Keyera Corp

TSX:KEY

Earnings Call Transcript 2023-Q1

[Operator]

Good morning. My name is Colin and I’ll be your conference operator today. At this time, I would like to welcome everyone to Keyera Corp.’s first quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there’ll be a question-and-answer session. [Operator Instructions]

Thank you. I would now like to turn the call over to Calvin Locke, manager of Investor Relations. You may begin.

[Calvin Locke, Manager-Investor Relations]

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, please refer to Keyera’s public filings available on SEDAR or on our website.

With that, I’ll turn the call over to Dean.

[Dean Setoguchi, President and Chief Executive Officer]

Thanks, Calvin and good morning, everyone. Before we begin, I want to take a moment to address the ongoing wildfire situation across central and northern Alberta. Our first priority is the safety of our people, the surrounding communities and emergency responders. Thankfully, all Keyera employees and the families in affected areas are safe and accounted for. As a precaution, we have shut in several of our plants. We continue to monitor the situation and we’ll restart as conditions allow. We’d like to thank all emergency response personnels involved in fighting these fires and hope that all remains safe.

Now, turning to our quarterly results, Keyera had a very strong start to the year delivering record results in our fee-for-service business segments. Our proven business model has delivered reliable returns through all commodity cycles and our strong first quarter results reinforced the effectiveness of our strategy.

In our G&P business, we saw a 12% year-over-year volume growth driven by record volumes, including the highest ever at our Wapiti and Pipestone gas plants. Our G&P customers continue to be in a strong financial position, allowing for continued volume growth while improving cash flow stability for the segment.

Our Liquids Infrastructure segment delivered record results benefiting from strong utilization and margin contribution from the additional acquired interest at our KFS complex. our Marketing segment had another strong quarter, supported by the strengths of our iso-octane and condensate businesses. Today, we provided our updated annual guidance for the segment. We now expect marketing to contribute between $330 million to $370 million for the year.

I’m pleased to share that we have reached a major milestone on KAPS with the first barrels shipped on the pipeline. Construction is complete. Costs are within our latest estimate of $1 billion net to Keyera. The condensate line was put into service and began flowing in April. The natural gas liquids line is expected to be in service and flowing in June, and we have officially welcomed Stonepeak as our new 50% partner following the closing of their acquisition in April.

KAPS is a link that fully integrates our business from wellhead to end market. with a pipeline in service, we’re a stronger and more competitive company focusing on the – on leveraging the strength of our integrated value chain to maximize value for all stakeholders. Our recent acquisition of additional fractionation capacity at KFS provides an advantage in attracting volumes to our integrated value chain. We can offer customers’ frac capacity services in a very tight market and provide a full suite of services to connect products to the highest value markets, by providing an alternate end-to-end solution for customers.

We remain competitive for the long term. As a result, we’re better equipped to maximize value from new and existing assets, and drive higher overall returns for our shareholders. In the last five years, we have invested significantly to establish a competitive footprint in the Montney and connected to our core liquids infrastructure. These projects include Wapiti, Pipestone, KAPS and our recent KFS acquisition. These investments support our annual adjusted EBITDA growth rate of 6% to 7% from our fee-for-service business from 2022 to 2025. They also support growth beyond its timeframe.

With this large strategic spend behind us and those assets starting to contribute to cash flow growth, we are reaching a free cash flow inflection point. Our capital allocation priorities remain unchanged. They are firstly to ensure the financial strength of our business and then to balance increasing returns to our shareholders with disciplined capital investment.

I’ll now turn it over to Eileen to provide an update on Keyera’s financial performance for the quarter.

[Eileen Marikar]

Thanks, Dean. Adjusted EBITDA was $292 million for the quarter, compared to $257 million for the same period last year. Distributable cash flow was $227 million, or $0.99 per share, compared to $178 million, or $0.81 per share for the same period in 2022. Net earnings were $138 million, compared to $114 million for the same period last year. These results were driven by record performance from our fee-for-service business segments and strong performance from the marketing segment. Keyera continues to maintain a strong financial position ending the quarter with net debt to adjusted EBITDA at 2.6 times at the lower end of our targeted range of two and a half to three times.

