Good morning. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera's 2022 Year-End 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 one on your telephone keypad. If you would like to withdraw your question, please press star then two. Thank you. I would now like to turn the call over to Mr. Calvin Locke, Manager of Investor Relations. You may begin.
Thank you. 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. We will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, please refer to Keyera's public filings available on SEDAR and on our website. I'll turn the call over to Dean.
Thanks, Calvin, and good morning, everyone. Keyera delivered outstanding results in 2022, generating more than $1 billion in annual adjusted EBITDA for the first time in our history. This result was driven by record gathering, processing, and marketing contributions and solid liquids infrastructure performance. We saw 8% year-over-year volume growth in our G&P business as customers remain in a strong financial position while continuing to take advantage of attractive economics in our capture areas. Our Alberta and biof uels team delivered record runtime before taking the facility offline in the fall to complete a six week planned turnaround. AEF's strong performance helped drive a record marketing year, and the success of this turnaround will support continued high performance from this facility. We're well positioned to continue to earn strong results for shareholders as we execute our strategy by leveraging our integrated value chain to support continued basin growth.
We have several recent notable achievements. First, we're expanding our Pipestone gas plant. This project is supported by long-term take-or-pay agreements. It increases our capacity by 40 million cu ft per day and is expected to be completed in the first quarter of 2024. Secondly, we acquired additional capacity at our core KFS complex. The acquisition closed this week and added significant fractionation, de-ethanization, storage, and pipeline capacity while eliminating new build risk in an inflationary environment. The immediate addition of capacity in a high-demand frac market strengthens our ability to add incremental volumes and long-term contracts across our value chain, including KAPS. Thirdly, we progress KAPS towards completion and line fill is underway. KAPS is now 99% complete, and we're on track to bring the pipeline into service in the second quarter. Our final cost estimate remains unchanged at $1 billion net.
With KAPS in service, Keyera can provide Montney and Duvernay producers a much-needed competitive alternative for all services from wellhead to end markets, including liquids transportation on a new pipeline. With fully integrated assets, we can better compete for volumes that earn full value chain returns. KAPS has been years in the making, and it's a platform that propels us forward on what we do best, delivering value for customers and shareholders. In the last five years, we have invested significantly to establish a footprint in the Montney and strengthen our integrated value chain. Projects like Wapiti, Pipestone, KAPS, and a recent KFS acquisition all contribute to high-quality fee-for-service cash flows. This supports our annual adjusted EBITDA growth rate of 6%-7% from our fee for service business, laying the groundwork for future sustainable dividend growth.
Consistent with our Investor Day outlook last March, our go-forward capital allocation priorities are first to ensure continued financial strength, then to balance increasing returns to shareholders with future capital investments. I'll now turn it over to Eileen to provide an update on Keyera's financial performance for the quarter.
Thanks, Dean. Adjusted EBITDA was $ 212 million for the quarter at a record $ 1.03 billion for the full year, compared to $ 294 million and $ 956 million for the same period last year. Results were driven by strong performance across our three business segments, including record contributions from G&P and marketing. Distributable cash flow was $ 104 million for the quarter and $ 654 million for the full year, compared to $ 207 million and $ 669 million for the same period in 2021.
2022 DCF was impacted by higher maintenance capital spending related to the AEF turnaround, which occurs once every four years. We recorded a net loss of $82 million for the fourth quarter and net earnings of $ 328 million for the full year, compared to net earnings of $90 million and $ 324 million for the same periods last year. The fourth quarter result was impacted by a $ 180 million non-cash impairment charge, mostly related to the Simonette gas plant . Keyera continues to maintain a strong financial position, ending the year with net debt to adjusted EBITDA of 2.5x, at the low end of our target range of 2.5x-3x. This result includes the cash received from the equity funding completed in December to fund the KFS acquisition that closed in February.
Moving to our guidance for 2023. Growth capital expenditures are now expected to range between $ 200 million and $ 240 million, excluding capitalized interest. This is up from the previous range of between $ 140 million- $ 180 million and is primarily related to CapEx spending deferred from 2022 to 2023. Maintenance capital expenditures are expected to remain unchanged at between $75 million and $85 million. Consistent with prior years, annual Marketing segment guidance will be provided with the first quarter results in early May after the conclusion of the NGL contracting season. Cash tax expense is now expected to be nil, down from the previous guidance of $ 10 million- $ 25 million. I'll now turn it back to Dean.
