Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera's third quarter 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, please press the pound key. Thank you. I would now like to turn the call over to Calvin Locke, Manager, Investor Relations. You may begin.
Thank you and good morning. Joining me today will be Dean Setoguchi, President and CEO; Eileen Marikar, Senior Vice President and CFO; Jamie Urquhart, Senior Vice President and Chief Commercial Officer; and Jarrod Beztilny, Senior Vice President, Operations and Engineering. We will begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions. I would like to remind listeners that some of the comments and answers that we will give you today relate to future events. These forward-looking statements are given as of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, refer to Keyera's public filings available on SEDAR and on our website. With that, I'll turn the call over to Dean.
Thanks, Calvin, and good morning, everyone. I'm pleased to share that Keyera delivered solid third-quarter operational performance, leading to strong financial results. I'll hit on a few of the highlights. We had record performance from our Gathering and Processing segment, where we continue to fill available capacity due to strong demand. Gas processing volumes were up by 9% year-over-year. We had another steady quarter from our Liquids Infrastructure segment. We completed a successful turnaround at our AEF facility, and our assets remain highly utilized. In our marketing segment, we remain on track to deliver a record year. These Q3 results are a testament to the effectiveness of our strategy, designed to extract maximum value from our integrated business. Given our insight into customer activity, we expect more volumes to hit our system in 2023, further supporting the growth of our business.
With that context, I now want to shift gears to talk about KAPS, which remains an important strategic asset for Keyera. In a release this morning, we shared that as of the end of October, KAPS was 90% complete and is anticipated to be operational at the end of the first quarter of 2023. We also shared that project costs have increased by CAD 100 million net. We've had a range of challenges, largely related to abnormally wet weather in the spring that impacted productivity and required additional resources. This increased our exposure to inflation, supply chain issues, and labor shortages. It's been challenging to forecast the unprecedented cost pressures in real time. Going forward, we have confidence in our new estimate, and here's why. Firstly, we now have only 10% left to go with 90% of the work behind us.
Secondly, the remaining spend of CAD 150 million net carries a significant contingency of 25% to address remaining risks, including weather. While costs are higher, the strategic importance of KAPS does not change. KAPS is a producer-driven project that is about to end a multi-decade pipeline monopoly. It will provide a much-needed competitive alternative for basin producers. For Keyera, KAPS physically connects our north region gas plants and other third-party facilities to our fractionation, storage, condensate, and marketing businesses. This allows us to better compete for volumes and provides more opportunity to earn returns at each step of our integrated value chain. I'll now turn over to Eileen to provide an update on Keyera's financial and business performance for the quarter.
Thanks, Dean. As Dean mentioned, we delivered strong quarterly financial results. Adjusted EBITDA was CAD 247 million, compared with CAD 214 million for the same period in 2021. Distributable cash flow was CAD 162 million, compared to CAD 149 million for the same period last year. Both results were driven by strong performance across our three business segments. We continue to maintain our strong financial position with all outstanding term debt at fixed interest rates and no material debt maturities until 2025. Net debt to adjusted EBITDA is currently at 2.4 times. This is below the bottom end of our target range of 2.5x-3 x, excluding hybrids, and we expect to exit 2022 within this range. Moving to our guidance for 2022.
Marketing guidance remains unchanged, with realized margins expected to be between CAD 380 million and CAD 410 million as we progress towards a record year. Growth capital spending is now expected to be between CAD 770 million and CAD 800 million. This is above the previous range of CAD 680 million to CAD 720 million, excluding capitalized interest.
