Keyera Corp

TSX:KEY

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Keyera Corp. 2020 Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker today, Lavonne Zdunich, Director of Investor Relations. Please go ahead.

[Lavonne Zdunich, Director of Investor Relations]

Good morning, everyone, and welcome to Keyera's Third Quarter Conference Call for 2020. Our speakers today will be David Smith, CEO; Dean Setoguchi, President; Eileen Marikar, SVP and CFO; Brad Lock, SVP and COO; and as well, Jamie Urquhart, SVP and Chief Commercial Officer, will be available for the Q&A section following our prepared remarks. Before we begin, I would like to remind listeners that some of the comments and answers that we will provide speak 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 also refer to some non-GAAP financial measures. For information on non-GAAP measures and forward-looking statements, please refer to Keyera's public filings available on SEDAR and our website.With that, I will now turn it over to David Smith.

[David G. Smith, CEO & Director]

Thank you, Lavonne, and good morning, everyone. While we continue to navigate the twin challenges of the ongoing COVID-19 pandemic and low commodity prices, I am pleased with our commitment to health and safety, our financial discipline and the resilience of our business, the resilience our business continues to show. In the third quarter, we delivered solid financial results. And on a year-to-date basis, both adjusted EBITDA and distributable cash flow increased over last year. We maintained a strong balance sheet and kept our payout ratio low at 54% year-to-date. We remain confident in our ability to maintain our monthly dividend and fund our capital projects without issuing common equity. Eileen will provide more details on our financial results later in the call.We continue to ensure our business is well positioned today and for the long term. Our Gathering and Processing optimization plan is progressing well, and the expected cost efficiencies will provide better netbacks for our customers and improved profitability for Keyera. These optimization efforts will be the catalyst to delivering a best-in-class cost structure that will make Keyera more competitive and allow us to preserve and grow our market share.To extend and enhance our integrated infrastructure business even further, we plan to invest between $400 million and $500 million on growth capital projects in 2021. The majority of this investment relates to the KAPS pipeline system, which will be a strategic asset for Keyera, connecting our gas plants in the Montney development in Northwest Alberta to our NGL Infrastructure in Fort Saskatchewan, and providing numerous growth opportunities within our upstream and downstream businesses. We expect to begin construction in 2021 and have the pipeline in service in 2023. Looking further ahead, I am confident in the outlook for the Canadian energy sector and for Keyera. Natural gas prices are improving. Producers are continuing to drive costs down and improve their balance sheets. And Alberta's access to markets is improving with additional transportation capacity. And our industry continues to innovate to reduce our environmental footprint and support the transition to cleaner energy.With that, I'm going to turn it over to Brad to discuss our operations.

[Bradley W. Lock, Senior VP & COO]

Thank you, David. Health and safety remains Keyera's top priority, and we continue to emphasize the well-being of our workers throughout the organization. Once again, I would like to thank our front-line employees and contractors for their commitment to our values and their diligence in working safely with one another in these exceptional times.At Keyera, we provide essential services to the energy industry, and we understand the importance of responding to our customers' needs. In 2020, we worked diligently with our customers to develop mutually beneficial solutions to keep gas volumes flowing during the commodity price turmoil of the past 8 months. Unfortunately, in the third quarter, we had an unplanned outage at our Wapiti gas plant. We recognize the importance of this plant to our customers and worked hard to bring the plant back online in a safe and efficient manner in late September. Since that time, the plant has been operating very well, and we continue to take steps to improve the reliability of the facility to ensure its continuity of service.Reliability and predictability is important for all of the assets within our portfolio. As a result, we decided to take our Alberta EnviroFuels facility off-line this fall for approximately 6 weeks to address performance issues and complete some additional preventative maintenance. [indiscernible] began in October is proceeding exceptionally well, and we expect to have AEF back operating later this month. The maintenance activities we are undertaking are intended to facilitate AEF's continued reliable operation at full capacity until its next scheduled turnaround in the fall of 2022.Keyera continues to modify its business to provide the most competitive services to our customers, while improving our profitability. During the third quarter, we significantly advanced our Gathering and Processing optimization plan in the South region. In August and September, we suspended operations at our West Pembina and Bigoray gas plants, successfully diverting these volumes to nearby Keyera facilities. In 2021, we plan to suspend operations at our Ricinus and Brazeau North gas plants, followed by the Nordegg gas plant in 2022. We expect our optimization efforts will increase utilization in the South region to approximately 7% -- 70% lower per unit operating cost and significantly reduce Keyera's environmental impact by eliminating the greenhouse gas emissions associated with those facilities. We also continue to progress our capital projects. We are currently commissioning Phase 2 of the Wapiti gas plant and finishing the Wildhorse crude oil storage and blending terminal in Cushing, Oklahoma. We expect to have this terminal mechanically complete by year-end and operating in the first half of 2021.The Pipestone gas plant began operating in October, 5 months ahead of schedule and on budget. The newly constructed gas plant is processing volumes from our anchor tenant, Ovintiv, under a 20-year infrastructure agreement. This investment is an important next step in Keyera's strategy to build a stronger presence in the liquids-rich Montney development. With our Pipestone, Wapiti and Simonette gas plants, Keyera has a world-class footprint, providing significant natural gas and condensate processing capacity, which will ultimately be connected to our KAPS pipeline, once it is put into service.I'll now pass it over to Eileen to talk about our financial results and plans.