Moving to our guidance for 2023. we now expect our Marketing segment to contribute between $330 million and $370 million of realized margin in 2023. This is up from our base guidance of $250 million to $280 million. Today’s guidance accounts for financial hedges currently in place and assumes the AEF facility operates near capacity for the remainder of the year. There are no significant logistics or transportation curtailments and current forward commodity pricing for any unhedged volumes for the remainder of the year. Growth capital guidance remains unchanged at between $200 million to $240 million and maintenance capital guidance remains unchanged at between $75 million and $85 million. And cash tax expense is still expected to be new.

Thank you. and I’ll now turn it back to Dean.

[Dean Setoguchi, President and Chief Executive Officer]

Thanks, Eileen. Keyera delivered another strong quarter and remains in a strong financial position. The basin is growing and we’re executing a strategy for long-term value creation. With KAPS in service and available frac capacity, we’re able to leverage our integrated value chain to drive strong returns for our shareholders. A reminder that we’ll be hosting our Annual General Meeting later this morning at 10:00 AM Mountain time. meeting will be held virtually and can be accessed through a website. On behalf of Keyera’s Board of Directors and Management team, I thank our employees, customers, shareholders, indigenous peoples and other stakeholders for the continued support.

With that, I’ll turn it back to the operator for Q&A.

[Operator]

Thank you. [Operator Instructions] Okay. And your first question comes from Rob Hope from Scotiabank. Rob, please go ahead.

[Rob Hope, Scotiabank]

Good morning, everyone. I was hoping you could add some additional color on your capital allocation priorities for the rest of the year. So, as we take a look at 2023, Keyera will be generating significant cash flow, its leverage is reasonable, the payout ratio is reasonable as well. And as you’ve kind of highlighted, the CapEx is really going to step down after KAPS. So when looking forward, how do you weigh increasing the dividend share buybacks in 2023 versus securing some additional new growth projects here?

[Dean Setoguchi, President and Chief Executive Officer]

Go ahead. I’ll let Eileen answer that question.

[Eileen Marikar]

Thanks, Rob. As you know, our first priority has always been to maintain our balance sheet strength. Our immediate focus has certainly been to bring KAPS online and given the sheer size of the investment, we want to ensure that the pipeline operates and cash flows ramp according to plan. The next focus is to return to our long history of dividend growth. Ultimately, the timing will be a board decision; but beyond the balance sheet and dividend growth, it will be really a competition for capital between reinvesting in our business and share buybacks when they make sense to do so. Our preference, of course, would be to do smaller size growth projects, smaller relative to the large projects that we’ve undertaken in the past that really generate strong returns and meet our overall investment criteria.

[Dean Setoguchi, President and Chief Executive Officer]

Yes. Rob, maybe if I could just add onto that. I mean, the great thing is, we’re in a great position, where we have – we think we have a lot of great growth opportunities ahead of us as well. So, we’ll certainly try to balance both priorities of returning capital shareholders, but also continuing to grow our fee-for-service cash flow, as Eileen said with some really great projects and that will drive future dividend growth in the future.

[Rob Hope, Scotiabank]

All right, appreciate that. And then maybe, as a follow-up question, just in terms of the growth backlog, you’ve been a little capital constraint here for while KAPS is being constructed, do you have a – maybe a laundry list of smaller growth projects that you could quickly move on or should it take some time to backfill the growth backlog. and I guess, second to that would be what opportunities seem the most attractive to you right now?

[Dean Setoguchi, President and Chief Executive Officer]

Yes. that’s a great question, Rob. Our first priority this year is, as Eileen said, is that, we obviously want to get KAPS online and we’re well underway on that front. So, really great to report that. So, I think it’s a – for this year at least, it’s a great year for us to focus on our base business and to make sure that we capture a lot of low-hanging efficiencies, not necessarily with investing incremental capacity, but it’s just making the most of what we have. But there’s a long lead time, I look over at Jamie and his team, and there’s a long lead time to projects. So, we do have a number of projects that we’re looking at that we’re doing engineering feed at on.

So, we’ve talked before about the potential for a frac debottleneck and we think that to be able to add frac capacity in increments is a lot better for our business in terms of us being able to contract that capacity up as we go. But we also see the potential that more G&P capacity, especially in our Montney area, and also the potential for Zone 4 onto KAPS, which would connect us towards the BC border. So, those are some of the initial sort of things that we’re looking at.

On top of that, we have a lot of exciting projects that we see for our longer-term future in the heartland that relate to helping to enable energy transition projects. So again, we see a very exciting future for us in terms of projects that we could add to enhance our integrated value chain.

