On Thursday, Keyera (TSX:KEY) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
KeyCorp reported a successful acquisition of Plains' Canadian NGL business, which expands their platform and enhances connectivity across their system.
Financial performance included a record quarterly realized margin in gathering and processing, with adjusted EBITDA of $232 million and a net loss of $122 million due to acquisition costs.
Strategic initiatives focus on integration and capturing synergies from the acquisition, as well as progressing growth projects like the KFS frac2d and Capzone 4.
Future outlook includes maintaining a strong balance sheet with a net debt to adjusted EBITDA ratio of 2.2x and guidance for marketing realized margin between $210 million and $250 million.
Management expressed confidence in their case before the Competition Tribunal regarding the acquisition and emphasized continued execution on growth and long-term value delivery.
Full Transcript
OPERATOR
Good morning. My name is Joelle and I will be your conference operator today. At this time I would like to welcome everyone to the Keyera's 2026 first quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star then the number one on your telephone keypad. If you would like to withdraw your question, please press Star followed by two. Thank you. I would now like to turn the call over to Dan Kupferson, General Manager, Investor Relations. You may begin.
Dan Kupferson (General Manager, Investor Relations)
Thanks and good morning. Joining me today will be Dean Setaguchi, President and CEO Eileen Maricar, Senior Vice President and CFO Jamie Urquhart, Senior Vice President, Liquids Business Unit and Brad Slesser, Senior Vice President, GMP and NGL Pipelines Business Unit. We will begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions. I'd like to remind listeners that some of the comments and answers that we will give 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.
Dean Setaguchi (President and CEO)
Thanks Dan and good morning everyone. Two days ago we successfully closed the acquisition of Plains' Canadian NGL business in its entirety. This is a transformative deal that materially expands Keyera's integrated platform. This transaction is a natural extension of our strategy to extend our integrated value chain. It enhances connectivity across our system and improves our ability to efficiently process, transport and market products for our customers. The combined platform provides improved access to key markets, greater flexibility and increased reliability. It also represents an important step for Canada bringing critical energy infrastructure under Canadian ownership. It enhances Canadian energy security, supports economic resilience and establishes a stronger, more efficient Cross Canada NGL corridor. As previously disclosed, the Commissioner of Competition has filed an application with a Competition Tribunal in connection with the transaction. As you can appreciate, this matter is now before the tribunal, so we're limited in what we can say about this process. We are confident in the strength of our case and excited to demonstrate to our shareholders and to our stakeholders the strategic rationale and the value creation that will result from this transaction. Our focus now is on integration and capturing the synergies of the expanded system Turning to our quarterly results, we continue to execute on our strategy, building a more connected and efficient system to support our customers and strengthen our platform. In gathering processing. We delivered a new quarterly record for realized margin driven by record throughput at Wapiti and contributions from our recently acquired interest in the Simonette East gas plants. We also continue to advance our growth projects. The KFS frac2d bottleneck remains on schedule for completion by the end of June and is now expected to come in below budget. FRAC 3 and KAPS Zone 4 continue to progress well both on time and on budget. These projects are highly contracted and will continue to drive growth and stable Fee for Service cash flow supporting the strength of our balance sheet and long term dividend sustainability. Now turning briefly to AEF following the previously announced outage, the repairs have been completed. We're also now completing the turnaround plan for the fall, eliminating the need for a separate shutdown later this year. The facility is expected to return to full operating capacity by the end of May. While the reliability of the asset has been below expectations, we recognize the importance of AEF to our business and the value it delivers during the outage. We completed a comprehensive review of the facility and its operating plan. As a result, we expect to enhance our maintenance strategy by supplementing the existing four year major turnaround cycle with a smaller plant outage between major turnarounds. Our objective is to maximize production of iso-octane during a four year cycle while ensuring safe and efficient operations. With that, I'll turn it over to Eileen to walk through our financial results and outlook.
