Keyera Corp

TSX:KEY

Earnings Call Transcript 2022-Q3

[Operator]

Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera's Third Quarter Conference Call. [Operator Instructions]

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

[Calvin Locke;Keyera Corp.;Manager, Investor Relations, executive]

Thank you, and good morning. Joining me today will be Dean Setoguchi, President and CEO; Eileen Marikar, Senior Vice President and CFO; Jamie Urquhart, Senior Vice President and Chief Commercial Officer; and Jarrod Beztilny, Senior Vice President, Operations and Engineering. We will begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions.

I would like to remind listeners that some of the comments and answers that we will give you today relate to future events. These forward-looking statements are given as of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements refer to Keyera's public filings available on SEDAR and on our website.

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

[C. Setoguchi, executive]

Thanks, Calvin, and good morning, everyone. I'm pleased to share that Keyera delivered solid third quarter operational performance, leading to strong financial results. I'll hit on a few of the highlights. We had record performance from our Gathering and Processing segment, where we continue to fill available capacity due to strong demand. Gas processing volumes were up by 9% year-over-year. We had another steady quarter from our Liquids Infrastructure segment. We completed a successful turnaround at our AEF facility and our assets remain highly utilized. In our Marketing segment, we remain on track to deliver a record year. These Q3 results are a testament to the effectiveness of our strategy designed to extract maximum value from our integrated business.

Given our insight into customer activity, we expect more volumes to hit our system in 2023 further supporting the growth of our business. With that context, I now want to shift gears to talk about KAPS, which remains an important strategic asset for Keyera. In our release this morning, we shared that as of the end of October, KAPS was 90% complete and is anticipated to be operational at the end of the first quarter of 2023. We also share that project costs have increased by $100 million net. We've had a range of challenges largely related to abnormally wet weather in the spring that impacted productivity and required additional resources. This increased our exposure to inflation, supply chain issues and labor shortages. It's been challenging to forecast the unprecedented cost pressures in real time.

Going forward, we have confidence in our new estimates and here's why. Firstly, we now have only 10% left to go with 90% of the work behind us. And secondly, the remaining spend of $150 million net carries a significant contingency of 25% to address remaining risks, including weather. While costs are higher, the strategic importance of KAPS does not change. KAPS is a producer-driven project that is about to end a multi-decade pipeline monopoly. It will provide a much-needed competitive alternative for basin producers. For Keyera, KAPS physically connects our North region gas plants and other third-party facilities to our fractionation, storage, condensate and marketing businesses. This allows us to better compete for volumes and provides more opportunity to earn returns at each step of our integrated value chain.

I'll now turn over to Eileen to provide an update on Keyera's financial and business performance for the quarter.

[Eileen Marikar, executive]

Thanks, Dean. As Dean mentioned, we delivered strong quarterly financial results. Adjusted EBITDA was $247 million compared with $214 million for the same period in 2021 and distributable cash flow was $162 million compared to $149 million for the same period last year. Both results were driven by strong performance across our 3 business segments. We continue to maintain our strong financial position with all outstanding term debt at fixed interest rates and no material debt maturities until 2025. Net debt to adjusted EBITDA is currently at 2.4x. This is below the bottom end of our target range of 2.5 to 3x, excluding hybrid, and we expect to exit 2022 within this range.

Moving to our guidance for 2022. Marketing guidance remains unchanged with realized margin expected to be between $380 and $410 million as we progress towards a record year. Growth capital spending is now expected to be between $770 and $800 million. This is above the previous range of $680 million to $720 million, excluding capitalized interest. The increase is primarily driven by the KAPS project. Both maintenance capital guidance and cash tax guidance remain unchanged.

Moving to 2023. Consistent with our plan shared at our March Investor Day, 2023 will be a year of balancing more modest capital spending with strengthening the balance sheet and returning cash to shareholders. Growth capital expenditures are expected to range between $140 and $180 million, excluding capitalized interest. This includes approximately $50 million related to the completion of our KAPS project and $45 million to $55 million related to a Pipestone expansion project that we are progressing towards sanction. Maintenance capital expenditures are expected to range between $75 and $85 million and include approximately $40 million related to turnarounds at the Rimbey and Pipestone gas plants. And lastly, our cash tax expense is expected to range between $10 and $25 million.

Thank you. I'll now turn it back to Dean.

