Tidewater Midstream and Infrastructure Ltd. (TWM) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Tidewater Third Quarter 2021 Financial Results Conference Call. [Operator Instructions] Also note that the call is recorded on Thursday, November 4, 2021. At this time, I would like to turn the call over to Tom Hems. Please go ahead, sir.

Thank you, and welcome, everyone, to Tidewater Midstream's third quarter conference call. This is an exciting quarter for us as it's the first quarter, including consolidated results from our recent Tidewater Renewables spin-off. So I'm Tom Hems, Director of Investor Relations. On the call with me today is Joel MacLeod, Tidewater's Chairman and CEO; and Doug Beamer, Tidewater's VP of Corporate Finance. Before passing the call over to Joel for a review of the quarterly highlights, I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Tidewater's current expectations, estimates, judgments and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties, which can cause actual results to differ from expectations. Further, some of the information provided refers to non-GAAP measures and to know more about these forward-looking statements and non-GAAP measures, please see the company's various reports, which are available on tidewatermidstream.com and SEDAR. With that, I'll hand the call over to Joel MacLeod for key highlights.

Thanks, Tom. Good morning, and thank you for joining our Q3 2021 conference call. We are proud to have now delivered 10 consecutive quarters of record per-share adjusted EBITDA growth and delivered $53 million of adjusted EBITDA in Q3 2021. This represents an 11% increase in per-share adjusted EBITDA year-over-year. Gross consolidated distributable cash flow was $17 million for the quarter, where deconsolidated distributable cash flow was $15.8 million and wanted to clarify that moving forward, we will likely focus on the deconsolidated distributable cash flow number. This is the first quarter our 69% owned subsidiary, Tidewater Renewables, is reporting after our successful IPO. We continue to see strong results and growth into Q4 and 2022 with producer activity, increased volumes, dramatically improved producer netbacks and increased refined product demand and crack spreads. We continue to execute and grow a significant inventory of high rate of return capital projects with 2- to 3-year payouts. The Prince George refinery and the Pipestone Gas Plant continued to run at high utilization rates. We'll get into the details here in a couple of minutes. Continued consolidation and new investment in the energy sector as well as a material recovery in commodity prices had an overall positive impact on producer balance sheets, and Tidewater Midstream continues to work with its customers on ways to improve margins and related service offerings. Tidewater Midstream remains positive about the outlook for commodity prices, energy transition and renewable sectors, where Tidewater Midstream is uniquely positioned to play a key role in the continued development of renewable fuels, carbon capture, renewable natural gas and renewable hydrogen through our subsidiary, Tidewater Renewables, but also with Tidewater Midstream's existing assets, including acid gas injection, large sour plants and having one of 2 refineries within -- in British Columbia. Over to Prince George, our Prince George Refinery. During the third quarter of 2021, total throughput was approximately 12,200 barrels a day, an increase of 7% from the previous quarter and consistent with the third quarter of 2020. In August 2021, Tidewater Renewables commissioned its canola co-processing project and began processing canola feedstock, which yields both renewable gasoline and renewable diesel. Prince George crack spreads remained strong, averaging just over $60 a barrel during the quarter, consistent with the first and second quarter of 2021. The corporation realized increased diesel demand during the third quarter as compared to the second quarter of 2021, due to the end of spring breakup and continuation of the local industry activity. Gasoline demand remained consistent quarter-over-quarter. The strong Prince George crack spread continues to demonstrate the strength of the regional refining market. Net throughput volumes at Tidewater Midstream's gas processing and extraction facilities averaged approximately 432 million cubic feet a day during the third quarter of 2021, an 11% increase as compared to 390 million cubic feet a day for the same period of 2020, primarily as a result of record throughput at the Pipestone Gas Plant. The Pipestone Gas Plant processed its highest average volume of 97 million cubic feet a day in the third quarter of 2021, a 35% increase from the third quarter of 2020 and an increase of 5% from the second quarter of 2021. Facility availability for the third quarter of 2021 averaged 93%, an increase of 19% from the third quarter of 2020. During the month of September 2021, there was a 6-day planned maintenance outage, which resulted in a small decrease in facility availability as compared to the second quarter of 2021. Overall, the Pipestone Gas Plant continued to perform well during the first quarter, with August averaging a record daily throughput of approximately 102 million cubic feet a day, with 97% facility availability. The Montney area continues to remain very active, and the plant remains fully contracted with over 85% committed capacity on take-or-pay arrangements. Throughput at our Brazeau River gas processing facility for the third quarter of 2021 increased by 8% compared to the second quarter of 2021. Strong AECO gas prices in the first 6 months have increased producer activity near the BRC. Tidewater Midstream continues to look for opportunities to increase third-party plant throughput by working diligently with producers to improve netbacks by utilizing the BRC facilities, which include gas storage and NGL fractionations. Our 69% owned subsidiary released its inaugural quarter of 44 days of results and performed well with $5 million of EBITDA over the 44-day period and supported by 10- to 15-year agreements. Tidewater Renewables expects to generate $150 million of annualized run rate EBITDA in 2023, once the renewable diesel and renewable hydrogen complex come online in Q1 2023. The project remains on time and on budget. I do want to thank our staff, Board shareholders, credit syndicate partners and all stakeholders for all your support. We look forward to continuing to deliver strong results into the remainder of 2021 and into 2022. I'll pass it over to Mr. Beamer, our VP, Finance, and he'll walk you through the financial highlights of our Q3.