Eileen Maricar (Senior Vice President and CFO)
Thanks Dean and good morning everyone. Keyera's first quarter results reflect continued strength in our fee for service business which was offset by lower marketing contributions. Excluding transaction costs related to the Plains acquisition, adjusted EBITDA was $232 million and distributable cash flow was 133 million or $0.58 per share. Net earnings for the quarter or a loss of 122 million in our fee for service segments gathering and processing delivered record quarterly realized margin of 118 million in liquids. Infrastructure realized margin was 141 million. Results included record throughput across our condensate system supported by continued growth in oil sands production. Turning to the marketing Segment, realized margin was 13 million for the quarter. The decrease compared to last year was primarily attributable to the AEF outage and corresponding butane risk management activities. We ended the quarter with net debt to adjusted EBITDA of 2.2x which remains below our long term target range and provides Continued financial flexibility following the completion of the NGL contracting season. We are providing 2026 marketing segment realized margin guidance on a standalone basis. Marketing realized margin is expected to range between $210 million and $250 million, with the majority of contributions weighted toward the second half of the year. All other Keyera standalone guidance for growth capital, maintenance capital and cash taxes remain unchanged. With that, I'll turn it back to Dean for closing remarks.
Dean Setaguchi (President and CEO)
Thanks, Eileen. Keyera continues to execute on a clear strategy to strengthen and extend our integrated value chain. Building a more connected and efficient system that supports customer growth improves access to key markets. With the closing of the Plains acquisition, we are entering into the next phase of growth for the company with an expanded platform that further enhances our ability to serve customers across the basin. Looking ahead, we will remain focused on disciplined integration, continued execution of our growth projects and delivering long term value for our customers and shareholders.
Dean Setaguchi (President and CEO)
On behalf of the board and management team, I want to thank our employees, customers, shareholders, indigenous rights holders and other stakeholders for their continued support. With that, we'll open the line for questions. Operator, please go ahead.
OPERATOR
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press Star followed by the 1. On your touch tone phone, you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press Star followed by the two. If you are using a speakerphone, please lift the handset before pressing the keys. One moment please, for your first question.
OPERATOR
Your first question comes from Rob Hope with Scotiabank. Your line is now open.
Rob Hope (Equity Analyst)
Morning everyone. I'd like some more color on the Competition Tribunal process. So you have 45 days to put in your application. There's, Can you maybe give us a little bit more incremental color on what the key themes that you would like to put forward to the Competition Bureau to state your case that the acquisition should close as filed, as well as, you know, Do you think you'll take the full 45 days or could you accelerate that? Yeah.
Dean Setaguchi (President and CEO)
Good morning, Rob, and thank you for the question. You know, we're not in a position to speak more about what our position is. I just want to emphasize that we're very confident in the strength of our case. And again, because the matters before the tribunal, we're limited in what we can say. But with respect to the actual process. I'll just turn it over to Eileen and she can speak to it in more detail?
Eileen Maricar (Senior Vice President and CFO)
Sure. Thanks. Good morning, Rob. There's not too much incremental from what was Already in Dean's opening remarks. The matter now will proceed through the tribunal process and it's an impartial and independent specialized court which gives us the opportunity to have our case heard by a panel of judges and non judge tribunal members. And as Dean mentioned, we believe in our case and look forward to presenting it to the tribunal.
Eileen Maricar (Senior Vice President and CFO)
At this point it's really too early to speculate on what the timeline will be.
Rob Hope (Equity Analyst)
All right, thanks. I thought I'd try maybe moving over to the marketing guidance excluding Plains. Can you maybe help us understand what commodity price assumptions are included in that? Just given it is looking similar to kind of the prior guidance, yet the commodity pricing looks quite a bit different than before.
Eileen Maricar (Senior Vice President and CFO)
Thanks Rob, I can take that one. So the guidance we did provide is on a standalone basis and it does incorporate the AEF outage which was approximately 110 million. I would say it's conservative at this point in time. It does include the impact of butane, which is lower than our 10 year average. So that's a positive. Certainly there were some hedges on the inventory where we took a loss in the front month, but we'll start to see that as we sell the inventory.
Eileen Maricar (Senior Vice President and CFO)
The one thing that again could be a tailwind to the guidance we've put out is the iso-octane premiums. As you are aware, that's something that we cannot hedge. And so as AEF comes up and by the end of the month and we get into the summer driving period, that is a potential tailwind to the guidance that we provided but largely in line with the assumptions that we had laid out. The hedges that were already in place, which is the 210 to 250.
