Keyera Corp

TSX:KEY

Earnings Call Transcript 2019-Q1

[Operator]

Good morning. My name is Natalie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Keyera Corp. First Quarter 2019 Results. [Operator Instructions]Lavonne Zdunich, Director of Investor Relations, you may begin your conference.

[Lavonne Zdunich, Director of Investor Relations]

Thank you, and good morning, everyone. It's my pleasure to welcome you to Keyera's First Quarter Conference Call for 2019. We have a lot of exciting news to discuss with you today. And we want to ensure that there's enough time for your questions, so let's get started. On the call today is David Smith, our President and CEO; Steven Kroeker, Senior Vice President and CFO; Brad lock, Senior Vice President and COO; and Dean Setoguchi, Senior Vice President and CCO.I would like to remind listeners that some of the comments and answers that we will speak to today speak of 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 also refer to some non-GAAP financial measures. For additional information on non-GAAP financial measures and forward-looking statements, please refer to our public filings that are available on SEDAR and our website.With that, I'm going to turn it over to David.

[David G. Smith, President, CEO & Director]

Thank you, and good morning, everyone. As Lavonne mentioned, we have a number of exciting developments to discuss with you today. First, let's start with our quarterly financial results, which we reported yesterday. After a record year in 2018, Keyera's midstream services remain in high demand. We achieved record gross natural gas processing volumes, and our fractionation units operated above nameplate capacity at Fort Saskatchewan.We did have an unplanned outage at our AEF facility in February that lasted 17 days and, as a result, our first quarter results were lower than anticipated. We delivered adjusted EBITDA of $164 million, distributable cash flow of $0.51 per share and net earnings of $0.16 per share. For the full year in 2019, we expect another year of strong financial performance as we are bringing new capital projects on line and market fundamentals are supporting higher fractionation fees. Our marketing business is expected to generate between $280 million and $320 million in realized margin in 2019 as AEF benefits from lower butane feedstock costs. We continue to successfully execute our strategy, expanding and enhancing our integrated network of assets through disciplined capital investment. We are very pleased to be proceeding with KAPS, our new condensate and NGL pipeline system. Keyera has partnered with SemGroup and KKR to build this highly desired world-class pipeline solution that will transport condensate and NGL volumes from the liquids-rich Montney and Duvernay developments in northwest -- Northwestern Alberta to Fort Saskatchewan.KAPS provides Keyera with secure, long-term, take-or-pay revenues and strong project returns. It enhances our integrated value chain and creates a platform for numerous future investment opportunities. We thank our customers for their endorsement and commitment to our solution.With that, I'll turn it over to Brad.

[Bradley W. Lock, Senior VP & COO]

Thank you. As David mentioned, this is a big day and an exciting time for us as we are about to kick off the next wave of cash flow growth for Keyera focused on processing production from the liquids-rich Montney and Duvernay developments in Northwestern Alberta. We are growing our footprint by expanding our Simonette gas plant as this plant continues to operate near capacity and building out our Wapiti and Pipestone gas plants. Phase 1 of Wapiti and now our Pipestone gas plants are both 100% fully contracted with new recently signed processing agreements.I am pleased to report that we have completed and commissioned Phase 1 of the Wapiti gas plant on schedule and in a safe and environmentally responsible manner. All equipment is operational. And our anchor tenant, Paramount, expects to achieve first sales gas any day now. And we'll continue to increase its production, bringing on existing drilled and completed wells. I want to express my sincere appreciation to our project and operations teams for this outstanding accomplishment. This has been the largest construction project in Keyera's history and demonstrates our ability to successfully complete world-scale projects in Alberta.To increase the capture area in the Wapiti gas plant, we are building the North Wapiti Pipeline System. This pipeline is nearly complete and includes the successful crossing of the Wapiti River this past winter. The compression facilities are expected to be completed in the second half of the year and will bring volumes from the Pipestone Energy's development into the existing plant. The second phase of the Wapiti gas plant is currently under construction and is expected to be completed in mid-2020, providing the capacity to meet the growing volume profiles from both anchor tenants.In 2021, once we have completed our development plans at Simonette, Wapiti and Pipestone, we will have gas processing capacity in the region of nearly 1 billion cubic feet per day and increase our condensate handling capacity to 90,000 barrels per day. As producers continue to develop the liquids-rich formations around our plants, they have been searching for a competitive option to move their growing condensate and NGL world volumes from the field to Alberta's liquids hub in Fort Saskatchewan. Our KAPS project is that solution for our industry.And I'll now pass it over to Dean to talk about this outstanding project.