Thanks, Eileen. Keyera's infrastructure will continue to play an important role enabling basin growth. In 2022, our basin set new records for both natural gas and crude oil production and is positioned for continued growth in 2023. Looking further ahead, we see energy security, demand growth, and energy transition as catalysts supporting long-term natural gas and natural gas liquids demand. 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. 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 the one on your telephone keypad. You will hear a three tone prompt acknowledging your request. Questions will be taken in the order it was received. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please leave 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.
Good morning, everyone. First question is on KAPS. Now that we're seeing line fill on the projects under almost completion, can you give us an update on your contracting efforts there, whether or not we've seen additional contracts added in recent months or not? You know, we've seen a tone change just given that the project's almost in service as well as the fact that we have seen an operational incident on a competing pipeline.
Good morning, Rob. It's Dean. Thanks for your question. Listen, I understand the significance of your question and wanting to get an update on that. We'll provide an update later this year, but I just wanna make sure that we take a step back and look at.
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Hi, Ina.
Yes. Hello, sir.
Hi. Did we get-
You're-
Get disconnected?
no, sir. you're still on the line. that comes from the line of Mr. Rob Hope. should we move to the next question that comes from the line of Robert Kwan from RBC? Please go ahead.
No, we can answer Robert Hope's question.
We were just interrupted. We didn't know if we got disconnected. Okay. Sorry, sorry, Rob. Again, let me just continue on. You know, we'll provide an update later this year, but I just wanna make sure we step back and look at the broader picture and, I'm sure you can appreciate that, you know, just given the situation that we're in and, you know, it's the sensitivity of contracts, you know, we will wait a little bit later in the year to provide an update. Keep in mind that the other 50% of KAPS is yet to fully be completed here, which we would expect is gonna happen in the next few months.
You know, KAPS will be in service soon, as you heard, and the outlook for the basin has never been stronger. When you look back to what we disclosed at Investor Day, we disclosed a 6%- 7% CAGR on our EBITDA. In the near years, a lot of that's gonna be driven by filling white space from assets that we've already made an investment in, and just filling white space. As you start to get out, you know, into 2024, 2025, and beyond, you're gonna see KAPS cash flows continue to grow, and we're very confident about that. You know, we'll provide an update later this year, but we feel very confident with where our contracting is going.
Hey, Dean, did you want me to ask my question now? It's Robert.
Yes, Robert, you can go ahead.
Oh, perfect. Okay. Thanks, Helen. If I just think about your prior strategy was to finish up KAPS, and then reduce CapEx, generate a lot of free cash flow, get the balance sheet back in shape before taking on major growth. You know, you've had great performance, marketing's been strong, so the balance sheet is, you know, leveraged at the low end of your target range. Are there things that you wanted to previously do that you felt you couldn't, that you can now take on from a growth perspective? Should we still be thinking about just let, you know, the cash flow come on KAPS, integrate that with, you know, the new capacity at KFS, and CapEx should be relatively low for the next couple of years?
Thanks for the question, Robert. That is a good question. You know, when we think about our overall strategy, you know, definitely we see a lot of opportunity ahead. You know, where we are today is that, you know, this is a major project that we're putting into service. We finally have that fully integrated asset base. We can leverage, you know, a full service offering right from well head to end market. We see a lot of opportunities this year just to get the asset into service and to, you know, deliver on our cash flow growth, not only for this year, but to position ourselves for future years. Do we see more opportunities for growth beyond KAPS? Absolutely. Our primary focus this year, again, is balance sheet.
You know, just really making our assets sweat and filling them up and again, continue to build that growth profile for the future as well.
Got it. If I can just finish with a question on the Pipestone expansion. I guess two parts. First is just with the contracts, are those volumes flowing onto KAPS and into KFS? The second part is, while this is a relatively small project, you know, you've talked a lot at a high level about if you're deploying capital, you want those long-term take-or-pay contracts, you know, covering your entire return. Just as it relates to this here, can you just talk about, you know, how much of the capacity is covered by take-or-pay contracts, what the average duration is, and what is basically the build multiple or the return just based on the long-term contracts in place?