Dean Setaguchi (President and CEO)
I think just to add on to Eileen's comments, Rob, overall we think that there is more of a macro tailwind to our marketing business. I mean if you think about the situation in Strait of Hormuz, the longer that blockage lasts, it really puts a higher floor under the whole price complex for crude oil, natural gas and also LPGs, for a longer period of time. So we think that's positive for frac spreads. We think that's positive for our octane business.
Dean Setaguchi (President and CEO)
And Eileen talked about the premiums but obviously if you look at the gasoline cracks, they're very strong as well. And the underlying crude oil price is very high. So you know, we think the forward prices for the rest of this year, I mean we do have some hedges in places, but into 2027 as well, those are positive tailwinds overall for our business.
Rob Hope (Equity Analyst)
Appreciate that thank you.
Dean Setaguchi (President and CEO)
Thank you for your questions.
OPERATOR
Your next question comes from Spiro Dunas with Citi. Your line is now open.
Spiro Dunas (Equity Analyst)
Thank you, operator. Good morning everybody. Want to start, Dean, with some of your closing comments there on the next phase of growth. You've got three major projects now sanctioned and under construction. And I think back, those projects are highly visible to you and us well into sanctioning them. Just curious, as you look beyond 28, how are you thinking about that next wave of expansions and when you think you'd be in a position to start communicating them?
Dean Setaguchi (President and CEO)
Yes, good morning and thank you for the questions. You know, first of all, what I would say is that speaking to the three major projects, they are progressing very well. Our team is doing an outstanding job of executing those projects. I mean, nothing's done until they're done, but so far they're progressing very well. We're very excited about the Plains acquisition, and when we think about how we add value for our customers and our shareholders, the lowest hanging fruit is going to be with the Plains assets. And we've talked about 100 million of synergies which we have very high conviction in. But we're seeing some really great opportunities well beyond the 100 million. And so we are going to capture that low hanging fruit as fast as we possibly can. And we've been operating obviously separate companies until the last two days. So there is certainly a period of time that it's going to require us to get further up to speed some of the opportunities on their side and get more detail behind it. But we just think that there's a lot more upside than we had envisioned at the beginning when we signed this transaction. So I think that's very positive. On top of that, I think it's great that we're hearing more positive momentum on LNG Canada Phase 2 and also crude oil export pipelines and adding more capacity from that front. So I think both from our gas gathering and processing perspective, there's going to be more of that will be required, which translates to more volumes down our CAPS pipeline and potentially downstream from there, but also our oil sands business. So I can see more capacity expansions around that. Maybe I can just turn over to Brad and you want to speak specifically to the gas. Gas processing side and maybe some other opportunities we see there.
Brad Slesser (Senior Vice President, GMP and NGL Pipelines Business Unit)
Yeah, sure. Thanks, Dean. And thanks. Thanks for the question. I think on the gathering processing side, we see really great activity progressing around our northern plants. You can see it in our volumes and in our quarterly results, including the new assets we've brought in. We see at both Simonette and Wapiti opportunity to debottleneck those facilities. And then we're starting to look at incremental things past those projects as well. And as Dean said, more gas processing comes with more liquids that need to make it down the value chain and all the way through the integrated chain. So we're excited to see what the basin will give us. And as Dean said, we see some of those tailwinds behind the basin as well.
Spiro Dunas (Equity Analyst)
Got it. That's great to hear. Second question maybe just pivoting here to condensate a bit came up quite a few times on the last call and that was of course before Iran. Since then, obviously things on the macro side seem to have improved. There's potentially over a million barrels a day of crude egress being contemplated out of Canada. So just maybe want to get your latest views and how you're thinking about the impact to condensate and whether or not those volumes can unlock more expansions on your current footprint.
Dean Setaguchi (President and CEO)
Yeah, that's a really great question. I think a lot of people, when they think about crude oil, you know, egress, I think it's fantastic that there will likely be a lot more capacity built for crude export pipelines. But people have to remember that for every two barrels that you flow down the pipe, you need a barrel of diluent which is the condensate to flow with it because the bitumen is so viscous. So you know, that's really great for our business because we have the hub for condensate. I mean, you know, roughly 2/3 of the condensate that flows up to the oil sands comes off our system. So that's our pipeline connectivity, that's our storage caverns and we also have the Norlite pipeline that also delivers up to the oil sand. So that is a business that's in big demand. But I'll maybe turn over to Jamie to provide additional commentary.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, thanks Dean. So I don't know what more I can add really other than we've anticipated this or positioned ourselves to be able to understand how our condensate system can be expanded in the most capital efficient and time efficient manner. And just remind everybody as well that we, we do have an ownership in the North Lake pipeline which is in our minds a very strategic pipeline that we're working with our partner to maximize the opportunities as we're looking at, you know, industries, looking at expansions up in, in the oil sands area. So you know, oil sands is often a part of our business that doesn't get focused on very much. It's a huge contributor to our business and we see that there's significant opportunity for growth.
