Keyera Corp. (KEY) Earnings Call Transcript & Summary

My name is Mark Elliott. I'm a shareholder, and I move that the ordinary resolution set out at Page 16 of the Management Information Circular with respect to the corporation's approach to executive compensation be approved.

My name is Eva Miclat. I'm a shareholder, and I second the motion.

Thank you. Mr. Chairman, we have received no questions on this item. We invite shareholders and proxy holders to submit your vote now if you have not already done so. As this is the last item of business before the conclusion of the formal portion of this meeting, for those who have not voted on all resolutions, please do so now. Jim, I confirm that the shareholders have now had an opportunity to vote.

Thank you, Christy. As everyone has now had an opportunity to vote, I now declare the voting polls for the meeting to be closed. Christy, I would ask that you please read the preliminary voting results for the meeting.

Thank you, Jim. I have received the scrutineers' report and can confirm that the preliminary voting results are as follows: Each of the 11 nominated directors have been elected with an average support of over 96% of shares voted or represented at the meeting. Deloitte LLP have been duly appointed as the corporation's auditors for the upcoming year with average support of 85% of shares voted or represented at the meeting. Finally, the say-on-pay advisory resolution has been duly approved with support of over 98% of shares voted or represented at the meeting. Final voting results will be filed on our website as well as SEDAR+ as soon as practical after the meeting.

Thank you, Christy. As that concludes the formal business of the meeting, I now declare the formal business portion of the meeting to be terminated. I will now turn the meeting over to Keyera's CEO, Dean Setoguchi, who will provide a brief management presentation. Dean's presentation will be followed by a question-and-answer session to address inquiries submitted during the meeting. You may continue to submit questions using the online platform until conclusion of the question-and-answer session of the meeting. Dean?

