Keyera Corp. (KEY) Earnings Call Transcript & Summary

Good morning. My name is Ludy, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera's 2024 Guidance Conference Call. [Operator Instructions] I would now like to turn the call over to Dan Cuthbertson, Director of Investor Relations. You may begin.

Thank you, and good morning. Joining me today will be Dean Setoguchi, President and CEO; Eileen Marikar, Senior Vice President and CFO; James Urquhart, Senior Vice President and Chief Commercial Officer; and Jarrod Beztilny, Senior Vice President, Operations and Engineering. We will begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions. I would like to remind listeners that some of the comments and answers that we will give you today relate to future events. These forward-looking statements are given as of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, please refer to Keyera's public filings available on SEDAR and on our website. With that, I'll turn the call over to Dean.

Thanks, Dan, and thank you for joining us today. Eileen Marikar and I will be sharing a presentation, after which we'll be joined by the rest of the senior executive team for the Q&A portion of the call. Before we begin, I would like to remind everyone about the risks associated with forward-looking statements and non-GAAP measures included in this presentation. You will have seen in the news release this morning that we're on track for a very strong year. Before we get to the Q&A section of the call, Eileen and I are going to, firstly, look back at our results so far in 2023 and compare how we delivered against the targets we set out. Secondly, look in more detail at the progress and contributions made by key parts of our business. And finally, discuss our 2024 guidance and how we have decided to allocate capital in the coming year. I'm very proud of our performance in 2023. We set out a clear strategy and the team executed well. Many of these accomplishments are detailed in the release, but I'll touch on a few highlights. Our safety performance improved dramatically with total recordable injury frequency down from 0.62 last year to 0.24 at the end of Q3, including both employees and contractors. Our business has performed very well. We're on track to deliver record margins from all 3 business segments, leading to record EBITDA and DCF per share performance. We maintained our financial strength with leverage at the very bottom end of our targeted range even after the completion of KAPS, the largest single project in our history. Also, S&P awarded us with a credit upgrade, reflecting a strong financial position and outlook for our business. This strong balance sheet and great business performance supported the decision to increase our dividend by 4% in August, returning Keyera to its long history of dividend growth. We've strengthened our value chain and increased our competitiveness. We now have a fully integrated service offering from wellhead to end markets, which means we can touch the molecules every step of the way, adding value for our customers and margin for ourselves. On our sustainability journey, we're on track to meet our 25% emissions intensity target by 2025. From 2019 to the end of 2022, we achieved a 13.5% reduction in emissions intensity, and we will continue to execute on capital-efficient opportunities to reduce emissions and operating costs. I'm very confident in our ability to continue delivering on our strategy as we approach 2024. Let's start with the macro context in which we're executing our strategy. The map on the left highlights the massive resource potential of our basin and various sanctioned capacity expansions. Projects like Coastal GasLink feeding LNG Canada and the Trans Mountain pipeline expansion will enable a reliable supply of Canada's responsibly produced energy to reach global markets. The 2 takeaway messages here are we're sitting on world-class multi-decade reserves. And with the added pipeline capacity to the West Coast, our basin is finally unconstrained. We expect this to lead to a strong supply response as illustrated on the chart to the right. Our integrated infrastructure will help to enable this growth. Today, our basin produces roughly 18 Bcf a day of natural gas. With 4.1 Bcf a day of sanction expansions, it represents approximately 20% growth for our basin and 30% if you include the unsanctioned LNG Canada Phase 2 anticipated in the second half of the decade. Western Canada has vast natural gas reserves and a globally competitive supply cost. The lack of pipeline takeaway capacity has limited growth. That's about to change with the previously mentioned pipelines coming into service next year. And as Canada's natural gas production grows, natural gas liquids volumes will grow too. This is at the core of our business and transporting, processing, terminalling and marketing these liquids is what we do best. And with KAPS now in place, we can now offer a complete suite of value-added services across our entire value chain in a very efficient manner. This means that we can help make the whole basin even more competitive. Producers who are investing to grow are financially stronger than ever. The publicly stated growth plans have been compiled in the graph on the left. Natural gas liquids volumes are expected to keep growing in both Alberta and BC. And the map on the right illustrates how our assets are strategically located to benefit from this growth. Given the growth that we've experienced since 2022 and the outlook that we have