Keyera's (KEYUF) CEO David Smith on Q2 2016 Results - Earnings Call Transcript

| About: Keyera Corp. (KEYUF)

Keyera Corp. (OTC:KEYUF) Q2 2016 Earnings Conference Call August 10, 2016 10:00 AM ET

Executives

Lavonne Zdunich - Director, IR & Communications

David Smith - President & CEO

Bradley Lock - SVP, Gathering & Processing

Dean Setoguchi - SVP, Liquids Business Unit

Steven Kroeker - SVP & CFO

Analysts

Linda Ezergailis - TD Securities

Patrick Kenny - National Bank Financial

Robert Kwan - RBC Capital Markets

Robert Catellier - CIBC World Markets

Andrew Kuske - Credit Suisse

Ashok Dutta - Platts

Dirk Lever - AltaCorp Capital

Operator

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Keyera Corporation Second Quarter 2016 Results. 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 the call over to Ms. Lavonne Zdunich, Director of Investor Relations. Please go ahead.

Lavonne Zdunich

Thank you, and good morning. It's my pleasure to welcome you to Keyera's 2016 second quarter conference call.

With me are David Smith, President and CEO; Steven Kroeker, Senior Vice President and CFO; Brad Lock, Senior Vice President, Gathering and Processing Business Units; and Dean Setoguchi, Senior Vice President, Liquids Business Unit.

In a moment, David will provide an overview of the quarter, followed by business updates from Brad and Dean. Steven will provide additional information about our financial results. We will then open the call for questions once we complete our prepared remarks.

Before we begin, I would like to remind listeners that some of our comments and answers that we will be providing address 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 outcomes, they necessarily involve risks and uncertainties that cause actual results to differ materially. Some of these risks and uncertainties include general economic business and market conditions, fluctuations in supply demand inventory level and pricing of natural gas , NGLs, iso-octane and crude oil; the activities of producers and other industry players; our operating costs and other costs; the availability and costs of materials, equipment, labor and other services essential for our capital projects; contractor performance; counterparty risk; governmental and regulatory actions or delays; competition for among other things; business opportunities and capital; and other risks as are more fully set out in our publicly-filed disclosure documents available on our website and SEDAR.

We encourage you to review the MD&A which can be found in our 2016 second quarter report published yesterday which is available on our website and SEDAR.

With that, I'll turn it over to David Smith, our President and CEO.

David Smith

Thank you, Lavonne, and good morning everyone. I am pleased to report steady second quarter financial and operating performance at Keyera despite the challenging industry conditions. Our overall adjusted EBITDA for the second quarter was $157 million, 8% higher than the $145 million reported in the first quarter of the year.

The gathering and processing and liquids infrastructure segments reported consistent results compared to the previous quarter while marketing reported somewhat results due to somewhat lower iso-octane margins. This attributable cash flow is $138 million, 19% higher than the previous quarter resulting in a conservative payout ratio of 49% for the quarter and 51% for the last 12 months.

Steven will speak more about our financial results later in the call. Keyera's track record in second quarter results are a testament to our financial strategy, our well positioned integrated asset portfolio and our prudent capital investments. And we have continued to strengthen our competitive position.

We improve our financial flexibility by issuing $345 million in new equity in the quarter and $60 million in new long-term debt. And we recently announced a further $300 million long term debt private placement that is expected to close in October. These transactions position us very well to take advantage of opportunities that may present themselves in the current environment.

We capitalized on two such opportunities in the second quarter as we signed agreements for the potential construction of a Natural gas gathering and processing complex that will serve Montney production in the Wapiti area and we agreed to acquire additional 35% ownership interest in the fully utilized Alder Flats gas plant and associated gathering system.

We also completed the fractionation expansion at the Keyera Fort Saskatchewan facility. We continued expanding our cavern storage facility at KFS and we progressed the construction of our major pipeline and crude oil storage projects in the liquids business units.

All this capital investments are backed by long term customer agreements and are expected to add incremental cash flow in 2017 and 2018. On the strength of our continued financial performance we are pleased to announce the 6% dividend increase to $0.1325 per share per month beginning with our dividend payable on September 15. This represents Keyera's fifteenth consecutive dividend increase since going public in 2003 and shows our commitment to providing shareholders with stable long term dividend growth over time.

