cibc 18 th annual whistler institutional investor conference · 2015-02-05 · cibc 18 th annual...

CIBC 18th Annual Whistler Institutional Investor ConferenceJanuary 22, 2015

Forward -Looking Information

In the interests of providing Keyera Corp. (“Keyera” or the “Company”) shareholders and potential investors with information regarding Keyera, including Management’s assessment of future plans and operations relating to the Company, this document contains certain statements and information that are forward-looking statements or information within the meaning of applicable securities legislation, and which are collectively referred to herein as “forward-looking statements". Forward-looking statements in this document include, but are not limited to statements and tables (collectively “statements”) with respect to: capital projects and expenditures; strategic initiatives; anticipated producer activity and industry trends; and anticipated performance. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, as well as known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur and which may cause Keyera’s actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by the forward-looking statements. These assumptions, risks and uncertainties include, among other things: Keyera’s ability to successfully implement strategic initiatives and whether such initiatives yield the expected benefits; future operating results; fluctuations in the supply and demand for natural gas, NGLs, crude oil and iso-octane; assumptions regarding commodity prices; activities of producers, competitors and others; the weather; assumptions around construction schedules and costs, including the availability and cost of materials and service providers; fluctuations in currency and interest rates; credit risks; marketing margins; potential disruption or unexpected technical difficulties in developing new facilities or projects; unexpected cost increases or technical difficulties in constructing or modifying processing facilities; Keyera’s ability to generate sufficient cash flow from operations to meet its current and future obligations; its ability to access external sources of debt and equity capital; changes in laws or regulations or the interpretations of such laws or regulations; political and economic conditions; and other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by Keyera. The acquisition of certain reserves that were acquired as part of the Cynthia acquisition is subject to a right of first refusal claim. Readers are cautioned that the foregoing list of important factors is not exhaustive. The forward-looking statements contained in this document are made as of the date of this document or the dates specifically referenced herein. For additional information please refer to Keyera’s public filings available on SEDAR at www.sedar.com. All forward-looking statements contained in this document are expressly qualified by this cautionary statement.

2

Who Is Keyera?

3

One of the Largest Midstream Operators in Canada

• Key service provider to oil and gas producers in western Canada

• Facilities well situated to capture decades-long energy resources

• History of stable and growing cash flows

• Track record of efficient capital allocation

• Large portion of cash flows are fee-for-service with no direct exposure to commodity prices

• Excellent and varied growth opportunities

Keyera’s Vision

4

To be the North American Leader in Delivering Midstream Energy Solutions

How will this be achieved?

• By leveraging our strong market position in the natural gas and oil sands sectors

• By continuing to make customer service a priority

• By continuing to bring a long-term, disciplined approach to value creation

• By maintaining a conservative capital structure

• By applying proven operational expertise

Excellent Track Record of Financial Performance

5

Providing Investors with Income and Growth

13%CAGR in distributable cash flow

per share3

8%CAGR in dividends per share4

1 2009 dividend excludes the $0.45 per share special dividend.2 Nine months ending September 30, 2014.

3 Compound annual growth rate from 5/30/2003 to 12/31/2014.4 Compound annual growth rate from 7/15/2003 to 12/31/2014.

0%

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2006 2007 2008 2009 2010 2011 2012 2013 2014YTD

Payout RatioPer Share

Distributable Cashflow per Share (Diluted) Dividends per Share Payout Ratio

2

Historical Financial Results

1

Industry Fundamentals Driving Keyera’s Growth

6

Infrastructure Required to Meet Growing Oil and Gas Production

3 Assuming timely receipt of approvals and no construction delays

Approved ProjectsCapital Cost

($ Millions) 1 2014 2015 2016 2017 2018

Rimbey turbo expander 210

Wapiti raw gas and condensate pipelines 180

Simonette plant modifications 95

Strachan Vitasul project 66

Gas gathering pipelines 129

Fort Saskatchewan de-ethanizer 155

Fort Saskatchewan frac expansion 175

Josephburg Rail Terminal 95

Alder Flats new gas plant construction (phases I & II) 81

Zeta Creek new gas plant construction 41

Other projects (including the Norlite pipeline and underground storage caverns)