[Rob Hope, Scotiabank]

Thank you. Appreciate the color.

[Dean Setoguchi, President and Chief Executive Officer]

Thank you.

[Operator]

Your next question comes from Robert Kwan from RBC Capital Markets. Robert, please go ahead.

[Robert Kwan, RBC Capital Markets]

Great, thank you. Good morning. If I can just kind of come back to just this notion of the cash flow inflection point and follow up on a few things. Eileen, you talked about smaller size projects. Can you just talk about what range you’re thinking about? And then does the construction timeline, how much does that factor into whether you want to pursue it? Just I guess starting with that.

[Eileen Marikar]

Yes. thanks, Robert. It’s kind of what we said at our Investor Day, it’s very consistent a year ago. we’re in that $300 million to $400 million type of project range is what we would be looking to spend. But again, in terms of what those projects are, they have to meet our investment criteria. The returns in particular, quality of cash flow, those are all of the things that we’re looking at. And yes, there is lead time. So, as to Dean’s point earlier, those things, those projects are being envisioned today in order and all the feed work before they get sanctioned.

[Dean Setoguchi, President and Chief Executive Officer]

Hey, Robert. and if I could add, I mean, I think the point we’re making is that with KAPS, we now have a fully integrated system out of the Montney-Duvernay area. So, KAPS was a $2 billion gross pipeline and $1 billion net at Keyera. and that consumes a lot of resources company wide. So certainly, we do not see any projects of that anywhere near that magnitude in the future for us. And so now, we’re just adding on and complimenting the integrated value chain that we already have. And I also mentioned, we talked about our integrated value chain from the montney, but we also have a fully-integrated montney – sorry, a fully-integrated system from the deep basin as well. So, as we see more growth in our basin, we have essential infrastructure that will help enable that growth.

[Robert Kwan, RBC Capital Markets]

Great, thank you. And then just in terms of the ensuring financial strength before you kind of go to capital allocation or new investment, how are you looking at that number? You exited the quarter 2.6 times at EBITDA. So that’s at the bottom end of that two and a half to three times range. But that’s also on elevated marketing. So, where do you need to be comfortable to really start putting capital either out the door for building up that growth pipeline and/or buying back stock?

[Eileen Marikar]

Robert, yes. we expect to remain within that range. You’re absolutely right that we’re on the lower end just given the higher marketing contribution. But as we look forward and even with that more of a base marketing guidance, we expect to – our capital program will adjust, so that we are within that two and a half to three times range. And that’s where I’d say that $300 million to $400 million is very comfortable to remain within that range.

[Robert Kwan, RBC Capital Markets]

Okay. That’s perfect. And I’ll just finish with a quick one here, KFS. The guidance was 11 times acquisition multiple. Just wondering how you’re tracking now that you’ve got into the new contract year. Are you kind of still tracking that 11 times? Are you doing a little bit better here?

[Dean Setoguchi, President and Chief Executive Officer]

Yes, certainly. I mean, it’s early days, we closed that acquisition in February. as we’ve been saying is that, the frac market is very tight. So, having access to that available frac and storage capacity in particular was helping us to leverage our overall value chain. So, I would say that acquisition is working out very well and well within our guidance that we provided earlier.

[Robert Kwan, RBC Capital Markets]

That’s great. Thank you.

[Dean Setoguchi, President and Chief Executive Officer]

Thank you.

[Operator]

Your next question comes from Robert Catellier from CIBC capital markets. Robert, please go ahead.

[Robert Catellier, CIBC capital markets]

Hi. good morning, everyone. I had similar selections to the first two robs. but maybe I’ll come at it from a different angle here. And so my question is, now that you have the additional interest in KFS and KAPS is being placed into the service. is there an argument for a higher long-term marketing guidance?

[Dean Setoguchi, President and Chief Executive Officer]

Yes. I mean, what we’re – we’re very – that’s a very good question, Rob. And what I would say is that with every asset that we add to our business. Our marketing team, it allows them to access more barrels. So that we’re a volume times margin business. So, the more barrels that they get to touch, the more margin they generate. So, assets like KAPS over the long term is going to help us generate more marketing. and that drives higher return on capital corporately.

