one question, if I could, on the iso-octane margins. I know you guys obviously have been very good at risk management and trying to enter into hedges. Can you give me a sense of how far out you can hedge those iso-octane margins? Is that something that you can go out to protect as much as a year? Or is that more sort of just a forward three months? Just trying to get a better sense of that. Carl, Dean Setoguchi, and yes, we do hedge forward our iso-octane prices mainly through RBOB prices. We do have a very liquid market that we can hedge forward up to a year. Your next question comes from Robert Catellier. Your line is now open. Thank you. Morning, everyone. My first question is for Steven. I just want to make sure I understood your comments correctly. I think I heard that there's some realized gains in the fourth quarter on inventory that you still hold. So I want to just clarify that. Can you quantify the amount and indicate if it's related to NGL, iso-octane, or production reserves? Yeah, I can clarify there. The main point I was trying to get across is that we have an active hedging program that has resulted in realized gains coming into our financial results throughout Q4 as the WTI was sliding through the last part of 2014. The CAD 68 million of realized gains in the fourth quarter, a majority of that would've been in the month of December. Again, some of that would've related to the business of December. It's sort of hard to tell how much is the business of the September versus the inventory at the end of the month. I think it is important to realize that a portion of that would likely be associated with the inventory at the end of the month. The 51 million of unrealized gains as of December 31st, the value of the contracts that were in place as of December 31st, a majority of that would relate to the inventory as well. Most of that would relate to the NGLs. The difference between the other portion of the unrealized gains at the year-end would relate to us protecting our margin on businesses like iso-octane into 2015. Right. For the portion of realized gains for inventory that you still held, was that then re-hedged or is that inventory now no longer protected? Yeah, no, we have a continuous process of making sure our inventory is hedged going forward. Your next question comes from Robert Kwan. Your line is now open. Yes, morning. If I can just come back to the nature of the take-or-pay at the gathering and processing or the gas plants. With what you have in the firm priority access, on a same plant basis, is the expectation then that directionally, if this commodity price environment continues, that you'd expect to be better off than what you observed at the plants, call it in the 2008-2010 volume downturn? It's kind of tough to draw a parallel, Robert. In the 2008, 2009 environment, we had not only softer commodity prices, but we also had a royalty regime in the province of Alberta that was rather punitive, which is not the case today. It's a bit of a different world. As you've seen through the fourth quarter, we continue to see increases in throughput at our facilities. We're de-bottlenecking with projects like the Twin Rivers pipeline. As that continues, that will also be a positive influence. For us to sit here and say it's going to look like 2008 or an 2009, or it's going to be different, it's very difficult for us to predict. Fair enough. I guess though, some of the things that you mentioned there, the royalty regime last time, the gas that you're de-bottlenecking, and then with the take-or-pay contracts, it at least directionally feels like this could be a lot less or a lot shallower than the last downturn, at least as we stand right now. It's possible. I guess what I'm saying is it's just a little too early to tell, but I think any downward impact that we would see, I don't think you're going to see it soon, and I think it'll be very gradual. Okay. Just on the iso-octane side, on the last call you had mentioned that just with AEF running full out, you were getting better premiums over RBOB over time. Is that something, a trend that you're continuing to see as we head into 2015? Robert, it's Dean. We do see a premium to RBOB for our iso-octane business. There is some variability to that premium. We really don't comment on what that premium is from year to year, but I can say that it is relatively strong, and it still exists. Your next question comes from Dirk Lever. Your line is now open. Thank you very much. Congratulations to you on the results, but also to Jim Bertram for a job well done. I have two questions. When we're looking at the iso-octane business, in the past, it has been rather seasonal. With the marketing efforts and the transportation work that you've done, are you starting to see that seasonality flatten out now? Yes, Dirk, it's Dean. There's still a seasonal component to iso-octane. If you look at the forward RBOB cracks, you'll notice that the summer months trade at a higher spread than the winter months. We do have an effective risk management program, and we do try to lock in what we consider to be a reasonable margin for that business. There is a seasonal element to it, for sure. Okay. Has it flattened out a little bit from your perspective? Dirk, the other thing that I would say is that the seasonality affects the margin, in our case, more so than the volume. Mm-hmm. It's such a small piece of the overall gasoline supply pool in North America that it's not a volume effect, it's a margin effect. Okay, thank you. When you look at your