TechPrecision Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 11 speakers on the call.

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 Caret Corp's First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer full by 2.

Operator

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

Speaker 1

Thank you, and good morning. Joining me today will be Dean Setiguchi, President and CEO Eileen Maricar, Senior Vice President and CFO Jamie Urquhart, Senior Vice President and Chief Commercial Officer and Jared Pistoni, 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.

Speaker 1

Call. 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.

Speaker 2

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 Care employees and their families in affected areas are safe and accounted for. As a precaution, We have shut in several of our plants.

Speaker 2

We continue to monitor the situation and we'll restart as conditions allow. We'd like to thank all emergency response personnel involved in fighting these fires and hope that all remain 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 reinforce the effectiveness of our strategy.

Speaker 2

In our G and P business, we saw 12% year over year volume growth, driven by record volumes, including the highest ever at our Wapiti and Pipestone gas plants. Our G and P customers continue to be in a strong financial position, allowing for continued volume growth, while improving cash flow stability for the segments. 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 strength of our iso octane and condensate businesses. Today, we provided our updated annual guidance for the segment.

Speaker 2

We now expect marketing to contribute between $330,000,000 to $370,000,000 for the year. I'm pleased to share that we have reached a major milestone on CAPS with the 1st barrels shipped on the pipeline. Construction is complete. Costs are within our latest estimate of CAD 1,000,000,000 net to Keyera. The condensate line was put into service and began flowing in April.

Speaker 2

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. CAPS is a link that fully integrates our business from wellhead to end market. With the pipeline and service, We're a stronger and more competitive company, focusing on the and 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.

Speaker 2

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 5 years, we have invested significantly to establish a competitive footprint in the Montney and connect it to our core liquids infrastructure. These projects include Wapiti, Pipestone, CAPS 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.

Speaker 2

They also support growth beyond this 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. There 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.

Speaker 3

Thanks, Dean. Adjusted EBITDA was $292,000,000 for the quarter compared to $257,000,000 for the same period last year. Distributable cash flow was $227,000,000 or $0.99 per share compared to $178,000,000.81 per share for the same period in 2022. Net earnings were $138,000,000 compared to 100 $14,000,000 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.

Speaker 3

Keyera continues to maintain a strong financial position ending the quarter with net debt to adjusted EBITDA at 2.6x at the lower end of our targeted range of 2.5x to 3x. Moving to our guidance for 2023. We now expect our marketing segment to contribute between $330,000,000 3 $70,000,000 of realized margin in 2023. This is up from our base guidance of $250,000,000 to 280,000,000 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 volume for the remainder of the year.

Speaker 3

Growth capital guidance remains unchanged at between $200,000,000 to $240,000,000 and maintenance capital guidance remains unchanged at between $75,000,000 $85,000,000 and cash tax expense is still expected to be nil. Thank you. And I'll now turn it back to Dean.

Speaker 2

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 caps 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 am Mountain Time.

Speaker 2

Meeting will be held virtually and can be accessed through our website. 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 and A.

Operator

Thank you. Ladies and gentlemen, we'll now conduct a question and answer session. Okay. And your first question comes from Rob Hope from Scotiabank. Rob, please go ahead.

Speaker 4

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 20 Keyera will be generating significant cash flow, its leverage is reasonable, the payout ratio is reasonable as well. And as you kind of highlighted, CapEx That's really going to step down after TAPS. So when looking forward, how do you weigh increasing the dividend share buybacks in

Speaker 2

Go ahead. I'll let Dylene answer that question.

Speaker 3

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 CAPS 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.

Speaker 3

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 sized growth projects, smaller relative to the large projects that we've undertaken in the past That really generates strong returns and meet our overall investment criteria.

Speaker 2

Dara, maybe if I could just add on to 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.

Speaker 4

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 constrained here for While the capsule is being constructed, do you have maybe a laundry list of smaller growth projects So 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?

Speaker 2

Yes, that's a great question, Rob. Our first priority this year is, as Eileen said, is that we obviously want to get caps online and we're well underway on that front. So really great to report that. So I think it's 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.

Speaker 2

I look over Jamie and his team and there's a long lead time to projects. We do have a number of projects that we're looking at that we're doing engineering feed 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 and P capacity, especially in our Montney area and also the potential for Zone 4 on the caps, which would connect us to the Corp.

Speaker 2

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.

Speaker 4

Thank you. Appreciate the color.

Speaker 2

Thank you.

Operator

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

Speaker 4

Great. Thank you. Good morning. If I can just Kind of come back to this notion of the cash flow inflection point and follow-up on a few things. Eileen, you talked about smaller size Projects.

Speaker 4

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.