[Eileen Marikar, Senior VP & CFO]

Thanks, Brad. As David mentioned, Keyera delivered strong results for the third quarter of 2020 despite the ongoing pandemic and low commodity price environment. Overall, our integrated business delivered adjusted EBITDA of $196 million, bringing our year-to-date adjusted EBITDA to $705 million, which is $22 million higher than the same period last year.In the third quarter, our Gathering and Processing business delivered $49 million in operating margin because of lower drilling activity by producers and the unplanned outage at our Wapiti gas plant, which reduced operating margin by $16 million. Within our Liquids Infrastructure business, demand was strong for our fractionation and storage assets, which operated near capacity during the quarter. Throughout 2020, this part of our business has delivered approximately $100 million in operating margin each quarter, demonstrating the value of these assets and their ability to generate a steady stream of cash flow despite fluctuating market conditions.Our Marketing segment also performed well and generated $64 million in realized margin during the quarter, largely due to our iso-octane business as well as Keyera's effective risk management program. We continue to expect the Marketing segment to generate realized margin of between $300 million and $340 million, although at the lower end of the range given the outage at our AEF facility.For the third quarter, our business delivered distributable cash flow of $175 million or $0.79 per share. This brings our year-to-date distributable cash flow to $2.66 on a per share basis, which is 30% higher than 2019, as we're benefiting from significantly lower cash taxes and maintenance capital expenditures this year. We continue to expect maintenance capital to be between $20 million and $25 million in 2020 and have increased our expected current income tax recovery to between $35 million and $45 million. As David mentioned, we expect to invest between $400 million and $450 million in capital -- growth capital projects in 2021.Looking to 2021, we expect an income tax expense of between $20 million and $30 million and maintenance capital expenditures to range between $25 million and $35 million. With ongoing uncertainty as to when a full recovery in energy demand and commodity prices may occur, we remain committed to our financial discipline and capital allocation priorities. We have a strong balance sheet and strong liquidity position with minimal debt maturities in the near term.With that, I'll turn it over to Dean to talk about our future.

[C. Dean Setoguchi, President]

Thanks, Eileen. Through the pandemic, we demonstrated the resiliency of our business. As we look forward to 2021, we recognize that there's a near-term uncertainty, but we feel like the worst is behind us. Our approach will be to focus on factors within our control to strengthen our company for the challenging times that we see today and position for recovery in the future.We'll continue our relentless pursuit to achieve our vision goals of being #1 in safety, #1 in customer recognition and #1 in total shareholder return. Our near-term priorities will focus on improving reliability; achieving a best-in-class cost structure with our optimization program, company-wide cost-reduction initiatives and an emphasis on innovation to find further step changes to our business; and also leveraging our entire integrated value chain to deliver our customers the most profitable midstream solutions. We believe these initiatives will competitively position us to capture market share and incremental volumes when activity picks up.As I look to our future, I'm excited for what lies ahead. With improving natural gas prices and additional takeaway capacity for both natural gas and oil under construction, there's reason to be confident in the outlook for the Canadian energy sector and Keyera. We'll continue to maintain our track record of exercising prudent financial discipline. We have strong growth opportunities for the future, including KAPS, KAPS ancillary projects, expanding the Base Line Terminal and developing our significant land base in industrial heartland with projects to enhance and extend our downstream liquids business.In addition, our infrastructure assets and services we offer align with Alberta's new natural gas strategy, which could lead to additional growth opportunities. We're also focused on continuing to improve all aspects of our ESG track record, something that has always been a part of Keyera's values, culture and the way we do business. In the coming months, we'll be issuing our inaugural ESG report to show how we think about ESG throughout our business.Finally, I'd like to thank David for building a strong business, a talented team and a strong culture, all key foundations for a successful future. I'm excited and honored to be taking over and committed to carrying on a great legacy that you're leaving behind. David, over to you for the final word.

