Keyera's (KEYUF) CEO Jim Bertram on Q1 2014 Results - Earnings Call Transcript

May. 7.14 | About: Keyera Corp. (KEYUF)

Keyera Corp (OTC:KEYUF) Q1 2014 Earnings Conference Call May 7, 2014 10:00 AM ET

Executives

John Cobb - Vice President, Investor Relations & Information Technology

Jim Bertram - Chief Executive Officer, Director

David Smith - President, Chief Operating Officer

Steven Kroeker - Chief Financial Officer, Vice President

Analysts

David Noseworthy - CIBC

Carl Kirst - BMO Capital

Matthew Akman - Scotia Bank

Robert Kwan - RBC Capital Markets

Robert Catellier - GMP Securities

Operator

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Keyera Corp 2014 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn our call over to our host Mr. John Cobb. You may begin, sir.

John Cobb

Thank you, Andrea, and good morning. It's my pleasure to welcome you to Keyera's 2014 first quarter results conference call. With me are Jim Bertram, Chief Executive Officer; David Smith, President and Chief Operating Officer; and Steven Kroeker, Vice President and Chief Financial Officer.

In a moment, Jim and David will discuss the business and Steven will provide additional information on our financial results. At the conclusion of the formal remarks, we’ll open the call for questions.

Before we begin, however, I would like to remind listeners that some of the comments and answers that we will be providing today speak to future events. These forward-looking statements are given as of today’s date and reflect events or outcomes that management currently expects to occur based on their belief about the relevant material factors as well as our understanding of the business and the environment in which we operate.

Because forward-looking statements address future events and conditions, they necessarily involve risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties include fluctuations in supply, demand and pricing of natural gas, NGLs, isooctane and crude oil, the activities of producers and other industry players, our operating and other costs, the availability and cost of materials, equipment, labor and other services essential for our capital projects, the resolution of third-party claims, governmental and regulatory actions or delays, and other risks as are more fully set out in our publicly filed disclosure documents available on SEDAR and on our website.

We encourage you to review the MD&A which can be found in our 2014 first quarter report, which was published yesterday and is available on our website and on SEDAR.

With that, I'll turn it over to Jim Bertram, Chief Executive Officer. Go ahead, Jim.

Jim Bertram

Thanks, John. Good morning, everyone. Thank you for joining us this morning on the call. I am pleased to report that Keyera's business performed very well in the first quarter as the strong fundamentals driving our business, growing the liquids-rich natural gas drilling and ongoing oilsands development continued to support our existing operations and present new opportunities.

Net earnings in the first quarter were $55 million or $0.70 per shares and EBITDA was $108 million, 10% higher than the first quarter of last year. Distributable cash flow of $78 million or $0.99 per share was 6% lower than same period last year as stronger results from the business were partially offset by higher cash taxes.

With dividend to shareholders of $48 million $0.60 per share, our payout ratio for the quarter was 61%. Giving the strength of our business, yesterday we increased our dividend by 7.5%. Steven will talk more about our financial results later in the call.

Continued producer activity in the areas many of our facilities led to net throughput increasing 14% compared to first quarter of 2013. Higher throughput was a large contributor to the record performance seen in the Gathering and Processing business unit this quarter.

Two areas where producers are particularly active are the West Central region of Alberta, where we have several large gas plants and the deep basin area around our Simonette gas plant. In West Central Alberta, producers are focusing on a number of geological horizons, including the Glauconite, Spirit River and Cardium horizons and the resulting production is driving throughput growth at our Rimbey, Minnehik Buck Lake, Strachan, West Pembina, Nordegg River and Brazeau River gas plants.

In the deep basin area, the Montney zone continues to be the focus for producers, although we are seeing producers target the Duvernay horizons as well. In order to capture our [gasoline's] developments, we made some great progress in adding to gatherings pipeline systems during the quarter.

In West Central Alberta, we were able to undertake modifications to our Carlos pipeline in order to increase capacity on the line by about 40 million cubic feet per day. These modifications which cost about $25 million were driven by the fact that we had reached capacity on the existing pipeline as a result of significant gas production from the Glauconite zone southwest of the plant.

With construction being completed in April, the system is now delivering gas to our Rimbey gas plant. In April, we completed construction of the Wilson Creek pipeline system which will also deliver new production to the Rimbey gas plant. That pipeline system consists of a 12-inch raw gas gathering line and six-inch condensate line.