Spiro Dunas (Equity Analyst)
Great color. I'll leave it there. Thank you team.
Dean Setaguchi (President and CEO)
Thanks a lot. Have a good day.
OPERATOR
Your next question comes from Robert Catalier with CIBC Capital Markets. Your line is now open.
Robert Catalier (Equity Analyst)
Hey, good morning and congratulations on the closing of the transaction. I imagine we're going to get a more fulsome update at some point. But I'm wondering what you can tell us about the impact the Plains acquisition will have on that 7 to 8% fee based growth category. Have. Obviously there's going to be some uncertainty related to the tribunal process. But on an as is basis, what is your confidence level in that fee based growth extending beyond the current forecast timeline you've given? Yeah.
Dean Setaguchi (President and CEO)
Good morning Rob, and thanks for your question. You know, I just want to emphasize that we see a lot of, lot of synergy value with planes. But with that I'll turn it over to Eileen and she can maybe add some more color.
Eileen Maricar (Senior Vice President and CFO)
Thanks Rob. We do plan to provide an updated guidance for probably around that mid to late June timeframe and it will be a refresh fee based EBITDA growth rate again on the combined basis within the coming weeks. So we do want to give some time to actually operate the assets for a period of time. But we are really excited to provide you with that update. And just remember our existing CAGR, it goes out to 2027 and we largely hit that and that was really from filling white space again which we have done so now as we bring on all of these new projects that we're currently in the process of executing like Zone 4 and all of the FRAC expansion. Those come in in 27, 28. That those have very, very strong returns that will continue to improve that, that, that growth rate to the end of the decade as well as the synergies and the synergies beyond the $100 million that Dean just spoke about. So an update is coming shortly.
Robert Catalier (Equity Analyst)
Okay, that's understandable. And then just on the synergy side, I wonder if you could describe the path to that full synergy capture. You know, I'm thinking that, you know, there's. We don't know what the outcome on the tribunal process might be, of course. So like how do you go about capturing those synergies when there's some uncertainty as to what the final product might look like?
Dean Setaguchi (President and CEO)
Yeah, I mean, you know, as I said before, we see a ton of synergies here and we captured the majority of them on day One, you know, a lot of it is just the overhead. I mean, we're able to run this business more efficiently by combining together. You know, when you look beyond that, we've, we've talked about some of the synergies. There are certainly operating synergies. We're going to be able to apply our supply chain and procurement strategies across entire entity and leverage, you know, our expanded size, there's maintenance activities. Your company will be, you know, spending north of 200 million a year in maintenance activities. So can we get better at that and more efficient at that? Absolutely. You know, Jamie's talked about our railcar fleet and our logistics. We're going to be much more efficient at in with this Cross Canada corridor, NGO corridor. We're going to be able to deliver product to market more efficiently than the past. So we'll need less rail cars and things like that, which are very expensive. On top of that, we do see some issues or opportunities where we increase reliability. With the combined asset base, we have more redundancy in our system. So I think that can translate to more effective capacity overall, which is good for our customer and good for our shareholders. There's commercial opportunities too. So, you know, when you add all that up, you know, we believe that we should be able to deliver well beyond the 100 million of synergies that we put out there. Anything else you want to add, Jim? No, I think you nailed it.
Robert Catalier (Equity Analyst)
Okay, just to follow up to the condensate questions then, I'm wondering if you had anything in terms of timelines or potential capex requirements for whatever solution you might have to expand that condensate system.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, well, I can speak to the timelines and it's just consistent with what companies are communicating to the market around the timing of their projects. But we fully expect that we'll be able to see some growth, continued growth in that business in the 2728 timeframe.
Robert Catalier (Equity Analyst)
Okay, that's it for me and good luck with the integration.