Yeah, I mean, listen, that's a great question. You know, we're very excited about the Pipestone expansion. You know, we don't speak specifically for, you know, for obvious reasons about commercially sensitive, you know, transactions that we sign. These are long-term contracts with high take-or-pay. You know, I can say generally that we have signed integrated deals associated with that incremental capacity.
Just to be clear, like you've had that 10%-15% target return. Is that entire return on the capital here being covered by the long-term contracts?
Yes.
you have in place, or do you need... Okay. Okay, perfect. Thank you.
Absolutely. It would be at the high end of our expectations.
Great. Thanks.
Thank you. Your next question comes on the line of Linda Ezergailis from TD Securities. Your line is now open.
Thank you. Can you help us understand with Zone four how that is looking? Any sort of updates on conversations there, activity, any sort of inflationary pressures? Any context you can provide would be appreciated.
Sure. Good morning, Linda. I think that's a very relevant question, particularly when you consider the news, you know, with the Blueberry First Nations group in the Treaty 8 in BC. I think it's really encouraging overall. You know, I think what we're seeing here is that it's positive because it's a collaborative decision to support future development in the area. There's still a lot of information that, you know, we still have to learn and still has to be disclosed. We wait for that. You know, overall, we think that it's positive for future development in BC and the possibility of Zone four. When we think about, you know, the cost of Zone four, you know, I think there's...
You know, we have much better experience with our KAPS Zone one to three. We feel like, the cost estimates, you know, and the experience that we have help us to better estimate what that cost is and also, execute that project if we do choose to sanction it in the future. The other thing I'd say is that there's a lot of large pipeline projects that are underway, and, you know, KAPS was one of them. Obviously, there's Coastal GasLink. There's a lot of work being done on the NGTL system. There's TMPL as well. A lot of these projects will be completed in the next, you know, year and a half.
When you combine that with steel prices coming off, you know, I think that there will be a better time for construction in the future. Offsetting that is obviously regulation is increasing. You know, I think what it also means is that the infrastructure that you have in the ground is only gonna become more valuable over time. Overall, again, like I say, I think we're excited with the progress of what we're seeing in BC and the potential implications for Zone four.
Thank you.
Thank you. And your next question comes on the line of Robert Catellier from CIBC Capital Markets. Please go ahead.
Good morning, everyone. I just wondered if you could give us some update on what you're seeing in terms of customer activity, both following the Blueberry River First Nations land agreement and also in light of the lower commodity prices, in particular natural gas?
Yeah, that's a very good question, Robert . And you know overall, I mean, we saw tremendous growth in our basin for both crude oil and natural gas in 2022. We believe that there's, you know, certainly room for growth in 2023. The reasons for that is, you know, the producers, at least in my 30+ year career, I've never seen them in a stronger position that they're in today. Economics are still very strong. You know, we know that there's gonna be some more maintenance on TC systems. We know that has, you know, could create some softness during periods of 2023 for AECO. Overall, we think the environment's is very positive.
you know, what we're told from our customers is that they are gonna continue to grow in our capture areas. you know, they see great economics, which is also good for our infrastructure. We see continued growth based on macro factors and also the discussions we have with our customers.
Okay. Just now that you've closed the, KFS transaction, what operational and capital enhancements might you undertake, and why?
Well, first of all, on KFS, we are very excited to have closed that transaction this week. If you ask the two previous CEOs, Jim and Dave, they would say that they worked on that transaction for a long time, and so they are both very happy that we finally got it done. You know, we see this as a fantastic opportunity because this is our core, this is the nucleus of our whole NGL business. And to get a lot of extra capacity, especially for frac, which is very tight right now, but also de-ethanization, we talked about storage and also the pipes that connect between Edmonton and Fort Saskatchewan.