With that, I will pass it over to Brad to discuss our gathering and processing business unit.

Bradley Lock

Thanks, David. The gathering and processing business unit reported a strong quarter with an operating margin of $70 million. Year-to-date our operating costs are down significantly as our costs savings initiatives continue to yield excellent results. Since most of our operating costs blow through to our customers, these cost savings are helping to improve their net backs.

Our team continues to work with customers to provides a flexible and competitive midstream solutions. For example, during the quarter we commissioned a new connection from our Simonette Gas Plant and to a new TransCanada station allows our customers to pull additional gas on either the TransCanada or Alliance gas pipeline system.

Our gathering and processing growth throughput volume was 1425 million cubic feet per day in the second quarter on par with volumes from a year ago with a 10% from the first quarter in 2016. Lower throughput volumes were due to significant curtailments on the TCPL system, natural declines from existing wells and shut in production which we estimated approximately 2% to 3% of our growth throughput volumes.

Looking ahead to the remainder of 2016, we remain cautious with respect to our throughput volume expectations given reduced customer capital budgets, drilling activity and TransCanada to continue its maintenance programs. Moreover, there are indications that drilling and completion activity could increase in the last half of 2016. Particularly in geological zones that are rich in natural gas liquids such as the Spirit River.

Keyera's gathering and processing facilities are strategically located in some of the most attractive areas of the Western Canada Sedimentary Basin for producer economics continue to be commercially competitive. We were pleased to increase our ownership interest in the Alder Flats gas plant to 70% as this plant is within our core operating area and has strong geology supporting producer activity in the area.

The transaction successfully closed yesterday. Phase 2 of the plant is being constructed by Bellatrix Exploration who remains the minority owner and operator and is expected to be on stream in the first half of 2018 adding incremental volumes and cash flow. Keyera is also excited about the opportunity to increase its presence in the liquids rich Montney with the proposed Wapiti gas plant complex at south of Grand Prairie. This project along with our existing Wapiti pipeline and Simonette gas plant represent an exciting opportunity for Keyera to increase its position in this prolific geological area.

As part of the transaction, we acquired a plant site, an approved plant license, a drilled, completed and tested acid gas ejection well and significant pre feats engineering cost estimated and schedules. We are currently conducting front end engineering design which would yield he detail cost estimates and project schedules to facilitate project sanctioning. Assuming engineering continues to progress and project is sanctioned in a timely manner; operations of the first phase are targeted to start up in mid-2019.

I will now turn it over to Dean to discuss the liquids position.

Dean Setoguchi

Thanks Brad. Liquids infrastructure segment has another strong quarter generating $59 million in operating margin. Over the past several years Keyera has developed significant infrastructure at the Fort Saskatchewan Energy Hub to provide value added and reliable services for our customers. During the quarter we demonstrated the value of our caverns in Fort Saskatchewan by storing large volumes of diluent for customers that were affected by the Fort McMurray wildfires.

We expect oil sands production growth through 2018 as new oil sands projects and phased expansions of existing projects commence operations. Our industry-leading condensate network offers customers flexible, reliable services and has become the condensate trading hub for the industry. The demand for storage continues to be strong and therefore, we remain committed to progressing our next phase of cavern development program. Last week we completed drilling for the 16th cavern and commenced drilling for the 17th cavern. We currently have about 12.5 million barrels of gross capacity in gross caverns and expect to bring two more caverns currently being washed into service next year.

We continue to enhance and expand our processing infrastructure at KFS and late May, we completed the 35,000 barrel per day fractionation expansion on time, under budget and with no last time incidents. Thanks to the excellent works, careful coordination, and safe execution by our project team. A significant portion of the additional capacity is supported by long term agreements which will support operating margin growth during second half of the year. Our three major joint venture capital projects are progressing favorably. The Norlite diluent pipeline with Enbridge, the South Grand Rapids diluent pipeline with TransCanada pipeline and Brion Energy and baseline tank terminal crude oil storage project with Kinder Morgan are all on schedule with costs trending lower than estimated.