Dean Setaguchi (President and CEO)
Thanks, Rob. Have a great day.
OPERATOR
Your next question comes from Ben Tham with BMO Capital Markets. Your line is now open.
Ben Tham (Equity Analyst)
Hi, thanks. Good morning. You had a comment in the MD&A around the south region, production growing by a couple percent. I think the last time we've seen that basin grow at all, I think for some time. Can you comment on the outlook you're expecting there and any, any sort of impact you anticipate on your assets in the region?
Dean Setaguchi (President and CEO)
Yeah. Good morning, Ben. Thanks very much for the question. I'm going to turn that over to Brad.
Brad Slesser (Senior Vice President, GMP and NGL Pipelines Business Unit)
Hey, good Morning, Ben. Glad to get a question on the south. Our team has been working very, very hard on that, on that asset base in the last several years. They've really worked to transform the contract behind that asset base as well. And you're seeing that with the increased utilization, we put much longer term contracts into that asset than we've historically seen in the past. A lot of that south basin was really driven off of gas pricing. What we're seeing now is an increased uptake in duvernay drilling with the West Shale, Duvernay and Carrot Creek. And we're seeing those volumes working their way into our system. Those are also ultra liquids rich. So we see those coming into some of our gas plants in the south which are already connected into our value chain all the way to Fort Saskatchewan. Good example of that is our Rimbey gas plant, the large deep cut plant. That's super well positioned to capture a lot of the gas that you're seeing coming out of the duvernay plate. And so we're very happy with how those assets are performing. We think that there's still lots of legs for that to keep on going.
Ben Tham (Equity Analyst)
Got it. And maybe maybe to. Thanks a lot for that, maybe go back on the business update. And you think that mid to late June timeframe is the focus really in extending that guidance keg or timeframe that you have there currently.
Eileen Maricar (Senior Vice President and CFO)
Morning Ben. Yes, that is the idea to extend the CAGR to near the end of the decade.
Ben Tham (Equity Analyst)
Okay, got it. Okay, thank you. Thanks for the caller.
Dean Setaguchi (President and CEO)
Thanks a lot.
OPERATOR
Your next question comes from Teresa Chen with Barclays. Your line is now open.
Teresa Chen (Equity Analyst)
Good morning. Going back to the tailwinds related to the ISO octane position stemming from the global supply shock and liquids products, including premium gasoline. With the significant refining infrastructure sustaining physical damage in the Middle east coupled with curtailed exports from major, major Asian suppliers, do you view this as a transient benefit? That is the elevated octane spreads we're seeing now would dissipate if when the strait is fully open. Or do you view this as a more durable uplift to your ISO octane margins given your ability to relatively source feedstocks and reliability of supply? Does this factor into your commercial discussions related to this business at all?
Dean Setaguchi (President and CEO)
Yeah, you know what, that's a very good question, Teresa, and I'll turn it over to Jamie. But just maybe a couple comments is that I think there are some elements that are very durable going forward and part of it is there is more refining capacity being shut down too in North America, namely in California. So some of the Markets that we serve in interior the United States, they are now going to feed more gasoline to California to make up for that loss of production. So we think that's maybe net positive. But what else is happening right now is that some of the naphtha crackers in Asia are shutting down and they're basically getting displaced with crackers that take a lighter end feedstock and those NASA crackers, they produce more chemical octanes, which, you know, they do compete in the octane world on the, you know, off the water. So, you know, I think overall with less octane supply, that that should be a net tailwind for our octane premiums, you know, when you think about the trends going forward. So anyway, those are just some of the tailwinds that we see. But Jamie, I'm sure you have some more thoughts.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah. So maybe I can layer a little bit more on, and it's a great observation and a great question, is that, you know, the one thing I mentioned as well is that I think the destruction of infrastructure and the timing of being able to repair that infrastructure is going to have ripple effects throughout a lot of, you know, different commodities. Certainly that's impacted propane pricing as well. And the longevity we see of elevated propane pricing, Dean touched on that. That's going to support our, our, our deal for export on the west coast that we're stepping into without the gas in the 2028 time frame. And just the fundamentals, but also frac spread that we're, we're now assuming more exposure to with the plains assets. But it's also impacting non North American refinery capacity as well, specifically in Asia. And so as we think about the global flow of gasolines, we also see a pull out of North America to serve those markets. That's going to leave us a little short. Dean's touched on the fact that we've got lower naphtha costs that ultimately are a primary feedstock for blending. And ultimately you need octanes to mix in that blending activity to be able to generate gasoline. So as we connect all those dots together, certainly you've seen that in the RBOB crack or the gasoline crack pricing, you know, in 26 and 27. And you're also seeing that with respect to the octane demand and associated octane premiums that we're seeing unfold not only in this summer driving season, but our expectation is going into 27 as well.