The increase is primarily driven by the KAPS project. Both maintenance capital guidance and cash tax guidance remain unchanged. Moving to 2023. Consistent with our plan shared at our mid-March Investor Day, 2023 will be a year of balancing more modest capital spending with strengthening the balance sheet and returning cash to shareholders. Growth capital expenditures are expected to range between CAD 140 million and CAD 180 million, excluding capitalized interest. This includes approximately CAD 50 million related to the completion of our KAPS project and CAD 45 million-CAD 55 million related to a Pipestone expansion project that we are progressing towards sanction. Maintenance capital expenditures are expected to range between CAD 75 million and CAD 85 million and include approximately CAD 40 million related to turnarounds at the Rimbey and Pipestone gas plants.
Lastly, our cash tax expense is expected to range between CAD 10 million and CAD 25 million. Thank you. I'll now turn it back to Dean.
Thanks, Eileen. Our business is strong and performing well. Looking to the future, the increasing need for secure access to clean and responsibly produced energy will continue to drive higher long-term demand for natural gas and natural gas liquids. Keyera is well-positioned to benefit and grow from this trend. On behalf of Keyera's board of directors and management team, I thank our employees, customers, shareholders, indigenous peoples, and other stakeholders for their continued support. With that, I'll turn it back to the operator for Q&A.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by one on your touch tone phone. If you would like to withdraw your request, please press star followed by the number two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from the line of Rob Hope from Scotiabank. Please go ahead.
Morning, everyone. First question's on KAPS. Just given the line of sight to commissioning as well as we're seeing some improving volumes in the basin as well as CapEx moving up for producers. Can you give us an update on on the tone of contracting discussions not only on the base system but also on the northern leg?
Good morning, Rob, and thank you very much for the question. I think it's a great question given what we're seeing in our basin. You know, when you look from a macro perspective, I mean, I look back at a year ago, and a lot of people were wondering where the growth would come from. You know, our basin increased by over a Bcf a day within a very short period of time. You know, I think it just demonstrates the resiliency and the economics in our basin, and that producers have the inventory and the balance sheet to continue to grow. You know, we've had a lot of, you know, continued fruitful conversations with our producer customers.
You know, we believe that's gonna lead to a lot more contracting in the days to come. You know, I do wanna point out that, you know, specifically with the fact that we're getting much closer to having our pipe in service, which is gonna happen in, obviously, early next year. As I said before, the producers have very strong balance sheets and the inventory to continue to grow. I think that they can satisfy their stakeholder base by continuing to improve their balance sheets, return capital to shareholders, but also grow at the same time.
I appreciate that. Maybe taking a look at 2023 guidance. I know you typically give an outlook for Marketing in the spring. You know, that being said, you know, just shaping up where Q1 is going to be, taking a look at your cash tax guidance. You know, can you walk us through the headwinds and tailwinds that you're seeing in the Marketing business in 2023?
I'll just turn that over to Jamie.
Sure, Rob. Thanks for the question. Yeah, in 2023, you know, we are expecting to realize, you know, high utilization at AEF. Just as a reminder, we did have a six-week outage in AEF that spanned between September and October. You know, right now, you know, we're seeing strong RBOB pricing and octane values. They're below the 2023 levels, and that's important to remember. You know, in 2023, we had extraordinary pricing in WTI and RBOB cracks that benefited our iso-octane business and our liquids blending business. We're still seeing values that are stronger than historical averages.
One of the reasons why we typically wait for providing guidance into you know post Q1 is to get through our contracting season for butane, which is a fundamentally you know important part of the equation with respect to how we view our marketing business in 2023. Right now, butane is trading at a lower level than it would have this time next year. You know it's early days, but we see a potential for slightly lower butane pricing into the 2023-2024 contract season.
All right. Appreciate the color. Thank you.
Thank you. Your next question comes from the line of Robert Kwan from RBC Capital Markets. Please go ahead.
Good morning. If I can start with KAPS and Dean, you talked about good volumes hitting the system, so I think you've got a better line of sight to contracting. Is KAPS at the new cost still within the return still in that 10%-15% range?