We anticipate putting this pipeline into operation in June when a producer on the pipeline puts a compressor station into operation. The pipelines were designed to have additional available capacity and can be extended further West into the south Duvernay area, should demand warrant.

We have reached agreement with the producer to construct the Twin Rivers' gathering pipeline which will deliver natural gas to an existing Keyera pipeline and onwards to our Brazeau River gas plant. We expect to begin construction on this pipeline later this year and begin flowing gas in the first quarter of 2015.

In April, we received all regulatory approvals necessary in construction of our turbo expander project at the Rimbey gas plant. We had ordered long lead items last year should we have not experienced any delays from that aspect. Work on this site is now beginning and we expect to have the project up and running in the first half of next year.

In the deep basin, we made considerable progress on the Wapiti pipeline in the first quarter before suspending construction due to spring break up. We have further work to complete before the pipeline is put into operation and that work will begin in the next several weeks when ground conditions improve. We expect to complete the pipeline and put it into operation in the third quarter.

During the quarter, we completed an agreement with another producer in the Wapiti region for the remaining capacity on the pipeline and processing at the plant. We continue to work hard at Simonette gas plant to process the growing volume of gas being delivered there.

In April, we made further minor process modifications to help us until we are able to complete the 100 million cubic feet per day plant expansion scheduled for later this year. Work has progressed on fabricating the long lead item equipment associated with the new 10,000 barrel per day condensate stabilizer. Now that we have all the required regulatory approvals line up, we will be proceeding with construction with the goal of having construction completed before the year end.

Last week, we closed an acquisition of assets in West Central Alberta, strengthening our presence in that region. From this transaction, we acquired an 85% ownership interest in the West Pembina gas plant that we referred to as Cynthia gas plant along with the corresponding working interest in lands from which gas is produced into the plant.

An additional 4.6 ownership interest in the Bigoray was also purchased, which brings our ownership in that plant to 100% and we also acquired bearing ownership interest in certain associated oil batteries compressors and gathering pipelines.

Total purchase price was approximately $113 million. Some of the assets are subject to third-party ROFR claims that we are in the process of working through as we transition the assets. The Cynthia sensor gas plant has deep cut processing capabilities that are complementary to our other assets in the region.

Looking ahead, we believe that there may be opportunities to interconnect the plant with other Keyera facilities in the area in order to relieve processing constraints, provide operational flexibility and provide an enhanced level of service for the producers.

In addition to acquisition of these West Central Alberta assets, we are also successful increasing our ownership interest in the Rimbey, Strachan and Brazeau River gas plants bringing our ownership interest in Strachan to 100%.

We have maintenance turnaround scheduled for the second quarter at Strachan, West Pembina and Caribou gas plants. These turnarounds are typically undertaken every four years and last approximate 14 days. In addition, last month we had a 10-day outage at the Simonette gas plat to complete the process improvements mentioned earlier as well as tie-ins for the new facilities being installed later this year.

With that, I would like to turn it over to David to review our liquids business unit. David?

David Smith

Thanks, Jim. The liquids business also contributed to the strong results in the first quarter. The NGL Infrastructure segment posted record operating margin 35% higher than the same period in 2013. The NGL Infrastructure segment continues to benefit from growing demand for fractionation, storage, transportation and other liquids logistics services as producers continue to increase production of both, liquid natural gas and bitumen from the oilsands.

We are very close to finalizing the agreement for our participation as a 30% non-operating owner in the Enbridge Norlite pipeline. The project will be a great complement to our other diluent handling services in the area and add to Keyera's long-term take-or-pay and fee-for-service cash flows.

Enbridge will construct and operate the pipeline and they anticipate having it in service in the second quarter of 2017. The scope of the pipeline will be finalized later this year which time we will receive an updated capital cost estimate from Enbridge for the project.

In the first quarter, we announced our long-term agreement with Cenovus Energy to provide diluent store services with volumes liquid increase up to the equivalent of approximately 3 storage caverns by 2018. Transportation services will also be provided on Keyera's Fort Saskatchewan condensate system between various diluent supply sources and delivery point in Edmonton/Fort Saskatchewan area.

The agreement with Cenovus is another important step in building a long-term fee-for-service commercial underpinning for Keyera's integrated condensate infrastructure. To further enhance the operational flexibility of our condensate infrastructure for our diluent customers in the Fort Saskatchewan area, we recently completed a tie-in to the Kinder Morgan Cochin pipeline, which is being converted from southbound propane service to northbound condensate service. This connection is the only receipt point for diluent deliveries into Alberta from the Cochin system and is currently being used to inject linefill into the pipeline before it begins operation this summer.