[C. Dean Setoguchi, Senior VP & Chief Commercial Officer]

Thanks, Brad. This is a very exciting project for Keyera. KAPS is backed by multiple long-term agreements averaging 14 years in length and includes 75% take-or-pay commitments. We currently have over 60% of the initial capacity contracted. And I'm happy to say late yesterday, we added 2 new shippers, increasing this to over 65%. KAPS will be initially connected to our 3 Montney gas plants of several third-party facilities. By 2022, when KAPS is operational, Keyera and SemCAMS will have 9 gas plants with over 2 billion cubic feet per day of gas processing and a 130,000 barrels per day of condensate handling capacity that could supply volumes to KAPS. It creates the platform for numerous future investment opportunities that in -- that could include additional gas and condensate processing investments, new NGL infrastructure and other value-added services. While we evaluate future opportunities, we will remain committed to our disciplined approach to responsible growth.With that, Steven will talk about our financial position.

[Steven B. Kroeker, Senior VP & CFO]

Thanks, Dean. We are pleased to see our customers are continuing to sign up for midstream services under long-term, take-or-pay contracts. During the quarter, we had significant take-or-pay contracts signed to make KAPS a reality, to fill the Pipestone plant and to support sulphur handling investments related to the oil sands. These types of contracts provide a solid financial footing as we invest capital.Our capital program is now at $2.9 billion, which includes our 50% share of the KAPS project. To date, we have funded approximately $1.1 billion of this capital program while maintaining a net debt-to-EBITDA covenant ratio of 3x, well below many of our peers. We plan to fund the remaining portion of this current capital program without issuing common equity apart from the existing DRIP program. While we are comfortable operating at a covenant leverage ratio above 3x for a period of time, we may consider other financing alternatives, such as hybrid debt or preferred shares, to fund a portion of the capital program.An additional source of funding for our capital projects is the cash flow generated from our facility-based marketing business. Over the past 5 years, the marketing segment has generated over $1 billion in realized margin, which helps to fund our ongoing capital programs. On average, we expect marketing to deliver a base annualized realized margin of between $180 million and $220 million. This base range includes a number of assumptions, such as AEF operating near capacity, butane cost being similar to the 2018 contract year, WTI being between USD 55 per barrel and USD 65 per barrel and other variables as described in our MD&A. For 2019, we expect to be well above this base range and earn realized margin of $280 million to $320 million primarily due to a significant shift in market fundamentals for butane that allowed us to contract butane supply at costs much lower than the previous year.With that, I'll turn it over to David for closing remarks.

[David G. Smith, President, CEO & Director]

Thanks, Steven. Although our industry continues to face a number of challenges, I remain very confident that Canadian oil and gas represents a tremendous opportunity for our country. Not only does our basin have some of the best geology in the world, we are leaders in responsible energy development. We believe with improved market access, Canadian oil and gas can play a critical role on the international stage and not only help to minimize carbon emissions but also improve the quality of life for millions of people around the world. I am proud to lead a team at Keyera that is part of this global solution. We are committed to safety, operational excellence, environmental responsibility and serving our customers. And we're very excited about the suite of opportunities ahead of us. On behalf of Keyera's Board of Directors and management team, I would like to thank our employees, customers, shareholders and other stakeholders for their continued support.With that, I'll turn it back over to the operator. Please go ahead with questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Matthew Taylor of Tudor, Pickering, Holt.

[Matthew Taylor, Analyst of Midstream Research]

Just thinking about opportunity for fractionation, now that you've got KAPS in hand here, so obviously NGLs are destined for a tight frac market. Is there really 2 opportunities here, first, a contracting one that then potentially shift contract tenure from 1 year to more in line with KAPS commitments and then, a second one here in, potentially, expansion?