Hi, good morning, Robert, and thank you for the question. Yeah, we do have a return threshold of 10%-15% for our capital projects, and that would include KAPS. You know, we're not there yet, but that's certainly our target. There's a couple points that I just wanna make sure that we remember why we still think we can get there. You know, first of all, the downstream benefits of KAPS will obviously improve our overall corporate returns. But secondly, you know, on KAPS contracts, we envision negotiations continuing to accelerate. There's several reasons for that. Obviously, the macro environment is very supportive.
I mean, when we sanctioned this pipeline, we, you know, this would be the high end of our wildest dreams of what would happen to our basin, both from a, you know, demand perspective for natural gas and, you know, associated natural gas pricing, the egress in our basin that we're getting and also the growth that we're seeing and we're forecasting for the future. With that macro backdrop, you know, obviously we're much closer to having our pipe in the ground. Again, as I mentioned before, producers have never been stronger. In my 30+ year career, I've never seen producers in the position that they're in today.
I think that they have a great inventory of supply to continue to grow, and we're gonna continue to see that and benefit from not only KAPS but our whole integrated system.
Got it. If I can just be clear. If I'm not mistaken, I think the prior messaging, though, was KAPS on a fully contracted basis, but just the system as you're building would have been in the 10%-15% range. Without phase four, without any downstream benefits. Just to be clear, is that still the case that on the standalone fully contracted, you know, the CAD 1 billion of capital that you're still in the 10%-15%?
Yes, Robert, that's 100% correct. You know, we've been very clear that we're not there today with our contracting, but that is certainly our target.
Just as it relates to the other half of KAPS that were for sale previously, you effectively stated that you're not looking to buy the other half. Has anything changed from your perspective on that view?
Yeah. Obviously, that's a very relevant question, Robert, and a good one. You know what? We are not privy to where the process is on the other 50% of KAPS, and we've never really commented whether we're in the process or not, because that's just not our policy to comment on confidential processes. You know, what I would say is that we follow our capital discipline. We wanna make sure that any acquisition that we do pursue, you know, make sure that it's within our financial guidelines in terms of our balance sheet management, and it has to be strategic to our company and also accretive.
Okay, that's great. Thank you very much.
Thank you.
Thank you. Your next question comes from the line of Linda Ezergailis from TD Securities. Please go ahead.
Thank you. Recognizing that we're in a dynamic environment, I'm wondering if you can comment on how you are preparing for future opportunities as it relates to future build around KAPS, whether it be another frac, etc. What sort of contingencies, you know, partnerships, other mitigations to some of these inflationary pressures and potential labor disruptions, supply chain disruptions that you might be seeing would you factor in, including potentially reconsidering your project hurdle rates to be potentially higher?
Good morning, Linda. Very good questions that you're asking. You know, maybe I'll try to attack some of these in order, and then maybe I'll pass it on. You know, overall, we see a lot of benefits from KAPS and whether it's a potential Zone 4 or downstream at our fractionation storage complex at KFS. You know, we feel that we have a very good position there where, you know, KFS capacity is very tight. I think everyone knows that. You know what?
We are working with our customers and should there be sufficient demand and we can contract up our base Fractionation 1 and Fractionation 2, we're certainly also working towards contracting a Frac 3, and if we have sufficient support, we will advance that project. You know, again, we'll be very financially disciplined to make sure that, you know, that backing is in place before we sanction any further projects. You know, I think that from a cost and a inflation perspective, I think that's very real. Obviously, we have to reevaluate our cost of capital and our return thresholds on a continual basis, especially in the environment that we're in.
You know, maybe just with respect to just inflation and how we manage that, maybe I can pass that over to Jarrod.
Good morning, Linda. Yeah, a really good question, I think. You know, I think about what we can learn from KAPS in particular. I think it's important to look at all aspects of the project, and particularly how we assess risk in abnormal or rapidly changing business environments, as you noted. When I think about, you know, some of those levers that we can pull around managing inflation, it's really around things like locking in prices when we can, tying to indexes when we can't, looking for economies of scale where we can consolidate things where it's appropriate to do so.