We made significant progress on our de-ethanizer project at Fort Saskatchewan in the first quarter, including delivery of a number of the larger modules to the site and installation of the de-ethanizer tower on its foundation. We anticipate completing the project towards the end of this year. Also at Fort Saskatchewan, engineering work is well underway on our C3+ fractionation expansion. We expect that this project will be on-stream in the first quarter of 2016 assuming time they receive the regulatory approvals and no changes to our construction schedule.

As demand for diluent storage continues to steadily increase, we continue to expand our storage capacity on site. We have developed a plan for the next phase of cavern development with the potential to add approximately 4 million barrels of additional storage capacity at the site. As part of this program, we expect to begin drilling our 15th cavern later this year.

We have also been active developing rail terminal infrastructure to help customers with movement to products out of the Western Canada. At our South Cheecham rail and truck terminal, south of Fort McMurray, which began operation last fall, we continue to see golden throughput through the facility.

We have received all necessary regulatory approvals for our Alberta crude terminal in Edmonton. Construction is progressing and we anticipate having the terminal in operation later this summer. We are currently in discussions with customers to determine the level of support for our potential expansion of the terminal's capacity.

In February, we announced we are proceeding to build a propane rail loading terminal at Josephburg, located in your fractionation storage facility in Fort Saskatchewan and we expect to begin construction this quarter. The facility will provide an additional propane outlet to meet the growing need for market access for Western Canadian producers.

In our Marketing segment, we had another good quarter with operating margin 54% higher than the first quarter of 2013. Higher sales and margins in our isooctane business contributed significantly to these results.

Overall, sales volumes for all products in the first quarter were 99,400 barrels per day compared to 116,800 barrels per day in the first quarter of last year. The lower volumes were largely due to lower propane sales as some of our winter sales volumes were accelerated into the fourth quarter 2013.

Propane demand was exceptionally strong in North America during the past winter and the unusually prolonged cold weather created product shortages in various parts of the continent, particularly in the eastern United States. The strong increase in demand caused propane prices to rise dramatically during the quarter. However given the tightness in propane supply, we were not able to source spot barrels to augment our volumes, so we were not able to take advantage of market demand.

Keyera adopted a new propane purchase pricing strategy in April last year, which provided us with more stable propane margins than we had experienced in the past, but as a result we don't benefit from the pricing windfalls like what we saw in the recent quarter.

Butane demand and butane margins remain solid in the first quarter, again contributing to strong marketing results. Although butane prices strengthened somewhat during the winter, we expect that butane prices will remain weak longer-term and especially during the summer months, which benefits are isooctane business.

Diluent supply and demand was relatively flat in the first quarter of 2014, as bitumen production was somewhat lower than forecast. During the quarter, a number of our customers aggregated condensate supply in our caverns in Fort Saskatchewan in order to meet their linefill commitments on the Cochin pipeline.

While short-term market fundamentals don't currently support importing condensate into Alberta, we continue to look for these opportunities when the economics are favorable. Our Albert EnviroFuels facility operated a close to capacity in the first quarter and the combination of new customers rail deliveries and solid risk management practices resulted in our isooctane business contributing strongly to our results.

We continue to develop new markets for isooctane and are using the storage and rail offload capacity, we now have at Kinder Morgan’s Galena Park facility to support and grow our isooctane sales in the United States. Finally, our crude oil midstream activities posted strong results in the first quarter of 2014.

With that, I will turn it over to Steven to discuss the financial results in more detail.

Steven Kroeker

Thanks, David. As Jim and David mentioned, we are pleased with how well all segments of the business performed this quarter. EBITDA was $108 million, 10% higher than the $98 million reported in the same period last year.

The growth we experienced in all three of our business segments led to a record operating margin for the quarter. Net earnings were $55 million, or $0.70 per share compared to $23 million or $0.30 per share in the first quarter of 2013.

In the first quarter, distributable cash flow was $78 million or $0.99 per share compared to $83 million or $1.07 per share in the same period of 2013. The strong operational results were reduced by higher cash taxes this quarter.

Dividend to shareholders was $48 million or $0.60 per share. This resulted in a payout ratio for the quarter of 61%. As announced yesterday, Keyera is increasing its dividend by 7.5% from $0.20 per share per months to $0.215 per share per month, or to $0.258 per share annually. Beginning with this dividend payable on June 16, 2014, this will be Keyera's 12th increase since going public in 2003.