[Bradley W. Lock, Senior VP & COO]

Yes. Absolutely Matthew, do you want a BD job here at Keyera? Yes. You absolutely hit it on the head. I mean really, we have an opportunity to secure, long-term cash flow streams with longer-term commitments, and that would extend both to the KAPS pipeline but also downstream in our business to our frac business as well. And we also see more demand for storage and also terminaling services as well, so I think that this will create growth opportunities all the way through our value chain.

[Matthew Taylor, Analyst of Midstream Research]

And then maybe just as a follow-up, is there a possibly to debottleneck the fracs? Or would you need to build a new one?

[Bradley W. Lock, Senior VP & COO]

It's something that we're sort of evaluating what the best way to add capacity at our Fort Saskatchewan site.

[Matthew Taylor, Analyst of Midstream Research]

Okay. Great. And then shifting over to Pipestone now that that's fully contracted and you've got positive KAPS FID in hand, how are you thinking about timing of Phase 2 and maybe even more broadly the next leg of growth in the Pipestone area?

[Bradley W. Lock, Senior VP & COO]

Well, we're very actively engaged in discussions with producers in the area. And again, it's going to be based on the timing of the developments. And obviously, we have to have a level of commitment that would support the investment of new capital to build the second phase. So we're actively working with our customers, I guess, is the key message. And again, when they're ready to make that commitment, we'll be there to provide the solution.

[Matthew Taylor, Analyst of Midstream Research]

Then the last one, if I may. You mentioned the base marketing guidance of $180 million to $220 million. And looking at the assumption, several of them lined up with the last 12 trailing months of realized marketing margin. I'm just curious how you can reconcile that back to -- I think the last 12 trailing months was $260 million and going to the $180 million to $220 million, just curious of any thoughts there.

[Steven B. Kroeker, Senior VP & CFO]

Yes. It's Steven here. As you can appreciate, there are a lot of different variables throughout our marketing business and again not just in iso-octane business but the condensate, the liquids blending, the propane on those various fronts there. I would comment that the 2018 year in particular had very good strength on the hedging program. As you can appreciate, when the WTI decreased, that caused a whole bunch of positive financial benefits on our side, which again proved the hedging strategy that we have. As well, we had just extra strength on things like condensate marketing and iso-octane business throughout the year. If you recall back in the Q2 time, there was extra demand for iso-octane businesses there.And so again, it's just a variety of factors. What we try to do in the upcoming range is just realize that -- give an anchor point or two to help people understand the context, but we're comfortable with that -- that's a comfortable range to use as a base marketing. And as we talked about in the presentation or in the Q1, the expected results for this year are clearly above that largely because of the ability to source butane at a lower cost for this year.

[Operator]

And our next question comes from the line of Rob Hope, Scotiabank.

[Robert Hope, Analyst]

Maybe to start off with can you just provide a little bit of color about how the partnership came about with SemCAMS, why Wolf was replaced as well as what do you think SemCAMS brings to the table that could be additive to the project longer term?

[David G. Smith, President, CEO & Director]

Yes. Rob, it's Dave here. The -- as you know, we've been pursuing the concept of this liquids pipeline for quite a long time, and I think it became evident to us that SemCAMS and KKR represented a pretty strong partner. Sem has -- as I think some of our disclosure has indicated, Sem has a significant amount of processing capacity in a region that we expect eventually to be able to drop on. And they had been pursuing their own liquids egress project, and I think both of us realized that it made sense to come together. And with KKR, we have a partner, a financial partner, whose very, very excited and very bullish on the long-term outlook for the Western Canada Sedimentary Basin. So I think our conclusion was that they were the best partner to be moving forward on with -- on the project with.

[Bradley W. Lock, Senior VP & COO]

So Rob, and maybe just to add to that, obviously, you'd have to talk to the folks at Wolf to get their comments. But the one thing I like to just say about their team is that they've been -- they're very incredible to work with. We have a great relationship with the Wolf team and -- but clearly, we have a great partnership now with Sem. And again, we have a joint objective to provide a competitive solution that's a customer-based solution for liquids transportation. And if we're successful in delivering that service, we'll have a highly profitable joint venture, and that's what we're both working towards.

[Robert Hope, Analyst]

All right. That's helpful. And then just to follow up on an earlier question, you touched on kind of the downstream growth potential there, but can you walk us through how much expansion capacity there could be in KAPS? As well as could you go after additional liquids handling or hubs up in the field as well to kind of increase that growth side as well in the upstream angle?