[David G. Smith, CEO & Director]

Thanks, Dean. This might be the last time I get the final word. As you all know, I will be retiring from Keyera at the end of the year. We have a -- I'm very proud of the Keyera team, and I'm very proud of the foundation we have built. We have a strong balance sheet and an integrated portfolio of assets with sustainable competitive advantages. We have a great team of highly capable, innovative and passionate individuals who will continue Keyera's track record as a responsible corporate citizen, generating value for shareholders. And as I mentioned earlier, I am confident in the outlook for the Canadian energy sector, where I know Keyera will continue to play a prominent role.As Dean takes over as CEO, I know that he and his team have the experience, discipline, vision and energy to guide Keyera successfully through the next decade. I will continue to be a significant shareholder, so I will be watching.I would like to thank Keyera's Board of Directors, management team, employees, customers, shareholders and all other stakeholders for your support over my 22-year career with Keyera. Back to you, Lavonne.

[Lavonne Zdunich, Director of Investor Relations]

Thank you, David. With that concluding our prepared remarks, I will now turn it back to the operator to go ahead with the first question.

[Operator]

[Operator Instructions] Our first question comes from Linda Ezergailis with TD Securities.

[Linda Ezergailis, Research Analyst]

Want to wish, David, all the best in your retirement. Congratulations on a successful career.

[David G. Smith, CEO & Director]

Thank you, Linda.

[Linda Ezergailis, Research Analyst]

I know the company remains in good hands, so we'll all be watching the continued navigation through some of the opportunities and challenges. I guess the biggest question I have right now is we have seen some producer consolidation. And I'm just wondering what sort of opportunities and challenges this might present, not just for your current operations, but how you might shape your potential growth projects going forward?

[C. Dean Setoguchi, President]

Sure, Linda. It's Dean. And overall, we believe that it's positive in terms of when we see our producers basically combine and create a stronger, more stable entity that's capable of sustaining development and particularly in areas that are highly economic and where we have our facilities. So I think as a general statement, we think that's important. But overall, our strategy remains the same, and that's that we need to provide very competitively priced services. And again, with all of our initiatives, with our optimization program, our cost-reduction and innovation program that we have underway, I think we're well on track on that perspective.But also, because of the integrated assets and services that we offer, we are also very dedicated to offer our customers the best netback. And again, because of the expertise we have and the assets that we have, we're able to do that.

[David G. Smith, CEO & Director]

And I would add -- Linda, it's David here. I would simply add that, just as a general comment, that I think when we see consolidation, I agree with Dean, I think it's positive for the industry. We generally expect that there'll be a more [indiscernible] and disciplined approach to the development of the resource. And I think that works well for the industry, but it's also good for Keyera in terms of our planning.

[Linda Ezergailis, Research Analyst]

Okay. And as a follow-up, I'm just wondering if your Marketing opportunities might change, and you might maybe evolve how you think about hedging. And maybe in that broader commentary with some refinery closures, et cetera, can you give us a glimpse of how you're seeing maybe 2021 for your Marketing operations and the industry outlook?

[K. James Urquhart, Senior VP & Chief Commercial Officer]

Yes. Linda, it's Jamie. I think key and one point that's important is that we are seeing some shutdowns and reduced run rates on the refinery side of things. So iso-octane is a big part of our Marketing business. Year-over-year, we're seeing gasoline demand probably off about 10%, but we're actually seeing a greater reduction in refinery run rates due to some shutdowns and also just refineries toning back their capacity. Really, RBOB is the only commodity right -- or gasoline is the only commodity right now that refineries are making any money. And so they're being very disciplined with respect to what their run rates are to ensure that they support a sufficient RBOB crack over WTI. So I don't think we're going to, to answer your other question, look at altering our risk management policies. I think we see volatility as being an opportunity to be opportunistic in execution of our risk management policy. But I don't see us changing our risk management policy. It served us very well in the past, and that's borne out by our 2020 results.

[Linda Ezergailis, Research Analyst]

Okay. And just another question in terms of the outlook for next year. There has been some delays in NGTL debottlenecking and expansion. And I'm wondering if that might have any effect on your facilities or operations or activity levels.

[David G. Smith, CEO & Director]

Linda, I think from our perspective, we don't see the NGTL system being a constraint within our network anywhere. I think the bigger issue for us is just what will the level of drilling activity be amongst the producers who are our customers.

[Operator]

Our next question comes from Shaan Thind with BMO.

[Shaan Thind, Associate]

This is Shaan for Ben Pham. Firstly, congratulations, David, and all the best in retirement.

[David G. Smith, CEO & Director]

Thank you, Shaan.

[Shaan Thind, Associate]

And just wanted to ask on Wapiti Phase 2 here with commissioning occurring currently. How do you guys really see the return profile and ramp-up for that project? And when do you expect to start generating cash flows?