Subject to construction schedules remaining on track, these projects are expected to add incremental cash flow in mid-to-late 2017. With respect to marketing, the segment reported an operating margin of $25 million or $46 million excluding unrealized losses. Realized iso-octane margins for the second quarter of 2016 returned a more typical levels similar to the second quarter of 2014. But less than exceptional results we realize in the same period last year. Despite a strong summer driving season in 2016, gasoline inventories across North America have remained high due to the increased imports and production. This has placed a downward pressure on gasoline prices and iso-octane margins. Iso-octane sales volumes will be lower during the second half of the year as the AEF facility is taken offline for the scheduled six week maintenance turnaround commencing in September.

Post turnaround we expect iso-octane margins to remain under pressure, particularly as we head into the softer winter driving season. Iso-octane remains a significant contributor to our marketing results.

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

Steven Kroeker

Thank you, Dean. As mentioned earlier, we are pleased with the second quarter's results as Keyera's conservative strategy, well positioned integrated assets, and improved capital investments continued to deliver steady results in the challenging environment. Adjusted EBITDA for the second quarter was a $157 million which was consistent with the same quarter last year.

New cash flow from completed capital projects and a continued growth in a liquids infrastructure segment helped offset the impact of third party curtailment, reduced drilling activity, the shutting of some gas production and the return of iso-octane margins to 2014 levels. Distributable cash flow was $138 million or 49% higher than second quarter 2015 while operating results were similar between the two periods we had lower cash taxes and maintenance capital in second quarter 2016.

In second quarter 2015, Keyera had conducted several scheduled plant turnarounds which led to larger maintenance capital costs in that period. For the full year, we still expect our current income tax expense to range between $15 million and $25 million and our maintenance capital to range between $80 million to $85 million. $40 million to $45 million of this maintenance capital relates to the scheduled turnaround including catalyst replacement for AEF recurring this fall.

Our multi-year growth capital program remains on track and we continue to expect to invest approximately $600 million in 2016. To complete the sanctioned capital projects we currently have underway we estimate we will spend over $500,000 post 2016, primarily in 2017. Keyera has significant financial flexibility to fund this capital program and appropriate acquisition opportunities. Our net debt EBITDA ratio was 2.04 times at June 30 compared to our strictest bank covenant of 4 times.

We have a $1.5 billion committed credit facility that only had $230 million drawn on June 30 and we have a low payout ratio at 51% over the last 12 months. Our strong access to capital markets was evident during the second quarter and in July with over $700 million of equity and debt raised.

That concludes my remarks David, thanks.

David Smith

Thank you, Steven. While the oil and gas industry continues to experience low commodity prices and low activity levels, I am pleased with Keyera's financial and operating performance during this time. We continue to optimize ad strengthen our integrated asset portfolio, reducing costs while investing for growth, working with customers to provide cost effective and extreme solutions and maintaining our strong balance sheet and financial flexibility. Keyera has a long track record of delivering above average returns and consistently creating shareholder value even during such challenging times in our industry.

On behalf of cures directors and management team I would like to thank our employees, customers, Shareholders and other stakeholders for their continued support. I have great confidence in the Keyera team and I'm optimistic about the opportunities that we are currently pursuing to strengthen our future.

With that I'll turn it back over to the operator please go ahead with questions.

Question-and-Answer Session

Operator

[Operator instructions] Your first question comes from Linda Ezergailis with TD Securities, your line is open.

Linda Ezergailis

Thank you. I have a question with respect to your Wabiti gas plant project. Can you talk about how the conversations are going have they slowdown a bit maybe recently or are there any sort of sticking point in the negotiations or competitive alternatives that are emerging, or is it just a matter of waiting through a complex and detailed negotiations.

Bradley Lock

Hi Linda this is, Brad. I think via the discussions with the with Producers and that area's going somewhat is expected, it's complicated area and certainly commodity prices are not helping to Foster people's excitement the thing that we do have going for so there is that is outstanding geology surrounding our proposed assets, and number producers who are looking at the long term in and saying this is an area that they want to play. that being said I think we're the conversations are going as expected and we're working hard to get the feed done, that will allow us to provide real certainty on the costume shuttle the project that would facilitate the signing of additional costumers.