[C. Setoguchi, executive]

Thanks, Eileen. Our business is strong and performing well. Looking to the future, the increasing need for secure access to clean and responsibly produced energy will continue to drive higher long-term demand for natural gas and natural gas liquids. Keyera is well positioned to benefit and grow from this trend. On behalf of Keyera's Board of Directors and management team, I thank our employees, customers, shareholders, indigenous peoples and other stakeholders for their continued support.

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

[Operator]

[Operator Instructions] Your first question comes from the line of Rob Hope from Scotiabank.

[Robert Hope, analyst]

First question is on KAPS. Just given the line of sight to commissioning as well as we're seeing some improving volumes in the basin as well as CapEx moving up for producers. Can you give us an update on the tone of contracting discussions, not only on the base system but also on the Northern Lake?

[C. Setoguchi, executive]

I think it's a great question given what we're seeing in our basin. When you look from a macro perspective, I mean, I look back at a year ago and a lot of people are wondering where the growth would come from, and our basin increased by over 1 Bcf a day within a very short period of time. So I think it just demonstrates the resiliency and the economics in our basin and that producers have the inventory and the balance sheet to continue to grow. So with that, we've had a lot of continued fruitful conversations with our producer customers. And we believe that's going to lead to a lot more contracting in days to come.

I do want to point out that, specifically with the fact that we're getting much closer to having our pipe in service, which is going to happen in, obviously, early next year. And as I said before, the producers have very strong balance sheets and the inventory to continue to grow. So I think that they can satisfy their stakeholder base by continuing to improve their balance sheets, returning capital to shareholders but also grow at the same time.

[Robert Hope, analyst]

I appreciate that. And then maybe taking a look at 2023 guidance. I know you typically give an outlook for marketing in the spring. That being said, just shaping up, where Q1 is going to be taking a look at your cash tax guidance. Can you walk us through the headwinds and tailwinds that you're seeing in the marketing business in 2023?

[C. Setoguchi, executive]

I'll just turn that over to Jamie.

[K. Urquhart, executive]

Sure, Rob. Yes, in '23, we are expecting to realize high utilization at AEF. Just as a reminder, we did have a 6-week outage in AEF that span between September and October. So right now, we're seeing strong RBOB pricing and octane values they're below the 2023 levels, and that's important to remember. In '23, we had extraordinary pricing in WTI and RBOB cracks and that benefited our RBOB -- sorry our isooctane business and our liquids blending business. But we're still seeing values that are stronger than historical averages. And then -- and one of the reasons why we typically wait for providing guidance into post Q1 is to get through our contracting season for butane, which is a fundamentally important part of the equation with respect to how we view our marketing business in 2023. Right now, butane is trading at a lower level than it would have this time next year. So we are -- it's early days, but we're -- we see a potential for slightly lower butane pricing in the '23-'24 contract season.

[Operator]

Your next question comes from the line of Robert Kwan from RBC Capital Markets.

[Robert Kwan, analyst]

If I can start with KAPS and Dean, you talked about good volume hitting the system. So I think you've got a better line-of-sight to contracting. But is KAPS at the new cost still within the return still in that 10% to 15% range?

[C. Setoguchi, executive]

And yes, we do have a return threshold of 10% to 15% for our capital projects, and that would include KAPS. We're not there yet, but that's certainly our target. There's a couple of points that I just want to make sure that we remember why we still think we can get there. And first of all, the downstream benefits of KAPS will obviously improve our overall corporate returns. But secondly, on KAPS contracts we envision negotiations continue to accelerate. And there are several reasons for that. Obviously, the macro environment is very supportive. I mean when we sanction this pipeline, we -- this would be the high end of our wireless dreams of what would happen in our basin, both from a demand perspective for natural gas and associated natural gas pricing, the egress in our basin that we're getting and also the growth that we're seeing, and we were forecasting for the future. So with that macro backdrop, obviously, we're much closer to having our pipe in the ground. And again, as I mentioned before, producers have never been stronger. In my 30-plus year career, I've never seen producers in the position that they're in today. So I think that they have a great inventory of supply to continue to grow, and we're going to continue to see that and benefit from not only KAPS, but our whole integrated system.

[Robert Kwan, analyst]

Got it. So if I can just be clear, if I'm not mistaken, I think the prior messaging, though was KAPS on a fully contracted basis but just the system as you're building would have been in the 10% to 15% range. So without phase 4 or without any downstream benefits, so just to be clear, is that still the case that on the standalone fully contracted, $1 billion of capital that you're still in 10% to 15%?

[C. Setoguchi, executive]

Yes, Robert, that's 100% correct. We've been very clear that we're not there today with our contracting, but that is certainly our target.