[Bradley W. Lock, Senior VP & COO]

So this is Brad. I think as we previously communicated, the commissioning and start-up is Phase 2 isn't really needed right now for the volumes that we have delivering to the plant today. So it's a part of the program that I think is going to provide real opportunity as we look to '21 forward as we look at incremental volumes looking for capacity. There's a number of opportunities we're producing out there -- or pursuing out there where the capacity of Train 2 is really going to set up well to allow us to aggressively compete for those volumes and land them into available capacity with our plants. So I think having that facility available to produce is going to provide that opportunity. It's also going to provide a certain degree of redundancy within our facility that we think is going to be significant in allowing us to enhance the reliability of that facility as we go into 2021 forward.

[C. Dean Setoguchi, President]

Yes. Shaan, it's Dean. Maybe I'll just add to that. In our north, in particular, I'd also add that although we -- our volumes profile may not be as high as what we originally anticipated, we do have take-or-pays. So we have take-or-pays that are above the amount of volume that's being delivered to our facilities, so we are still getting paid for some of the volumes.The other thing I would say is that at Wapiti, in particular, we have a lot of assets at that complex, including the compressor station, condensate stabilization, the water disposal. And those are operating at much higher utilization rates. So we are generating very strong returns for those parts of the facility. I think is -- to Brad's point, perhaps what's -- what the opportunity for us next year is that both Pipestone and Paramount are drilling, and they've announced drilling plans in that area. So we will see incremental volumes going forward. And also our focus on reliability of that facility will certainly help us as well.

[Shaan Thind, Associate]

Okay. Perfect. And then just on leverage, relatively low at 2.4 below your guys' target of 2.5 to 3x. I guess where do you see that metric moving as you move forward with KAPS construction and really the bulk of the spend in the next couple of years within the context of your range?

[Eileen Marikar, Senior VP & CFO]

Shaan, it's Eileen here. Yes, I mean, at this time, we expect to fund KAPS and the rest of our capital program in '21 without any common equity. Our long-term target has always been to maintain that debt to EBITDA in that 2.5 to 3x range because that really provides sufficient buffer so that we can withstand various cycles, just like the one we've been in right now. And we're okay to go over that range for a short period of time. But long term, the plan is always to bring it down to that 2.5 to 3x range. And we have various tools available to us, including hybrids, prefs, and we'll also look to asset sales if and when they make sense.

[Operator]

Our next question comes from the line of Matt Taylor with Tudor, Pickering and Holt.

[Matthew Taylor, Director of Midstream Research]

I just wanted to follow up on Linda's question about the marketing outlook. So public data is showing that propane and butane inventories are low above normal for Western Canada. So if you don't mind addressing 2 things. First, can you speak to your view of the butane market with AEF being taken off-line and pricing already weak, is that setting up for another decent Marketing year in 2021?And then the second being if NGL spec inventory levels are well above normal and production isn't fully recovered yet, what's your view on frac rates in 2021?

[K. James Urquhart, Senior VP & Chief Commercial Officer]

So Matt, it's Jamie. So to talk to butane first, yes, certainly, AEF is a large consumer of butane in the Western Canadian market. Right now, we're seeing pretty much average historic pricing for butane in the spot winter market right now. We're seeing very strong butane pricing down in the U.S. And if everybody recalls back in 2018, we had some lower butane prices, but those prices rebounded fairly quickly, and that's due to, in our opinion, the efficiency of the market in North America. So it's early days with respect to our recontracting for the next contract season. But our expectation is that we would see butane pricing pretty similar to what we would have seen in 2020.On the inventory side, yes, we're seeing high inventories of propane. You would expect that at this time of year. We've seen some cold weather in the Midwest over the last couple weeks that [indiscernible] obviously, the cold weather that we experienced here in Western Canada, and that's spurred unexpected demand down there. So we have a winter sales program well in place. We're well positioned to take advantage of that with respect to railcars and rail service that we've lined up. And we expect that Q4 and Q1, everything going to plan, we'll have a strong quarters on the propane side of our business.

[Matthew Taylor, Director of Midstream Research]

Jamie, and then can you take it one step further and speak to frac rates? Do you expect those inventories to clear, go back to somewhat normal? I know you're messaging that utilization, at least for Fort Sas there should be about where they are right now for 2020. So can you speak to your view on frac rates for 2021?

[K. James Urquhart, Senior VP & Chief Commercial Officer]

Yes. Sorry, Matt, I apologize. So on frac rates, yes, we -- that's a basin asset. Based on our access to barrels, both behind our facilities and within our network, we expect frac rates to hang in at current levels and utilization similarly to be strong look -- moving forward in 2021.

[Matthew Taylor, Director of Midstream Research]

Great. Jamie, and then one more question just around the South is on KAPS. So as you start ramping the spend there in 2021, when do you need to order long-lead time items? And then I guess the follow-on question to that is if these conditions persist into the summer, would you be willing to defer KAPS again if necessary.