>400

Growing to Meet Customer Demand

7

Forecast Growth Capital of $700 to $800 million in 2015

1 Keyera’s share of estimated capital cost. See Keyera’s Q3 2014 MD&A for capital investment risks and assumptions.

Keyera’s Integrated Business Lines

8

Consistent Focus and Strategy for Over 16 Years

* Fee-for-Service revenues were 68% of Keyera’s 2013 Operating Margin, including intersegment transactions. Operating margin refers to total operating revenues less total operating expenses and G&A expenses associated with the Marketing segment.

Western Canada Sedimentary Basin

• Canada is home to some of the most economic natural gas plays in North America

• Significant multi-zone gas potential on the deeper (west) side of Western Canada Sedimentary Basin

• Majority of geological zones have porosity and permeability (unlike shale gas production)

• “Game changing” horizontal drilling & multi-stage completions unlocking tight reservoirs and shale gas

• High NGL content supports favourable producer economics

• Supportive political, fiscal, regulatory regimes

9

Sustainable Long-Term Liquids-Rich Gas Potential

Gathering and Processing Business Unit

• Well maintained, long-life facilities– 2.71 Bcf/d licensed gross capacity

– Adding up to 274 MMcf/d licensed gross capacity with development of 2 new plants2

– Keyera operates 16 of 17 plants and will operate 1 of the 2 new plants

– NGL extraction capability at 95% of plants

• Extensive gathering systems– ~4,500 km of pipelines tied to existing plants

– Capture areas create franchise regions

• Fee-for-service revenues with negligible direct com modity exposure– Largely flow-through operating costs

• Expanding gas gathering, processing and liquids han dling capacity

10

Network of Well-Maintained Facilities Supported by Fee-for-Service Revenues

1 Licensed capacity is not equivalent to actual operating capacity. Actual operational capacity can be lower as it depends on operating conditions and capabilities of functional units at each plant.

2 Capacity at the new plants is expected to become available between 2015 and 2016, assuming construction schedules are met.

Montney

Duvernay

Cardium

Glauconite

Montney – A World Class Resource

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Keyera Well Positioned to Provide Services to Montney Producers

• Large portion of current western Canadian natural gas production coming from the Montney geological horizon

• Recent Montney study1 estimates marketable volumes of:

� ~449 Tcf of natural gas

� ~14 billion Bbls of NGLs and ~1 billion Bbls of oil

• Montney a traditional sandstone/siltstone reservoir – not a shale

• Attractive producer economics

• Near-term focus will be liquids-rich areas such as Wapiti, Elmworth, Simonette

• This formation expected to be the key zone underpinning west-coast LNG projects

1 Source: National Energy Board; BC Oil Gas Commission; Alberta Energy Regulator; British Columbia Ministry of Natural Gas Development.

Simonette –Expanding to Handle Montney Production

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Wapiti Area Experiencing Significant Liquids-Rich Development

• Constructed Wapiti pipeline system

– Opening new capture area northwest of plant in Wapiti / Elmworth area where producers are drilling liquids-rich Montney zone

– Two 90-km pipelines: 12-inch sour gas gathering pipeline and 6-inch condensate pipeline

– Capital cost ~$180 million, including inlet separation

• Modifying Simonette gas plant

– Adding 100 MMcf/d of processing capacity and improving condensate handling

– Capital cost estimated at ~$95 million, including condensate stabilization; anticipate plant expansion start up in Q1 20151

1 Assuming construction schedule is met.

Producers active in area:• NuVista• Paramount• 7 Generations• Sinopec Daylight• Harvest• Exxon Mobil• CIOC

Pipeline Legend

Keyera – NewKeyera – LegacyThird Party

Duvernay – An Emerging Resource Development

• Duvernay developing in two areas (Northern Duvernay and Southern Duvernay)