Overall, more than two-thirds of Keyera's first-quarter operating margin was from fee-for-service businesses with the remainder coming from the market segment. Our Gathering and Processing business posted record results in the first quarter, delivering operating margin of $48 million.

The Liquids business unit also delivered strong results in the first quarter. First-quarter operating margin in the NGL Infrastructure segment of $39 million was another record, 35% higher than the $29 million reported in the same period in 2013.

The Marketing business generated $37 million of operating margin in the first quarter compared to $24 million in the first quarter last year. Strong results in our isooctane business were a significant contributor to these results. Excluding unrealized gains and losses from both periods, first-quarter Marketing results in 2014 were $8.4 million lower than the same period last year, largely due to lower volumes and a change in terms under which Keyera purchases propane.

Keyera's general and administrative expenses were $10 million in the first quarter compared to $6.5 million in the first quarter of 2013. This was largely due to higher staffing levels and other related costs necessary to support Keyera's growing business.

Long-term incentive plan costs were $7 million in the first quarter; $1 million lower than in the first quarter of 2013. The lower LTIP expense this year was due to a lower percentage increase in Keyera's share price over the first quarter compared to the first quarter of 2013.

Finance costs were $14 million in the first quarter $2.5 million higher than in the same period last year and the value of inventory at quarter and $159 million, 16 million higher than at March 31 last year.

Keyera incurred $9.2 million of cash taxes in the first quarter, $8.6 million higher than in the first quarter of 2013. Keyera's 2014 income tax largely relate to 2013 taxable income from the partnership within Keyera's structure and as a result Keyera estimates that its cash taxes for the full-year 2014 will be between $35 million and $40 million.

The increase in cash taxes in 2014 compared to 2013 is largely due to the growth in Keyera's business and less available deductions. Certain capital expenditures are not able to be claimed until the assets are put into service.

Depending on when major capital expenditures are available for the use for the purpose of claiming capital cost allowance, taxable income can vary significantly from year-to-year.

In the first quarter, we closed the final $75 million portion of the private debt placement announced in the third quarter 2013. Our capital liquidity continues to be strong with the net debt to EBITDA ratio of under 2.5 times at quarter end compared to restrictive covenant of four times.

Earlier in the call, Jim noted the maintenance turnaround that we had scheduled for the second quarter this year. As we noted in the MD&A published yesterday, the maintenance capital expenditures incurred in the second quarter will be significant, and because we deduct these expenditures from distributable cash flow, we will see lower results for this metric in the second quarter and higher payout ratio.

At all facilities undergoing turnaround this quarter with the exception of the CARBOB gas plant. We do recover these costs in the fee structure, therefore the effect of these expenditures as well as the timing issue.

Finally, we have included our first-quarter supplementary information on our website concur with the release of our first quarter 2014 financial results. This information includes both, operating and financial data for each segment of our business.

You can reference our 2014 first-quarter report for details on how to access the supplementary data.

That concludes my remarks. Jim?

Jim Bertram

Thanks, Steven. With over $1.5 billion of projects under development, Keyera continues to develop and expand its network of interconnected plants, pipelines, facilities and services that allow our customers to access our entire value chain. This year, we now expect to spend between $600 million and $700 million on projects already sanctioned and underway.

Our customers need the services we provide and we continually look for opportunities to expand the services we are able to offer them. Looking forward, we have a number of other opportunities under evaluation that we believe will Keyera to continue to provide stable and growing cash flows to our shareholders. The future looks very exciting for Keyera and I look forward to another year ahead.

John, that concludes my comments.

John Cobb

Thanks, Jim. Please go ahead, Andrea.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of David Noseworthy with CIBC. Please go ahead.

David Noseworthy - CIBC

Thank you and good morning.

Jim Bertram

First on your development plan for the next phase of cavern development at Fort Saskatchewan, can you give us a little bit more detail on what exactly that plan is? What you are doing differently than you are today?

David Smith

David, its David Smith. I don't think we are doing anything differently really than what we are doing today. The next phase of the development notion includes five caverns and a brine pond in order to be able to fully utilize the storage capacity.

As you can appreciate, we need to plan carefully on the site to most efficiently use the geography that's there and so that's what we are referring to in terms of the next phase.

David Noseworthy - CIBC

Okay. In terms of regulatory approval, is it just approving the caverns or does that also include additional water license?

David Smith

We are looking at some opportunities to get more access to water so that we can wash the caverns more quickly and potentially do to two caverns at the same time, so that is part of what the opportunities are that we are looking at.