Thank you, Joel. Good day, everyone. Glad to be invited to discuss the financial highlights for Tidewater Midstream. As previously mentioned, overall, we are very pleased with the successful launch of our subsidiary, Tidewater Renewables, and its initial public offering. On August 18, Tidewater Midstream spun out certain renewable assets to its wholly owned subsidiary, Tidewater Renewables, which then proceeded to close its IPO for gross proceeds of $160 million, including an over-allotment exercise. As a result of the transaction, Tidewater Midstream's ownership represents approximately 69% of the outstanding common shares of Tidewater Renewables, with Tidewater Midstream retaining a majority equity stake. The majority ownership position gives Tidewater Midstream control over Tidewater Renewables, and therefore, we report our financial results on a consolidated basis. Any transactions between Tidewater Midstream and Tidewater Renewables are eliminated on consolidation in Tidewater Midstream's consolidated financial statements. Where appropriate, we provide deconsolidated financial information within our MD&A and on this conference call. Our consolidated revenue for the quarter was $434 million, representing a 17% increase from the prior quarter and a 59% increase over the same period last year, in large part, basically, the strengthening of commodity prices and continued strong demand at the Prince George Refinery and throughput at Pipestone. Consolidated operating margin, which includes realized gains on hedges, was approximately $55 million in the third quarter, representing just a small decrease from the prior quarter in Q2 and a 13% increase from the same period in 2020. Our midstream margins are consistently around the 50% and our refinery margins around -- and downstream around 10%. Consolidated adjusted EBITDA for the third quarter was approximately $53.1 million and, as Joel mentioned, represents our 10th consecutive quarter of EBITDA growth. In addition to reviewing fully consolidated results, we presented adjusted EBITDA and net debt on a deconsolidated basis to highlight Tidewater Midstream's financial position, excluding the impact of our ownership in Tidewater Renewables. Tidewater Midstream's reportable -- distributable cash flow excludes Tidewater Renewables' distributable cash flow to its 31% noncontrolling interest shareholders. The corporation's deconsolidated adjusted EBITDA was $47.7 million for the quarter, and the corporation's distributable cash flow was approximately $15.8 million versus the $17.3 million from the previous quarter, resulting in a payout ratio of 21%. Consolidated net debt was $643 million and deconsolidated net debt was $609 million versus $743 million in the prior quarter. The decrease is a result of the proceeds from the IPO of Tidewater Renewables. With the receipt of the pioneer proceeds in Q2 and the resulting IPO proceeds, Tidewater Midstream has been able to successfully deleverage within our 3.0 to 3.5x range debt to EBITDA range target. With those financial highlights, I will pass it back to Tom Hems and open it up for questions from there.