• Multinationals have acquired significant land positions in both areas

• Initial indications are that Duvernay gas contains high levels of condensate and other NGLs

• Significant infrastructure required to develop resource– Raw gas processing– Condensate stabilization– NGL mix transportation to Fort Saskatchewan– Additional NGL fractionation

13

Northern Duvernay Requires Significant Infrastructure

Producers active in the area:• Exxon Mobil• Athabasca Oil Corp.• Encana• Trilogy• Chevron• Shell• ConocoPhillips• Yoho

Pipeline Legend

Keyera – NewKeyera – LegacyThird Party

Southern Duvernay –Significant Infrastructure Available

• Keyera is well positioned to capture southern Duvernay volumes:

– 12 plants in the area with 2.2 Bcf/d gross licensed capacity1

– 2 new plants being developed, adding up to 274 MMcf/d of gross licensed capacity upon completion2

– Liquids recovery capabilities

– Extensive gathering systems already in place

• Existing deep-cut capacity at Ricinus, Cynthia, Rimbey, Gilby, Strachan and Minnehik Buck Lake gas plants

• Full fractionation at Rimbey for plant and trucked-in NGL mix

• Access to Edmonton/Fort Saskatchewan NGL and condensate markets via pipeline from Rimbey gas plant

• Ethane from Rimbey to Alberta Ethane Gathering System (AEGS) for delivery to Alberta’s petrochemical facilities at Joffre and Fort Saskatchewan

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Keyera’s Infrastructure Provides Attractive Value for Producers



Producers active in the area:

• Encana• Shell• Talisman• Sinopec Daylight• ConocoPhillips• Vermilion• Enerplus• Bonavista

New Pipelines Capturing Growing Gas Production

• Producers targeting numerous geological zones in west central Alberta

• Keyera continues to expand plant capture areas through addition of gathering pipelines – Several pipelines built in 2013

– Carlos pipeline offload completed in 2014 for ~$23 million

– Wilson Creek gathering system completed in 2014 for ~$26 million

• Twin Rivers pipeline under construction– Expected to be on stream by Q2 20151

– Expected capital cost of ~$80 million

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Developing an Efficient, Flexible Gathering Network

1 Assuming timely receipt of regulatory approvals and construction schedule is met. Wapiti PipelineCarlos Pipeline

Wilson Creek Pipeline

Enhancing Service Offering at Rimbey

• Adding 400 MMcf/d turbo expander to enhance liquids extraction:

– Ethane capacity up to 20,000 bbls/d

– Project underpinned by long-term ethane purchase agreement

– Gross capital ~$210 million

– Expected start-up in first half 20151

• De-bottlenecking fractionator to expand capacity by ~6,900 bbls/d

• Potential to expand plant capacity significantly by running turbo expander and lean oil system (additional capital investment and regulatory approval would be required)

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Providing Full Service Solution to Liquids-Rich Gas Producers


Growing Through Selective Acquisitions• Disciplined evaluation criteria used to identify acquisition

opportunities

• Acquisitions completed in 2014:– Existing Plants:

– 85% operating owner of Cynthia gas plant

– 71% operating owner of Ricinus gas plant

– New Plants:

– 35% non-operating owner of Alder Flats gas plant

– 60% operating owner of Zeta Creek gas plant

• Transactions add net licensed processing throughput of 332 MMcf/d1,2 (573 MMcf/d gross) in an area seeking additional processing capacity

• Integration with other Keyera facilities enhances customer service offering

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Potential to Acquire Additional Facilities When Commodity Prices are Low



Stable and Growing Plant Throughput

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Gas Processing an Essential Service for Producers

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Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Average AECO Price(C$/gJ)