Linda Ezergailis

And what might be an updated timing on when you can finalize some of those signatures.

Bradley Lock

I think we're still looking at the last half of this year is what we're targeting, you know ultimately it's the - we're in control of the of the engineering and the customers are certainly going to dictate the pace of which they want to develop, but we think that that we could see movement forward last half this year we're hoping.

Linda Ezergailis

Thank you. And that's just a follow up question operationally. In your marketing business I'm wondering what you're seeing in terms of pricing for your various products beyond the iso-octane.

Dean Setoguchi

Well in terms of that the pricing for other projects, Linda its Dean Setoguchi. You know basically it's the margin type of business so since our condensate we're basically buying most of our supply and selling it on the same index within a short period time. So we're just preserving a margin and so that margin doesn't fluctuate a lot based on price. What I can say though is that it may affect them on the volume that we are willing to add into from time to time so you know there is some volume but the actual margin per barrel doesn't fluctuate a lot. On the butane side obviously that's a feedstock for our octane facility so you know prices are still very attractive for that feedstock. And then a propane we have a propane market value that we basically hedge and then sell our product on the same index that we buy it on so again we're trying to do is preserve margin that product as well. I think the bigger question is just the variability in the supply that we could see from time to time depending on how much liquids which production we see coming through our facilities.

Linda Ezergailis

And do you expect a lot of variability of supply for the balance of the year.

Dean Setoguchi

No I don't think so I mean I don't think conditions change that quickly but as you look into the future I mean I guess it depends on how much C3 rich or C4 rich, liquids rich gases is drilled in the future that's the biggest question.

Linda Ezergailis

Okay, thank you. One final big picture question; can you give us an update on out what you're seeing from an M&A perspective in terms of volume price part of value chain both in western Canada as well as around whole other areas south of the border that you might be looking at.

David Smith

Linda, it’s David. I'll take that one. I think we continue to look at opportunities both in the gathering and processing area and in the liquids business unit and I think in terms of NGL infrastructure we would also look to the U.S. And I think we're going to continue to be disciplined and focused on assets where we have capabilities that we bring to the asset and where we see long term sustainability and growth opportunities. all that said I think it's also fair to say that we're seeing competition for those assets number of transactions have been announced this year and the prices that are being paid for the assets are still pretty healthy, so you know as I said before we will you know we will continue to that be disciplined about our approach.

Clearly, you know when it comes to assets like the Wapiti site and the older flats facility those are assets that fit very well with our existing portfolio and where we have capabilities that we can bring to the table and will certainly be looking at those more aggressively. With respect to U.S. opportunities hull is a very interesting example of the kinds of things that we will continue to work to do, but oftentimes the time frame for fully developing out those opportunities is measured in in years not months. So it's just a long term outlook that we have. But to the extent that we can add to the opportunities of Hull and elsewhere instrument in a similar vein we will continue to look at that.

Linda Ezergailis

Thank you.

Operator

The next question comes from [indiscernible], your line is open.

Unidentified Analyst

Yes a good morning thank you for taking my questions. Just a follow up on clarification on your last answer, just in terms of the U.S. opportunities that you're seeing, are they more focused on a continued expansion of Hull similar to the I guess the Williams purity pipeline [ph] or would you be looking for another site that you could be using as an NGL Hull dawn there.

David Smith

I think the short answer Rob, is it would be both in we will look for assets that we think will enhance the value chain that we have. The markets that we deal in whether it's propane or butane or condensate are iso-octane are North America wide markets. So any physical asset that we can add to our portfolio that helps to enhance that value chain is something that makes sense for us.

Unidentified Analyst

Alright that's helpful. And then just moving on to marketing there was some commentary about the iso-octane premium coming in from 2015 levels, I'm just wondering if you can add more color on what are the main drivers of that iso=octane premium as well as what you've seen I guess threw out the first half of the year and it looks like that you are expecting that premium to remain compressed, if you will.