David Noseworthy - CIBC

Okay. Then finally in terms of the 4 million barrels of additional capacity, what is the timeframe for those to come online?

David Smith

I think what we're looking at is approximately five years or so. As you can appreciate, each cavern takes about two-and-a-half to three years from start to finish depending on the ultimate size, so as we kind of lay out the program including the brine pond construction, we are probably looking at something like five or six years in total.

David Noseworthy - CIBC

Okay. Perfect. Thank you. Then maybe confusing the Wapiti pipeline is kind of an example. Can you walk us through the returns that you expect from Wapiti pipeline given, I guess, on a positive use now contract for volume on the pipeline, but maybe on the negative completion of the project is sort of a little longer and presumably the cost is a little bit more than originally expected.

David Smith

At this point, I wouldn't want to comment on the final cost of the pipeline. It's possible that it will be slightly higher than what our estimate has been, but I don't think it will be a material change. In terms of the schedule, obviously, that delays the start of the throughput and the start of the cash flow, but from an overall economic point of view over the project life it really doesn't have a material effect on our expected economics.

David Noseworthy - CIBC

The economic, the return now that did it - what might you be expecting - you provide?

David Smith

Well, no. David, as you know, we don't generally comment on the terms of the individual projects.

David Noseworthy - CIBC

Okay. All right. Then just on the Alberta Crude Terminal, you mentioned that you are in discussions for Phase 2 expansion. Can you give us any kind of detail on timelines and then effort on that maybe made and perhaps what impact delays Keystone XL now have had on your discussions?

David Smith

On your second point, I don't think Keystone XL has really had a direct impact on the discussions. I think the producers are certainly looking at their long-term options for crude [oil] and our facility has some tremendous advantages because of the connections to both, railways as well as the connections to a variety of different crude streams at Kinder Morgan's terminal.

On your first question, I don't expect that we are going to be making an announcement anytime soon. We continue discussions with a variety of customers both, producers and refiners for the possible expansion of capacity at the site, but I kind of expect that those customers are waiting to see how Phase 1 performs and you know exactly what the site is capable of and then I think we will be in a position to be more specific about what Phase 2 looks like.

David Noseworthy - CIBC

Okay. Last questions, Rimbey. You announced or you have number of pipeline now coming into Rimbey. How much more capacity do you - coming through Rimbey before you need to start about expansion there?

Jim Bertram

I think, this quarter we were probably the $335 million cubic feet per day. Plants designed for 420. That will be pushing it. With the new Turbo, it's 400 million a day, so you can see that, I think it's two new pipelines. We are going to start bumping up against design, so we certainly have started to think about it already and have plans depending really on how the Glauconite and then later on the Duvernay starts to pan out, so I think David we certainly got that that in the back of the mind and some planning has already started.

David Noseworthy - CIBC

Thank you very much. Those were my questions.

Operator

Our next question comes from the line of Carl Kirst with BMO Capital. Your line is open.

Carl Kirst - BMO Capital

Thanks. Good morning everybody. Good results. I think, David hit most of my questions. Maybe just a couple of cleanup if I could, first on the cavern development Fort Saskatchewan, could you remind us of what the capital cost would be for the next phase as far as the five caverns in the brine pond?

Jim Bertram

I think it's a little premature to answer that question, Carl. You know, we are currently developing the estimates for those. I think once we have more final engineering on the first cavern and the associated facilities, we can probably be more specific.

Carl Kirst - BMO Capital

Are there factors at play that would make that development different from some of the more generic dollars we have seen per cavern development in the past?

Jim Bertram

No. I wouldn't say so. We have seen higher costs for some of the equipment than what we experienced when we started the previous four-well program about seven years ago, but in terms the design and the concept it's something we are very familiar with.

Carl Kirst - BMO Capital

Okay. Fair enough. Then actually that may lead into just the second question. Looking at the CapEx this year increasing to a $600 million to $700 million, is that simply a timing issue or is that coming at all from cost pressures, labor or otherwise or in fact I am not sure if the delay on the Wapiti caused a little bit of cost prepare and you kind of alluded to it earlier. I don't know if maybe that issue is from that?

Steven Kroeker

This is Steven Kroeker speaking. I think as Q1 started to unfold, it gave us a bit more certainty about the progress on various projects throughout the year, getting approvals on various projects as well, so to help in that respect, so really it's bit more around on the tightening up of projects over time as we go forward.