Yes. Thanks, Joel and Doug, for the overview there. And I think with that, we can turn it back to the operator for questions.

Thank you, sir. [Operator Instructions] And your first question will be from Rob Hope at Scotiabank.

We talked about Midstream's leverage now in its targeted range and that previously was a bit of a handcuff there. What are the most attractive kind of quick payback opportunities that you have in the hopper right now? And how quickly do you think you can convert those to kind of potential and to sanctioned?

Good question, Rob. So with producer activity picking up, I think, on the midstream side of our business, one example would be a $4-ish million tie-in that we're likely to move forward with, which would be backstopped by a contract, and that's actually down at Brazeau. But I'm just giving you an example of a project that we're likely to move forward with in the next 3 to 6 months. We have our bucket today of roughly $50 million to $60 million of capital that we'd be confident that we can deploy and deliver 3-year payouts, but that would be one example. Brazeau River, gathering line expansion, sub-3-year payout, $4 million type of project. And then over in the downstream side of our business, it would be continual debottlenecks with cracks where they are, continuing to debottleneck even our FCC now, but also our unifiner, our reformer. We are starting to look at a larger propylene splitter project, for us, large in the $15 million range. We still have a little work to do there. We have propylene at the refinery. Today, it has sulfur in it, so it's discounted. We have to send it down to the Gulf Coast to have the propylene fractionated, but we are looking at roughly a $15 million project to move that propylene to our own splitter and then monetize that propylene or even have an investment-grade offtake. Given we have canola running through the refinery, too, there's potential that our products, including our propylene, will have renewable content. So those would just be some examples, bigger projects, Pipestone 1.5, I know, is on market's eyes and questions coming in there. Obviously, with activity picking up, there's definitely a chance we can sanction a Pipestone 1.5 or maybe even a 2.0, but probability would be about the same as it was last quarter, kind of in the 50% range. As far as being able to get customer support, then obviously, we'd want to ensure we have a financing plan where we don't take our leverage up to 4x debt to EBITDA even on the build. I think we'll have lots of different options to finance a project like a Pipestone. But today, it's not at the front of the line quite yet, just given the customer support. It's strengthening, don't get me wrong, but it's not into the 80% or 90% probability yet. But otherwise, it would be just optimization of our assets. You'll see public data, which show we permitted a fractionation facility at Atchison a couple of years ago with the outages we saw at Fort Saskatchewan. There's a chance. Again, probability would be sub-50%. But I think you're just asking for kind of examples of capital projects, and those would be a few.

All right. That's great color. I appreciate that. And then as you take a look at kind of the build cycle for these plans, are you going to focus more on the small ones until the renewable diesel plant has done at Tidewater Renewables and then that does open up the balance sheet even a little bit further for some of the larger opportunities?

I would say, today, we're definitely focused on the smaller projects, higher rate of return. That's resulted in our kind of 10 consecutive quarters of growth, and we expect that to continue, but would hate our shareholders or the market to think that if a Pipestone expansion was in front of us that we would pass. I think we'd watch our balance sheet. So we'd ensure we don't blow through any guardrails on our balance sheet, but there continues to be, I think, options to finance a Pipestone 1.5. There's still a lot of private equity. Even some of the producers, who are doing well, I think, may want to participate potentially as well. So just would want to relay that. Our balance sheet is paramount. We do not want to head back up into the 4x debt-to-EBITDA range.

Next question will be from Robert Catellier at CIBC.