So, it’s something that we continue to monitor. Obviously, we’ve seen some very exceptional iso-octane margins. and so we’re capitalizing on that. But it’s something that our team has continued to evaluate. and at the right time, we’ll come back and revise our guidance when appropriate. But obviously, over the last several years, we’ve well outperformed our base guidance. I think our five-year average is in the $340 million range, versus the $250 million to $280 million range. So, it just demonstrates the strength of that business certainly under good conditions.

[Robert Catellier, CIBC capital markets]

Okay. just to follow on there, what contracting updates can you provide on KAPS. now, it’s mechanical complete and you have KFS as well, and the Blueberry River First Nations land agreement has been achieved?

[Dean Setoguchi, President and Chief Executive Officer]

Rob, I was waiting for you to ask that question. but no, it’s a very relevant question. And what I can say is that we are in active discussions with a number of producer customers. and first of all, I’d say that we welcome Stonepeak as our new 50% partner. And so obviously, that process dragged down for a long time. So, we’re finally able to work with our new partner and our early interactions with them have been very positive.

So, they’re very motivated to work with us to fill this pipeline. So, that’s great. And we have a lot of meetings scheduled with them coming up here. What I’d say is that, our producer customers are really expressing, the understanding of the value of having redundancy. And so if you spend billions of dollars or hundreds of millions of dollars developing an area and you have only one way, one means of transportation, sometimes that puts you at operational risk.

So, for those reasons – for competitive reasons, we’re certainly very confident that we’re going to get our fair share volumes on KAPS. and I would also say we have the advantage of having a new pipeline as well. We have a very competitive integrated system. And again, with our recently acquired volumes or a frac capacity at KFS, that’s helping us leverage. that’s whole integrated value chain, including KAPS. And I’d also say that from a broader perspective, we’re very bullish in terms of the basin in terms of where natural gas volumes are going globally.

LNG is going to continue to grow in demand. And we know that we’re going to see Canada LNG come in – come online in a couple of years, and also more expansions on the NGTL system into the U.S. So, with that, we certainly believe volumes will grow – NGL volumes will grow, and we’ll get our fair share of that.

So with all that, I do also want to point to 6% to 7% fee-for-service EBITDA growth. KAPS is certainly a part of that, that’s going to help us achieve that 6% to 7% growth out to 2025. but also want to reinforce that KAPS will also contribute right to the end of the decade and continue to grow. So again, we’re very confident on our contracting on KAPS and we’ll provide an update when appropriate.

[Robert Catellier, CIBC capital markets]

Okay. Now, last one from me, then just on the capital allocation, how does tuck-in m&A fit with the capital allocation strategy and how would you characterize the pipeline? Is there anything – is it robust or is it you’re pretty much focused on organic growth?

[Dean Setoguchi, President and Chief Executive Officer]

Well, I mean, I don’t think we’re any different than any other company. I mean, we have assets that we covet that would be very complimentary to our business and – but we remain consistent with our messaging, which is it has to be strategic to our business. It has to be value accretive to our shareholders and it has to be within our debt leverage parameters as well. So, those are the three boxes that we need to check and – but we definitely see some opportunity, it’s just a question of, can you price stuff lose at the right price.

[Robert Catellier, CIBC capital markets]

Okay. Thanks, everyone.

[Dean Setoguchi, President and Chief Executive Officer]

Thank you.

[Operator]

Your next question comes from Linda Ezergailis from TD Securities. Linda, please go ahead.

[Linda Ezergailis, TD Securities]

Thank you. with the quite constructive iso-octane fundamentals, I’m wondering if you’ve kind of sharpened your pencil a little bit on the merits of potentially twinning AEF. and if so, would there be inability to contract it to a certain extent? And what sort of advantage would a Brownfield expansion have over Greenfield?

[Dean Setoguchi, President and Chief Executive Officer]

Thanks for the question, Linda. I’ll turn that over to Jamie.

[Jamie Urquhart]

Yes. thanks, Linda. Really good question. We’ve often looked at twinning AEF, really the approach that we’ve been taking and being relatively successful at is just increasing the capacity that facility in smaller pieces and phases rather than doubling that facility, more cost effective and lower risk. And we did some stuff at the last turnaround that we have just conducted a performance test on, and we’re assessing those results and they look positive at this point. It’s – we’re not doubling the capacity, but it’s a meaningful increase as it pertains to the capabilities of those assets. So hopefully, that answers your question.