[Bradley W. Lock, Senior VP & COO]

Sorry, are you speaking to the potential expand of the KAPS pipeline and up or downstream of that?

[Robert Hope, Analyst]

Yes.

[Bradley W. Lock, Senior VP & COO]

Yes. I mean certainly, we see KAPS, this being the initial scope, we can add more pumping capacity to increase the capacity of the pipeline. We are in active discussions still with a number of customers, and that may change and alter the scope of the project. And obviously, it's going to be based on economics that are acceptable to us, but we certainly see opportunities from that front. And also downstream, I mean I don't think I could clarify exactly how much frac demand we'll need or capacity we'll need. But certainly, we see that in the future that more frac capacity will be needed, and we're prepared to build it as that demand arises.

[David G. Smith, President, CEO & Director]

Rob, what I would say is it's a little early to quantify what those opportunities might look like in terms of scope and scale. But clearly, I think, as you've alluded to, we see opportunities at the downstream end of the pipeline to expand our frac and storage business. We think it strengthens our gathering and processing offering at the upstream end and may lead to expansion opportunities there. And of course, the pipeline itself has lots of expansion capability.

[Operator]

And our next question comes from line of Robert Kwan of RBC Capital Markets.

[Robert Michael Kwan, Analyst]

I just have a number of questions here just on the contract. And I guess, first, what drives the 10% to 15% return profile? Is it you actually getting additional contracts? Or is it the area dedications and facility-specific volumes actually coming through?

[David G. Smith, President, CEO & Director]

Well, Robert, it's Dave here. I think as we indicated in our -- in previous quarters, we're generally looking at a 10% to 15% return on capital for -- as a general comment, for all of the investment program that we have currently underway. And I think what we're trying to say is that starting in 2024, we expect that this project will be well within that range as well. In terms of where the volumes will come from, obviously, we have committed volumes that we've talked about. We expect growth from the customers that have committed volumes, but we expect a lot of new customers. And as Dean has mentioned earlier, in some of the conversations that were -- that are there still underway, we expect that there's an opportunity to expand the scope of the project. But we're very pleased to be moving forward with the project as it's currently scoped.

[Bradley W. Lock, Senior VP & COO]

And I think one of the key messages, Robert, is that we believe that we're going to be in the range. Very comfortably, be in the range of 10% to 15% range in 2024, but we see the profile building over time. So when we bring the pipeline into service in 2022, there is sort of a build period to get it up to fill up the pipe. So we'll get in the range in 2022, but we think that those economics will improve -- sorry, 2024, but we expect the returns to improve as time goes on.

[Robert Michael Kwan, Analyst]

Got it. Okay. And then the 60% figure, which I guess is now 65% or so, is that only the take-or-pay commitments or is that all commitments including the area dedications?

[Bradley W. Lock, Senior VP & COO]

It's just the take-or-pay.

[Steven B. Kroeker, Senior VP & CFO]

No.

[Lavonne Zdunich, Director of Investor Relations]

It's all.

[Bradley W. Lock, Senior VP & COO]

Is it all?

[Robert Michael Kwan, Analyst]

Okay. It's all? So put differently, the take-or-pay is the 75% of the 60%? Or I guess now 55-ish?

[Bradley W. Lock, Senior VP & COO]

That's correct. Sorry, I thought you were referring to the area dedications as well. But yes, sorry, it's just -- yes.

[Robert Michael Kwan, Analyst]

Oh, okay. And the 14-year average contract, is that a weighted average?

[Bradley W. Lock, Senior VP & COO]

Yes.

[Robert Michael Kwan, Analyst]

Okay. That's great. And then last, is there any capital cost protection built into the contracts?

[David G. Smith, President, CEO & Director]

In terms of being able to pass on capital cost overruns, Rob, is that what you're referring to?

[Robert Hope, Analyst]

Yes. Exactly.

[David G. Smith, President, CEO & Director]

Yes. So the short answer is, no. I think we've explained in the past that our starting point in developing this project was to match the tariffs done on the existing system that are out there. We started from the point that we were going to be have to be competitive in terms of the tariffs, and then we put together a pretty detailed cost estimate and have concluded that it's very economic at those -- at that tariff level. But if there is -- if there are cost overruns, that would be for the owner's account.