Carl Kirst - BMO Capital

Okay, so just project timing not say for instance cost…

Steven Kroeker

A couple of additional price in the GMP side in terms of the gathering pipeline that came into a play as well in Q1.

Carl Kirst - BMO Capital

Great. Appreciate the color, guys.

Operator

Our next question comes from the line of Matthew Akman with Scotia Bank. Your line is open.

Matthew Akman - Scotia Bank

Yes. Thank you very much. Good morning. There was some commentary in the MD&A about using diluent in storage at Keyera for linefill, but it wasn't clear what kinds of impact that might have on the Marketing business. Maybe, David, you could comment.

David Smith

Sure. The shippers on Cochin have been kind of preparing for the conversion of Cochin for us for some time, so we saw increased volumes of condensate in storage for those customers. Earlier this spring when the facilities and connections were completed, Kinder began taking the condensate out of our storage and putting it into their pipeline to push the propane out, so the linefill has been filled from Fort Saskatchewan to push the propane out at the other end and when the line has been purged to propane then they will shut it down and do the necessary conversions to reverse the flow then the condensate linefill will start flowing back.

We thought that there might be some impact on supply and demand fundamentals in Fort Saskatchewan, but it really has been fairly muted, because the condensate necessary for the linefill was already in storage. The shippers were sort of ahead of the game. Coupled with the fact, as I mentioned in my comments, that condensate demand through the last few months has been fairly flat.

Matthew Akman - Scotia Bank

Okay. It sounds like you don't see necessarily any significant impact there.

David Smith

You mean from condensate pricing point of view?

Matthew Akman - Scotia Bank

Marketing profit.

David Smith

No. I don't think so.

John Cobb

Matthew, it's John. Just to maybe elaborate a little bit and I think David mentioned this earlier. The shippers on Cochin, they provide the linefill. They managed to source that themselves, so rather than a marketing effect on our business it would be of higher storage revenues and higher fees for product moving through our pipeline systems in Edmonton/Fort Saskatchewan area.

Matthew Akman - Scotia Bank

Yes. Just now you guys have been carrying a little bit more diluent sort of on your book lately, but I guess this stuff is not on your books.

John Cobb

No.

Matthew Akman - Scotia Bank

Okay. Thanks. On the physical infrastructure of the pipeline, it's obviously exclusive in Keyera's infrastructure plugged in there now. Is there an exclusive agreement of some kind or do you think it will plug-in anywhere else over time?

John Cobb

I would say there is no exclusive agreement. You know, over time Cochin could tie into other pipelines in the Fort Saskatchewan region.

Matthew Akman - Scotia Bank

Okay. My final question, maybe this is for Steven is on financing, that the growth has accelerated which is great. Then there was potential for Norlite and sounds like maybe the potential for an increase in costs there, so I'm just wondering what kind of leverage you are prepared to take on before you require equity, maybe a debt to EBITDA-type target or anything like that you could provide?

Steven Kroeker

Yes. From our perspective, we benefitted from the fact that a lot of these projects are well timed out and planned in terms of sequential in nature so they don't all stack on top of each other. For example, in Norlite, if we were to proceed on that one, is a later than some of the earlier projects. We do benefit from that.

We do have a willingness to have a bit more leverage in the structure during construction periods, knowing that the EBITDA is coming as well in that respect, so I would probably say 2.5 to 3 times debt to EBITDA is a comfortable range. Again, you can see in the bank revolver, last year we expanded that multiple to four times to make sure we had breathing room.

Our intent is not to be anywhere near the four times, but it is just a [some] breathing room. Again, that is no imminent need for equity through continue to monitor the market just to see when there is the right time to put long-term equity in for long-term projects, but right now it all looks pretty manageable nothing is imminent in terms of need, but we do watch the market.

Matthew Akman - Scotia Bank

Great. Thanks, guys. Those were my questions.

Steven Kroeker

Thank you.

Operator

Our next question comes from the line of Robert Kwan with RBC Capital Markets. Please go ahead.

Robert Kwan - RBC Capital Markets

Just coming back to, Jim, your comments about Rimbey filling up and I know it's early days, but thinking about potential expansion there. As you envision at this point, would you see levering off of the lean oil for summer. Do you see something in terms of larger scope of project?

Jim Bertram

I think our lean oil system today is very efficient system, extracts a high percentage of liquids out of the gas stream. If volumes start to that materialize from the Duvernay out there. I think we continue to - our focus is what do with the lean oil system to complement the turbo that's going to be installed, so that's where our focus is right now.