[Dean Setoguchi, President and Chief Executive Officer]

Yes, Linda. And to Jamie’s point, if you look at our volume utilization, which we do publish in our quarter reports, you’ll see over time that our volumes that we’ve been performing at have been increasing over time. So, as Jamie said, a lot of that is just a relentless focus on reliability at that facility, which again, we’re looking for just higher overall production over a four-year cycle.

[Linda Ezergailis, TD Securities]

Thank you. And just to follow up your marketing business did quite well with liquids blending. Can you provide more context around that opportunity and whether it might continue, might there be changes related to the mainline settlement changing things or TMX coming online, or any other dynamics that might shift around what’s going on in that market?

[Dean Setoguchi, President and Chief Executive Officer]

Linda, what I would say overall in terms of our marketing performance, I mean, obviously, a lot of it is driven off of our iso-octane business. On top of that, I mean, it’s a fiscal business. So, we do make margin off of each one of our products, propane, butane and condensate. What we found is that the – there’s a lot more volatility in markets and also dislocation of markets, and we have the assets to take advantage of those dislocations.

So, we’ve actually been able to enhance our marketing cash flows over the last several years because of that. So, if you even look back to 2020, I mean, we had a very strong year in 2020, partly because of our hedges, but also because there’s just a lot of product that got displaced.

So again, we have the fiscal assets to take advantage of it. So, I wouldn’t pin it on one particular commodity outside of iso-octane, which has been very strong. It’s just – again, we have the fiscal assets, the logistics expertise and the marketing expertise to make incremental income. But Jamie, if you want to add anything else to that?

[Jamie Urquhart]

Yes. The only thing I’d add Dean is that that’s where the storage that we acquired through the acquisition at KFS really has come to bear in Q1 and we expect that to continue to be the case going forward.

[Linda Ezergailis, TD Securities]

Thank you.

[Operator]

Your next question comes from Ben Pham from BMO. Ben, please go ahead.

[Ben Pham, BMO Capital Markets]

Okay, thanks. Goo morning. maybe, to just start with KAPS and now that it’s flowing volumes, you talk about some of the value drivers going forward. You got the volumes ramping new contracts, potentially, you got the zone 4 and then you got potentially contracting on upstream and downstream side of things. And I’m wondering like when you think of those three areas of value enhancement on KAPS, is it all related together in terms of working in fashion or are they working separately? And how do you think about how those three play out for more just a – maybe, on let’s say, timing perspective, but what goes first and what goes next?

[Dean Setoguchi, President and Chief Executive Officer]

Yes. Ben, thank you for the question. If I think I understand your question, it’s really how we enhance KAPS and how that also fits into future growth relating to KAPS. So, let me just take a stab at answering that. If I’m not answering a question, please ask your question again. First of all, our primary priority is to go and contract more barrels on KAPS. And again, as I said earlier, we see some very good opportunities to do that for all the reasons I described. from what we’re seeing in northeast BC with the Treaty 8 and the blueberry First Nation. We think that all those advancements are very positive. I think there’s still room to grow in terms of further definition and how certain elements of those agreements. but we feel very good that it’s progressing in the right direction.

And with that, and also with Canada LNG coming on in the next two or three years, we certainly see more volume growth in BC. And so with that again, for the same reasons why producers want a competing system in Alberta. we see sort of that same sentiment in BC. So, zone 4 is going to be dependent on, again, the confidence of the producers in BC stepping up to commit to contracts on that system. And for us, then to connect towards Alberta border to collect some of those volumes. under downstream business and like I say, we’re an NGL business and we’re a volume times margin business. So, the more volumes that we attract to our downstream, frac storage marketing business is very positive for Keyera overall. So that could potentially lead to more frac capacity additions beyond just a debottleneck. Again, it could mean more rail egress, pipe egress and more marketing contributions. So overall, we view it as a positive to our entire integrated business.

[Ben Pham, BMO Capital Markets]

Okay. And maybe, a follow-up on that, Dean is – do you need to secure more contracts on the base KAPS before seeing solidification as zone 4 bottleneck downstream?

[Dean Setoguchi, President and Chief Executive Officer]

Those are sort of – those are separate decisions like, zone 4 has to stand on its own economics. We’re driving to again add volumes on the zones 1 to 3. And Zone 4 is a fully separate decision.