Sort of a follow-up to the last train of questioning there, but you have these strong commodity prices in yet. You're still at the 50% line for pushing a Pipestone expansion through. And I believe that's the same for your peer group. So in other words, despite these great prices, producers just aren't really moving forward yet with further development in a way that requires more infrastructure. What do you think is going to take to get there? These netbacks have to be irresistible. So clearly, it's something else. Do you think it's still balance sheet repair on the producer's side? Does it have to do with the Blueberry River First Nations case and interim agreement? Or is there something else?

Robert, it's a great question. It's definitely not a Pipestone or Blueberry issue, given we're on the Alberta side of the border, but it's a good question. Well, definitely not a Blueberry issue for Pipestone. To your point, it's -- we're seeing dividend bumps. Every day -- I think today, we saw 2: Paramount, CNRL. And then the bigger entities, obviously, aren't as relevant, but even the smaller guys, I think, are -- want to understand how they're going to return capital to shareholders. And they could tell that's a real theme versus accelerating capital. I do think at some point, some -- and there are a few that are doing small bumps. But if this continues in the economics, even the well results, the efficiencies we're seeing, Rob, are getting better and better. I do think you will see. I don't think you're going to see necessarily massive acceleration in capital or our capital budget going 3x or 4x. But even if we start to see 25%, 50% bumps on capital projects, should commodity prices hold, that will have a material impact to the ability to contract out of Pipestone 1.5. But even down in Brazeau, we would want to be clear. We're seeing more third-party volume there than we've seen in 5 years and to have tie-in projects to fill Brazeau are just great capital projects for us with sub-3-year payout. So we're definitely seeing more volumes and more activity. But to your point, it's not an incremental increase of 50%, like we're looking for up at Pipestone right now.

Right. And yes, it just doesn't seem like you're missing anything. It's just -- you're getting the stuff that's available and just the bigger stuff just doesn't seem to be happening yet. At some point, probably gets there.

Your next question will be from Andrew Kuske at Crédit Suisse.

I guess the question really relates to just a strategic perspective, is you've successfully launched Tidewater Renewables, and you've got this clear divide between the 2 companies and all the benefits that go with that from a Tidewater Midstream standpoint. And to your comments, Joel, earlier on the call, it's really like your cup runneth over with the opportunities you've got. But if you could look at this in a sort of unconstrained fashion, what would you really focus on? And what sort of white space do you need to fill in to really drive further shareholder value?

Andrew, it's a great question. The good news is we're seeing more opportunities, customer support than we've ever seen. And then to have existing infrastructure with acid gas injection, that we do feel we can leveraging the carbon capture. But even the inbounds we've seen around petrochemical facilities on top of some of our big sour plants with carbon capture, I think, does get quite interesting. The good news is some of these groups do have capital behind them. So we don't necessarily have to write a big check or stress our balance sheet and balance sheet is paramount, want to be clear. But we want to focus. I know one of our biggest criticisms at times has been focus. We would say adding to our value chain has been a big part of our success. So Pipestone, I would say, is a huge focus for Tidewater Midstream and then Prince George as well. To have one of the most profitable refineries in all of North America, debottlenecking that refinery, co-processing, having a renewables angles to it. We look forward to expanding over the next 3 to 5 years. So Pipestone and Prince George are definitely where our focus is today. But to see the growth we're seeing around Brazeau and then even at Ram River to see the interest more on petrochemical-type opportunities with carbon capture, low carbon intensity fuels to plastics, not quite real yet. And some of that we'll want to keep somewhat confidential, but just trying to give you a sense of the flavor of some of the opportunities. And as you know and folks who are on the call, getting scale and having long-term offtakes is something we need in order to improve our cost of capital.

That's helpful. And then maybe just coming back to the 2 that you emphasized, being Pipestone and PGR, could you maybe give us some color and flavor on the carbon capture opportunity that exists? And maybe it's more pipestone than anything, given the concentration of emissions that come off of a processing facility. And how you think about the investment potential, in particular, with carbon prices rising in Canada?