Gross Plant Throughput(MMcf/d) Historical Gross Throughput vs. Natural Gas Price

Rimbey Edson Strachan

Simonette Brazeau River Nevis

Paddle River Nordegg Caribou

Minnehik Buck Lake Bigoray Gilby

Brazeau North & Pembina North West Pembina Cynthia

Ricinus AECO Natural Gas Price

LNG Development Will Require Upstream Infrastructure

• Multi-decade development in early stages of development

• 14 LNG projects1 identified

• 7 export licenses approved1 by NEB

• Producers likely to develop highest netback gas zones first

• Significant gas expected from liquids-rich zones in B.C. and Alberta

• Edmonton/Fort Saskatchewan energy hub logical destination for NGL production

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Keyera Positioned to Support Natural Gas and NGL Growth

1 Globe and Mail, April 12, 2014.

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Strategically Integrated Assets at the Edmonton/Fort Saskatchewan Energy Hub

Liquids Business Unit

Fractionation:80,000 bbls/d of capacity at 5 locations

Storage: 11.5 million bbls in 12 underground caverns

Rail & truck terminals:Propane, butane, condensate, NGL mix, crude, bitumen, sulphur

Rail logistics: ~1,500 rail cars and growing

Iso-octane production:13,600 bbls/d at Alberta EnviroFuels

Marketing:Providing products to North American customers

Keyera Fort Saskatchewan (KFS) –Expanding Fractionation Capacity

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Continuing to Grow Fort Saskatchewan Energy Complex

•Adding 30,000 bbls/d de-ethanizer–To fractionate an ethane-rich stream of NGLs (C2+

mix)

–Net cost to Keyera ~$155 million, including pipeline connections and cavern for C2+ raw feed storage

–Expected on-stream in Q1 20151

•Adding 35,000 bbls/d of C3+ fractionation –Net cost to Keyera ~$175 million

–Anticipate online Q1 20162

1 Assuming current construction schedule is maintained. 2 Assuming timely receipt of regulatory approvals and construction schedule is met.

KFS – Adding Underground Storage Capacity

• 13th storage cavern – being washed; expected in-service H2 20151

• 14th storage cavern – washing began in Q4 2014; expected in-service H2 20161

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Growing to Meet Demand for NGL and Condensate Storage

• 15th storage cavern – drilling underway; washing to commence in Q2 2015

• Developing plans for the next phase of development, which is expected to add another ~4 million barrels of storage capacity

• Recently acquired additional land in area for future expansion1 Assuming current construction schedule is maintained.

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Majors and Multi-Nationals Driving Oil Sands Growth

Oil Sands Production –Growth Expected to Continue

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Bitumen Production Forecast (Historical + Risked)

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Diluent Demand Drives Logistics Services

Source: Peters & Co. Limited estimates.

Diluent supply from

WCSB-based

production to increase

from 170Mb/d

by 100-150 MB/d;

remainder of diluent to be supplied via imports

from the US

Top 8 Consumers by Ranking of Operated Production

Extensive, Flexible Condensate Infrastructure

• Multiple receipt points:

– Kinder Morgan Cochin pipeline (sole receipt point)

– Enbridge Southern Lights pipeline

– Western Canada feeder pipelines

– Rail imports at the Alberta Diluent Terminal

• Strong service offering attracting oil sands producers; long-term take-or-pay and fee-for-service agreements with:

• Connections to Cold Lake and Fort McMurray bitumen production

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Providing Service to Numerous Oil Sands Producers

Keyera’s Condensate Network

– Imperial Oil (Kearl)

– Husky/BP (Sunrise)

– Suncor (Fort Hills)

– Cenovus

– CNRL

– JACOS/Nexen

Enbridge Norlite Pipeline –Expanding our Condensate Service Offering

• Diluent pipeline from Fort Saskatchewan to Athabasca oil sands region

• Keyera will be participating as 30% non-operating owner

• Long-term take-or-pay agreement with owners of Fort Hills project –Suncor, Total and Teck

• Norlite shippers will have access to Keyera’s condensate infrastructure in Edmonton/Fort Saskatchewan region, including storage and rail

• Initial capacity of approximately 224,000 bbls/d with potential to be expanded to 400,000 bbls/d

• Enbridge estimates completion in 2017 at a gross cost of ~$1.4 billion1

1 Cost and timing subject to finalization of scope, timely receipt of regulatory approvals and construction schedule variables.