It's just super valuable to our business and there's services that we can use to help leverage to provide more services across our whole integrated network. Particularly on the frac. Now we're, you know, we're just gonna make sure that we leverage the capacity that we acquired. In the future, we certainly see a potential for a debottleneck at our existing frac that we have. Longer term, there could be a frac three. In the short term, again, we're gonna focus on maximizing the value of what we acquired and the debottleneck would be the next thing we look at.
Okay. That's helpful. Last question for me, just a little curious on why the write-down on Simonette. You know, it's clear the volumes have declined there over the last year or so, but only by about 12% with KAPS coming on. It would seem to me that makes the plant a more attractive option for producers. Why the non-cash write-down?
Yeah, that's a very good observation, Rob. You know what? I mean, there's accounting standards obviously that we comply with, but I'll turn that over to Eileen in just a minute, but I'd like to share maybe some of my perspectives first. I've never been more optimistic about the whole Montney Fairway as I am today. Let me tell you why. You know, when I think about just the future growth in our basin over the next, you know, two to three years, particularly, you know, with, you know, LNG Canada coming into service on the horizon, you know, some more expansions on the NGTL system, you know, we certainly see future basin growth.
When you look at the Montney Fairway and where it overlays with our capture area for Simonette, it's in a great area and, you know, I certainly believe that the Montney, especially in that neck of the woods, is still underdeveloped. We also see an emerging Duvernay play which would be more, a little bit more to the east of our Simonette gas plant. The economics now in that play are very good, and that play is just emerging. To me, that's in the very early stages of development.
When you also add that all up with a lot of the land in that area has turned over in the last two years, including, you know, XTO's land position and Shell's land position, which are huge land blocks where there was minimal development. I think the activity in this area is gonna be very robust for decades to come. Having said that, again, we, you know, we comply with accounting standards. Let me turn it over to Eileen and she can, you know, speak to that in more detail.
Thanks, Dean. Hey, Rob. As you can appreciate, you know, we have long-term contracts in place at high fees to underpin capital. As we see these contracts begin to roll off near the, really the back end of the decade, the fees are expected to be lower. Again, as Dean mentioned, we see development and volume growth, but likely at lower fees than what we've seen through these long-term contracts. This is largely what drove the write-down for accounting purposes.
Okay. Thanks very much.
Thanks, Rob.
Thank you. Your next question comes from the line of Andrew Kuske from Credit Suisse. Please go ahead.
Thanks. Good morning. Dean, I think you mentioned, you know, Jim and David worked on the KFS deal for years. I guess you're sort of third time lucky on getting the deal over the goal line.
It's not luck. It's not luck, Andrew.
Well, hard work and perseverance over all the years. Maybe if you could just talk a little bit about the frac dynamics you see on a go-forward basis, because obviously the market's tight right now. There's one expansion project that's probably gonna go ahead. You consolidated KFS and, you know, how do you think of the lay of the land on the frac market? Because you've got more gas production coming, more NGL production coming out of the ground. How do you think of the lay of the land right now?
Yeah, that's a great question, Andrew. you know, when I think about the frac dynamics, obviously the market is very tight. you know, when I think back to just NGL volumes in our basin, even going back to 2020, what surprised me is that dry gas dropped, you know, pretty dramatically. If you look at the natural gas production, it remained relatively flat. I think what that indicated is that a lot of the drilling really shifted to the liquids rich drilling because it was more economic. Now that we've added a Bcf in a day, Bcf in half a day in the last year or so, obviously there's just with that is a big influx of more NGLs. you know what?
There's some gonna be some, maybe some field frac projects where, you know, some of that will go maybe straight to end markets, whether that's the West Coast or local markets. I think the hub will always still be in Fort Saskatchewan. We have a great position there with our KFS frac and storage site. We're very happy, as I said before, about the acquisition that we made because that's capacity that we have available now, and we can use that in a very tight market again to leverage our entire integrated value chain to generate that broader cash flow stream. I think that's a big advantage. Again, there's no execution risk on that incremental capacity.
We think it's also a great opportunity that, you know, we think there's potential to do a debottleneck. When you're debottlenecking, that has less risk as our engineering construction team tells me, less risk than doing a brownfield and obviously a greenfield development. Again, we see it as an incremental step to add more capacity with less execution risk. Longer term, again, we're as well positioned as anybody to add more frac capacity should the basin still need it with a third fractionator. Again, overall, we're very well positioned, and we can do this all incrementally, starting with the acquisition that we just closed this week.