[Robert Michael Kwan, Analyst]

Okay. That's Great. And then I'll just finish a somewhat granular question around Gathering and Processing and your turnaround recovery mechanism, especially for Rimbey. Can you just remind me how those are going to work? Are you recovering it in the current year? Is it post the turnaround? Or is it that hold 4-year recovery as well?

[David G. Smith, President, CEO & Director]

It's on a 4-year recovery cycle. So we recover both pre and post turnaround for most of our facility. So it kind of normalizes our facility returns.

[Robert Michael Kwan, Analyst]

Okay. So a bunch of those recoveries are actually currently booked into the Q1 results as well?

[David G. Smith, President, CEO & Director]

Yes.

[Robert Michael Kwan, Analyst]

Are you able to quantify how much that was in the quarter?

[David G. Smith, President, CEO & Director]

No.

[Operator]

And our next question is going to come from the line of Robert Catellier CIBC Capital Markets.

[Robert Catellier]

I did have some follow-up questions particularly around the costing. What capacity is currently envisioned for KAPS at this point? And what factors might influence that? And I'm thinking in particular is there a decision point or a pivot that comes with the passage of Bill C-69 or something of that nature?

[David G. Smith, President, CEO & Director]

Let me -- I'll take that one Rob, thanks for the question. I think first of all, on your second point Bill C-69, as much as we don't like it, doesn't have a direct impact on this project. This project would be within Alberta jurisdiction, and we would be dealing with the Alberta energy regulator for most of the application and permitting required. With respect to the capacity, we're not being specific about that at this stage. We've indicated that we're planning to build a 16-inch pipe for condensate and a 12-inch pipe for NGL mix. The actual specific capacity is not something that we're prepared to talk about in detail as yet. Some of -- there is some technical issues that still need to be worked out, and there are some scoping that are still to be determined.

[Robert Catellier]

Okay. The Bill C-69 was more of a holistic question to the extent that producers lose confident in export capacity and that box, it could trickle through the entire business, right? And maybe have an impact on commitments you're willing to make?

[David G. Smith, President, CEO & Director]

Well, certainly, it has an impact on the sentiment in the industry, but I think the specific concerns today would be more around the oil egress. For the products that we're looking at that would be flowing our KAPS, specifically NGL mix and condensate. We don't think that Bill C-69 is going to have an effect on the investment outlook for the company's -- at least in the foreseeable future. Obviously, LNG development on the West Coast, which is moving forward is something that's important to the producers in this area because the natural gas pricing is an important part of their netback. But we're looking more at the long-term value for liquids like propane and butane and condensate. And we're certainly -- with the development of West Coast export terminals and PDH facilities, we're certainly expecting better days on propane, and we think that condensate will continue to be in demand to the extent that the pricing will remain strong.

[Robert Catellier]

Okay. That's helpful. And then just -- it's obviously an important platform for future growth aspirations, but is there any one particular area that you're most excited about? And has potentially most upside?

[David G. Smith, President, CEO & Director]

You mean the geographic region?

[Robert Catellier]

No. I'm just thinking either one part of your value chain or it could be geographic as well. But is there any -- like is it the frac that gives you the most upside, the strengthening and expansion of G&P? Is it something else? Or maybe it's all of the above.

[David G. Smith, President, CEO & Director]

Well, I think we continue to put value in the integrated network. It's -- the nice thing about KAPS is that it gives us opportunities in terms of developing transportation capacity but also additional Gathering and Process and additional downstream type of investments. Part of it, the characteristics of the Gathering and Processing business are a little different than Liquids infrastructure. Gathering and Processing is a bit more geographic specific. And so you have to be confident in the geology where you're making those investments, where as the Liquids' infrastructure that we have at Edmonton/Fort Saskatchewan serves the entire basin. And so those are the kind of strategic criteria that we look at when we're looking at it. But I think we still put great value in the entire integrated value chain.

