Calgary-based Keyera Corp., whose massive pipeline system intended to move liquids from the Montney Shale is 70% complete, is awaiting a new partner to potentially take half-ownership in the project after the Competition Board of Canada ordered a partner’s sale.
CEO Dean Setoguchi, who discussed second quarter results during a conference call, said the Competition Bureau had secured a consent agreement that would require Energy Transfer Canada ULC (ETC) to sell its 50% stake in the Key Access Pipeline System (KAPS).
Keyera and some Montney Shale producers had expressed concerns about competition after KKR Global Infrastructure raised its ownership in ETC to 100%, while also partnering with rival Pembina Pipeline Corp.
Selling ETC’s stakes would “preserve competition in pipeline transportation” for NGLs, the Competition Bureau stated. “Market participants have indicated that the proposed merger would weaken a likely competitive alternative to Pembina’s Peace Pipeline system.”
Construction of KAPS has generated favorable results for Montney producers before the corporate alliance by ETC was completed, according to the Competition Bureau.
“Upstream energy companies have been able to leverage competition between the Peace Pipeline system and KAPS, including negotiating more competitive tolls and additional flexibility, for future NGL transportation on the pipelines,” it said.
“It is expected that this type of competition will continue when KAPS is operational.”
The Competition Bureau “also imposed strict requirements to ensure that commercially sensitive data, including customer information, is protected,” Setoguchi noted. “The action taken…further reinforces both industry’s desire for competition and the importance of KAPS as a critically important alternative to the existing pipeline system. We look forward to the conclusion of the sale process…”
The KAPS pipeline “is a gamechanger for Keyera, as it is the missing link in our value chain,” Segoguchi said. It would connect the Montney Shale gathering and production (G&P) business and other third-party facilities to Keyera’s Liquids Infrastructure business in Edmonton and Fort Saskatchewan.
“It also provides meaningful future growth opportunities, like our Zone 4 expansion, which would extend the pipeline to near the British Columbia border,” the CEO said. “KAPS stands to capture growing volumes from the Western Canada Sedimentary Basin. This growth is underpinned by many factors, including the increasing importance of energy security and the role Canada plays in delivering responsibly produced energy to the world.”
Bullish On Commodity Prices
In discussing the quarterly progress, Setoguchi said oil and gas prices show no signs of retreating.
“We believe commodity prices are poised to remain strong, driven by constrained global supply and continued demand for responsibly produced energy,” he told investors.
Keyera’s fee-for-service infrastructure business “provides the foundation for a stable and growing dividend over time,” he said. “Complementing our fee-for-service business is our Marketing segment that enables us to fund infrastructure projects,” including KAPS.
During 2Q2022, Keyera’s G&P volumes grew by 6% year/year from higher volumes at the Pipestone and Wapiti complexes, both in the Montney, which straddles British Columbia and Alberta.
“At Wapiti, we’ve begun to utilize the second processing train as demand for our services is increasing,” Setoguchi said. “We are working with our customers to manage the water disposal associated with the raw gas to ensure we continue to maximize utilization.”
As demand increases from producers, “we are evaluating opportunities to expand the capacity of our Pipestone gas plant.”
There’s also encouraging signs about “consolidation among upstream producers,” the CEO noted. “Most recently, a producer near our Simonette gas plant announced plans to double production over the next three to five years. We have capacity at Simonette to support growth in gas volumes, and our KAPS pipeline to transport associated liquids volumes.”
Keyera, which reports in Canadian dollars (C$1=77 cents), said second quarter net income was $178 million (78 cents/share), versus year-ago profits of nearly $79 million (36 cents).
Gordon Jaremko contributed to this story.