going forward, we expect to reach the high end of the previous 6% to 7% EBITDA growth target that we gave at our 2022 Investor Day. We can deliver this growth largely with capital that's already been deployed. There are many opportunities to continue to enhance our system because we're located in the most active areas of the basin and the basin will need more infrastructure capacity to support that growth. Examples of that are the KAPS Zone 4 project and options to increase frac capacity. We're continuing to advance these projects and are subject to obtaining sufficient customer underpinning and board sanction. Further out, we continue to pursue our low-carbon hub strategy. This will leverage our existing land, connectivity, expertise and proximity to the large industrial players to offer value-added low-carbon services. We're excited about Dow's path to zero announcement and believe that more low carbon opportunities will be developed in the industrial heartland in Alberta. Not only is cash flow growing, but so is the quality of it. I want to take a moment to share how our G&P business has changed over the last several years and how this is contributing to higher profitability. Our G&P business has evolved. Since 2017, we've been making significant strategic investments in developing our G&P footprint in the northern region as we could see the growth potential from the Montney and Duvernay plays. At the same time, in the South region, our optimization program diverted volumes from less efficient plants to more efficient ones, driving higher profitability and lowering emissions. Over 70% of our realized margin used to come from the South. Now over 70% comes from the north where we have a higher proportion of long-term take-or-pay contracts with strong producers. I'd also add that in the North, we have the opportunity to offer more services like water handling, sour gas processing and liquid separation. Putting this all together, it has led to about a 20% higher unit realized margin for the entire segment. There are also interesting developments in the South. It's clear that there are interesting prospects for consolidation amongst producers in this area, such as Tourmaline's recent acquisition. We expect this to drive more activity in the area where we have an extensive gathering processing system, our Keylink NGL pipeline, fractionation at Rimbey and pipe transportation to Fort Saskatchewan. The NGL growth volume in the basin will continue to support the Liquids Infrastructure segment. The continued ramp-up of KAPS and renewal of fractionation contracts at the KFS complex have a high proportion of long-term take-or-pay contracts. On top of that, production from the oil sands is set to grow, and this will drive [ fueling ] demand, the majority of which originates from our condensate system. We're already seeing new contracts for diluent handling and more opportunities for transportation and storage. The NGL infrastructure volume growth that I just mentioned also increases opportunities to benefit our marketing business. Today, we're increasing our base marketing guidance to a new level of $310 million to $350 million. We're very confident in this part of our business and our ability to deliver within this new range. There are 2 main structural factors that lead us to higher base marketing guidance. Firstly, the growth of our business with more liquids flowing through our integrated system, it feeds our marketing segment as well. Secondly, our team has done a great job accessing new markets that offer advantaged pricing for iso-octane. We'll update our 2024 marketing guidance with our first quarter results in May once our NGL contracting season is complete. Our marketing business is a valuable differentiator for Keyera. First of all, it's important to understand that marketing is a physical business that creates benefits for our customers by connecting them to the highest value markets in a very efficient way, thereby enhancing their netbacks. We do this in two ways: firstly, by leveraging our physical assets to access high-value markets, such as AEF's unique ability to convert butane into a high-value gasoline additive. Secondly, by leveraging our logistics and marketing expertise across North America. This ability to create value for our customers means that we can also capture value for ourselves. Because of the value we're able to create with our iso-octane business, this segment is a larger proportion of our cash flow than our peers. It comes with advantages, so let me explain how this fits with our overall business model. While we don't rely on marketing to fund the dividend, it has enabled us to consistently produce higher-than-average corporate returns on invested capital as seen in the chart on the bottom left. Now if I can move your attention to the wheel on the right, the cash flows generated from marketing are reinvested back into the fee-for-service business, therefore, enabling us to continue to compound returns at an accelerated rate. This accelerated growth in high-quality fee-for-service cash flow in turn supports further dividend growth and other forms of shareholder returns. Marketing cash flows can also be applied to the balance sheet. In a sense, it's like getting a free equity issue without the dilution. So in summary, the Marketing segment is a powerful advantage, which allows us to consistently generate superior returns. I'll now pass it over to Eileen, who will provide context around our thinking on capital allocation and guidance in 2024.