Robert Kwan - RBC Capital Markets

Okay. In addition, I guess, as we look at land becoming much more constrained and the ebbing scenario just with your growth and others' growth. Just sitting on a pretty big parcel than U.S. land, I am just wondering if you have any preliminary thoughts as to how you could see that developed and how would it fit into your footprint?

Jim Bertram

That's a very good question. It's something that we've been looking actively looking at over the course of the last year or so and you're quite right. It's a valuable piece of property given the construction activity that's going on in East Edmonton. We haven't finalized any plans at this point, so I guess I would stay tuned.

Robert Kwan - RBC Capital Markets

Okay, but is it fair to say that as you said, Dave, you have been looking out over the last year that it's at least if you look over that timeframe that you have kind of focused in on maybe a something little bit more specific in terms of what you might want to do with that parcel?

David Smith

Yes. I think that's fair to say. What I can say is it's unlikely that we would be looking to expand the AEF process. There is may be some optimization that we can do. I think what's more likely is that we would be looking at various storage and transportation alternatives for that site.

Robert Kwan - RBC Capital Markets

Okay. Just a last question on storage, you still had room to grow and obviously you referenced for the next storage space expansion, but as KFS becomes increasingly divided between kind of the historical NGLs and just a straight diluent handling business. Do you have any thoughts of migrating the straight diluent business to another site just to allow for a more NGLs at KFS?

David Smith

I guess, I would say yes and now. We certainly get some benefit from the integration that we have among the various products. That Fort Saskatchewan it's easy for us to convert a cavern from butane to condensate. Let's say and vice-versa, so we have some benefit from that flexibility.

Having said that, we are certainly looking long-term at the constraints at that site and we do have our Josephburg site just east of there, which is a possibility for storage as well as for rail terminal facilities. In addition, we are looking at other expansion possibilities in that same geographic area.

Robert Kwan - RBC Capital Markets

I guess, Dave, is it fair to say that with all the activity whether that's increase in diluent handling, you have got the [DS], so you have got caverns for C2+ mix and then fractionator expansion. You are not particularly concerned at this point that you don't have enough capacity the sites handle kind of everything that's in frontend.

John Cobb

Not in the short-term. We have still got lots of room for expanding both, the storage and process facilities there, but we are looking at the long-term and just making sure that we've got the long-term taken care of as well.

Robert Kwan - RBC Capital Markets

Great. Thank you very much.

Operator

Our next question comes from the line of Robert Catellier with GMP Securities. Please go ahead.

Robert Catellier - GMP Securities

Just a follow-up on that one question, at what point how that you have the Cenovus agreement. At what point does your connectivity in maybe on pipeline connections between Edmonton and Fort Saskatchewan have to augment it.

Jim Bertram

Good question, Robert. I think it's fair to say that this is probably the next bottleneck, the constraint that we are having, so we are looking at a number of different alternatives for augmenting the pipeline capacity between Edmonton and Fort Saskatchewan, which could potentially involve displacing, converting one of the existing pipelines into a different service.

Having said that, what's interesting to watch with respect to condensate movements in that area in particular it's just to see how the market evolves in terms of where were the condensate is coming from and where and where it's going to.

We see with the Cochin pipeline connection and with the increasing volumes of condensate from the deep basin area. Those are sources of supply that will actually be coming directly into Fort Saskatchewan, so they won't require the transportation capacity between and Edmonton and Fort Saskatchewan, so that would mitigate at least in the near-term the need for additional pipeline capacity between those two nodes.

Robert Catellier - GMP Securities

Okay. That's helpful. Obviously the volumes on the GMP side were considerable this quarter. I was wondering what you could tell us about sort of the organic growth outlook for throughput and what you guys include in your volume planning outlook. In particular, if you can address where you see the major bottlenecks on Keyera's gathering and processing system?

Jim Bertram

I think, Robert, I think with the focus out there of liquids rich drilling, we see lots of bottlenecks starting to creep and it's hard to predict exactly where, but it's clear that the Simonette area of the of Alberta is very prospective area and we see a lot of demand coming at us from the Montney drilling, the liquids-rich Montney drilling in the Wapiti area.

Our pipeline effectively contractually is full before it's in the ground. Clearly opportunities for other pipelines out into that same area if you following the drilling here, so Montney, the Duvernay is evolving, becoming commercialized east of the Simonette plant, so still Simonette in that area is going to continue to be very bottleneck for the next two or three or four years as producers start to, I think, understand what could be a very big play to place.