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Project Enhances Keyera’s Cash Flow Stability

South Cheecham Terminal –Diluent, Crude and Bitumen by Rail

• South Cheecham Rail and Truck Terminal completed in Q3, 2013

• Ownership Keyera 50% (operator), Enbridge 50%

• Terminal capable of receiving diluent and loading dilbit and bitumen onto railcars for delivery to upgraders

• Agreements in place with Statoil and JACOS

• Agreement to provide solvent handling services starting in 20171

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Meeting the Growing Rail Needs of Canadian Oil Sands Producers

1 Assuming all conditions of the agreement are met and subject to timely receipt of regulatory approvals.

Alberta Crude Terminal –Loading Crude onto Rail

• 50/50 partnership with Kinder Morgan

• Connection to Kinder Morgan’s extensive storage facility provides customers access to several crude qualities

• Project underpinned by Irving Oil

• Terminal served by CN and CP railways

• 40,000 bbls/d crude oil loading capacity

• Potential to add more than 100,000 bbls/d of incremental capacity

• Commissioning completed in Q4 2014

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Long-Term, Flexible Service Offerings

Josephburg Terminal –A Propane Solution for Industry

• Josephburg terminal will help address the need for new propane rail infrastructure to handle:

– Cochin propane volumes as the pipeline is no longer in propane service

– Growing propane supply from new liquids-rich production

• Capacity of approximately 40,000 bbls/d

• Capital costs of ~$95 million, including pipeline connections and storage bullets

• Expected on-stream mid-20151


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Helping Provide Market Access for Western Canadian Producers

Hull, Texas Terminal –Access to Mont Belvieu

• Rail and truck facility in Hull, Texas, located between Mont Belvieu and Beaumont refining centre

• Terminal intended to facilitate the movement of NGL mix, propane, butane and iso-butane into the Mont Belvieu market

• Complementary storage agreement at Daisetta, Texas

• Facility commissioned in October 2014

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Extending Keyera’s Value Chain

Iso-octane Manufacturing –Alberta EnviroFuels

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Positive Synergies with Keyera’s Integrated Value Chain

• Facility acquired from Chevron & Neste in early 2012

• Iso-octane an additive to create high octane, low vapourpressure gasoline

• Only merchant facility in North America that manufactures iso-octane

• Keyera has used its supply and distribution infrastructure and expertise to source feedstock and expand sales markets

• Liquid forward financial markets enable effective hedging of feedstock costs and sales revenues

• Significant unused land on site provides potential for new business opportunities

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Diversified Portfolio (Multiple Products with Unique Markets)

Keyera’s Marketing Services

C3Propane

• Majority sold to US markets • Producers bear most commodity price risk• Primarily a retail/industrial heating fuel• Demand varies seasonally• Supply exceeds demand in North America

C2Ethane

• Sold under long-term agreements to petrochemical producers in Alberta

• No spot market in western Canada• Not a material part of Keyera’s business

C4Butane

• Consumed in Alberta• Feedstock for iso-octane production at

AEF• Supply & demand ~ in balance• Seasonal imports from the U.S.

iC8Iso-octane

• Majority of sales in the U.S.• High quality gasoline additive• Produced from butane at Keyera’s

EnviroFuels plant

C5

Condensate• Consumed in Alberta as diluent for bitumen• Demand significantly exceeds Alberta

supply• Significant imports today required

All Three Business Segments Growing

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Fee-For-Service Business Underpins Balanced Cash Flows

1 Operating margin excludes other income from production. 2 Non-GAAP measures; see Keyera’s Q3 2014 MD&A for a definition of Operating Margin and Distributable Cash Flow. 3 At September 30, 2014.