Teresa Chen (Equity Analyst)
That's very helpful, thank you. And related to the AF facility specifically, do you have an update on how the turnaround is progressing following the unplanned outage. Can you share some of the key learnings here and in relation to the new maintenance strategy, what exactly are you planning to do during the smaller planned outages between major turnarounds that's supposed to enhance liability of the asset? What does that work entail?
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, so great question. Can't really get into the specifics of the root cause of the outage that we incurred in January other than we did determine the root cause. And we're applying those learnings to ensure improved reliability. Go forward. To get to your question with respect to the shorter, you know, we're calling it a pit stop, you know, in that in between our regular four year turnaround schedule, it's more around inspections and ensuring the integrity of equipment and making sure that we're being proactive with respect to our maintenance activities based on, you know, comparing condition of equipment relative to baselines to ensure that we're not reacting to things at AAF rather than we're being very proactive from our maintenance activities.
Dean Setaguchi (President and CEO)
As we said before, our objective is to make as much octane over a four year cycle.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
And you know, we've learned a lot over the last five years. You know, we've had a number of unplanned outages and we feel with all the work that we've done in the valuation of the entire facility while we've been out for this extended period of time, that's really benefited us and we do believe that small, minor pit stop and that four year turnaround is the best way to go and to produce the most octane over that period.
Teresa Chen (Equity Analyst)
Thank you.
OPERATOR
Your next question comes from Patrick Kenney with nbcm. Your line is now open.
Patrick Kenney (Equity Analyst)
Thank you. Good morning. Appreciating its business as usual or you know, integration is planned here until further news comes out of the tribunal process. But just thinking, you know, in the meantime, as you look to compete for new business in the field, perhaps offer customers access to your extended value chain. Just wondering how you're managing the commercial dynamics while, you know, waiting for the final decision here.
Dean Setaguchi (President and CEO)
Good morning, Pat. Yeah, thanks for the question. And it is, it is business as usual. I mean, the number one objective for us is obviously safe operations, reliable operations. But for our customers this has to be seamless and we have to deliver them a great service. And you know, we believe that we're going to have a superior service offering right across the board for our customers and we have to deliver that. So, you know, we're going to be working with all of our customers like we do. And the new customers that we're going to pick up and new contracts that we'll pick up with claims. As always, we work very closely with our customers to understand what's important to them and understand their needs. And we work to customize a solution that adds the most value for them. And that's exactly what we're going to do as we add, you know, value through this integration and synergy process. Is there anything else you guys want to add? No.
Patrick Kenney (Equity Analyst)
Okay. And then I guess looking at forward frac spreads, obviously there's still a healthy level of backwardation into 27 and beyond. But I'm just curious if you're able to capitalize on, you know, some of the near term commodity price volatility here from a hedging standpoint while you're waiting for final resolution?
Dean Setaguchi (President and CEO)
Yeah, that's a great question. Well, certainly, you know, just want to remind everyone that we have a 12 month hedge in place. So that was negotiated as part of the, the original transaction and terms of the transaction. So we have that in place and we want to make sure that we had good cash flow stability from that part of the business for the first full year. And so it's a majority of production. So we're still exposed a bit beyond and above that. And partly because the flows through Empress have been higher than what we've modeled, which is positive. As we said before, we certainly think the pricing floor is higher than what it was pre the closure of the Strait of Hormuz. So again, the longer this outage lasts, we believe that the higher prices, especially for propane, are going to linger higher, which will give us opportunities to further extend the hedge past the 12 months and we'll look for opportunities to do that.