[Robert Kwan, analyst]

Okay. And just as it relates to the other half of KAPS such as per sale previously, you effectively stated that you're not looking to buy the other half. Has anything changed from your perspective on that deal?

[C. Setoguchi, executive]

Yes. Obviously that's a very relevant question, Robert, and a good one. You know what we are not privy to where the process is on the other 50% of KAPS. And we've never really commented whether we are in the process or not because that's just not our policy to comment on confidential processes. So what I would say is that we follow our capital discipline. So we want to make sure that any acquisition that we do pursue make sure that it's within our financial guidelines in terms of our balance sheet management and it has to be strategic to our company and also accretive.

[Operator]

Your next question comes from the line of Linda Ezergailis from TD Securities.

[Linda Ezergailis, analyst]

Recognizing that we're in a dynamic environment, I'm wondering if you can comment on how you are preparing for future opportunities as it relates to future build around KAPS, whether it be another frac, et cetera. What sort of contingencies, partnerships, other mitigations to some of these inflationary pressures and potential labor disruption, supply chain disruptions that you might be seeing, would you factor in, including potentially reconsidering your project hurdle rates to be potentially higher?

[C. Setoguchi, executive]

Linda, very good questions that you're asking. Maybe I'll try to attack some of these in order, and maybe I'll pass it on. But overall, we see a lot of benefits from KAPS and whether it's a potential Zone 4 or downstream at our frac storage complex at KFS. We feel that we have a very good position there where frac capacity is very tight. I think everyone knows that. So you know what we are working with our customers and should we -- should there be sufficient demand and we can contract up our base frac 1 and frac 2. We're certainly also working towards contracting a frac 3. And if we have sufficient support, we will advance that project. But again, we'll be very financially disciplined to make sure that, that back is in place before we sanction any further projects.

I think that from a cost and inflation perspective, I think that's very real. And obviously, we have to reevaluate our cost of capital and our return thresholds on a continual basis, especially in the environment that we're in. But maybe just with respect to just inflation and how we manage that, maybe I can pass that over to Jarrod.

[Jarrod Beztilny, executive]

Yes, a really good question, I think -- I think about what we can learn from KAPS in particular. And so I think it's important to look at all aspects of the project and particularly how we assess risk in abnormal or rapidly changing business environments as you noted. And so when I think about some of those levers that we can pull around managing inflation, it's really around things like locking in prices when we can, trying to indexes when we can't looking for economies of scale where we can consolidate things where it's appropriate to do so. And in terms of, say, acquisition and new materials, it's derisking equipment deliveries through early procurement, building and leveraging relationships with suppliers so we can push ourselves to the front of the line and things like increasing inventory for critical parts that are difficult to come by, so we don't get stuck. So those are some of the mitigations that we'd look to apply going forward.

[Linda Ezergailis, analyst]

And maybe on a separate note, can you just help us understand some of the areas in your system that have a little bit of white space and what sort of operating leverage there is and how we might think of potentially even a sensitivity to that.

[C. Setoguchi, executive]

Sure. Maybe I'll just turn that over to Jamie.

[K. Urquhart, executive]

Yes, Linda, where we see the white space right now would be traditionally in our Gathering and Processing side of our business. So in the north, where we're seeing record activities around Wapiti. Obviously, we've telegraphed that we're looking at a potential expansion at Pipestone, and we did note that we relicensed Pipestone in Q3 to go from 200 to 220. That was immediately highly utilized. But Simonette is a facility that we're seeing a lot of activity, specifically as Whitecap purchased XTO. And then in the South as well, we're seeing unprecedented activity with some very strong producers in that area as well.

The basin assets are liquid infrastructure is highly utilized, but we're also leveraging relationships to be able to help our producers with their growth plans there as well. And that bridges into some of the things that Dean just talked about with respect to opportunities around expanding our fractionation and storage business as well. So lots of opportunities. We do see the highest torque in our business if we can utilize white space and certainly confident that we're going to be seeing that growth in the quarters to come.

[C. Setoguchi, executive]

And maybe if I could just add, I think that we should also remember that we have a very strong condensate business. And with KNPL expansion being in place, say, early in 2024. There'll likely be more demand for condensate in our system and also storage. So BTT is going to be an asset that will be even more valuable, I think, in that time frame and in higher demand.

[Operator]

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

[Robert Catellier, analyst]

Yes. And just a question here on the KAPS cost overruns and what impact do you expect on Zone 4. Can you reprice for that segment, given it's not sanctioned and what happens to the relative competitive positioning of the system.