diluent operations today and the capacities you have and that you're working on, is this all matched off with committed oil sands activity? I would say yes. We continue to add long-term contracts with various oil sands producers or bitumen producers in the oil sands. We started off a few years ago with sort of the anchor contract with Imperial Oil for their Kearl project. We've added contracts with companies like Cenovus and JACOS and others. As we continue to build volume on the system and we add connections to sources of supply, like the Cochin Pipeline last summer, we continue to identify where the next bottleneck will be and invest capital to alleviate those bottlenecks. We're matching the facility's requirement with the growth and demand on the system. Your next question comes from Steven Paget. Your line is now open. Good morning, and thank you. Is it fair to say that Keyera takes care of all the marketing of Dow's propane and butane that Dow produces at Fort Saskatchewan? No. Okay. There's more. Dow handles the production of their own volumes from their facility. They handle the marketing of their own volumes while Keyera handles its net volumes? We handle the volumes that we get from our share of the capacity that we own at the Dow Fort Saskatchewan facility, but that's a small piece of the overall production from that facility. Thank you, David. How much of your rail business or NGL infrastructure and marketing business is exposed to a strike at CP? Steven to Dean, we do have some facilities that are served by CP, and I can't give you an exact percentage of our business. Obviously, we do have some service from CN as well, and dual service at some facilities. What we can say, though, is that we are working with CP in the event of a strike to maintain as much service as possible. We also do have storage assets as well, so that we can continue our operations and deliver the product to storage if we had to for a period of time. Your next question comes from Matthew Akman. Your line is now open. Good morning. The CAD 90 million that you're investing in the condensate tanks, I'm just wondering if you can recover incremental fees from your base customers that are on the system, like Husky and Imperial, for the construction of those, because sounds like what you're saying is they're benefiting there from improved logistics as a result of their construction? Matthew, as I mentioned earlier, we do expect that there will be some fee income associated with those tanks. It would not be appropriate for me to get into the specifics of individual contracts. As you point out, we have a number of existing contracts, and we will be adding additional customers going forward. Okay. Thanks. On the iso-octane hedging, looks like some of the pricing has been very volatile. I'm just wondering if that presents additional risks or opportunities and how you're thinking about that from a hedging standpoint, whether you hedge more or less in that context. I think our philosophy has always been to just try to lock in margin. We layer in hedges over time and we hedge forward, so typically up to a year forward. We're not trying to be too opportunistic to try to game the market or anything like that, speculate on the market. We think that we have a great integrated value chain, with both our butane and also the iso-octane business. Again, we're just trying to preserve a lot of margin there. Your next question comes from David Noseworthy. Your line is now open. Thank you. Perhaps just first on your guidance, can you provide any additional guidance on the timing of your turnarounds? Yeah. This is Brad. We've got turnarounds this year at four facilities. Rimbey, Brazeau River, and Bigoray are all scheduled for Q2, and our Minnehik-Buck Lake facility is scheduled for Q3. Great. Perhaps, just in terms of your condensate system, can you give us an idea of what percentage of volumes that Keyera handles under your daily transportation and storage service agreements goes onto the Polaris pipeline? How, if at all, does that change going forward? I'm not sure that we have an answer for you, David. Most of it would be on Polaris today simply because we're still adding connections. As we go forward, we would expect that the proportion of condensate that goes on to Polaris would decline on a relative basis. It may increase on an absolute basis, but decline on a relative basis, if I can put it that way. Your next question comes from Robert Catellier. Your line is now open. Sure. I just had a question more on long-term strategy here. Dean talked a bit about the relatively poor market access for some Canadian production. Obviously, Keyera participates in that by helping customers get their product to market. But another way to look at that is, maybe Keyera should consider diversifying into other basins. Can you give us your perspective about basin diversification, please? That's a bit of an interesting question, Rob, that we discuss and have discussed over the years. We've certainly looked to the U.S. on a variety of occasions. I think it's fair to say that our focus has been on the liquid side of the business more so than on the gathering and processing side of the business. That's primarily because the liquids business is a North American market, and it makes sense for us to look to ways to extend our value chain, and the investment that we've made at Hull, Texas, is an example of that. I think those are the kinds of things that we could do more of if the right opportunities presented themselves. In our