Thanks, Dean. From 2017 to 2022, we averaged around $700 million per year for growth capital, which has funded a lot of our business growth over the next few years. Going forward, annual growth capital is expected to be lower relative to the past 5 years. As we look out, we have strong free cash flow generation in the coming years. Given this, I wanted to share with you how we are thinking about our capital allocation priorities in the near term. As it relates to the balance sheet, we're happy to stay at the lower end of our range. And in the near term, we will use some of our cash to pay down higher rate short-term debt. We'll also look to term out some of our short-term debt at more favorable rates when the time is right. Continued strength of the balance sheet gives us maximum optionality to bring forward growth projects when they are ready. In terms of investments, they will be aimed at opportunities that strengthen our existing value chain in Western Canada. For project level returns we said in the past that we were aiming at a return on capital in the range of 10% to 15% before tax. Given higher interest rates and cost of capital, we are currently aiming for project level returns of at least 13% before tax. The recent Pipestone expansion project is an excellent example of putting this new return on capital expectations into practice. Turning now to shareholder returns. Ultimately, dividends need to be paid out of distributable cash flow, and we aim for a payout ratio of 50% to 70% of DCF. The stability and growth of our dividend is supported by the high-quality cash flow from our fee-for-service business segments, which continue to grow. Finally, regarding share buybacks. They remain a possible tool that will be weighed against other capital allocation opportunities. As we've said in the past, our preference is to reinvest in growing the underlying business and continuing to compound returns throughout our integrated value chain. Given the margin growth we are seeing and the capital allocation context I just gave here are our expectations for 2024. For the time being, marketing realized margins will be equal to our new base guidance of $310 million to $350 million. As mentioned previously, we will look to revise this with our Q1 results in May. Growth capital is expected to range from $80 million to $100 million. This includes about $60 million of sanctioned capital for various optimization projects and $20 million to $40 million is earmarked for possible long lead items for 2 unsanctioned projects, KAPS Zone 4 and a potential frac expansion at KFS. These projects are subject to getting appropriate contractual backing from customers and board sanction to move ahead. Maintenance capital is expected to range within $90 million to $110 million, which includes turnarounds at Wapiti and Strachan. It's important to note that about $35 million of this is recoverable, $20 million of which is recoverable in 2024 and the remaining $15 million in future years. In years where we don't have an AEF turnaround, we believe a reasonable go-forward run rate for maintenance capital will be between $70 million and $90 million. In years where we do have an AEF turnaround the spend is expected to be higher. Cash taxes for 2024 are expected to be $45 million to $55 million. So pulling this all together, next year is going to be a year of strong free cash flow generation as we enter a phase of lower capital spending relative to the past 5 years. This leaves more cash to pay down some higher rate short-term debt to build more optionality on the balance sheet and return more cash to shareholders. Now a quick look at our debt profile; our weighted average interest rate on outstanding debt is less than 5%, including our hybrid debt, and we also have no material maturities coming until 2025. This means we have no need to refinance at current high rates in the near term. The recent S&P upgrade also helps to provide us with an improved cost of capital and ongoing financial flexibility. With that, I'll pass it back to Dean.

Before we open the line for questions and comments, I'll remind you of what we've covered today. One, we're on track for a very strong year. 2, we're well-positioned to benefit as natural gas liquids keep growing in the basin; 3, as our cash flow grows, so does its quality. 4, we've increased our base guidance for the marketing business to $310 million to $350 million. 5, we described our thinking on capital allocation in the near term. And finally, we provided our 2024 guidance a year of strong free cash flow generation. We've had a great year of executing our strategy in 2023, and we have a clear plan for continued success in 2024. On behalf of Keyera's Board of Directors and Management Team, I want to thank our employees, customers, shareholders, indigenous rights holders and other stakeholders for their continued support. With that, I'll turn it back to the operator for Q&A.