[Bradley W. Lock, Senior VP & COO]

I'll talk -- this is Brad. I'll talk to the long lead. I mean we've -- with the deferral into 2021 with our construction plan, we're still sequencing a lot of the activities. We don't expect a lot of spend early in 2021. The commitments will kind of grow as we go through 2021 with an expectation that we're actually going to hit construction in the back half of the year. So there will be some spend in the first part of the year, but that will be modest in nature. And also, maybe turn it over to Dean to talk about KAPS business.

[C. Dean Setoguchi, President]

Yes. Matt, as mentioned, I mean, we plan to move forward with our project in the first half of next year. And I guess if there's any changes to that plan, we'll announce at the time. But that's certainly our plan today.

[Operator]

Our next question comes from Patrick Kenny with National Bank Financial.

[Patrick Kenny, Managing Director]

Looks like there was a fairly sizable impairment charge taken for the Hull terminal this quarter. Just wondering if you could walk us through what changed there, I guess, versus the previous narrative that the terminal was well positioned for synergies with Wildhorse and I guess the rest of your integrated strategy into the U.S.

[K. James Urquhart, Senior VP & Chief Commercial Officer]

Yes. Patrick, it's Jamie. So Hull was a very strategic entry point for us in the U.S. particularly into the Mont Belvieu market. But as we've grown that business, and you touched on it with respect to [indiscernible], Wildhorse, our new facility at Galena Park that is going to hopefully be operational towards the end of this year, we've really grown our market presence, both on the propane and butane side of things. And as we've developed those relationships in alternative higher-value markets, Hull has just become less impactful. But I'd encourage people to view that we found higher-value markets that we've been able to take advantage of. And thus, the emphasis on the value of Hull, for the time being, is less. But it's still a strategic asset for us, just less strategic as a result of our growing presence down in the U.S.

[Patrick Kenny, Managing Director]

Okay. That's helpful. And then just a follow-up on KAPS. I know you're still in the process of refining the cost estimate there. But with the Alberta government providing some more details on the petrochemical grants, does that influence your thinking at all around pursuing an ethane-plus option for KAPS? And I guess as a follow-on, your fractionator is already back running at essentially full capacity. When would you expect to make a decision on any further expansion at KFS?

[C. Dean Setoguchi, President]

Yes. Patrick, this is Dean. Certainly, the vision, the long-term vision for KAPS would include an ethane-plus sort of service on it as well. We wouldn't go ahead with that until we have underpinning to make that investment. So while we've had a lot of discussions, we won't sanction anything on that front until we have contracts to support it. But certainly, the announcement by the government, the incentive program that was just announced last week, it's all positive for more petrochemical development in our province. And again, like producers, the petrochemical side of the business wants competition, and they want alternative sources of feedstock. And again, our system -- our integrated system that has a lot of feedstock in it, a lot of NGLs, it certainly helps and supports our business as well. So in the long-term future, yes, we do see a C2-plus service. We see more deoptimization, fractionization storage opportunities. But again, we need a contractual backing first.

[Patrick Kenny, Managing Director]

Got it. And I guess with the incentive program also extending into blue hydrogen opportunities, maybe you can just comment on whether or not you guys are pursuing any opportunities or if any of your gas processing plants are good candidates for blue hydrogen production.

[K. James Urquhart, Senior VP & Chief Commercial Officer]

Yes. Patrick, it's Jamie. Yes, we certainly see that as an opportunity. It's early days with respect to what that opportunity might look like. But we see that we would be a logical fit with respect to being able to take advantage of that opportunity. I don't know if many people are aware, but we already produce and generate hydrogen off of our AEF process that, obviously, we'd be looking to what the opportunities are with respect to that existing hydrogen production that we already create at AEF. So I think we're well positioned. And certainly, we've got a lot of attention in my group with respect to moving forward.

[C. Dean Setoguchi, President]

Pat, maybe just to add on that, I mean, obviously, there's a lot of momentum with both the federal and provincial governments on hydrogen. And certainly, as Jamie said, we're very well positioned to provide and create that hydrogen if the demand is there. I think what's interesting is that if you look in our Central Alberta capture area where our gas plants are located, those are some of the largest reservoirs that are capable of storing large amounts of carbon. So in terms of generating that blue hydrogen, that would be a great area to actually produce it. So we'll see what happens, and we'll continue to work with both levels of government.

[Patrick Kenny, Managing Director]

Okay. Sounds good. I'll leave it there. And David, congratulations on your retirement and for, I guess, successfully executing on the vision that you and Jim had more than 20 years ago and setting the company up for a sustainable future.