[Robert Catellier]

I just wanted to -- as my last question, I will drill down into the marketing outlook that was provided. I think it's very valuable. But I'm just curious to the comment about referring back to 2018 comparable -- butane cost comparable 2018 contract here. Is that as a percent of crude or the actual butane prices that were realized? And the same thing on RBOB, what sort of pricing and hedges are you assuming in the long-term guidance?

[David G. Smith, President, CEO & Director]

Yes. No. It's a good question, Rob. Again, we -- as I mentioned before, lots of variables, and so we didn't want to get into a host of different variables but rather just concentrate on a few key ones. On the butane, as we've described in our MD&A before, we buy butane usually in some type of relationship to WTI, it's for the most part. And so that was -- that comment was meant to be more of a percentage basis there relative to WTI. And again, it was meant to be a year that was sort of comparable of history in terms of giving you a guideline as opposed to the lower prices we had this year. I would say on the rest of the range, we looked at averages and moving around that a little bit in terms of the other variables. We just didn't want to go into a bunch of detail on RBOB and other things, but that's the general approach.

[Operator]

And our next question comes from the line of David Galison of Canaccord Genuity.

[David Galison]

So just a follow-up question to Robert's on the KAPS return. Does the 10% return assume the current level of contracting? Or does it assume getting to a higher -- a bit higher level? And then kind of what takes you from that 10% to the 15%?

[David G. Smith, President, CEO & Director]

On the first question David, it's our -- the reference to the 10% to 15% range is our expected case, so it would assume additional volumes in addition to what's initially contracted, yes. And as Dean alluded to earlier, there will be a ramp up once the pipeline has started operation in 2022. It's -- I'm not -- we're not going to be more specific than that with respect to sort of where we expect to be in the range and when. I think the point to emphasize is that we're pretty bullish on the expected returns with this pipeline with the opportunities that we see to fill the initial capacity and then to expand the capacity.

[Steven B. Kroeker, Senior VP & CFO]

It's Steven here. I think the only other thing I think I would add is that we just have to remember that we have -- we're in a very good position. We have 2.5 years still as ourselves in the same group and KKR to continue marketing that pipeline. So we're looking forward to that.

[David Galison]

And then could you give just a little bit of color on the ramp up? So it starts in 2022, and what type of contribution you might see? And is it a quick ramp up to 2024? Or is it a slow one?

[David G. Smith, President, CEO & Director]

Well, I think at this point, it's very difficult for us to be specific. Obviously, with the additional contracting that we expect to do, we'd like to see it full day one. But at this point, it's not something that -- with that we can get into much detail on.

[Bradley W. Lock, Senior VP & COO]

What I can say though is a number of the contracts that we have signed have sort of a shaped profile. So it's not like it's a flat commitment. Usually, it starts off at a lower rate and it continues to build over time in accordance with their -- the drilling plans. So that's a component of what -- that contributes to the increasing return on capital over time. But also we see opportunities with future growth in terms of drilling and more production from that area. But also we believe that there will be opportunities for us to contract supply that comes off of our competitor's pipeline system once those contractors expire. So there's a number of different ways that we're going to compete for volumes over time.

[Operator]

And our next question comes from the line of Andrew Kuske, Crédit Suisse.

[Andrew M. Kuske]

You had a strong quarter in the Liquid side of your business. And I'm just curious, you looked at your business, absent the quota impact, how do you think the numbers would've panned out for you?

[Bradley W. Lock, Senior VP & COO]

There is no impact. I mean we saw nothing really unusual with our Liquids Infrastructure results in the quarter. We had a full -- first full quarter with our Base Line Terminal contribution from that asset. And we see strong frac rates going forward in the -- for the rest of the year. So overall, we believe it was a strong quarter but nothing unusual to it.

[Andrew M. Kuske]

So you're condensate deliveries though they were down in the quarter because of the quotas.

[Bradley W. Lock, Senior VP & COO]

Yes. A little bit down.

[Andrew M. Kuske]

And -- but having no economic impact?

[C. Dean Setoguchi, Senior VP & Chief Commercial Officer]

Well, there's a little bit of variability but a lot of it is the take-or-pays where people commit to capacity on our system, and so it's somewhat indifferent to volumes that are within their capacity contracted ranges. We still get paid the same amount. There is a variable component to it, but it's not significant. And part of the difference in the volumes too -- I guess there's 2 factors that influence. One is curtailments, but also it's the weather conditions. The colder the ambient temperature is, the more diluent is generally required.