[C. Setoguchi, executive]

Yes. In terms of -- that's a good question, Rob. We're still working with our partner to try to procure the volumes necessary to commercially sanction that project. We are advancing estimates on the cost. And obviously, we have real-time experience in terms of cost and productivity on our KAPS pipeline, which we're obviously revising at the same time. So again, all I can say is that we will stick to our financial return thresholds of the 10% to 15% in order for us to sanction that project. But again, with the growth in the basin, we see continued demand along that segment.

[Robert Catellier, analyst]

Right. And just strategically for the producers, even if the toll is higher, isn't just the utility of having that Zone 4 segment, so important that I think it was down a little toll variability or increase relative to where costs have gone?

[C. Setoguchi, executive]

Yes. I mean -- and I can't speak to specifics. But what I can say is that the need for competition in BC is no different than Alberta. And obviously, there will be a lot of growth, particularly with Coastal GasLink and Canada LNG coming in service in a few years. So again, I think that's an area that needs more industry competition. And again, we have a solution that we can provide.

[Robert Catellier, analyst]

Okay. And just -- I'm just wondering what has to happen to move the pipes on expansion to FID. It just seems like a pretty significant amount of capital in the budget for developing that asset for something that's not sanctioned, and it's a competitive area. So what are we to take away from the substantial development expenditure related to that?

[Eileen Marikar, executive]

So on the Pipestone expansion. Yes, at this point, Robert, it is unsanctioned. But we have -- I mean we're getting much, much closer towards that. That's why it's included in our guidance. And I would say that we haven't put out the detailed depth as to what the new capacity could be, but it will be at the higher end of our return threshold is kind of what we're looking at there.

[C. Setoguchi, executive]

Rob, I'm not sure we maybe fully understood your question. I wish you just can you clarify...

[Robert Catellier, analyst]

Yes. I mean it just seems like a lot of capital for something that's still in development. So I mean, it sounds like the probabilities are perhaps higher than you're suggesting despite it being a competitive area. Are we looking at that the right way? Or how are you looking at...

[Eileen Marikar, executive]

Sorry, Robert, I want to clarify that I was referring to the Pipestone expansion of the 45 to 55, not Zone 4. So there is no KAPS in our guidance for Zone 4 at this time. As Dean mentioned, we will remain very disciplined when it comes to sanctioning Zone 4. So there's no -- nothing in the capital budget for…

[Robert Catellier, analyst]

No, I understand. I was asking about Pipestone. But maybe I'll move on to the hydrogen project that recently got some sponsorship from the Alberta Petrochemical Incentive plan. Does Keyera see any upside there? Any development potential from that project?

[K. Urquhart, executive]

So Robert, I'm not familiar with the project that you're referring to.

[Robert Catellier, analyst]

Liquid air, the hydrogen project has received a little bit of government support.

[K. Urquhart, executive]

So I mean, as we look at hydrogen as an opportunity I can't speak specific to whether we're involved in that project or not. But certainly, in certain applications within the regulatory landscape, specifically around the clean fuel standard, we certainly see a role for blue hydrogen in Alberta and an opportunity based on the very advanced phases of CO2 capture and sequestration that the Alberta government has been a leader in that ties nicely into that opportunity. And as a result, I think we've shared that we do see opportunities with respect to the CO2 transportation and sequestration side of the business. We've got opportunities that we're working on in that space. But I can't speak specifically to that particular project.

[Operator]

Your next question comes from the line of Ben Pham from BMO.

[Benjamin Pham, analyst]

On the KAPS process to sale, has your view on taking in KAPS changed at all over the last -- since the beginning of the year whether strategically or just the way you're calculating accretion?

[C. Setoguchi, executive]

Ben, just making sure I understand the question. So you're saying with the KAPS sale, does this change your outlook on KAPS, with that question?

[Benjamin Pham, analyst]

Dean, I'm more curious about how -- are you looking at it differently? Because I just -- maybe I'm reading through the tea leaves a bit more. It just sounded like you were [indiscernible] taken in early this year quite more quickly, while it seems like as you've gone through the process, it seems like it's more needs to be accretive, need to be strategic, clearly, it's probably strategic. So it sounds like it's more of an accretion exercise now.

[C. Setoguchi, executive]

Well, what you say, I mean, I think if I understand your question, Ben, you're asking specifically to the other 50% of KAPS and how we're looking at that. And if that's the case, again, I just -- we don't comment on specific M&A type of opportunities. But what I can say for all the M&A opportunities, it has to meet our financial parameters in terms of just making sure our balance sheet is in line. And it's got to be strategic, and it has to be accretive. So whether that applies to the other 50% of KAPS or any other opportunity we might look at, we sort of look at it very similarly.