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

First question is just on the outlook for 2024. Interesting that you're including the Zone 4 expansion as well as the potential frac expansion there. I would imagine that speaks to the confidence that you will be sanctioning these projects. So when you take a look at kind of the key milestones between now and sanctioning, what do you think are the key gating factors? And when could we see additional clarity on these items?

Good morning Rob, it's Dean and thank you for the question. It is a good one. First of all, I'd like to just reemphasize that we have a strong year outlook for next year in 2025 with our 6% to 7% growth outlook on EBITDA, fee-for-service EBITDA, which is, again, from expenditures or investments we've already made. With that, though, we do see -- we do have a very strong outlook for the basin, and we think that that's going to support more demand for capacity with our integrated system. And the areas that we see that will likely get the most demand is just more frac capacity. So we are actively extending contracts on our capacity that we have already, which is great. So we see a lot of demand there. And we also see that there's going to be continued growth in BC, the BC Montney as part of that Montney fairway. So with that, producers want a competitive alternative and then that additional capacity built. So we are actively working on that project as well. I would emphasize that we will not sanction [ either ] of these projects without adequate contractual backing. So -- but I would say that we are having very active discussions on both fronts. So really, when you look at 2024, though, these are relatively small sort of capital commitments to advance these projects at this point. So we do have them in as a placeholder, but I do want to emphasize that we need the contractual backing to advance them.

All right. I appreciate that. And then maybe just on the kind of the 6% to 7% CAGR out to 2025, a couple of moving parts there, including kind of the higher base marketing guidance there as well. But when you take a look at kind of the decision to point to the upper end of the range, what kind of key areas do you think have been outperforming versus kind of the prior expectations?

We're very pleased with the performance of our entire business. Like all the 3 business segments are performing very well. And we've certainly seen volume increases in our G&P side of our business, both in the North and the South, but specifically at Wapiti and Pipestone with our recent expansion of Pipestone. We see more growth up there. Simonette is an area that's going to continue to grow. We've talked a lot about the turnover of some big land blocks held by majors before like Shell and XTO and now they're in the hands of more active producers. We're seeing the development of the Duvernay up in that area. So we think that that's very positive for growth overall in our G&P business. As you know, we have an integrated business [indiscernible], so that's going to help feed volumes in the KAPS. And on the downstream part of our business, we're seeing growing volumes through our condensate system and also our storage and terminalling assets. So overall, we're seeing growth in volumes, which is driving sort of that higher fee-for-service EBITDA projection. And you know what? I mean I guess just maybe just lastly, I know you had the question was more about the fee-for-service EBITDA, but I don't want to leave out our marketing business, which, again, it's a physical business. And with increased volumes that are flowing through infrastructure, it's helping to enable our marketing business to perform extremely well at the same time.

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

There are a lot of mentions here about balance sheet optionality. And so I just want to get a sense as to how you're thinking about funding future CapEx. So when you think about the organic program, are you looking to live within a free cash flow positive constraints and equity self-funded constraints or is there a willingness to turn on the DRIP using ATM or even issue discrete equity to fund organic growth CapEx?

That's a great question. I'll turn that over to Eileen.

Thanks, Robert. Yes, great question. As we said earlier, compared to the past 5 years, we are moving to a period of lower capital spend. We have several strong projects ahead of us, and many of those Dean really touched on today, but they are smaller in scale so relative to a KAPS, for example. So based on our forecast and where our balance sheet is today and as we look out over the next 2 years, we feel very comfortable that we can fund these types of opportunities on a self-funding basis, so that's both equity and debt.

Okay. And I was just thinking a little bit of some of these low carbon hub opportunities if something larger came up -- how would you think about that or even Eileen in the past, you've talked about a willingness to exceed 3x debt-to-EBITDA on a temporary basis if you saw the path to get back in. Has that thinking changed or is 3x really a hard cap at this point?