Dean Setoguchi

Robert its Dean Setoguchi. The premiums are really driven by I guess octane demand and as we said the driving demand has been very high in terms of like gasoline consumed in North America. What we saw was that a lot of the refiners produced gasoline preferentially to distort. And so that resulted and high inventory levels and also imports contribute to that as well. And with that I think there's a lot of out chords that were in other forms of octane that were produced, so that that create a lot more supply for octane. One other factor that fixed octane demand at least in the near term is the feedstock. And we lost about million barrels of flash lights shield feed stock in North America and that later feedstock itself octane's over requires more octane blending. So when you reduce that light supply and replace it with a heavier crude fleets inquires laugh octane blending so those are some of the factors that that effect the supply demand and the actual octane premiums.

Unidentified Analyst

Alright that's helpful, thank you.

Operator

Your next question comes from Patrick Kenny from National Bank Financial. Your line is open.

Patrick Kenny

Yes, good morning guys. Just want to get your thoughts on the PDH opportunity being pursued the province; obviously you guys how the relationships the booked with the propane producers and the petrochemical industry and looks like you had the undeveloped land as well so. Just one if you look into throw your hat in the ring here or different view in the market altogether.

David Smith

That's Davis, I'll take the question. I guess as a general comment you know we look at those kinds of opportunities as well I think anything that we can do to improve demand for the products that are customers produces, is something that were interested in. I think there are lots of factors that go into the long term economic attractiveness of an investment like a PDH facility there the capital cost is pretty significant, Williams is well along with that with their project in a course that earlier this week you saw the announcement that Inter-pipe [ph] will be taking that over soon as their acquisition closes.

And M&A as announced to plan to investigate a similar kind of investment, I think there's obviously there's a limit to the number of projects that sort that can be pursued, so I don't think you'll see us entering the fray for a PDH particularly, but those kinds of investments are the kinds of things that we will continue to look at and evaluate if they make sense. You know I think at what I would say is that we're certainly hopeful that they're successful because anything that can be done to improve the demand locally for products like propane is going to be beneficial to the industry.

Patrick Kenny

Okay, fair enough, thanks. And then just maybe back to the Wapiti plants assuming it does go ahead. And you get time for connecting the plant into Simonette does that achieve enough scale to justify building your own liquid pipeline down into the fort.

David Smith

We hope se, I think it's something that we continue to look at that we anticipate that the whole area of northwest Alberta and up into northeast BC is going to continue to be a growth area. Driven by Montney production but also driven by some of the other liquids rich stones that that we see as a focus in in that general geographic area. And so it's certainly something that we're evaluating to see if we can put together the economic justification for another liquids pipeline that would serve the producers in the area and provide a competitive alternative.

Patrick Kenny

Then maybe just lastly, sticking with Simonette and here is another you've got the new TCPL connection there, just want to get your thoughts here as we approach the fall and in assuming that there are TransCanada is successful here in locking down some new firm transportation tools on the main line. Would you expect that would be enough to you hill perhaps ramp up some drilling activity around Simonette.

Bradley Lock

I think that'll certainly be a factor in producers decisions to drill, ultimately it's still going to come down to a strengthening and commodity prices assault going to drive that I will be a combination of oils and NGLs and natural gas, the suite prices that when you apply them to the of the suite of products that they can make that will ultimately drive their net back in and facilitated enhanced growing opportunity, but anything that is done to promote to increase the value of the natural gas commodity by discounting the differential to get to the east coast is certainly a composite of property.

Dean Setoguchi

I might add I think all of that helps what were you seeing is improvement in in transportation not just for gas but also for the liquids that are being produced and the liquids are an important part of the value equation for the producers in that area. Also you're seeing some reduction in cost as a result of technology and efficiency and produced in for costs. All of those factors help but I agree with Brad, that I think that we still need to see somewhat stronger commodity prices before you're going to see a real ramp up an activity level.

Patrick Kenny

Alright, thanks very much guys.

Operator

Your next question comes from Robert Kwan with RBC Capital Markets. Your line is open.

Robert Kwan

Your comment on PDH but more so kind of what you've been doing with respect to railing just getting that out in some investments you made at Hulls, generally been about facilitating that movement but more wholesale driven just wondering do you have any interest in developing additional retail puts for propane.

David Smith

Yes you may be referring to something more specific Robert, we out we've looked at a number of different vertical what I would refer to what I would describe as vertical integration opportunities. But you're right we have tended to kind of stay on the wholesale side of things and leave the retail on the trucking and that it's our some of those more transaction intensive downstream opportunities to others.