Speaker 3

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 $300,000,000 to $400,000,000 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.

Speaker 3

And yes, there is lead time. So As to Dean's point earlier, those things, those projects are being envisioned today and in order and all the FEED work Before they get sanctioned.

Speaker 2

Hey, Robert. And if I could add, I think the point we're making is that with CAPS, We now have a fully integrated system out of the Montney Duvernay area. So, CAPS was at $2,000,000,000 gross pipeline and $1,000,000,000 net to 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.

Speaker 2

And so now we're just adding on and complementing the integrated value chain that we already have. And also mention, we talked about our integrated value chain from the Montney, but We also have a fully integrated Monty 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.

Speaker 4

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 at 2.6x debt to EBITDA, so that's at the bottom end of that 2.5x to 3x 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.

Speaker 3

Robert, yes, we expect to remain within that range. You're absolutely right that we're on the lower end just given higher, the higher marketing contribution. But as we look forward and even with that more of a base marketing guidance, we expect Our capital program will adjust so that we are within that 2.5 to 3 times range. And that's where I'd say that $300,000,000 to 400,000,000 It's very comfortable to remain within that range.

Speaker 4

Okay. That's perfect. And I just finished with a quick one here. KFS, The guidance is 11 times acquisition multiple. Just wondering how you're tracking now that you've got into the new contract year.

Speaker 4

Are you kind of still tracking that 11 times? Are you doing a little bit better here?

Speaker 2

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 is 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.

Speaker 4

That's great. Thank you.

Speaker 2

Thank you.

Operator

Your next question comes from Robert Catellier from CIBC Capital Markets. Robert, please go ahead.

Speaker 5

Hi, good morning, everyone. I had similar questions to the first two Robs, but maybe I'll come at it And so my question is now that you have the additional interest in KFS and caps is being placed into service. Is there an argument for a higher long term marketing guidance?

Speaker 2

Yes. I mean, you know what, 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 caps over the long term is going to help us generate more marketing and that drives higher return on capital corporately.

Speaker 2

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 formed our base guidance.

Speaker 2

I think our 5 year average is in the $340,000,000 range, dollars 340,000,000 range versus the $250,000,000 to $280,000,000 range. So It just demonstrates the strength of that business, certainly under good conditions.

Speaker 5

Okay. Just a follow on there. What contracting updates can you provide on CAPS now that's mechanically complete and No, you have KFS as well and the Blueberry River First Nations line agreement has been achieved.

Speaker 2

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.

Speaker 2

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.

Speaker 2

And so if you spend 1,000,000,000 of dollars or 100 of 1,000,000 of dollars developing an area and you have only one way, one means the 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 caps. And I would also say we have the advantage of having a new pipeline as well. We have a very competitive integrated system.

Speaker 2

And again with their recently acquired volumes or frac capacity at KFS that's helping us leverage that whole integrated value chain including caps. And I'd also say that from a broader perspective, we're very bullish in terms of the base and 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 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.

Speaker 2

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

Speaker 5

Okay. Now last one for me then just on the capital allocation. How does tuck in M and 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.

Speaker 2

No, 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 complementary 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 3 boxes that we need to tick and but we definitely see some opportunity.

Speaker 2

It's just a question of Can you pry stuff loose at the right price?

Speaker 5

Okay. Thanks, everyone.

Speaker 2

Thank you.

Operator

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

Speaker 6

Thank you. With quite constructive iso octane fundamentals, I'm wondering if you've kind of Sharpen your pencil a little bit on the merits of potentially twinning AEF. And if so, would there be an ability contracted to a certain extent and what sort of advantage would a brownfield expansion have over greenfield?

Speaker 2

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

Speaker 7

Yes. Thanks, Linda. Really good question. We've often looked at 20 and AEF. Really the approach that we've been taking and being relatively successful at is just increasing the capacity of that facility in smaller pieces and phases rather than doubling that facility, more cost effective and lower risk.

Speaker 7

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. 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.

Speaker 2

Yes, Linda. And to Jamie's point, if you look at our volume utilization, which we do publish in our quarterly 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 4 year cycle.

Speaker 6

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?

Speaker 2

Linda, what I would say overall in terms of our marketing performance, I mean, obviously, a lot of it is driven off of our isooctane business. On top of that, I mean, it's a physical business, so we do make margin off of each one of our products, propane, butane condensate. What we found is that 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.

Speaker 2

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

Speaker 7

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

Speaker 6

Thank you.

Operator

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

Speaker 8

Okay. Thanks. Good morning. Let me just start off with caps and now that it's flowing volumes, you talked 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 The volume enhancement on caps, is it all related together in terms of working in fashion or are they working Separately and how do you think about how those 3 play out from more just a maybe not just a timing perspective, but what goes first and what goes next?