It would really depend on the opportunity. And I think some of the spending with the [ Green Heart ], the hub, the low-carbon hub, a lot of that would come later on, probably in that 2026 timeframe, more of that capital spend. And again, the capital spend will be split out over several years. But I do, again, want to reiterate that, yes, the 3x, if there is a path down and it's the right opportunity, it's strategic, it has the right return profile as long as we see a quick path down to get within our target I think that's fine. Your other question about the DRIP at this point, we have no intention of turning that back on.

Okay, that's great. If I can just finish on how you're approaching contractual, whether it's the KFS expansion, Zone 4, frankly, anything else. What do you view as appropriate kind of contractual? For example, what percentage do you want to be third-party contracts? What range of duration would you want to see? And Dean, you kind of touched on it, but just to confirm, for something like KFS that would apply to getting similar type extensions for KFS 1 and 2 before you would go forward with a third frac. Is that fair?

Yes, that's right. For competitive reasons, we don't really disclose as to what our contractual limits are or where the thresholds are. But what I would say -- I'd refer you to our return on CapEx expectations. And our minimum threshold is in sort of 13% or better on infrastructure, knowing that we can exceed that on an enterprise level when you think about the downstream benefits to the investments that we make. It could be upstream or downstream benefits, I should say. So that's really what the hurdle that we're trying to work towards. And certainly, we need to have line of sight to have the contracts to back that return.

Yes, I was actually just asking a little bit more of what percentage of capacity would you want to see covered by third-party contracts? And what average kind of duration would you be targeting?

Well, like I said, a lot of it -- I mean, the return on cap is basically just a simplistic view, but we're looking at like IRRs like pretax unlevered IRRs as well. So I think the -- we look for long-term contracts, typically in a 10-year range, 10-year plus. But there's some variation to that as well. And again, a lot of it has to do with the IRR of what we can return. We can get creative with some contracts as well. So it's not like a homogeneous kind of contracting process. But overall, we have to get our heads around us generating a strong rate of return than just our infrastructure, and that will help leverage returns for the rest of our business.

And your next question comes from the line of Robert Catellier from CIBC Capital Markets.

Thank you for the strong presentation this morning. I wondered if you can just spend a little bit more time elaborating on what Dow's recent decision to FID, their Net Zero site and their ethylene cracker can mean for your company?

And I guess we're only taking questions from people that have a name Rob today. So I think that's a great question. I think it's tremendously exciting, not just for our industry but for Canada as a whole. I think it really demonstrates how -- when our provincial government and our federal government work together, we can do a lot of great things and attract a lot of investment to Alberta and obviously benefit all of Canada. So the first Net Zero cracker, ethane cracker and for it to be in Fort Saskatchewan, right across the street from our [indiscernible] frac and storage complex, I think, is tremendously exciting. We have a lot of infrastructure in that area, obviously. We have a lot of talent as well. We have 10 pipes that cross right through Dow's Land. So obviously, we will work with Dow and see for that we can help support their project and help enable that to happen.

Okay. I don't want to diminish your achievements. There have been numerous KAPS, improvement in the G&P business, the KFS acquisition. I just wonder if you have given any thought to either expanding geographically or extending the value chain into other areas while you wait for some of the longer-dated projects like the carbon hub to really materialize?

Would we extend the value chain?

Yes. The question really is do you think you need another growth platform for the interim period while you wait for some of the other long-dated projects to materialize?

I think that's a good question, Rob. But when we look at the macro, especially with notwithstanding some of the little blips that we see on Trans Mountain, we do believe that is actually going to get into service sometime in the visible future. And Coastal GasLink should be taking linefill here in the next couple of quarters. That's pretty imminent. So we think that's going to unlock growth in the basin. And with that growth, there's going to be basin infrastructure and capacity that's going to be required. So we think that we're very well-positioned to help enable that growth and -- but it will require more capacity additions on our system. So we see growth opportunities off our system. We talked about frac in Zone 3, Zone 4, but on KAPS, but I think incremental that we'll still see more opportunity for growth on our integrated system as well. And I think that will bridge us to, like I say, the latter half of the decade where I can foresee more growth opportunities at our low carbon industrial hub at Fort Saskatchewan. But maybe just lastly, I mean we're also always looking for ways to extend our value chain. So we have the highest value market for butane with their iso-octane facility. We have the -- basically the condensate system that delivers the majority of [indiscernible] into the oil sands. So we have the hub for that. And so we're always looking for ways to enhance our propane business, too. And a lot of that right now is really trying to provide a lot of flexibility to access any markets for propane, but we're always trying to extend those value chains.