[David G. Smith, CEO & Director]

Thanks, Pat. Appreciate that.

[Operator]

Our next question comes from the line of Robert Catellier with CIBC Capital.

[Robert Catellier]

Congrats to both you and David on your upcoming retirement. I know you both enjoy that. I'd like to start with a follow-up on Wapiti Phase 2 and how and when that will be placed into service and start generating EBITDA. Can you provide a little more clarity there as to whether there's any take-or-pay or firm contractual commitments that have sort of a trigger date to them when -- sort of the outside date when it will be placed into service?

[K. James Urquhart, Senior VP & Chief Commercial Officer]

So the Wapiti is -- we're commissioning Wapiti Phase 2 right now. So it'll be placed into service here and available for service in the next number of weeks. As we've discussed, there's really no incremental EBITDA that's going to be generated associated with Train 2. The positioning that allows us to do with Train 2 is facilitate handling incremental volumes that we see opportunities for through 2021, and in the near term, providing real reliability benefits to the existing Wapiti asset. As I look out late 2021 into 2022, 2023, we do see contractual requirements for that facility, but certainly not in the near term. So I wouldn't expect a significant EBITDA uptick associated with Train 2 being ready, available for service.

[Robert Catellier]

Okay. So effectively, the take-or-pay commitments that those producers have made to Wapiti are covered off by the capacity of the existing Phase 1 plant.

[K. James Urquhart, Senior VP & Chief Commercial Officer]

Yes. For the most part. There's some minor things that go with it, but it's certainly not material.

[C. Dean Setoguchi, President]

Yes. Without getting in too much detail, I mean, sort of the contractual arrangements are different depending on the different assets, the complex as I mentioned before. So the compressor station and you look at the utilization on condensate stabilization and water disposal, those are very highly utilized. So I think everybody maybe focuses on the utilization of the gas plant, and they apply that to the whole complex, which is not an accurate analysis.

[Robert Catellier]

Okay. And then what really do you think the producers need to see to increase their activities in general in the basin, but specifically around the Wapiti? Is there a price level or some other consideration you think will motivate the higher levels of drilling?

[C. Dean Setoguchi, President]

Yes. From my perspective, I mean, I think it's promising that we're seeing better natural gas prices today, although a lot of the economics are driven around the condensate price. Condensate demand has returned to -- back to almost normal levels that we would have been at last year. So condensate demand has been very strong. So I think that's promising in terms of the future pricing for condensate. And that has a big influence, obviously, on producer confidence in terms of moving forward. I think what's going to happen in the short term is that producers are going to be a little bit cautious because they want to probably strengthen their balance sheets a bit before they get too aggressive with drilling. But as we mentioned before, both Paramount and Pipestone have programs underway. And we're -- as Brad mentioned, we've talked to other producers in the area. I mean we certainly see that it's still a very -- one of the best fairways for geology. And we certainly believe that there'll be more drilling here in the future, just maybe not as quick as we originally thought. So we'll see more volumes in 2021. But I think as we look into '22 and '23, we'll continue to see more volumes in that area.

[David G. Smith, CEO & Director]

Rob, I would add that -- I would add, don't forget that a year ago at this time, producers were starting to ramp up in response to stronger prices. And a lot of them suffered severely for that when prices crashed in March. And so I think the attitude right now, I think, is caution. And despite the fact that we're seeing very healthy AECO prices and somewhat better condensate prices certainly than we saw in the second quarter of last year -- of this year, the -- I think there's still a very cautious approach. What I do know is that producers are taking advantage of the natural gas levels to hedge and to try and lock in a little bit more certainty on the commodity price. And so I'm optimistic that as we get a little bit more certainty around the environment, we'll start to see more activity in the first quarter.

[Robert Catellier]

Yes, that makes a lot of sense. The caution and capital discipline on the producer side is probably, long run, beneficial to everyone. If you could just elaborate a little bit on the comment that was in the MD&A about the alkylate supply impacting the market for AEF?

[K. James Urquhart, Senior VP & Chief Commercial Officer]

Yes. Robert, this is Jamie. Yes, so although refinery run rates are lower than year-over-year than they were, so right now, our refinery run rate is about 75% versus this year last -- this time last year, probably between 85% and 90%. The production of alkylates would be pretty much the same. So we've got a little bit less gasoline production, but we've got the same amount of alkylate being produced. So we've got a little bit of headwind or downward pressure on the octane value within North America. Now want to emphasize that at AEF, we have some very long-standing and we've developed actually new relationships in 2020 with respect to refineries in North America. In the past, we've relied, certainly in the winter, more on exports into Latin America. And we've pivoted off of that strategy somewhat to develop more relationships in North America that see our product, which is a lower-vapor pressure and higher-octane product and prepared to pay a premium relative to octane. So our strategy has been to differentiate ourselves and see that value and get paid that value off of our product. But there's no debating the fact that octanes were relatively long octanes in North America. And as a result, the standard alkylate product is under price pressure. But once again, I got to emphasize that AEF, in our opinion, is the preferred octane product in North America, particularly in the summer driving season, where we pretty much place all our product with our existing customers.