You know, in terms of, say, acquisition of new materials, it's de-risking equipment deliveries through early procurement, building and leveraging relationships with suppliers so we can push ourselves to the front of the line, things like increasing inventory for critical parts that are difficult to come by so we don't get stuck. Those are some of the mitigations that we'd look to apply going forward.
Thank you. Maybe on a separate note, can you just help us understand some of the areas in your system that have a little bit of white space and what sort of operating leverage there is, and how we might think of potentially even a sensitivity to that?
Sure. Maybe I'll just turn that over to Jamie.
Yeah, Linda. You know, where we see the white space right now would be traditionally in our Gathering and Processing side of our business. You know, in the north where we're seeing record activities around Wapiti. You know, obviously we've telegraphed that we're looking at a potential expansion at Pipestone. We did note that we relicensed Pipestone in Q3 to go from 200 to 220. That was immediately highly utilized. You know, Simonette is a facility that we're seeing a lot of activity, specifically as Whitecap purchased XTO. In the south as well, we're seeing unprecedented activity with some very strong producers in that area as well.
You know, the basin assets, our Liquids Infrastructure is highly utilized, but we're also leveraging relationships to be able to help our producers with their growth plans there as well. That bridges into some of the things that Dean just talked about with respect to opportunities around expanding our fractionation and storage business as well. You know, lots of opportunities. You know, we do see the highest torque in our business if we can utilize white space and certainly confident that we're gonna be seeing that growth in the quarters to come.
Maybe if I could just add, I think that we should also remember that we, you know, we have a very strong condensate business. With TMPL expansion being in place, say early in 2024, there'll likely be more demand for condensate in our system and also storage. BTT is gonna be an asset that'll be even more valuable, I think, in that timeframe and in higher demand.
Thank you.
Thank you. Your next question comes from the line of Robert Catellier from CIBC Capital Markets. Please go ahead.
Yeah. Just a question here on the KAPS cost overruns. What impact do you expect on Zone 4? Can you reprice for that segment given it's not sanctioned? What happens to the relative competitive positioning of the system?
Yeah. That's a good question, Rob. You know, we're still working with our partner to try to secure the volumes necessary to commercially sanction that project. We are advancing estimates on the cost, and obviously we have you know, real-time experience in terms of cost and productivity on our KAPS pipeline, which we're obviously revising at the same time. You know, again, all I can say is that we will stick to our financial return thresholds of you know, the 10%-15% in order for us to sanction that project. Again, with the growth in the basin, we see continued demand along that segment.
Right. You know, just strategically for the producers, even if the toll is higher, isn't the just the utility of having that Zone 4 segment so important, that it could withstand a little toll variability or increase relative to where costs have gone?
Yeah. I mean, I can't speak to specifics, but what I can say is that the need for competition in BC is no different than Alberta. Obviously there will be a lot of growth, particularly with you know, Coastal GasLink and LNG Canada coming in service in a few years. Again, I think that's an area that needs more industry competition. Again, we have a solution that we can provide.
Okay. Just, I'm just wondering, you know, what has to happen to move the pipeline expansion to FID. It just seems like pretty significant amount of capital in the budget for developing that asset for something that's not sanctioned, and it's a competitive area. What, you know, what are we to take away from the substantial development expenditure related to that?
On the Pipestone expansion, yeah. At this point, Robert, it is unsanctioned, but we have I mean, we're getting much closer towards that. That's why it's included in our guidance. I would say that, you know, we haven't put out the details yet as to, you know, what the new capacity could be, but it will be at the higher end of our, you know, return threshold is kind of what we're looking at there.
Sorry, I'm not sure we maybe fully understood your question, so we should just maybe clarify.
Well, yeah, I mean, it just seems like a lot of capital for something that's still in development. I mean, it sounds like the probabilities are perhaps higher than you're suggesting, despite it being a competitive area. Are we looking at that the right way? Or, you know, how are you looking at?