And we would agree. We -- smart guy like yourself or other analysts can pull public data and see there isn't a well within Prince George 50 kilometers, so we would need to look at a strat test or look at other ways to capture the carbon there. So you hit it on that carbon capture today, where at Pipestone, we have acid gas injection. So we are injecting CO2 downhole today. But I just want everyone to be aware as well. We also have acid gas injection at Atchison today. So just outside of Edmonton, we inject CO2 and H2S downhole as well. And we own 450 acres there, heavy industrial site. I would say, that is definitely a prime candidate for carbon capture and/or low carbon intensity fuels. Ram River is a large, heavy industrial site where we inject water today and are working through ways to ensure we'd also have CO2 floor space. And then we have Paddle River and Parkland, where we have a nonopposition at the Parkland Plant, has acid gas injection and Paddle River also has acid gas injection capabilities. So there's multiple assets there and starting to have discussions with various groups about ways to leverage those existing acid gas injection wells. At Pipestone, [Audio Gap] expansion and working through ways as our friends at Advantage and Entropy are to leverage their acid gas injection. I would say we have similar ideas and have 150-plus field staff that have operated sour plants and acid gas injection for 30, 40-plus years. So more work to be done. But for us, quite interesting and really it would be just capturing more carbon than we are today. Out of Pipestone would be a nice one, but larger scale, it would be as a large-scale project get added, probably not at Pipestone, but initially at one of our other large-scale facilities to have low carbon intensity fuels at those large sour gas plants with acid gas injection.

Your next question will be from Robert Kwan at RBC Capital Market.

Just going back to the nature of the discussions you're having with producers. You're still seeing or saying you're cautious kind of in that 50-50 on the Pipestone, but also noting the producer activity in and around the BRC. So just as you're having those discussions with producers and trying to -- I'm interested in your take on the producer thought process. Do you think it's just -- they want to take advantage of pricing here now and produce into existing infrastructure versus taking a long-term view and underpinning any infrastructure? Is that really the difference between what's going on at Pipestone versus the BRC?

Yes, Rob, it's a good question. I think in general, the smaller producers, after the COVID crisis, how credit essentially left the small cap, the mid-cap space. There's just a concern. What does the next 2, 3, 4 years look? Commodity prices are strong today, steep backwardation. So yes, you could hedge out a portion. But if we saw any economic-type event or a roll-off in commodities for them to enter into a 5-year, a 10-year take-or-pay, and we'd love a 10-year take-or-pay, not a 5, there's just a concern. And then the credit facilities for, not the larger producers, but the mid-cap and the small cap is just not what it used to be. So I think there needs to be sustained commodity prices in this environment, more capital flow in, be it equity raise or also credit support. But as we're all seeing, producers are taking on less debt and credit. So it's likely going to require equity, and we haven't seen a significant amount of equity financings on the producer side. So I'd say a key marker, too, will be if we see bought deals and we see mid-cap producers start to raise equity, I think that will be a sign to the market to say even Pipestone 1.5 probability moves up. Why is -- to your question, why is Brazeau a little different animal than Pipestone? Some of it would be contract length as well. Pipestone to build 1.5, we would like to have 10-year take-or-pays, where down at Brazeau, we have existing infrastructure. If we have a 3-year payout project and we get a 3-year or 4-year deal, we would likely move forward on projects like that. We're definitely trying for 5-year area dedications that would have infinite life, but just don't want to overpromise at this point in time. Definitely, by the day, it gets better. And we're seeing more interest around all our facilities. There's change of ownership, too, which has been very helpful. Groups like Bellatrix to sell to a Spartan would be a great example to see. We're seeing new players with capital, deploying capital into our backyard, but it's still pretty early as far as the commodity move-up and all the new operators that we're seeing in our backyard.

Got it. And then just if you were to get Pipestone, you've mentioned a number of times that you're very mindful of leverage, just wondering, though, do you think that having that, call it, just under 4x as a max, do you think that's an appropriate level, if you were to take something of that scale on?