So as we sit here today I think we're always open to the right kinds of opportunities. So I probably I am not going to make a comment one direction or the other.

Robert Kwan

Okay, fair enough. Maybe keeping on propane that shifting the price and specifically Rimbey. Do you have a sense says TE look out the volumes that were diverted away what type of propane price we need to get to you or even just rough percentage change? Just to try to get those volumes back to Rimbey.

David Smith

I don't think I'm looking at Dean and I don't think we have a specific number that we can give you that you know right now it is something that we can kind of look at, I don't think it would take very much. Propane prices today are certainly somewhat stronger than where they've been over the course the last 2 or 3 quarters, but they're still not very attractive and so I think we are seeing some signs that that the supply demand is shifting somewhat in North America and so I'm cautiously optimistic that as we get into the winter time we may see some further strengthening. So I don't think would take much what I would emphasize as an aside is that on the volumes that we've lost at Rimbey while the volume impact has been sizeable, the cash flow impact of those volumes has been pretty minor, just because of the nature of the fee arrangements associated with them.

Robert Kwan

Okay maybe follow on that just broadly within the GNP segment and I don't know Dave whether you were alluding to an take-or-pay type agreements release minimum volume commitments, are you able to talk about you know within say that the roughly 70 million of margin in the quarter. How much of that was generated under take-or-pay arrangement and if you can give a sense as to what the weighted average remaining term of those values might be.

Steven Kroeker

Well, we have to get back to you on any specifics Rob, but what I would say is that it's pretty small. That the amount of revenue that we would have a gathering of processing associated with these where there's - where we're not getting volume is pretty small.

Robert Kwan

But just more so that even where you are getting volume how much of that is underpinned by take-or-pay from service.

Steven Kroeker

Okay, I think overall were probably somewhere in the 20% to 25% range. And in terms of the overall business that I have than that so that would be supported by long term take-or-pay agreements.

Robert Kwan

Okay. So 20%, 25% percent of them. Okay great, thank you.

Operator

You next question comes from David Galison from Canaccord Genuity. Your line is open.

Unidentified Analyst

Good morning. This is [indiscernible] on for David this morning. Okay I just have one question for today. Would you be able to provide an estimate of what the impact would be from the scheduled meeting turn-around of the ASF facility?

Steven Kroeker

Alright, well we - do you mean from an EBITDA point of view as opposed to the actual means capital cost.

David Galison

Yes, just from the EBITDA perspective.

Steven Kroeker

Yes, we didn't disclose that we have provided that that information. But we will be down for roughly six weeks. And we estimate the cost to be in the $40 million to $45 million range.

David Galison

Okay that's helpful and that's all of my questions for today, thank you.

Operator

Your next question comes from Robert Catellier from CIBC World Markets. Your line is open.

Robert Catellier

Hi, good morning, you have touched on the most areas I wanted to dive into but maybe just some follow ups, starting with the Wapiti area, sort of the same question Rob was asking on Rimbey in other words, what type of margin expansion do you think you need to see from producers in their net back to make the loppy [ph] plant an obvious go ahead?

Bradley Lock

This is Brad. Again, I don't think it's significant. A significant part of the development is driven off condensate volumes. Oil price is actually a significant component of that. NGLs make up a part and natural gas make up a part. You need a suite of price impacts to drive that forward and like I say, I don't see it as being that far away. The geology out there is exceptional, the drilling cost these producers continue to test these drilling techniques are yielding better results. I think you have to put all those things together with any individual producer to decide when they would say 'I've got enough confidence to go forward.' But from a price perspective, we don't think we're that far away right now.

Robert Catellier

Right. While listening to you speak about it, it does sound like a confidence issue. It sounds to me like they're confident in geology; you don't need much of a stretch in the net backs. You're just confident on the cost staying and their access to capital and everything else?

Bradley Lock

I would say that's a fair statement.

Robert Catellier

All right. Okay, I just want to make sure, David, I understood your comments on U.S. expansion and investment opportunities. It seems to me like you're more interested on the NGL side of the business and areas where you bring some added expertise. Are you ruling out then any type of gathering and processing type investment in the U.S. or other parts of the [indiscernible] play?