Okay. That's a very helpful answer. Maybe I could just finish with the dividend question for Eileen. As you look at the 6% to 7% growth for the fee-based cash flow and understanding you already have your financial house in order here. How do you view returns to shareholders in terms of your preference for dividend growth versus repurchases. For example, 6% to 7% -- are you sort of targeting a much lower dividend increase level and opportunistically look at repurchases or are you -- given your house and financial house in order, would you consider something more aggressive on the dividend growth side?

Thanks, Robert. Yes, great question. I think if we step back and think about how we really approach the dividend, the dividend is the priority. We do look to grow the dividend in line with distributable cash flow per share. So that's -- and really, that emphasis on growing that fee-for-service business. And so that's what we've talked about that 6% to 7% EBITDA growth really underpins the growth in the type -- quality of cash flow that underpins the dividend. Again, the payout ratio, we target pretty conservative so that it's sustainable through all business cycles like it was during the pandemic. I think ultimately, we have strong confidence that we can sustainably grow the dividend, really 2 reasons. One, right now, we're at the low end of our payout ratio. And 2, we expect to deliver at the high end of that EBITDA growth out to 2025 while keeping marketing contributions flat. In terms of share buybacks, they do. They do remain a tool that we can use opportunistically. But as we said before, reinvesting in that underlying business and compounding returns throughout the value chain, that's what we're really focused on.

And your next question comes from the line of Praneeth Satish from Wells Fargo.

Maybe just going back to Robert Kwan's question on your funding plan here. So it sounds like the goal is to stay to self-fund your CapEx. And I'm just trying to understand how high that could flex if Zone 4 of KAPS goes through and KFS expansions go through. On our math, if we look at our model, it's probably $300 million to $350 million of growth CapEx is where you get to that breakeven point on a self-fund basis. Is that how high CapEx could go if some of these projects get sanctioned in the '25, '26 timeframe or would you look to stay below that level?

As we've said in the past, like for those 2 projects, the CapEx we can fund within that kind of $300 million to $350 million range. And for those 2 projects, in particular, the capital spend will be spread out. It takes 2, 3 years for these projects to develop. So within that and where our balance sheet is today, we feel quite confident that we can self-fund both of those 2 projects in particular.

Got it. And then maybe just recognizing it's early here on the marketing side, and you're going to go into the re-contracting season in April. But there's a lot of volatility on the butane side, Panama Canal and export constraints and butane prices are now moving a little bit higher. So just curious for your high-level thoughts here in terms of maybe some puts and takes of how you think the contracting season could go.

Yes. So it's Jamie. Thanks for the question. Yes. Butane has risen a little bit in the Gulf Coast. But I think we need to bring it back to the dynamics in Western Canada and ultimately, the supply demand within our basin. So we're of the view that we're likely still going to see in '24 butane prices that are in line, if not slightly below what we would have realized in '23. And the fundamentals, as Dean spoke to around as we see growth in the oil sands we're going to -- and ultimately, the natural gas that's going to be routed towards the West Coast. We're going to see significant liquids coming off of that natural gas and a pull from the oil sands for natural gas condensate and ultimately, the associated liquids that come with it. The supply-demand within our basin, we look at it as we we're fairly confident that we're going to see some stability in butane prices over the next few years.

Got it. And then, sorry, if I could just squeeze in one more question here on buybacks. I guess I know the preference here is for sanctioning more growth projects and buybacks are kind of at the bottom of that capital allocation stack. But I'm just trying to understand at what point would you consider doing buybacks? Would it be if you don't sanction Zone 4 and KFS this year that maybe in the back half of this year, you would look to execute on those buybacks, assuming the price made sense because you would be generating a lot of free cash flow or would it be the following year? Just trying to understand the timeline for that.