experience, gathering and processing business is one that's very competitive in the U.S., and we've had more than enough opportunities in Western Canada to continue to pursue, so it hasn't been a high priority for us. If your question is, would we consider looking at geographic areas outside of North America? I think it's not something that we've looked at really seriously at all. That answers the question. Thank you. Your next question comes from Carl Kirst. Your line is now open. Thank you. Just a quick follow-up, Dave. If we were in a prolonged stress down market, you guys obviously have a very conservative distributable cash flow payout ratio right now. Is there any sense of what you guys would be willing to take that to or where is your comfort level, if I could ask that? I'm not going to give you a specific range or number, Carl. Whenever we increase the dividend, we do a fair bit of analysis to understand what we think the possible future scenarios look like. We certainly never want to be in a position where we have to think about a dividend reduction. We like the track record that we have for small, steady increases over time, and as we look forward from today, we don't see any reason why we can't continue that track record. Great. Thanks for the color. Your next question comes from David Noseworthy. Your line is now open. Just one quick question on ConocoPhillips. You have two sets of contracts with them, one for field gathering and processing. One of them expired in 2014. I was just wondering what happened to those contracts and related volumes. I'd have to check, but I think you may be mistaken. The contracts that I'm aware of that we have with ConocoPhillips all expire in 2018. We had some agreements with respect to gathering and processing as well as with respect to natural gas liquids supply. If there's a shorter term contract, it may have been a legacy deal with Burlington, but it's something that I'd have to check. What I can say is that at this point, we're not really particularly concerned about the expiry of those contracts. They've become, relatively speaking, a fairly small proportion of our overall business, and quite honestly, we expect that ConocoPhillips will want to continue those relationships as we look forward, just because of the services that we continue to provide to them. Just maybe one last question here. Can you provide your outlook on propane in Edmonton specifically, but also North America more generally, and perhaps how Keyera is positioning itself relative to that outlook? Well, propane is something that we probably produce four times more than we consume in Western Canada, and our only pipeline takeaway out of Western Canada was the Cochin Pipeline, which has since been re-serviced for condensate to bring condensate into Western Canada. As an industry, as I mentioned, it's a challenge for us to move out those incremental or extra barrels of propane. What we're trying to do for our customers is to find the best value markets for that propane. The problem is this year with the warm winter, we're sitting with about 25 million more barrels of propane in inventory than we did last year in North America. It's pretty significant. Then when you get to the open water in terms of the international markets, inventories have been fairly strong, so the arb to export it hasn't been great this winter either. I think generally, propane is going to be long, at least in the short and medium term. A lot of it's weather dependent, but we have to find the best markets and more uses for it. Your next question comes from Steven Paget. Your line is now open. Thank you. Mr. Kroeker, you've talked about CAD 590 million in capital becoming available for tax depreciation in 2016. What's the blended rate on that? Is that between 8%-10%? The 590 I was referring to just four projects as examples. Oh, yeah. Again, 3 of those projects would be the bigger ones, and then you'd have the Josephburg Rail Terminal, which we're expecting completion more in Q3. Safe to say that the projects have more gas plant kind of a focus or more like 25% type returns and even better for facilities like the deethanizer. The terminal would be a little bit of a lower rate. Excellent. Thank you. David, you said that the Glauconite continues to be profitable, and Rimbey had record volumes in December, I understand. Could you be looking at a possible expansion there? Yeah, very possibly, Steven. That is one of the projects that we have under consideration. The advantage that we have in the investment that we're just concluding in the turbo expander is that we will, in effect, have two parallel NGL recovery trains at Rimbey. The existing lean oil train as well as the new turbo expander. What that means is that with a fairly modest capital investment in additional inlet facilities, we can expand the inlet capacity of the Rimbey plant. Certainly, there's capital involved, but it would be a fair bit cheaper than a new build comparable facility. At this point, we need to spend more time working with the producers, understanding their longer-term plans before we would make any go-ahead decision on an investment like that. Thank you, David. There are no further questions at this time. I turn the call back over to the presenter. Thank you, Lita. This completes our 2014 year-end results conference call. If you have other questions, please call us. Our contact information is in yesterday's release. Thank you for listening, and have a good day. This concludes today's conference. You may now disconnect.