[Benjamin Pham, analyst]

Okay. And Dean, can you confirm your accretion, is that DCF per share? And then is that going first year out of the gate? Or are you thinking more of a 30-year 40-year time frame in the DCF model?

[C. Setoguchi, executive]

Well, that's a good question. DCF would be the primary measure. We do look at a number of different measures, but DCF would certainly be a primary one. And I think we look at things over a longer period of time, but we do recognize the need to have near-term accretion. And whether that's in year 1 or year 2, it has to be within a very sort of short visible time frame would generally be the expectation?

[Benjamin Pham, analyst]

Okay. Got it. And whether it's KAPS or maybe another opportunity, how do you think about funding? Now you have the balance sheet in good shape axing this year, a lot of cash flow generation next year, where the CapEx budget is. I mean, if you could -- could you take on KAPS yourself about equity, the remaining 15%?

[Eileen Marikar, executive]

I think, again, to Dean, what he said, those are things that -- the process is well along, far along on the other 50%, and I don't think we could comment on anything with regards to the other 50%.

[Benjamin Pham, analyst]

Okay. But you really like you're going to next year, it seems like you're going to be quite underlevered is the cash flow that you're spinning out next year?

[C. Setoguchi, executive]

No, I think...

[Eileen Marikar, executive]

That's correct. Yes. I think it's probably good to just step back and look at our overall capital allocation priorities, right? Really nothing has changed compared to what we talked about at our Investor Day in March. It's really balancing 2 things. One is first priority is maintaining the balance sheet. And I think the modest capital program that we have for next year will support this, and it's prudent given the inflationary risks that we see and are likely to persist into next year. And that's going to be balanced with our next priority, which is returning cash to shareholders. And so whether it's dividend growth or buybacks, it's -- the way we look at the dividend is really it needs to grow with our fee-for-service business, and we continue to expect an EBITDA compound annual growth rate of 6% to 7%, and that's from 2022 to 2025 from our fee-for-service business.

[C. Setoguchi, executive]

Okay. Maybe just to add to Eileen, I mean, like she mentioned, our capital allocation priorities are balance sheet, obviously, returning capital to shareholders, but also evaluating sort of the merits of new projects and adding -- overall, we're trying to add value to our shareholders. So those 3 items in terms of how we look at allocating capital.

[Operator]

Your next question comes from the line of Andrew Kuske from Credit Suisse.

[Andrew Kuske, analyst]

Maybe just a big picture kind of question and it relates to your conversations with your customers. And how do you really think about the trajectory of natural gas flows over the next couple of years, in particular, as we head closer to that moment where the switch gets flipped on LNG Canada.

[C. Setoguchi, executive]

Andrew, I think that's a great question. And I do think that the world is going to need more natural gas and a lot of that's LNG. I do think that producers generally in the world are still being disciplined. So you're not getting a super big supplied glut response like we've maybe seen in previous cycles. So I think that's going to be positive for the supply demand balance. I think we should remember in Western Canada that we are adding more egress on TC system alone, they're adding about 1.5 Bcf a day of additional capacity. So our basin has a very competitive supply cost relative to global standards. So I certainly believe that with increased egress, we're going to see additional volume growth in the basin, like we just saw in the last year with a Bcf a day being added. So on a basin that only produces 17 Bcf a day, if you add another B, B-and-a-half before Canada LNG comes in service, still a lot of growth for our basin, and we're very well positioned to capture the incremental volumes associated with that.

[Andrew Kuske, analyst]

Okay. Appreciate the color. And then maybe somewhat related, when you think about just the storage position that you have and you think of the outlook for bringing on incremental caverns. And just some of the roadblocks that exist with the amount of water that's needed and just others trying to pursue storage alternatives too. I guess, how many caverns do you think you could bring on in a given year? And then how much industry capacity exists when we start to think about water usage and all the other sort of impediments that exist.