Speaker 2

Yes. Ben, thank you for the question. If I think I Understand your question. It's really how we enhance caps and How that also fits in the future growth relating to caps. So let me just take a stab at answering that.

Speaker 2

If I'm not answering a question, please Please ask your question again. First of all, our primary priority is to go and contract more barrels on caps. And again, as I said earlier, we see some very good opportunities to do that for all the reasons I described. For what we're seeing in Northeast BC with the Treaty 8 and the Blueberry First Nations, 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.

Speaker 2

And with that and also with Canada LNG coming on in the next 2 or 3 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.

Speaker 2

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 contribution. So Overall, we view it as a positive to our entire integrated business.

Speaker 8

Okay. And maybe a follow-up on that, Dean, is do you need to Secure more contracts on the base caps before seeing solidification of zone 4 or debottleneck downstream?

Speaker 2

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 under zones 1 to 3. Zone 4 It's a wholly separate decision.

Speaker 8

Okay. That's what I was kind of getting at in terms of All those 3 things are playing, if it's in a linear fashion or not. Okay. Thanks, Brett. And then maybe on The marketing side of things, can you maybe provide an update on how you're thinking about the hedging?

Speaker 8

I know you had some disclosure in terms of hedging Can you maybe provide context even of how you hedge versus last year directionally? Maybe start there.

Speaker 2

Sure. I'll turn that over to Gene.

Speaker 7

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 our risk management program in place right now.

Speaker 7

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

Speaker 8

2024. Okay, great. And maybe one last one on LI on the quarter specifically and The record results. Can you provide more context, what percent of that business is take or pay more reminder in that? And Was it mostly the railing that created a bit of juice in the quarter?

Speaker 3

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 Liquid Infrastructure segment on its own, that percentage is much, much higher. And as we bring on caps Where the contracts are 75% take or pay. Again, that overall take or pay on an absolute basis just continues to grow.

Speaker 8

Okay. All right. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 9

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 then maybe just give a perspective of where you are on 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.

Speaker 7

Yes, Andrew, it's Jamie. Thanks for the question. Yes, like as Dean alluded to earlier in the call, our logistics, Our rail fleets, our relationships with 3rd 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 had 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 LI fee for service outperformed was that we saw 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 deluement terminal that we have up in the Edmonton area.

Speaker 7

So the way we look at it from a rail perspective is, 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.

Speaker 2

Yes. Maybe if I can just add to Jamie's comments. And again rail is very important, probably more important in our basin than people recognize. And we all know that Alberta, Western Canada is a supply based basin. So we have we're very rich in resources, But we have to export our volumes.

Speaker 2

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 5 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, 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.

Speaker 2

So that's the flexibility that we have in our system and what which is also why it's an advantage from a logistics perspective.

Speaker 9

I 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?

Speaker 2

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.

Speaker 2

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 transferable and translatable to the to energy transition. And we'll certainly play our part in helping to enable those projects here in Alberta.

Speaker 9

Okay. Appreciate the time. Thank you.

Speaker 2

Thank you very

Operator

much. Your next question comes from Patrick Kenny from National Bank Financial. Patrick, please go ahead.

Speaker 10

Thank you. Good morning. Just looking at where forward acre 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.

Speaker 2

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 booked $7 So overall, we are re contracting volumes. We continue to We contract volumes, particularly in Central Alberta.

Speaker 2

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 AIF, the nameplates 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 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 3 or 4 years ago is that producers are in a much stronger position. Their balance sheets are very, very strong.

Speaker 2

And the economics in the Deep Basin in particular are still very strong at $2 natural gas prices. So they could still make a very high return in that area. 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 6 month period and driving service costs through the roof.

Speaker 2

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 through our facilities.

Speaker 10

Okay. That's great color. Thanks for that, Dean. And then maybe just back to the wildfires, Might be too early to say, but just wondering if the 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.

Speaker 7

Yes, thanks for the question, Pat. It's Jared here. And we're not seeing anything like that. It's certainly been a very unfortunate circumstance. And As you've seen, some of our plants have been affected, but the Pipestone area hasn't been.

Speaker 7

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, twenty twenty four. And nothing else that materially affects our remaining capital plans either. So we're in good shape.

Speaker 2

And maybe just add on to Jared's comments. I mean, our only facility in the north that we shut down again as a precaution Wafi 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.

Operator

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

Speaker 1

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

Remove Ads
Powered by Quartr
Earnings Conference Call
TechPrecision Q1 2023
00:00 / 00:00
Remove Ads