Thanks, Jim, and good morning, everyone. I'm pleased to welcome you all to this event today. I'll turn your attention to the slides on the screen, which address the risks associated with forward-looking statements, non-GAAP and other financial measures included in this presentation. This information can also be found on our website. At Keyera, our vision is to be the North American leader in delivering energy infrastructure solutions. Being a leader it doesn't mean we need to be the biggest, but we want to be the very best in what we do. We achieved this through an unrelenting focus on safety, customer service and value creation for all of our shareholders and stakeholders. I've never been more optimistic about the outlook for Keyera and the Canadian Energy than I am today. Canada has world-class reserves and amongst the strongest human rights and environmental standards in the world. This makes Canada a leading provider of the energy the world needs. Canada's competitive advantages include a commitment to climate action, a talented workforce, a stable democratic government and advantaged proximity to the largest energy demand markets, being the U.S. and Asia. For the first time in many years, Canada's resource growth will be unconstrained. This is because we're finally getting the export capacity needed to get our resources to market. The map on the left highlights the massive resource potential of our basin and various sanctioned export capacity expansions. The Trans Mountain pipeline expansion is now in service and LNG Canada is nearing completion and is expected to be operational in 2025. As illustrated by the chart on the right, this is expected to cause a strong supply response, leading to production growth across the basin. Keyera's integrated infrastructure is well positioned to help enable this growth. Natural gas production from the basin has grown 12% over the past 3 years. And over that time, Keyera's natural gas processing volumes have grown by about 25%. With the first phase of LNG Canada and other basin developments, there's nearly 4 Bcf per day of incremental demand pull from the basin out to 2028. This represents about 20% growth and could be more than 30% if you include the second phase of LNG Canada and other proposed West Coast LNG projects. Much of the supply required to meet this growing demand will come from the Montney and Duvernay where Keyera has a very strong footprint. Producers who are investing to grow in these areas are financially stronger than ever. The expected growth has been compiled in the chart on the left. And as Canada's natural gas volume grows, so do the associated natural gas liquids processing those liquids and getting them to the best markets is what Keyera does best. The map on the right illustrates how Care's integrated value chain is strategically located to continue to benefit from this growth. With KAPS in place, we now offer our customers a full range of value-added services. Our strategy has 4 pillars, which guide us towards delivering long-term value for our customers and shareholders. First is demonstrating financial discipline. We take a conservative approach to financial management, which has served us well through all market cycles. Second is continuing to drive the competitiveness of our assets. We maintain a relentless focus on cost, reliability and customer service. Third is strengthening our integrated value chain, which we've done with the completion of KAPS and the acquisition of additional capacity at our KFS fractionation complex. Lastly is ensuring long-term business sustainability. We're committed to continuous improvement in all aspects of our sustainability practices. This means continuing to lower emissions, investing in our people and communities and maintaining the highest standards of corporate governance. Successful execution of our strategy led to Keyera's record performance in 2023. I'm very proud of the results we delivered last year, and I'll highlight just a few of our accomplishments. First and foremost, we delivered our best-ever safety performance in 2023. This result demonstrates the collective commitment of each and every Keyera employee and contractor. We delivered record realized margin from all 3 of our integrated business segments. This strong business performance has driven record financial results, including record annual adjusted EBITDA over $1.2 billion and record distributable cash flow of $3.73 per share. We increased our dividend by 4.2% and distributed $449 million in dividends back to our shareholders. We ended 2023 with a best-in-class leverage position, providing financial strength and maximum optionality to continue to execute our strategy going forward. We also added significant long-term integrated agreements on KAPS and KFS, demonstrating the long-term value of our assets. And lastly, we completed our Pipestone expansion ahead of schedule and below budget. Keyera has a business that generates strong returns and distributes stable and growing dividends back to our shareholders. With exceptional results in 2023, it's no surprise that we delivered on every component of our financial framework. Along with our best-in-class leverage position, we generated a very competitive corporate return on invested capital of 16%, well above average for our peer group. Our dividend payout ratio was 53% of distributable cash flow near the lower end of our targeted range. This reinforces the stability of our dividend. Our objective is to continue to invest in our integrated platform to compound returns and keep growing our long-term stable cash flows. This, in turn, underpins continued dividend growth for our shareholders. Today, we released our first quarter results. As you can see on the slide, we're carrying the strong momentum from 2023 into 2024. A couple of highlights from this morning's disclosures are record quarterly realized margin from our Liquids Infrastructure segment, and we increased our 2024 guidance for our marketing segment to a range of $430 million to $470 million. We expect continued strong performance from this segment due to the continued strength of our iso-octane business. Our results continue to reinforce the value of our fully integrated assets and our ability to connect customer volumes from wellhead to the highest value end markets. Now that our Montney gathering and processing footprint is connected via the KAPS pipeline to our KFS fructuation complex, we can provide more value-added services for our customers. This integrated platform not only makes us more competitive, but also provides opportunities for future growth. We now expect to reach the high end of our growth rate target of 6% to 7% from 2022 out to 2025. We can deliver this growth largely with capital that's already been deployed. Growth beyond 2025 is supported by continued filling of available capacity across our system, along with additional investment opportunities. These opportunities include our KAPS Zone 4 expansion project and options to increase frac capacity at our KFS complex. We're continuing to advance these opportunities and they're subject to obtaining sufficient customer underpinning and Board sanction. We're also mindful of positioning the company for the long term. Further out, we continue to pursue our low-carbon hub strategy. This would leverage our existing land, assets, connectivity, expertise and proximity to large industrial players to offer value-added low-carbon services. We're excited about Dow's recent path to zero announcement and believe that more low carbon opportunities will be developed in industrial heartland in Alberta. We are uniquely positioned to create a very strong energy transition business. We continue to make progress on our sustainability journey, and I'll reference a few highlights here. We reduced GHG intensity by 13.5% from 2019 to 2022 and are on track to reach our reduction targets of 25% by 2025 and 50% by 2035. Furthermore, we've secured power purchase agreements to provide 40% of the company's commercial power needs from carbon-free sources by 2025. Through our partnership with Project Forest, we're replanting trees and rewilding 32 hectares, about the size of 60 football fields of conservation land near our KAPS right away. On the social side, we contributed $1.9 million to communities through our social investment program, and our employees volunteered over 9,000 hours through various charitable organizations. Our sustainability efforts are being recognized by leading ESG rating agencies, including strong scores with MSCI, Sustainalytics and Moody's. Later this year, we'll be publishing our latest sustainability and climate report, updating our progress in priority areas. We believe strong sustainability performance translates to better management of long-term risks and therefore, a more profitable and resilient organization. Keyera has had a long history of generating superior returns. Our strategy is focused on maintaining financial discipline while building a stronger, more competitive business. This approach has enabled our long history of sustainable dividend growth through various market cycles. We've delivered an average dividend per share growth rate of 6% per year for the last 15 years. With strategically located assets and a strong production growth outlook for the basin, we're well positioned to continue to maximize value for our customers and shareholders. On behalf of Keyera's Board of Directors and the management team, I'd like to thank our employees, indigenous rights holders, customers, shareholders and other stakeholders for their continued support. I'll now turn it back to Jim to begin our Q&A period.

Thank you, Dean. We will now open the question-and-answer session to respond to any questions submitted during the meeting. Christy, can you please read any questions that have been submitted during the meeting.

Jim, I confirm we've received no questions.

Seeing that there are no further questions, this will now conclude our question-and-answer period. On behalf of the Board and Management of Keyera, I wish to thank you for your participation today and for your continued support of Keyera Corp. Thank you. Have a good day.