Yes, that's a great question. And it's always a balance between your opportunity set that's in front of us. And right now, we see the opportunity set is very strong. So when we compare the 2 options, yes, the option -- the better option for us is to reinvest in the business, especially in the projects that we talked about today. But again, the share buybacks remain a tool, share price, etcetera, there are -- those are things that would go into that thinking and putting an NCIB in place is something that's very easy to do, and we would do that at the appropriate time.

[Operator Instructions] Your next question comes from the line of Patrick Kenny from National Bank Financial.

Just given your free cash flow outlook for next year and with your balance sheet already where you want it to be, I know Zone 4 and KFS are coming. But just based on the growth across the basin right now, curious to get your thoughts on implementing a strategy to consolidate additional G&P capacity, either within your North or your South regions just to help maybe accelerate the KFS expansion opportunity, assuming you can acquire for the G&P capacity at multiples below where you could be buying back shares?

Hello Patrick, it's Dean and I should maybe hire you for a core dev group here in our company. But listen, we're very pleased that we have a fully integrated system. And I should mention both in the Deep Basin and obviously in the Montney as well. And as we see the basin growing, we think that there's -- and one thing I want to point out is that we're always looking for ways to make our system -- integrated system now more efficient and more competitive. And so with that, we see -- we think that there's going to be opportunities across our entire value chain to continue to enhance it. And so we're certainly open for opportunities like that. G&P could be part of it, part of that footprint. And as you know, we've made some tremendous investments up to establish a very strong footprint up there already. So yes, it could happen anywhere in our value chain. But I would mention that it has to be on strategy, any acquisition that we would consider which is really enhancing our Western Canadian integrated value chain. It would have to be aligned with our financial parameters that we've been very disciplined to stay within the 2.5x to 3x debt-to-EBITDA. And it has to be value accretive for our shareholders. So if we meet those 3 criteria, certainly, we're open to look at opportunities like that. And as we've discussed this morning, we have tremendous flexibility in our balance sheet to help make something like that happen should the opportunity arise.

Okay. That's perfect. And then maybe just switching over to the iso-octane can you just provide maybe a little bit more color on what new markets are being accessed here? What's supporting the structural uptick in premiums -- just to, I guess establish that floor expectation of $310 million per year. And I guess -- I might have missed it, but I didn't see any sensitivities. I'm wondering if you could provide whether it's volumes up or down 5%, commodity prices, FX rates, just wondering what market dynamics could cause the marketing results to either fall below the short end of that range or continue to exceed the top end?

Sure, I'll turn that over to Jamie to answer.

Yes. So thanks, Pat. Yes, look, I mean we're really seeing some positive momentum in the fact that we're diversifying some of the markets on the iso-octane side. And really, that's driven by some evolving regulations in certain jurisdictions and states down in the U.S. that now are requiring of clean-burning gasolines and iso-octane is really a unique and preferential product in the gasoline blending pool that has -- as a result of those changing regulations, we've seen some increased demand for those for our product in those jurisdictions, right? So before COVID we sold the majority of our [ ICA ] or isooctane down into the Gulf Coast and ultimately, it was distributed from there. Now we're starting to see the opportunity to on a ratable basis, sell that product into those markets. And that allows us to extract a higher premium than we otherwise would see in the Gulf Coast and also some reduced rail cost to get it to those markets. So that's really what's driving it is those factors.

Maybe just to add on to Jamie's comments is that we only produce roughly 14,000 barrels a day of the product. So in the context of the whole gasoline pool and the octane pool is very small. So as Jamie said, like every bit of demand that we add for that product, it just helps us maintain a high premium for the product when we sell it. So that's been very good for our margins.

Okay. That's great. And we can follow up offline, but if there were any sensitivities you could provide, that would be great, too.

And there are no further questions at this time. I would like to turn it back to Dan Cuthbertson for closing remarks.

Thanks all for your participation today. As always, please feel free to contact our Investor Relations team with any additional questions or context. Wishing everyone a great day. Thank you.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.