David Smith

I wouldn't rule it out, Rob. I just think that when we look at the characteristics of the investments, the infrastructure investments, I think what we find is that the gathering and processing investments are a little more challenged. There's a lot of competition first of all, a lot of well-established competition and many of the resource place that you'll look at in the U.S. don't have the same diversity of geology that we enjoy in our existing portfolio in Western Canada. For those reasons we've been probably a little bit more cautious with respect to gathering and processing. What I am excited about are some of the liquids type investment opportunities that we have been looking at and some of that would be new builds as well as acquisition opportunities. Things like storage, transportation, terminals, pipelines, processing facilities and they would include things like refined products, NGLs, maybe even crude oil. I think that's more likely where we're going to see the kinds of characteristics of investment that makes sense for our criteria.

Robert Catellier

Okay. That's very helpful. And just one clean-up question. It looked to me like the per unit cost is down significantly. I know you've undertaken some cost reduction initiatives, but can you provide maybe a little bit more color as to how much of that cost decrease is due to power prices versus some of your own initiatives and their related sustainability?

Bradley Lock

I think it's hard to define how much is truly power-driven. Certainly power of prices have been significantly working on our favor through 2016. That being said, bear [ph] a bit of that cost reduction is due to certainly pressure that we put on some of our suppliers and contractors to be more efficient on how they provide services. We've looked carefully at the projects that we've been undertaking both in terms of maintenance projects and enhancements and try to be a little bit more selective on how those progressed. I think all of those things are really adding to the reduction that we've been able to achieve.

For us, that's important because those mostly flow back to our producers and the more we can make our business attractive to producers to drill behind our plants, the faster they'll get out and drill and bring volumes in, which is what we're ultimately trying to achieve.

Robert Catellier

Okay, thanks very much.

Operator

[Operator instructions] Your next question comes from Andrew Kuske from Credit Suisse. Your line is open.

Andrew Kuske

Thank you. Good morning. I guess the question is for David and not to be patronizing about it, but he's got a pretty good track record of building new assets and then turn around plant that you've acquired from others. But maybe just looking at your relationships with TransCanada, Enbridge and Kinder Morgan on the various projects you're working on with those players. What have you as an organization learned in just processes or approach in dealing with those larger companies?

David Smith

That's an excellent question. I think when we started out with some of these projects, we said to ourselves, 'Well, companies like Enbridge and Kinder Morgan and TransCanada have more experience than we do with large capital type projects.' Certainly Enbridge and TransCanada are known for big diameter long haul pipelines. I think it made sense for us to participate with them. I think one of the things that we've learned and not to be too [ph] about it is that we actually have some pretty good capabilities ourselves and our involvement in those projects, I think with our partners has been - first of all the relationship of all have been very constructive, but I think our involvement has actually improved the execution and improved the quality of the project.

Meanwhile, I think as we've ramped up our capital spending over the last five years, we certainly strengthened our project execution team internally and I feel very confident today that we can take on any number of types of projects - both big and small and execute them very well. I'm not sure if that addresses your question, but I think certainly the learnings have gone both ways.

Andrew Kuske

Okay, good. That is helpful. And then I guess when we start taking some of those learnings and looking at your future business, how do you think about just the business mix and the proportionality between the G&P, the liquids infrastructure and marketing? Would marketing become smaller over time, or does it grow in a fashion so it's more equal to the other businesses?

David Smith

Well, I think first of all, with respect to G&P versus liquids, what we've observed over the last dozen years or so is that the liquids business has grown somewhat faster on a relative basis. I think that's just because of the nature of the opportunities we've seen and the diversification that we've achieved with assets like AEF and serving the oil sands and things like that. But I think as the basin develops, long-term, we would certainly see opportunities to grow and gathering of processing as well. I think gathering a processing growth is more likely to come through acquisitions perhaps more so than new build in the liquids infrastructure, you see more build types of opportunities. But it's difficult to predict how that relative contribution will evolve, but those are some things that I would observe.