Sorry, Robert. I want to clarify that I was referring to the Pipestone expansion of the 45-55, not Zone 4.
Yeah.
There is no cap in our guidance for Zone 4 at this time. As Dean mentioned, we will remain very disciplined when it comes to sanctioning Zone 4. There's nothing in the capital budget for Zone 4.
No, I understand. I was asking about Pipestone, but maybe I'll move on to the hydrogen project that recently got some sponsorship from the Alberta Petrochemicals Incentive Plan. Does Keyera see any upside there, any development potential from that project?
Robert, I'm not familiar with the project that you're referring to.
Air Liquide. That hydrogen project just received a little bit of government support.
You know, like, I mean, as we look at hydrogen as an opportunity, you know, can't speak specific to whether we're involved in that project or not. But, you know, certainly in certain applications, within the, you know, the regulatory landscape, specifically around the Clean Fuel Standard, we certainly see a role for blue hydrogen, in Alberta and an opportunity based on the very advanced phases of CO2 capture and sequestration that the Alberta government has been a leader in, that ties nicely into that opportunity.
As a result, I think we've shared that, you know, we do see opportunities with respect to the CO2 transportation and sequestration side of the business. You know, we've got opportunities that we're working on in that space, but I can't speak specifically to that particular project.
Okay. Thank you.
Thank you. Your next question comes from the line of Benjamin Pham from BMO. Please go ahead.
Hi. Thanks. Good morning. On the KAPS process, the sale, has your view on taking on KAPS changed at all over the last since beginning of the year, whether strategically or even just the way you're calculating accretion?
Good morning, Ben. Just making sure I understand the question. You're saying with the KAPS sale, does this change your outlook on KAPS? Was that the question?
Hey, Dean. I'm more curious about how are you looking at it differently? Because I just maybe I'm reading through the tea leaves a bit more. Just sounded like you were shutting down, taking in early this year, quite more quickly, while it seems like as you've gone through a process, seems like it's more, need to be accretive, need to be strategic. Clearly, it's probably strategic. It sounds like it's more of an accretion exercise now.
Well, like I say, I mean, I think if I understand your question, Ben, you're asking specifically to the other 50% of KAPS and how we're looking at that. If that's the case, you know, again, I just, we don't comment on specific M&A type opportunities. But, you know, what I can say for all the M&A opportunities, you know, it has to meet our financial parameters in terms of, just making sure our balance sheet is in line, and, it's got to be strategic, and it has to be accretive. Whether that applies to the other 50% of KAPS or any other opportunity we might look at, we sort of look at it very similarly.
Okay. Dean, can you confirm your accretion? Is that DCF per share? Then is that going, you know, first year out of the gate, or are you thinking more of a 30-year, 40-year timeframe in a DCF model?
Well, that's a good question. You know, DCF would be the primary measure. We do look at a number of different measures, but DCF would certainly be a primary one. You know, I think we look at things over a longer period of time, but we do recognize the need to have near-term accretion. Whether that's in year one or year two, it has to be within a very sort of short, visible timeframe would generally be the expectation.
Okay. Got it. Whether it's KAPS or maybe another opportunity, how do you think about funding now you have a balance sheet in good shape exiting this year, a lot of cash flow generation next year, where the CapEx budget is? I mean, could you take on KAPS yourself without equity, the remaining 50%?
I think again to Dean, what he said, you know, those are things that, you know, the process well along, you know, far along on the other 50%, and I don't think we could comment on anything with regards to the other 50%.
Okay. You agree, like, you go into next year, it seems like you're gonna be quite under-levered because of the cash flow that you're spitting out next year.
Correct.
I think.