[Operator]

Our next question comes from Chris Tillett with Barclays.

[Christopher Paul Tillett, Research Analyst]

Yes. And I guess, first off, congrats to Dave and best of luck. My question is on KAPS. Is there any update there on the sort of the contract status or contract levels on that pipe moving forward? Or is there anything to be sort of gleaned from your decision today to -- that you're announcing fairly significant spending on that asset starting next year?

[C. Dean Setoguchi, President]

As we mentioned, earlier this year, we deferred the project by 1 year, and all of our shippers committed to that 1-year deferral. So what we -- all of our contracts carried forward. The only guidance we provided is that 70% of the initial capacity is contracted. And like I say, we have all those contracts still in place. Sorry, go ahead.

[Christopher Paul Tillett, Research Analyst]

Well, I mean I guess I was just going to ask if there, longer term, as we sit here today, the futures curve, the WTI futures curve is still mid-40s at best. So is there any concern that as some of the mandatory curtailments in Alberta come to close later this year, some of the more conventional assets, we might see another wave of shut-ins further down road as spreads widen out possibly?

[C. Dean Setoguchi, President]

Yes. I mean I think there's, I guess, a lot to your response. I mean I think the reason why you see the resiliency of oil sands production is that there's a lot of demand for that heavy barrel in the U.S. because all the complex refining capacity in the U.S. needs that barrel even more with Venezuela and Mexico in decline. So we certainly are getting more and more confidence with Trans Mountain pipeline, which, as you know, is going to add 650,000-or-so barrels of additional capacity. And that's scheduled to be in service in 2022, maybe in 2023. So if there are curtailments, we think that those are sort of short term. And when we look at the long term, we certainly still believe that there will be -- the demand for diluent will increase.But if you think about overall the -- what the business proposition is for KAPS, it's just that need to have a competing system. I use the example that if you had, at your airports, only one airline that you could fly with, what do you think the cost of that service would be and how good would the service be if you had only one alternative? And again, as we talked about the petchem side of the business, would you want to make a $6 billion investment if you thought that you could only get feedstock off of primarily one system? And that's part of the reason why for our industry and for our province that you need competition.

[Christopher Paul Tillett, Research Analyst]

Okay. No, that's all very helpful. And then I guess just to clarify something. Did -- I think I missed it earlier in the call, but did you guys quantify the impact of the Wapiti outage in the quarter?

[Eileen Marikar, Senior VP & CFO]

Yes, we did. We said it was $16 million.

[Christopher Paul Tillett, Research Analyst]

$60 million. Okay. Got it.

[C. Dean Setoguchi, President]

That was 1-6.

[Eileen Marikar, Senior VP & CFO]

1-6. Yes. Thought I heard you say 6-0.

[Operator]

[Operator Instructions] Our next question comes from Robert Kwan with RBC Capital Markets.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

Just on the 2021 growth CapEx, in that $400 million to $450 million range, how much of that is secured today versus things you might secure in the future? And are you able to break out how much of that is KAPS?

[Eileen Marikar, Senior VP & CFO]

No. We haven't gone into that detail. But what I can tell you, Robert, is that most of it is related to KAPS, and then there is some for the South Cheecham sulfur project that we had announced, I think, a year ago. So there's a little bit for that as well. But a lot of it is for KAPS. And as we had talked about earlier, most of that spend begins in the second half of next year.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

Got it. And just I mean is there a material portion of that range, though, that's unsecured at this point? Or if you announce new initiatives that's going to be kind of plus-plus-plus?

[Eileen Marikar, Senior VP & CFO]

Yes. There would be something in addition. Yes, there's very little for unsecured.

[Robert Catellier]

Dean, you mentioned contractual backing earlier -- on an earlier question. And previously, you've talked about a desire to focus on the Liquids Infrastructure, just given the ability to get long-term take-or-pay and your desire to really add that take-or-pay component. I guess just in the past, though, you've had a willingness to take calculated risks, maybe some lower upfront returns. Is that still the case? Or can you refine that going forward to, say, lock in something like the low end of that 10% to 15% range?