Appreciate that color. You know, maybe if I look across your portfolio, you've had, some good evidence and examples over the years of partnering with others. If you do decide to go build a new frac, is that sort of on the table? Would you look to align with somebody else and maybe lower the cost burden or the list capital cost burden on the front end, maybe someone else brings some other elements to the table that are just helpful for overall return profile?
You know what? Listen, we get asked that question a lot mainly from people that want to partner with us on our, you know, KFS complex and add more capacity there. That's our crown jewel. I guess I'd never say never to anything, but if we did partner with something, they would have to bring a significant amount of value to the equation, because that is a very high profit center for our company. We won't give that away to anybody unless, again, they can bring something significant to the equation.
Okay. Thanks so much.
Certainly when we maybe just lastly, when we look at our long-term forecasts, you know, we've been very clear that we wanna have a self-funded program. We could certainly self-finance future frac capa-- expansions as they're needed, so with our cash flow. Again, we don't see funding as a barrier to future growth at that complex. Thanks. Thanks for your question.
Thank you. Your next question comes from the line of Ben Pham from BMO. Please go ahead.
Hi. Thanks. Good morning. I know you mentioned the Coastal GasLink. I'm wondering if you can maybe unpack potentially the benefit on your value chain. How early do you think you can benefit from that? Do you expect to maybe have a greater share of the basin growth than you have had historically?
Yeah, that's a great question, Ben, and I think it's a very exciting development for the whole basin. You know, when you think about, you know, Coastal GasLink and Canada LNG , I mean, this is something that, you know, has been talked about for a long time, but now we're getting towards the final stages where, you know, we can see visibility to when this is all up and running. You know, certainly, you know, I guess the way I envision it is that a lot of the production in BC is gonna flow to fill that two BCF of initial demand. A lot of it's gonna be backfilled. Some of it's gonna be in BC, some of it's gonna be in Alberta.
When you have critical, essential, integrated infrastructure like ours. It helps support that base and growth. We're gonna benefit from those increased volumes across our entire integrated value chain. Jamie, do you have any other comments you wanna add?
No, I just think, you know, obviously that project's good for the basin and as the basin builds out, you know, it's gonna create opportunities for us downstream.
do you anticipate so let's say you keep your market share you have today, is this really an industry need to invest a next wave of CapEx in the infrastructure? Or you think it's more real utilization moving up?
Well, I think certainly with, you know, overall growth in the basin, you know, we can help support that with capacity that we have already. You know, we certainly have more capacity at our gas plants. We saw some of that growth already, you know, over the last year. We had 8% year-over-year growth in our G&P business. To us, I mean, that's the best volumes we can add because the capital is already deployed. It's, you know, obviously just adding to our returns to our shareholders. You know, on top of that, I mean, we have our KAPS pipeline that we're putting into service.
Again, we think that we're gonna benefit from a lot of future volumes that that are gonna come online for that system. It's gonna feed our downstream business. You know, I think over time, as I said before, that, you know, likely there will be more investment required more in Fort Saskatchewan, where, you know, a lot of the capacity is tighter there. You know, again, with the acquisition that we just made, we have still extra capacity in our pipes. We have capacity in our storage, really in our DF as well. We can support future growth in the basin. It's really the frac that's in the tightest demand.
Beyond that, you know, what we also see on the horizon is just more energy transition projects and we're very excited about, you know, the future of our industrial heartland, lands, the 1,300 acres that we own there. That's gonna position us for future growth over the long term.
Okay, great. Maybe another topic I wanted to explore. You mentioned returns on capital and how it's improved over the years. Can you share maybe? I know KAPS is a little bit of work to go on ROC, but how is your gas processing returns been? Is it in a right zone? The second part, I mean, my last question too is, you mentioned integrated return on capital. Are you more emphasizing that more, an integrated return on capital versus how you've looked at it more individually in the past?