I think so, Robert. You know the questions we had for 2 and 3 years about our leverage and when is it going to come down and even the pressure. And then COVID came in. The energy commodity price environment wasn't great. I don't think our Board or any of us as a management today would want to be at that 4x range. If we were at 4.0 for 1 month, maybe, but not at 4.1 to 4.5 for an extended period of time. And I do think we have options there. They're all not perfect, but there's still a lot of capital that would love to come into contracted infrastructure, especially if we can add carbon capture or a green component to some of our assets. And Pipestone today would be one of the lowest carbon intensity gas plants of that size on the sour side and even North America, given it has acid gas injection, and we want to leverage that, hopefully, into lower cost of capital moving forward.

Got it. If I can just finish with a question on how you're viewing, ultimately, your ownership of TWR now that it's public and it's closed. Do you see it as -- look, it's integrated with your existing operations. But do you see it as highly strategic, the ability to decarbonize the Prince George Refinery's fuel? And effectively, I guess, do you think of it as almost like a 70% hedge given your ownership? Do you like kind of your ownership where it is? Or do you see it as also being financial, given you've started it as a funding source for the project, but looking down the road, do you see there's optionality to optimize your capital allocation, buy back your stock if the valuation spread gets out of line or just to help you fund other projects, say, like a Pipestone down the road?

It's a great question, Rob. We're committed to the share -- institutional shareholders of renewables to be supportive for the first year or so. There is a lockup agreement for the first 180 days, but we made a commitment to be supportive. That doesn't mean we have to write a check into a deal if there was an equity financing in 6 months in renewables. We're not required to write a check. I want to be clear so there won't be any stress on our Tidewater Midstream's balance sheet. But I would say highly unlikely in the first 12 months and near impossible that you'd see us try and sell down ownership into the market. Even the economics on that renewable diesel, renewable hydrogen project, sub-3-year payout, $100 million in government support of size and scale, it is, by far, one of our most economic projects of scale within Tidewater midstream as well. So I think there'll definitely be discussions over the coming years. Don't get me wrong. But at this point in time, unlikely you'll see any cash injected into renewables. But at the same time, unlikely you'd see us sell down our position as well. So lots of thought, and we welcome feedback, advice over the coming years. But the first 12 months, I don't think you'll see a material transaction adding or deleting ownership of renewables.

Yes. I was just thinking past the [ RD ] project, are you -- how wedded are you to the 69% level? Or would you be -- having majority ownership is still pretty supportive. So how are you thinking about it from that perspective?

Yes. Just supportive of the project, and we do think it is strategic. It's right next to us. We do sell diesel into that BC market every day, [ the market is short ]. So for us to have a renewable product within a subsidiary, we think, has significant advantages. And then where we're seeing BC LCFS Credits trade today, we don't have a view necessarily that they're continue -- going to increase, but they're increasing -- accelerating much quicker than we anticipated. The economics of that project are strong. So we'd like to remain supportive and are eager to get that project online and watch it generate free cash flow.

[Operator Instructions] And your next question will be from Patrick Kenny at National Bank Financial.

I know you're heavily contracted on the gas storage front. But since it's been a while since we've seen a strong seasonal trade like this year, so perhaps you could just comment on the demand for your storage services heading into this winter and what this could mean for perhaps extending some of your contracts that you have with your counterparties going forward.