That's correct. Yeah. I think, you know, it's probably good to, you know, just step back and look at our overall capital allocation priorities, right? Really nothing has changed, compared to what we talked about at our Investor Day in March. It's really balancing two things. One is, first priority is maintaining the balance sheet. I think, you know, the modest capital program that we have for next year will support this. It's prudent given the inflationary risks that we see, you know, and are likely to persist into next year. That's gonna be balanced with, you know, our next priority, which is returning cash to shareholders. You know, whether it's dividend growth or buybacks, it's.
You know, the way we look at the dividend is really it needs to grow with our fee for service business. You know, we continue to expect an EBITDA compound annual growth rate of 6%-7%, and that's from 2022 to 2025 from our fee for service business.
Okay. Thank you.
Yeah. Maybe just to add to.
Oh.
Maybe just to add to Eileen, I mean, you know, like she mentioned, our capital allocation priorities are our balance sheet, obviously returning capital to shareholders, but also evaluating sort of the merits of new projects and adding value to our shareholders. Overall, we're trying to add value to our shareholders. Those three items in terms of how we look at allocating capital.
Okay, thank you.
Thank you.
Thank you. Your next question comes from the line of Andrew Kuske from Credit Suisse. Please go ahead.
Thanks. Good morning. Maybe just a big picture kind of question, and it relates to your conversations with your customers. How do you really think about the trajectory of natural gas flows over the next couple of years, in particular, as we head closer to that moment where, you know, the switch gets flipped on LNG Canada?
Good morning, Andrew. No, I think that's a great question. I do think that the world is gonna need more natural gas, and a lot of that's LNG. I do think that producers generally in the world are still being disciplined, so you're not getting a super big supply glut, you know, response like we've maybe seen in previous cycles. I think that's gonna be positive for the supply-demand balance. I think we should remember in Western Canada that we are adding more egress. On TC system alone, they're adding about 1.5 Bcf a day of additional capacity. You know, our basin has a very competitive supply cost relative to global standards.
I certainly believe that with increased in– egress, we're gonna see additional volume growth in the basin like we just saw in the last year with a Bcf a day being added. On a basin that only produces 17 Bcf a day, if you add another Bcf and a half before LNG Canada comes in service, that's still a lot of growth for our basin and we're very well positioned to capture the incremental volumes associated with that.
Okay. Appreciate the color. Maybe, somewhat related. When you think about just the storage position that you have and you think of the outlook for bringing on incremental caverns and just some of the roadblocks that exist with, you know, the amount of water that's needed and just others trying to pursue storage alternatives too, I guess, how many caverns do you think you could bring on in a given year? How much industry capacity exists when we start to think about, you know, water usage and all the other sort of impediments that exist?
Yeah. Maybe I'll start with this, and I'll pass it over to Jamie. You know, good question. I mean, storage is a very valuable asset in our basin. I mean, I think sometimes everyone, like, for commercial and operational reasons, 'cause the flow of product doesn't always happen ratably, so you have to manage you know, some upsets, and you have to have enough inventory sometimes just to manage your operations. You know, our storage business is very strong, and we have the largest capacity in Fort Saskatchewan in our salt caverns. You know, we have over 15 million barrels. We actually have a lot of storage capacity to actually even handle more incremental business already. We're very fortunate from that perspective.
You know, as there is you know more requirements and demand for more salt cavern storage, we have a lot of capacity, not just at KFS, but on our Heartland lands. We have all of the salt rights there as well. You're right, we do have some water wells that we have on site in addition to access to you know river access water. But on top of that, you know, I think longer term, I can certainly see us also and we are looking at opportunities to recycle water as well in the area, which would be you know a great solution from an environmental perspective. That's just still in development.
You know, maybe I'll turn it over to Jamie, see if he's got any other comments to add.