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2008 2009 2010 2011 2012 2013 2014YTD

Gathering & Processing NGL Infrastructure NGL Marketing

Operating Margin 1,2$ Millions

3

Conservative Capital Structure

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Flexibility to Fund Keyera’s Capital Program

1 As of September 30, 2014 and calculated as per Keyera’s debt covenants. 2 Non-GAAP measure. See Keyera’s Q3 2014 MD&A for a definition of EBITDA and adjusted EBITDA.3 Enterprise value based on December 31, 2014 closing price of $81.07 (KEY).

1.80XNet Debt 1 to

EBITDA2

12%Net Debt 1 to

Enterprise Value 3Long-Term Debt Maturities

$46$97

$60$125 $109

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$143

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2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

$CA

D M

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Third Quarter Results

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(Millions of Canadian dollars, except where noted) Q3/14 Q3/13

Operating Margin 1

Gathering & Processing 54.0 40.7

NGL Infrastructure 45.8 31.4

Marketing 79.9 33.2

Other 10.9 1.7

Total Operating Margin 1 190.6 106.9

Adjusted EBITDA 2 151.4 82.6

Net Earnings 82.4 40.8

Distributable Cash Flow 3 124.4 50.5

Per Share ($/share) 1.48 0.64

Payout Ratio % 4 44% 90%1Operating margin excludes other income from production and is a non-GAAP measure. See Keyera’s Q3/14 MD&A for a definition of Operating Margin.2Beginning in the first quarter of 2014, Keyera excludes unrealized gains/losses from commodity-related risk management contracts in the calculation of Adjusted EBITDA. These non-cash gains/losses have been excluded because management believes it provides a better reflection of the financial performance of the business in the current period. The comparative amount has been adjusted to reflect this change. Adjusted EBITDA is defined as earnings (excluding unrealized gains/losses) before interest, taxes, depreciation, amortization, accretion, impairment expenses and any other non-cash items such as gains/losses on the disposal of property, plant and equipment. Adjusted EBITDA is not a standard measure under GAAP. See section titled “EBITDA” on page 31 of Keyera’s Q3/14 MD&A for a reconciliation of Adjusted EBITDA to its most closely related GAAP measure.3Distributable cash flow is not a standard measure under GAAP. See Keyera’s Q3/14 MD&A for a definition of Distributable Cash Flow.4Payout ratio is defined as dividends declared to shareholders divided by distributable cash flow. Payout ratio is not a standard measure under GAAP.

Trading Metrics

36

KEY Trading Symbols (TSX)

$81.07 Common Share Price1

$6.8 B Market Capitalization1

$7.8 B Enterprise Value1,2

84.3 M Common Shares Outstanding3

491,235 Daily Trading Volume4

$2.58 Annualized Dividend per Share (21.5¢ / month)

3.18% Current Dividend Yield1

53% Payout Ratio5

1 Based on closing share price at December 31, 2014. 2 Enterprise value includes debt (as at September 30, 2014) less working capital. 3 Basic shares outstanding at November 30, 2014.4 Fourth quarter 2014 daily average from all 13 exchanges and markets on which Keyera’s shares are traded. 5 2014 first nine months.

Providing Critical Infrastructure for theOil and Gas Sector in Canada

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• Keyera’s growth driven by liquids-rich gas production & oil sands development

• Western Canadian geology provides multi-decade resource

• Business based on providing essential (non-discretionary) services to producers

• 2015 growth capital expected to be largest in Keyera’s history

• Conservative capital structure provides financial flexibility

38

For Further Information Contact:

John CobbVice-President, Investor Relations

Lavonne ZdunichDirector, Investor Relations

Nick KuzykManager, Investor Relations

[email protected]

Keyera Corp.600, 144 – 4 Avenue SWCalgary, Alberta T2P 3N4

www.keyera.com

cibc 18 th annual whistler institutional investor conference · 2015-02-05 · cibc 18 th annual...

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