[Ben Pham, BMO Capital Markets]

Yes, okay. That’s what I was kind of getting at in terms of all those three things are playing that if it’s in a linear fashion or not. Okay. Thanks for that. And then maybe, on the marketing side of things, can you maybe, provide an update on how you’re thinking about the hedging? I know you had some disclosure there in terms of hedging positions. Can you may provide contact even of how you hedge versus last year directionally and maybe, start there?

[Dean Setoguchi, President and Chief Executive Officer]

Sure. I’ll turn that over to Jamie.

[Jamie Urquhart]

Yes, Ben. Our risk management program, we’ve been very consistent over the years on how we apply it. We’re very disciplined in that regard and we don’t let market volatility or sentiment get in the way of our discipline in that regard. So, as in previous years, we’re very comfortable with respect to our execution on our risk management program. The guidance that we provided is reflective of the – of our risk management program in place right now. And certainly, as we progress throughout the year, we’ll be very patient, we’re in a good position to be patient around executing that hedging program for the remainder of the year and also into 2024.

[Ben Pham, BMO Capital Markets]

Okay. Great. And maybe, one last one, on ally on the quarter specifically and the record results. you put more context in what percent of that businesses take-or-pay more reminder than that, and was it mostly the derailing that rated a bit of juice in the quarter?

[Eileen Marikar]

Thanks, Ben. So, I would say our take or pay, the way we’ve disclosed it is as a total. So including marketing and when marketing is outperforming of our realized margin, our take-or-pay is in that 40% range of our overall realized margin. But certainly, in the Liquids Infrastructure segment on its own, that percentage is much, much higher. And as we bring on KAPS, where the contracts are 75% take-or-pay. again, that overall take-or-pay on an absolute basis just continues to grow.

[Ben Pham, BMO Capital Markets]

Okay. Alright. Thank you.

[Dean Setoguchi, President and Chief Executive Officer]

Thank you.

[Operator]

Your next question comes from Andrew Kuske from Credit Suisse. Andrew, please go ahead.

[Andrew Kuske, Credit Suisse]

Thanks. Good morning. maybe, we could just do a little bit of a refresh on your rail business, because the logistics element of what you do is so important. And maybe, just give a perspective of where you are in movements today utilization and then prospects for the future, because you’ve had a number of land acquisitions over the years, that gives you a lot more flexibility for potential expansions.

[Jamie Urquhart]

Yes. Andrew, it’s Jamie. Thanks for the question. Yes. Like as Dean alluded to earlier in the call, our logistics – our rail fleet, our relationships with third parties and the flexibility that that creates for us is really integral to our execution on the marketing side of our business. So, I can share with you, we actually had record rail movements in Q1. And I think to Ben’s previous question is that’s one of the reasons why the ally fee-for-service outperformed was that we saw a significant rail movement, not only exporting primarily propane that we would traditionally see in Q1, but also railing in condensate into Alberta and taking advantage of our Alberta diluent terminal that we have up in in the Edmonton area.

So, the way we look at it from a rail perspective is we – it creates the most flexibility to hit the highest value market. Last year, with propane for instance, we see opportunities to hit markets in North America rather than the West Coast, which was lagging opportunities that were driven out of Europe.

So, it’s a great observation is that our rail fleet is and the terminals that we have and have access to in markets that we don’t necessarily need to own. but we have either commercial contracts with or relationship really does set us apart from some of our competitors.

[Dean Setoguchi, President and Chief Executive Officer]

And maybe, if I can just add to Jamie’s comments and again, rail is very important, probably more important in our base and then people recognize. and we all know that Alberta or Western Canada is a supply based basin. So, we have – we’re very rich in resources, but we have to export our volumes. A lot of them have to actually leave the province. You need to have a very efficient logistics capabilities to be able to export that on a cost-effective basis. And we have five rail terminals that are pipeline interconnected. So, at times, when you have – you might have an issue, because of a strike or something may happen at one facility, it might be on CN or CP, we have the ability to move those volumes down one of our pipes to a different facility, so that we can continue to move volumes on an uninterrupted basis. So, that’s the flexibility that we have in our system – and which is also why it’s an advantage for – from a logistics perspective.

[Andrew Kuske, Credit Suisse]

Appreciate that color. And maybe, just as a follow-up, your business has really been conventional hydrocarbons. to what degree do you see opportunities in clean fuels?