Let me just maybe answer your second question and then I'll turn the return of capital question back to Eileen. You know, as we said, we're extremely excited about our KAPS pipeline because this is the first time, especially in the Montney where, you know, a lot of the basin growth is occurring today, is that this will be the first time that we can offer that full integrated service. You know, obviously we're jumping all over that. You know, we see an opportunity with our gas plants, KAPS, frac storage, terminalling services and marketing services. When we can just clip a few dollars all the way through every time that molecule touches each part of our system, that's how we generate outsized returns for our shareholders.
So again, this is why KAPS is so strategic for us. Again, we're excited that it's near completion and commercially, yes, we have an opportunity to fully integrate our deals and we are doing that today. With that, I'll turn the first question over to you, Eileen.
Hi, Ben. Yeah. In terms of return on capital for gas plants, I would really think about the new ones, right? Really Wapiti and Pipestone. Currently our ROC on those investments are in the mid-middle of that 10%-15%. I think that's a really good range, and we see growth. They are performing extremely well. In terms of maybe that integrated ROC, you know, we do disclose our return on invested capital, and it's, you know, I think it was 16% at the end of 2022. That's really to show the value of all three of our segments, the gathering, processing, liquids, plus our marketing, and that's how we're able to really generate best in class returns.
Okay. 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. Good morning. Just on the higher throughput in the south region, I know your team has done a good job bringing in new volumes. Just with respect to the comment in the release where you see an opportunity to grow your operating margin, just given, I'll call it, you know, the normalizing natural gas price environment, curious what other factors might be helping to support, you know, not only higher producer activity in the area throughout the year, but also your margin expansion potential, even if gas prices don't strengthen from here?
Thanks for the question, Pat. I'll just turn that over to Jamie, and he can provide more color on that one.
Pat, thanks for the question, it's a really good one. It's an exciting area for us. The, you know, like going back to sort of some of the themes that Dean's talked about earlier in the call is that, you know, these assets are in the right part of the basin. Like, I mean, you know what we found is that the returns that the producers that are drilling up wells in this area, you know, they're best in class, and a lot of that's driven around the amount of liquids that we're seeing and the strength of those liquids prices as they're correlated to crude.
You know, as you think about, you know, the economics and ultimately the activity around these facilities, it's just not all about natural gas prices. That's the first thing that I'd point out. As we think about filling up those assets, you know, like any, you know, supply-demand equation that we look at the ability to be able to, as contracts come off, you know, Dean alluded to a lot of stuff that we're doing we'd like to think is good execution, not good fortune. I'd say this is probably good fortune, is that the majority of our significant contracts, in the south have come off or are about to come off in the last few months.
As a result of that, we've been very successful in being able to re-negotiate longer term processing deals with more significant take-or-pay terms and higher fees as a result of the tightening capacity in the south. Strachan is full. You know, Nordegg and Brazeau are becoming close to full. Nees-Ohpawganu'ck or Alder Flats is close to full.
As producers have conversations with us about being able to get comfort that they're gonna drill a well and actually get it processed, you know, we're in a position to be able to offer that service, and it's a valuable service, and be able to get, you know, what we think is more representative value for that service than perhaps we were able to three, four years ago when there was excess capacity in the system and the customer had a lot more choice. They used that choice to negotiate probably more favorable terms than they're in a position to be able to do now. I hope that makes sense.
It does. Yeah. No, thanks for that, Jamie. That's great color. Maybe, just sticking with the execution theme, you know, sweating the existing assets. On your Josephburg land position, curious where you're at in terms of expanding the storage and the rail capabilities to handle, you know, the increase in NGL production across the basin, and perhaps also to support the low carbon hub strategy.
Yeah. Pat, I think those are great questions. You know what, before I pass that over to Jamie, you know, first of all, I wanna clarify that, you know, the expansions that we require for NGL business, especially as it relates to frac DF storage, we have a lot more capacity available at our existing KFS site, and that would be the most economic area if we required more capacity to add it at that site. We do have the potential to do that at the Heartland site, but again, more capital efficient as a first step to do it at KFS. With that, maybe I can just turn over to Jamie, and he can talk a little bit about the potential Heartland developments.