Yeah. No, I think, Dean, you've hit the nail on the head, is that, you know, these are assets that are very difficult to duplicate. And to answer your question with respect to timing, like when we'll mine a cavern in the order of about 1 million barrels, that takes multiple years t o mine. Having those caverns already developed, you know, is extremely valuable asset for this organization. Ultimately one that we expect that we'll be able to offer to the basin certainly in the near term, as Dean said, you know, condensate business is growing continuing to grow and seeing the importance of storage within the basin and the growth you know requirements specifically to support a lot of imported condensate that we're seeing coming in into Western Canada. But also operational storage with spec products to enable whether it's our marketing group or our customers to be able to hit the highest value markets you know seasonally and also you know throughout the world.
you know, like, I mean, just to sum up, you know, storage is a big part of our business. It's a very strategic part, and it's. I wouldn't say necessarily a high barrier of entry currently with respect to people's ability to mine storage. But you know, certainly from a timing perspective, it's not a part of the business that would be easily replicated within probably a five-year timeframe at best.
Okay. That's very helpful. Thank you.
Thank you. Your next question comes from the line of Patrick Kenny from National Bank Financial. Please go ahead.
Thank you. Yeah, good morning. Just wondering if you could provide a bit more color on this sequestration project north of GP, the potential size and scope of the hub. Also commercially, you know, if we should view this as more of a one-off standalone project or if you'll, you know, look to integrate this service with KAPS, the frac expansion or perhaps incremental processing capacity contracts.
Hi, Patrick. Good morning. Yeah, that's a great question, and very astute of you to see that we were awarded some rights. You know, maybe I'll take a stab at that, and again, I'll pass it over to Jamie. You know, overall, I mean, the world is going towards decarbonization and maybe there's less emphasis on it currently just because of the crisis that we see in Europe and in Asia right now and the high prices and the demand for a reliable supply of energy. I don't think that that's ever gonna stop. I do believe that the narrative of decarbonization is gonna continue.
We know that, you know, carbon taxes will continue to rise and there's other legislation that's in place or gonna be in place that is gonna drive more of that direction. We think that areas like, you know, Fort Saskatchewan in the Industrial Heartland and also Grande Prairie are areas where you have higher concentrations of industrial activity and emissions. You know, we certainly see sequestration aspect of it gathering, you know, and sequestration aspect of decarbonization as a midstream opportunity. Anyway, we're positioning ourselves there. We're positioning ourselves obviously in the Industrial Heartland in Edmonton, Fort Saskatchewan as well, and leveraging off of existing infrastructure where we have it and also our expertise that we have as well.
Jamie, you have anything else you wanna add?
Yeah, I think, thanks for the question, Patrick. Like the only thing I'd add is that. Then this is a common theme for our organization is, you'll know we have partners in that project, that they're in our minds, strategic partners with respect to we all bring different things to the table, in that project. You know, we've had a lot of interest from potential off-takers for that project, and it is one of the reasons why we chose that area and that specific project. There's lots of other parts of the basin that we could have, you know, thrown our hat in the ring, so to speak, as well, and we chose that area for a reason.
I guess the other thing just to tie to your last observation is that, you know, it's just another service offering in our mind that we can use to create value for our customer and attract business into our entire value chain.
Got it. Okay. Thanks for that, guys. Maybe just a quick follow-up, given the overruns on KAPS. Wondering if you might look to revisit some of the non-core capital recycling opportunities that you had highlighted earlier in the year. I know you still expect to land within your leverage targets, but perhaps just to give you a little bit more cushion on the balance sheet as you perhaps look to grow the capital budget for 2023 more towards historical levels.
That's a very good question, and I think, you know, our business is that we have to remain very focused and, you know, as we've grown over time, there's assets in our portfolio that are less strategic and less relevant. I think we always have to continue to look at that opportunity and we will certainly do that going forward.
Okay, perfect. Thanks. I'll leave it there.
Thank you.
Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the number one. There are no further questions at this time. I'll be turning the call over back to Calvin Locke. Please go ahead.
Thank you. Thanks all for joining us again today, and please feel free to reach out to our investor relations team with any additional questions you may have.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.