If you come back into our other world, Rimbey with the pipeline expansions this quarter, we know we are going to be tight at Rimbey and we probably got the best opportunity there to expand that plant with the existing lean oil system and expand it relatively cheap compared to what new builds would be, so that's certainly probably gets a lot of our focus.

If you go then to the Strachan, Nordegg, Brazeau West Pembina region, that's an area that's all are experiencing more throughput I'd say that Strachan is starting to get tight. Even smaller plants, Pem North, Braz North have the Cardium drilling starting to push, so it's happening. I think, we've been talking about it for a long time, but it's here and I would say our business development people our engineers. They have a half-a-dozen different planning sessions going on around particular plants in terms of trying to get more throughputs, so it seems like drilling for these types of resources is going to continue.

Robert Catellier - GMP Securities

I wondered if you could elaborate maybe a little bit on the Montney here. Earlier today Enbridge was talking about putting some big capital work in gas midstream, some comments last week about as much of $1 billion worth of opportunities under evaluation. That's dollars, not volume. I am wondering what maybe you see the Montney needing in terms of gross gathering and processing capacity over the next three to five years?

Jim Bertram

I wish I knew. I think the reality of it is, the Montney is a tremendous resource that's just starting to be tapped into. When you consider, it runs from the South East corner around our Simonette plant all the way up through to the top end around our Caribou plant in - everywhere in between you have got Montney.

I think what producers are trying to identify is that the sweet spots. Obviously, people are going to be more focused in the short-term for the most part on drilling liquids-rich Montney, although there's some very prolific dry Montney out there as well. You know, I think it's going to be driven by LNG. How quickly LNG becomes a reality.

A lot of Montney in BC and even in Alberta, we will see that, but I think in the short-term in next one or two years people are going to continue to come back and focus on the liquids-rich Montney which I think means an awful lot of money spent in the Wapiti area where I think you see NuVista, Paramount, Seven Generations others in there drilling up I think very prospective Montney, so for any company stand up and say they are going to spend billions or have the opportunity to spend billions, it's not wrong, because there is there is going over the next three to five years a tremendous amount of money spent in the Montney, so I think we are trying to stay focused on our area of the Montney in the Wapiti area not beyond that for now.

Robert Catellier - GMP Securities

Yes. It sounds like it's still evolving pretty open-ended?

Jim Bertram

I think it's tremendous resource that will be evolving for the next 5 to 10 years.

Robert Catellier - GMP Securities

Okay. Great. Thank you.

Operator

(Operator Instructions) Our next question comes from the line of David Noseworthy with CIBC. Please go ahead.

David Noseworthy - CIBC

Thank you, just a couple of follow-up question. First on AEF, how much excess capacity is left on it AEF now and maybe just have the catalyst and the silkscreen type issue has been fully resolved now?

Jim Bertram

I hesitate to answer that question. I'm knocking on what you are as we speak, David. No. I'm jesting. I am quite confident that we address those problems. Since we had the shutdown in late November, the plant has been running very, very smoothly and pretty close to capacity in the first quarter overall, so there is really not a whole lot more room to increase throughput in the short-term. What we are trying to do is, just to maximize our access to the best markets for isooctane, so that we can keep the plant running at 100%.

David Noseworthy - CIBC

Perfect. Then on the marketing side, in terms of the volumes in Q1, do the new contract that you have signed, especially as it pertains to propane, did it limit your ability to assess volumes during periods of high demand compared to the old contract, and maybe not explicitly, but just in terms of the way they are structured, what behavior they drive.

Jim Bertram

No. I wouldn't say so necessarily. I think, what we observed this winter is that not only did we have cold weather, but we had cold weather for a long time and I think it depleted supplies really throughout the industry, including in our business. As I mentioned, when we got into Q1, it was difficult for us to access more supply, but we weren't unique in that regard. It was difficult really across the continent for suppliers to access additional supply, so I don't think that the nature of the contracts that we have on the supply side are changing the fundamentals. I think it was just a very unusual winter from a weather point of view.

David Noseworthy - CIBC

Okay. Great. Thank you very much.

Operator

We have no further questions in queue. I would turn the call back over to Mr. Cobb for any closing comments.

John Cobb

Thank you, Andrea. This completes our third 2014 first quarter results conference call. If you do have any other questions, please call us. Our contact information is in yesterday's release. Thank you for listening and have a good day.

Operator

Ladies and gentlemen, thank you for your participation in today's teleconference. You may now disconnect.

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