[C. Dean Setoguchi, President]

Yes. I think our philosophy is similar. But what I'd say is that our base return has to be higher than what it was before. And that's to account for a higher cost of capital and sort of making sure that we manage our risk. And we have a new CFO with Eileen, and she's really put a foot down on us. So. But generally, yes, we -- with our self-funded model, we have a lot of opportunities, and so we have constrained capital. So that's a good place to be. And I think that helps us force that discipline to make sure that we have high-base returns, but also upside so that we can achieve better-than-average returns overall in the corporation when we compare ourselves relative to our peers.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

Should we expect, though, that, that base return is something more like that low end of the 10% to 15%?

[C. Dean Setoguchi, President]

Yes. I don't want to give specifics, but certainly, it's higher than what it was before, for sure.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

Okay. If I can just finish with -- so you've got $3.5 billion of tax pools. I'm just wondering, can you give what the composite CCA rate looks like. But the other thing is what's -- what keeps moving the 2020 cash taxes around? I thought that most of your assets were sitting in LPs?

[Eileen Marikar, Senior VP & CFO]

Yes. So it is really the the current outlook for the taxable income. So we had $1.5 billion of assets that came available for use over the last 2 years. So with that much tax pools available, we were able to reduce this year's taxes to 0, but also to create a taxable loss that we're able to recover taxes from the prior year. So essentially, with the AEF outage and our taxable income for this year having come down a little bit, that would be the big driver for that.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

[indiscernible] And then do you have a composite CCA rate?

[C. Dean Setoguchi, President]

Sorry. We missed that. Could you repeat?

[Bradley W. Lock, Senior VP & COO]

[indiscernible] rate on the UCC.

[Eileen Marikar, Senior VP & CFO]

So most of them are the 25% decline rate, the G&P price.

[C. Dean Setoguchi, President]

Yes. We can get back to you, Robert, if you need more on that. But most of it is the 25% [indiscernible].

[Eileen Marikar, Senior VP & CFO]

25%. Yes.

[K. James Urquhart, Senior VP & Chief Commercial Officer]

We disclosed that at year-end disclosures, I think, right?

[Operator]

Our next question comes from the line of Elias Foscolos with Industrial Alliance.

[Elias A. Foscolos, Equity Research Analyst]

David, I'd like to wish you congratulations on your upcoming retirement.

[David G. Smith, CEO & Director]

Thanks, Elias.

[Elias A. Foscolos, Equity Research Analyst]

First question, just a follow-up on the capital program for 2021, let me call it the plus-plus category. Any possibility with TMX for a Base Line expansion?

[K. James Urquhart, Senior VP & Chief Commercial Officer]

Yes. Elias, it's Jamie. So yes, we're not the operator of that facility, Pembina is. But we're certainly constantly in conversations with them with respect to BTT. Certainly, we see an opportunity as TMX comes online for additional demand for storage. And our view is that with our partner, we're the best positioned to take advantage of that in the marketplace.

[Elias A. Foscolos, Equity Research Analyst]

Good. I'd probably concur with you. Moving to the Wildhorse Terminal. I want to see if I word this correctly. We're heading towards mechanical completion, I think, by the end of the year. We're starting to make a contribution. I think you've been very careful in wording it within the first half of the year. How do you expect that ramp-up to be in terms of, let me call it, the margin contribution from the terminal? Would that start to hit towards Q2? And would it be a relatively slow ramp or a quick ramp?

[K. James Urquhart, Senior VP & Chief Commercial Officer]

So it's Jamie again, Elias. So yes, there's definitely going to be a ramp. Our customers, including Keyera, who's taken out 1 million barrels of storage at that facility, we expect that the ramp is going to be relatively expedited in nature. We're confident in the facility, and it was built around efficiency and providing our customers the most efficient terminal in Cushing. So from an operational perspective, we don't anticipate the ramp is going to be too challenged. It's more the commercial elements and the margin associated with it, that will take a little bit of time to realize the ultimate run rate that we expect from that facility. So hopefully, that answers your question.

[Elias A. Foscolos, Equity Research Analyst]

Yes. That adds some color. And maybe one last one. It's probably directed towards you again, Jamie. Interested in Galena Park. It's not huge capital investment. But from a very high level, what we've seen with some blending facilities or export facilities that they can be very profitable for their size. Is this one that probably has the possibility of making an oversized contribution for its relative capital?

[K. James Urquhart, Senior VP & Chief Commercial Officer]

Well, I think when we unveiled this back in Investor Day in December, Elias, we did indicate that we expected it to be on the higher end of our rate of return range, and we still expect that to be the case.

[Operator]

There are no further questions in queue at this time. I'll turn the call over to Lavonne Zdunich for closing comments.

[Lavonne Zdunich, Director of Investor Relations]

Thank you, everyone, for participating and listening on our call. That concludes the call for today. If you have any other questions, please don't hesitate to contact any member of the IR team. Thank you for your support and investments. Have a good day.

[Operator]

This concludes today's conference call. You may now disconnect.