[Andrew M. Kuske]

Okay. Helpful. And then maybe just a bit more accounting-focused question and maybe just on the budgeting. When you look at Simonette, and this is just a budgeted amount where you came in $10 million lower on the Simonette expansion than the original estimate. Just what happened there? That's obviously a favorable outcome, but what was the dynamic there?

[Bradley W. Lock, Senior VP & COO]

This is Brad. And I think we continue to look for efficiencies in our construction project. I think we continue to try to bring schedules forward, and I think a couple of those things led us to deliver the overall Simonette program at a slightly lower level of cost than what we had budgeted. So I don't think it's -- I mean $10 million on a $190 million project is nice, and I think we'd like to be able to deliver those on all the projects we do -- we push forward.

[Andrew M. Kuske]

And then maybe just finally on just bringing things forward in the schedule, when AEF was down on an unexpected basis, did you manage to bring anything forward that you're planning, say, later in the year or next year to just do when the unplanned outage happened?

[Bradley W. Lock, Senior VP & COO]

Absolutely. I think anytime we have an outage at any of our facilities, once we kind of understand the time and scope that goes with it, we try to bring forward any other kind of maintenance that can be done at that time that enhance the longevity of that facility to get us through to the next turnaround. And there were certainly some projects that we did through that time to try to achieve that goal.

[Andrew M. Kuske]

Di you have a dollar-value on that amount?

[Bradley W. Lock, Senior VP & COO]

It was not material.

[Andrew M. Kuske]

Okay. That's great.

[Operator]

And our next question comes from the line of Matthew Taylor, Tudor, Pickering, Holt.

[Matthew Taylor, Analyst of Midstream Research]

One more, if I may here. Just with Wapiti service a couple of months ahead of schedule, can you help me understand the cash flow ramp expected from the project over the year? I'm just thinking through here, and it looks like contracts from counterparties for sales gas takeaway, take-or-pays, et cetera, put the facility round 50% utilized?

[Bradley W. Lock, Senior VP & COO]

Yes. I think -- I mean we're certainly going to see Paramount's production ramp up here through Q2 into Q3. They do have some capacity limitations on their sales gas that's going to prevent them from utilizing the full capacity. I think if we can get our Pipestone facility -- the Pipestone compressor station up and running and allow that facility to come on efficiently, I would like to be able to see that our Train 1 is running at full capacity by the time we get into next year. But really that's at the drive of the producers and their well performances, they bring them on so...

[Operator]

And our next question comes from the line of Patrick Kenny, National Bank.

[Patrick Kenny, Research Analyst]

Just 2 quick follow-ups here. Just first on the 60% contracted level, just wanted to confirm that, that doesn't include any internal agreements with your own marketing group or with Sem or KKR.

[David G. Smith, President, CEO & Director]

Pat, it's Dave here. There is a commitment that Keyera has made as a customer of the pipeline, and that's part of what is in the project. But we still -- even without that, we would still be over 60%.

[Patrick Kenny, Research Analyst]

Okay. Great. And then just on the marketing guidance here, the step-down, obviously, you're not assuming cheap butane forever. But maybe could you just give us your thoughts on when you might think the butane market would rebalance here and why?

[C. Dean Setoguchi, Senior VP & Chief Commercial Officer]

Well, we have seen the butane market rebalance to a certain extent already, but we do believe fundamentally that Western Canada is oversupplied. And again, with the continued development of liquids-rich plays, supply is increasing. So with that, we think fundamentally that butane prices in Alberta will be lower than what they have been historically but certainly not like what we saw in 2018.

[David G. Smith, President, CEO & Director]

At the end of 2018, yes.

[Bradley W. Lock, Senior VP & COO]

End of 2018 and what we've contracted this year, sorry yes.

[Operator]

And there are no further questions at this time.

[Lavonne Zdunich, Director of Investor Relations]

Great. At this point, I would just like to thank everyone for listening in on our call. If you have any further questions, please give myself or Calvin a call, and we'll be happy to help you out. Thank you, and have a good day.

[Operator]

This concludes today's conference call. You may now disconnect. Have a great day.