It's a great question, Pat. We don't talk a whole bunch about our gas storage assets as they are fairly nonmaterial, roughly $10 million of EBITDA or 5% of our cash flow. But we haven't seen this volatility, any interest in our gas storage in essentially 5 years. So we don't want to get ahead of ourselves, but the opportunities, I do think, are significant even with the FTR. So the TC Energy, the NGTL system has had significant cuts here over the past couple of months, some were unplanned, some were planned, but it was very helpful at Pipestone. We had a few customers where we saw cuts of 30-plus percent, and there was risk. They'd have to shut in their oil, not just their gas. So gas prices being strong, that hurts, but it's more shutting in their oil and their liquids. So with our storage facility. To your point, it's fairly contracted, so we don't have a ton of space, but we were able to help a few of our customers and give them takeaways so that they could continue to produce their oil and NGLs. And as volumes pick up, there's likely risk that there's more cuts and more of a demand for storage from the producers. So I would say that's a key synergy for Pipestone and down at Brazeau. To your question on kind of volatility, cash flow generation from storage, to your point, we are fairly contracted so you won't see a material impact corporately, even if gas storage outperforms by 20% or 30%, it's only going to be a couple of million dollars. So I think we're evaluating all options around gas storage. And the value of our gas store in the last 3 months has gone way up given the volatility so -- are open to ideas and even there's been some inbounds on opportunities to expand, connect to Coastal GasLink, but also maybe to monetize a portion of the facility as well. So I think we need a little more time, but it's a good point. And I do think it's a piece of our portfolio where the value just went up materially.

And at BRC, now that throughput is back heading in the right direction, but just with respect to TransAlta announcing that it's going to hold off on Sun 5, also retire a couple of units, I guess, that were coal-to-gas candidates. I know Pioneer is well-contracted, but just wondering, from a commercial perspective, how you're maybe thinking about repositioning Brazeau from a demand pull or market egress standpoint in order to maximize netbacks for customers longer term?

Yes. It's a great -- again, Pat, another great question, and it was a good discussion at our Board meeting yesterday. For the first time, frac spreads are at, you would know, but 5-, 6-, 7-year highs. So today, a frac spread creates more margin at Brazeau River than a third party volume. And it eliminates the requirement for us to have customers and renegotiate contracts. At the same time, we want third party volumes, and we are signing contracts as we speak, like the $4 million pipeline that I mentioned on the first question. So strategically, it's a great question. I would say, today, we would prefer a portfolio of both third-party volumes, so producer volumes coming in with contracts, but to see where frac spreads are today. So I know you know this, but just for other folks on the call, it's essentially where propane, butane, C5 values. So we pull volumes off the NGTL system. We own those liquids and then we move the gas on to TransAlta. But when the value of those liquids far exceeds gas, and today, we're, I believe, at a 5-, 6-, 7-year high, the margin is actually greater than processing volumes. So it's a great point, Pat. I think today, we would prefer a portfolio, but should WTI move up and should gas roll off after this winter, we may work to lock in more of our frac spreads and just continue to have Brazeau full or maybe even expand Brazeau. So first time we've had a problem like this, and it's a great problem. We've got more options and more volumes and higher-margin problems than we've seen in 4 or 5 years.

That's great. Last one for me here. Just a quick follow-up on the balance sheet. I know you're back to within your target leverage range. But just in terms of managing liquidity as you pursue some of these growth opportunities, how are you thinking about the need to, I guess, first refi the high-yield notes before sanctioning any material expansions? And maybe you can comment at current market pricing, would you be in the money after taking into account early redemption costs at this point? Or do you still need to wait to closer to maturity date?

Yes. No, another good question, Pat. So our focus is definitely from the finance team to refinance our notes. I would say we have some options in front of us, which is great. We probably need a little more time to work through them. They're positive. But to your point, is it going to be in the money from where we're at today on our $125 million notes? I would say we wouldn't want to set that expectation. There's not any awful options, want to be clear. So in and around where current notes are, yes, and great to have some options that we're working through. And to your point, it is important to us to get those notes refinanced. And likely, to your point, it doesn't have to be before the next project. And most of our projects today are small. We're talking $4 million, $5 million, potentially $15 million. We're not ready to go on Pipestone 1.5 yet. But just want to be clear, and it is a good question, yes. Lots of discussions, lots of options in front of us to refinance our $125 million notes.

Thank you. And at this time, gentlemen, we have no further questions. Please proceed.

Thank you. Thanks, everyone, for your time today. We appreciate it, and please don't hesitate to reach out if anybody has any questions, concerns. Thanks. Thanks, Tom, and thanks, Doug.

Thank you, everyone.

Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.