With respect to marketing, we've always said that we don't apologize for the marketing results, but we're also comfortable keeping it in that 25% to 35% of EBITDA range that it has been historically. We're a facilities-driven company first, so we build the facilities, we try and establish fee for service arrangements to support most of the investments that we make, but then if we see opportunities to use some of facility capacity on our own account through our marketing expertise and the information, we will certainly do that. I would expect that. What that will mean is that we continue to draw the facilities portfolio; the marketing segment contribution will continue to grow in approximately the same proportion.

Andrew Kuske

And then just for clarity, but the approach under that business wouldn't really be changed, it would really be working around the offsets and just your market knowledge?

David Smith

Yes. I think that's generally the way we approach it. I think having said that, I think certainly we've taken the risk out of the marketing certainly when it comes to products like propane and condensate just because of the way those products are managed today. The flip side of course is that iso-octane has become a larger contributor and iso-octane contribution that is sensitive to the price of the commodities.

Andrew Kuske

Okay, that's great. Thank you.

Operator

Your next question comes from Ashok Dutta from Platts. Your line is open.

Ashok Dutta

Hi, good morning. Thank you for taking my question. I just wanted to find out how things are with Alberta crude terminal? What kind of loadings you have in the last quarter and how do things look like for the next quarter at least?

David Smith

Well, what I can see with our Alberta crude terminal is that it's underpinned by a long term take-or-pay arrangement. I guess regardless of how much volumes do we handle the cash flow there is relatively stable. Depending on the difference crude slates that are available and the price of those crude slates relative to other sources that can be accessed, those lines can fluctuate from time to time, but again the cash flow there is very stable.

Ashok Dutta

Okay. And any kind of indication as to how much volumes you handle in the last quarter, please?

David Smith

I don't have the exact number off the top of my head. We don't disclose that. I don't think.

Bradley Lock

No. We don't disclose that number.

Ashok Dutta

All right, thank you.

Operator

I have no further questions. Thank you. I'll turn the call back over to the presenters for closing remarks.

David Smith

I think there's one more question, Operator that we will take.

Operator

Yes, just popped in now. Dirk Lever from AltaCorp Capital. Your line is open.

Dirk Lever

Good morning. Thanks. I could hear it buzzing at my end and I guess you guys couldn't hear it. My question has to do with the liquids business and the condensate. In your commentary in the MD&A, you've mentioned that you had seen the amount coming in by rail going down and I assume that's domestic production. But as we've got more oil sands production coming on, is it more likely that that stuff is going to be coming on a rail basis to meet that increased demand?

Dean Setoguchi

There's a number of variables that will affect how much volume actually gets railed into Evington, but we certainly believe longer term as demand for [indiscernible] growth over the next two or three years. We believe that some of that supply to fulfill that demand will be sourced from rail and we are well-positioned to deliver those lines by rail.

Dirk Lever

Okay, thanks very much.

David Smith

Dirk, it's Dave here. I might add to that. What we've seen in the short term here is that volumes coming in on two pipelines, the coaching pipeline operated by Kinder Morgan and the southern lines pipeline operator by Enbridge coupled with the growth in domestic condensate production primarily from the deep basin area have really been supplying most of the condensate requirement for the industry and so that's one of the reasons why the rails volumes have tailed off here a little bit in the short term. The other factor that affects the amount of rail volume that we see is really just the price differential. If the U.S. producers have more attractive alternatives to sell their condensate either for export or to domestic refiners, then it becomes more difficult for the rail barrels to make sense to come up into Canada. But that can vary from time to time.

As Dean said, I think longer term; we think that there's still going to be a role for rail barrels to augment the supply that comes in by pipe.

Dirk Lever

Right because the coaching in southern lines, they're running fairly close to full capacity. Right?

David Smith

I think there are still available capacity on those pipes, but they're certainly filling the firm commitments on the pipes at the current volume levels as I understand it. Yes.

Dirk Lever

Thank you very much.

Operator

So now we have no questions in queue. I'm going to turn the call back to the presenters for any closing remarks.

Lavonne Zdunich

Thank you. That completes our 2016 second quarter conference call. If you have any other questions, please call us. The contact information is in yesterday's release. Thank you for listening. And have a good day.

Operator

Thank you, everyone. This will conclude today's conference call. You may now disconnect.

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