[C. Setoguchi, executive]

Yes. Maybe I'll start with this, and I'll pass it over to Jamie. Good question. I mean, storage is a very valuable asset in the basin. I mean, I think sometimes the one for commercial and operational reasons because the flow of product doesn't always happen ratably. So you have to manage some upsets and you have to have enough inventory, sometimes just to manage our operations. So our storage business is very strong, and we have the largest capacity in Fort Saskatchewan and our South caverns. So we have over 15 million barrels. So we actually have a lot of storage capacity to actually even handle more incremental business already. So we're very fortunate from that perspective. As there is more requirements and demand for more [indiscernible] storage, we have a lot of capacity, not just at KFS but on our Heartland lands, we have all of the salt rights there as well. You're right. We do have some water wells that we have on site and in addition to access to river access water. But on top of that, I think longer term, I can certainly see us also trying to -- and we are looking at opportunities to recycle water as well in the area, which would be a great solution from an environmental perspective. So that's just still in development, but maybe I'll turn it over to Jamie, see if he's got any other comments to add.

[K. Urquhart, executive]

Yes. No, I think, Dean, you hit it on the nail on the head is that these are assets that are very difficult to duplicate. And to answer your question with respect to timing, we'll mine a cavern in the order of about 1 million barrels. That takes multiple years to mine. So having those caverns already developed is an extremely valuable asset for this organization and ultimately, one that we expect that we'll be able to offer to the basin. Certainly, in the near term, as Dean said, condensate business is growing -- continuing to grow and seeing the importance of storage within the basin and the growth requirements, specifically to support a lot of import condensate that we're seeing coming into Western Canada, but also operational storage with spec products to enable whether it's our marketing group or our customers to be able to hit the highest value markets seasonally and also throughout the world. So like, I mean, just to sum up storage is a big part of our business. It's a very strategic part. And it's -- there's -- I wouldn't say necessarily a high barrier of entry currently with respect to people's ability to mine storage. But certainly, from a timing perspective, it's not a part of the business would be easily replicated within probably a 5-year time frame at best.

[Operator]

Your next question comes from the line of Patrick Kenny from National Bank.

[Patrick Kenny, analyst]

Just wondering if you could provide a bit more color on this sequestration project north of GP and the size and scope of the hub. And also commercially, if we should view this as more of a one-off standalone project or if you'll look to integrate this service with KAPS, the frac expansion or perhaps incremental processing capacity contracts.

[C. Setoguchi, executive]

Patrick, that's a great question and very soon of you to see that we were awarded some rights. Maybe I'll take a stab at that and again, I'll pass it over to Jamie. But overall, I mean, the world is going towards decarbonization. And maybe there's less emphasis on it currently, just because of the crisis that we see in Europe and Asia right now in the high prices and the demand for a reliable supply of energy. So I don't think that, that's ever going to stop. But I do believe that the narrative of decarbonization is going to continue. We know that carbon taxes will continue to rise and there's other legislation that's in place or going to be in place that is going to drive more of that direction.

We think that areas like Fort Saskatchewan in the Industrial Heartland and also Grand Prairie are areas where you have higher concentrations of industrial activity and emissions. And we certainly see the sequestration aspect of it gathering and the sequestration aspect of decarbonization as a midstream opportunity. So we think -- so anyway, we're positioning ourselves there. We're positioning ourselves, obviously, in the Industrial Heartland and Edmonton, Fort Saskatchewan as well and leveraging off of existing infrastructure where we have it and also our expertise that we have as well. But Jamie, do you have anything else you want to add?

[K. Urquhart, executive]

Yes. The only thing I'd add is that -- and this is a common theme for our organization is you'll know we have partners in that project. They're in our minds, strategic partners with respect to -- we all work in different things to the table in that project. We've had a lot of interest from potential offtakers for that project. And it's one of the reasons why we chose that, that area and that specific project. There's lots of other parts of the basin that we could have thrown our hat in the ring, so to speak, as well. And we chose that area for a reason. And I guess the other thing, just to tie to your last observation is that it's just another service offering in our mind that we can use to create value for our customer and attract business into our entire value chain.

[Patrick Kenny, analyst]

Got it. Okay. And then maybe just a quick follow-up, given the overruns on KAPS. Wondering if you might look to revisit some of the noncore capital recycling opportunities that you had highlighted earlier in the year. I know you still expect to land within your leverage targets, but perhaps just to give you a little bit more cushion on the balance sheet as you perhaps look to grow the capital budget for 2023 more towards historical levels.

[C. Setoguchi, executive]

That's a very good question. And I think our business is that we have to be remain very focused. And as we've grown over time, there's assets in our portfolio that are less strategic and less relevant. So I think we always have to continue to look at that opportunity and we will certainly do that going forward.

[Operator]

[Operator Instructions] There are no further questions at this time. I'll be turning the call over back to Calvin Locke.

[Calvin Locke;Keyera Corp.;Manager, Investor Relations, executive]

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

[Operator]

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