Yeah, Pat. I think you know, you've hit the nail on the head with respect to sort of how we view that terminal evolving over time, is that certainly we continue to have lots of very encouraging conversations with folks around their energy transition projects, whether it's siting and locating those projects on our lands, which are, as Dean has mentioned in previous calls, very strategic in relation to adjacent to Dow, Shell Scotford, our and Plains' Fort Saskatchewan fractionation facilities. As we look at building out that terminal, we think about it in phases.
The first phase would be more on the conventional natural gas liquid side because of the growth and the demand for, you know, additional takeaway capacity on rail and more efficient takeaway capacity on rail that is, you know, is a differentiator relative to people's decisions around putting a more conventional manifest rail facility in. Because of the location, we can aggregate three or four companies' aspirations to build out rail egress into one common efficient facility. As we build out the initial infrastructure on that terminal on the more conventional side, then we see opportunities probably, you know, to the mid to later part of the decade to build that facility out and leverage off the existing bones, if you will, to offer up being able to move product that's lower carbon.
Okay. That's great. Thank you very much. Appreciate it.
Thanks, Pat.
Thank you once again. Should you have a question, please press star followed by the one. Your next question comes from the line of Anthony Linton from Barclays. Please go ahead.
Good morning, thank you for taking my questions. Maybe just to start and just kinda echoing some of the questions we've already heard today. Just thinking about on return of capital, you know, leverage is, you know, at the lower end of the range exiting the year. How are you sort of thinking about a dividend and a buyback as we move through the year?
Yeah, that's a, obviously a great question. You know, we've always communicated to the market what our plan was, which was to get KAPS in the service. Again, this is a $1 billion project, so it's very significant for our company. You know, from there, we'd obviously want to allow our cash flow streams to ramp up as we expect. Again, as I think it's guided in the reports that, you know, we expect to generate a 6%-7% EBITDA growth out to 2025. You know, we certainly believe that that's gonna support long-term sustainable dividend growth. I would add too, with the acquisition of KFS, that would put us, you know, probably more in the high end of that 6%-7% range.
You know, we feel pretty good about that. Again, we wanna get this pipe in the service. We'll evaluate where our balance sheet is, but this year is gonna be the focus on our base business. Jamie talked a lot about some of the long-term contracts that we're starting to sign here, and we think that there's more on the fairway. That's gonna set us up for, you know, future dividend growth. You know, we're not in a position to comment, you know, when that is, whether that's later this year or next year, but we certainly see that's definitely something on the horizon.
Okay. Gotcha. That's helpful. Then maybe just on the marketing side of the segment, I appreciate, you know, you kinda give full guidance as we get into the spring, but could you just give some color on the headwinds and the tailwinds you're maybe seeing as we move through Q1 right now?
Sure. For sure. you know, we obviously had a great year in 2022, a record year, almost hitting $ 400 million, which is pretty spectacular. Why don't I turn that over to Jamie, and he can provide more color on that.
I was gonna joke, 44 minutes into the call to get to marketing, which I think it's actually one of the really good things that are going on in our world beyond marketing. As Dean said, you know, 2022 is an exceptionally strong year. That said, you know, we always come back to our base guidance, which remains at $ 250- $ 280 per year. There are a couple factors that are encouraging for 2023, I'll touch on those, I guess. Is that, you know, there is the potential for a lower butane supply cost in our business. You know, we are a big consumer of butane at AEF and other parts of our business.
Then also just pointing out that we don't have an AEF turnaround this year. Knock on wood, AEF continues to run reliably. You know, we see obviously 2023 relative to 2022, the ability to see the benefit of AEF running at full capacity. Fundamentally, you know, commodity prices, as we alluded to, are strong in North America, driven primarily based on exports. Really, Canada and the U.S. as a combination feeds is more and more feeding the world's demand.
As we see the macro fundamentals, you know, on the planet, you know, support more low carbon or lighter end hydrocarbons, you know, we're very bullish on commodity prices and the strength of those commodity prices. Overall, things look very favorable in 2023. We will provide our updated guidance at our Q1 release in May. So stay tuned.
Awesome. Okay. That's great color. That's all for me. I'll turn it back. Thank you.
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