Patrick Kenney (Equity Analyst)
Sounds good. And then last one for me here, I know it's a bit of a what if question, but just thinking from a balance sheet perspective, you know, with the sub receipts now converted to shares, I guess if you do find yourselves in a position of receiving some proceeds from, you know, certain assets being sold, would you look to redeploy that cash right away into other opportunities, either organically or through tuck ins? Or would you maybe prioritize buybacks or further debt repayment?
Dean Setaguchi (President and CEO)
Yeah, that's a great question. Well, you know what, first of all, you know, we really believe in the strengthener case and we're not focused on remedies. So, you know, that would include any sales associated with this acquisition. I am, you know, as a company, our strategy is always to look at our asset base and High grade it. So as you saw, we sold our wild horse terminal last year and we're redeploying that those proceeds into our Canadian business. We see a lot of opportunity going forward. So, you know, we'll look to reinvest our cash flows to, to capture that opportunity to, you know, to deliver expanded service to our customers. Anything you want to add to that,
Patrick Kenney (Equity Analyst)
that's great. Thanks, Dean.
Dean Setaguchi (President and CEO)
Yep, thanks a lot.
OPERATOR
Ladies and gentlemen, as a reminder, should you have a question, please press Star one. Your next question comes from Maurice Choi with RBC Capital Markets. Your line is now open.
Maurice Choi (Equity Analyst)
Thank you and good morning everyone. If I could just focus on what seems to be the next phase of big project developments. Once you have a combined entity. I know you share your accomplishments on KFS frac 2. The bottleneck costs have come down there. But as you think about your next phase of growth here, what are some of the emerging areas of a project's development that you are anticipating will require greater focus and perhaps pinch points that needs to be dealt with early.
Dean Setaguchi (President and CEO)
Good morning Maurice, and thanks for the question. You know, as we said before, I mean certainly with, with more egress for both all products, for natural gas, for crude oil, more export capacity that's getting built. We just think that there's going to be a lot of core infrastructure, NGL infrastructure that will need to be built with it. And at the front end of that, as Brad talked about, there'll be more gas gathering processing capacity that will have to be built. And we're located in the best spot in the liquids rich part of the basin, the Montney Basin. So we think that we can participate and offer great service both with the connectivity to our existing infrastructure and to add incremental capacity beyond that. But you know, for us it's all about allocation of capital and we want to allocate our capital and our resources to where we can add the most value. And as I said before, with the plains assets that we just acquired, we see a tremendous amount of opportunity there and we can, we're going to direct a lot of our efforts to again enhance our service offering for our customers and to maximize the value we deliver to our shareholders as well.
Maurice Choi (Equity Analyst)
Finish off with a question on how you touched on incremental gas and crude egress from the basin. Obviously there's been a major upstream M and A recently and I wonder if you could just talk to any direct or indirect impacts to your company given your commercial relationships and then just more broadly what that you think means for the outlook of the basin.
Dean Setaguchi (President and CEO)
Yeah, well, first of all, I'd just say it's a positive for our basin in an industry in Canada. If this means that the probability of LNG Canada phase two moves forward, you know, we should be exporting that and way. Adding way more capacity and exporting a lot more LNG off the west coast of Canada. So this is fantastic. From that perspective, I'd say that, you know, there's a part of me that feels a bit sad, to be honest. I look at a company like arc, that's homegrown Canadian company that's been around for over two decades. The team is, you know, Terry Anderson, his team, they're fantastic people to work with and we've worked very closely with them for a long period of time. So, you know, they should be pretty, very proud of what they built. But I'm sad to see that management team go and hopefully they start up something new and build another arc. But, you know, with regards to Shell, we've worked with them on. We tried to work with them on different projects already, so we're very familiar with them. You know, one of our directors is the former country chair of Shell, so we do have some connections. Michael Crothers. So whether our customer is Shell or a very small company, every customer is important to us. And we are going to work very closely with each one of them, including Shell, to understand what's important to them, how we can add value to their business, and we'll deliver them the best service possible.
Maurice Choi (Equity Analyst)
That's great. Thank you very much for that.
Dean Setaguchi (President and CEO)
Thank you.
OPERATOR
Yeah. No further questions at this time. I will now turn the call over to Dan for closing remarks.
Dan Kupferson (General Manager, Investor Relations)
Thank you all once again for joining us today. Please feel free to reach out to our investor relations team with any additional questions. I hope everyone enjoys the upcoming May long weekend in Canada.
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