[Dean Setoguchi, President and Chief Executive Officer]

Yes. I mean, that’s a really great question. I mean, the way we look at our business, the services that we provide to the conventional hydrocarbon business, you need the same kind of services to enable low carbon products as well. So, low carbon fuels or products would need feedstocks, they would need pipeline transportation, they need truck and rail logistics, they would need above ground, below ground storage. All services that we have core assets and capabilities. So, we believe that our business is very sort of transferrable and translatable to the – to energy transition. And we’ll certainly play our part in helping to enable those projects here in Alberta.

[Andrew Kuske, Credit Suisse]

Okay. Appreciate the time. Thank you.

[Eileen Marikar]

Thank you very much.

[Operator]

[Operator Instructions] Your next question comes from Patrick Kenny from National Bank Financial. Patrick, please go ahead.

[Patrick Kenny, National Bank Financial]

Thank you. Good morning. Just looking at where Ford eco prices are settling here through the summer, not sure where you’re at in terms of renegotiating some of your processing contracts across your deep basin plants. but just curious if you’re still able to claw back some of those higher fees that you’d lost through the pandemic just based on liquids content or have you experienced somewhat of a pause in resetting those rates for now at least until gas prices firm up again, perhaps in the back half of the year?

[Dean Setoguchi, President and Chief Executive Officer]

Yes. thanks for the question, Pat. and yes, it’s a good question. I mean, obviously, we’ve seen eco prices fall from the highs of last year – that we saw last year that broke $7. So, what – overall, we are recontracting volumes, we continue to recontract volumes particularly in central Alberta. But if you look at our volume profile there, a lot of our gas plants are pretty full, so much higher utilization. And I’d also point out that if you look at our AEF, the nameplate capacity that some of those facilities aren’t, what the – what they can actually run at, because it’s a different composition of gas than they’re originally designed for. So, we are operating at very high utilizations and again, there’s high demand in that area.

What I’d say is that what’s different about today versus three or four years ago is that producers are in a much stronger position. Their balance sheets are very, very strong and the economics in the deep basin in particular are still very strong at $2 natural gas prices. So, they can still make a very high return in that area. So, what we see is maybe, a moderation of growth, but we certainly don’t see big declines in the deep basin like we saw – like I say, a few years ago. And when you think about the medium to the long term, as I said before, we’re very confident about growth in the basin.

Personally, I think that it’s more sustainable if that growth happens, maybe in a more linear fashion as opposed to everybody drilling their brains out for a six-month period and driving service costs through the roof. It’s more sustainable for our business and the amount of skilled laborers that we have to drive that growth in our basin. So overall, I don’t think it’s a bad thing that we have a bit of a pause in terms of the high nat gas prices, and again, we still see continued growth to our facilities.

[Patrick Kenny, National Bank Financial]

Okay. That’s great color. Thanks for that, Dean. And then maybe, just back to the wildfires, it might be too early to say. but just wondering if this situation could put the timing of your Pipestone expansion coming into service later this year at risk, or if there could be any other slippage across your capital plan, either growth or maintenance activity that was planned here for Q2.

[Jarrod Beztilny, Senior Vice President-Operations and Engineering]

Yes. thanks for the question, Pat. It’s Jarrod here. And we’re not seeing anything like that. it’s certainly been a very unfortunate circumstance, and as we’ve seen, some of our plants have been affected. but the Pipestone area hasn’t been. So, there’s nothing so far that’s impacted the timing on that expansion. So, we’re still on track to start that up in Q1 2024 and nothing else that materially affects our remaining capital plans either. So, we’re in good shape.

[Dean Setoguchi, President and Chief Executive Officer]

And maybe, just to add on to Jarrod’s comment, I mean, our only facility in the north that we shut down again as a precaution was our Wapiti facility. And it is up back up and running today. So, it’s almost back up at the rates before we shut it down a few days ago.

[Patrick Kenny, National Bank Financial]

Okay, great. Thanks for that and glad to hear everybody’s safe. Thank you.

[Dean Setoguchi, President and Chief Executive Officer]

Thank you, Pat.

[Operator]

There are no further questions at this time. I’ll turn it back to you.

[Calvin Locke, Manager-Investor Relations]

Thank you all once again, for joining us today. Please feel free to reach out to our Investor Relations team with any additional questions you may have. Thanks.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.