Keyera Corp.

Lavonne Zdunich - Director, IR David Smith - President & CEO Brad Lock - SVP, Gathering & Processing Dean Setoguchi - SVP, Liquids Business Unit Steven Kroeker - SVP & CFO

David Galison - Canaccord Genuity Rob Hope - Macquarie Research David Noseworthy - CIBC World Markets Andrew Kuske - Credit Suisse Steven Paget - FirstEnergy Capital Robert Catellier - GMP Securities Robert Kwan - RBC Capital Markets Linda Ezergailis - TD Securities

Thank you and good morning. It's my pleasure to welcome you to Keyera's 2015 second quarter conference call.

With me are David Smith, President and Chief Executive Officer; Steven Kroeker, Senior Vice President and Chief Financial Officer; Brad Lock, Senior Vice President, Gathering and Processing Business Unit and Dean Setoguchi, Senior Vice President, Liquids Business Unit. In a moment, David will provide an overview of the quarter, Brad and Dean will discuss their business units and Steven will provide additional information about our financial results.

After that, we will 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 beliefs 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 could cause actual results to differ materially.

Some of these risks and uncertainties include fluctuations in supply, demand, inventory levels and pricing of natural gas, NGLs, iso-octane and crude oil; the activities of producers and other industry players; our operating and other costs; the availability and costs of materials, equipment, labor and other service essential for our capital projects; contractor performance; governmental and regulatory actions or delays; general economic conditions 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 second quarter 2015 report that was published yesterday and is available on our website and on SEDAR.

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

Thank you, Lavonne and good morning, everyone. Thanks for joining us today.

I'm pleased to report that Keyera had another strong quarter. Adjusted EBITDA was CAD157 million, 10% higher than in the second quarter of 2014.

Year-to-date adjusted EBITDA was up 36% over the same period in 2014. All three business segments performed well and contributed to our strong financial performance.

Demand for our essential services continues to be solid with approximately 65% to 70% of our operating margin earned on a fee-for-service basis. Distributable cash flow was CAD92 million resulting in a payout ratio of 63% for the quarter and 49% year to date.

Given the stability in Keyera's business today, the diversity of our cash flow streams, as well as the completion of various capital projects, we have raised our dividend by 9% beginning with our August dividend payable in September. This is our second dividend increase this year and is consistent with our objective of providing stable and growing dividends to shareholders.

Steven will speak more about our financial results in more detail later in the call. During the quarter, we completed a number of strategic growth initiatives that will add incremental cash flow to our second-half results.

These projects include the 400 million cubic feet per day turbo expander at our Rimbey gas plan, the 110 million cubic feet per day Alder Flats gas plant constructed by Bellatrix and our Josephburg rail terminal that provides a much-needed outlet for Western Canadian propane. We also continue to advance a number of other projects, including the 54 million cubic feet per day Zeta Creek gas plant and the 35,000 barrel per day fractionation expansion at our Fort Saskatchewan complex.

And we continue to make progress on longer-term projects, supported by long-term take-or-pay contracts, such as the Norlite pipeline project with Enbridge and the Base Line crude oil storage terminal project with Kinder Morgan. We expect these projects to provide Keyera with continued cash flow growth through 2017 and 2018.

With that, I'll pass it over to Brad Lock to discuss our Gathering and Processing business unit.

Thanks, David. The Gathering and Processing business unit had a solid quarter, delivering operating margin of CAD56 million despite a significant amount of downtime related to three planned maintenance turnarounds, continued curtailments on TransCanada pipeline's sales gas system and a 12-day planned outage at Simonette gas plant to complete maintenance work on the sulfur plant.

Excluding the three turnarounds at our Rimbey, Brazeau and Bigoray plant, the second quarter gross throughput volumes would have been consistent with the previous quarter. TransCanada pipeline curtailments related to ongoing maintenance and integrity work on their systems affected volumes at our Brazeau River and Minnehik Lake gas plants.

We expect these curtailments to continue into the third quarter and possibly into the fourth quarter including curtailments that were recently reinstated at the Strachan plant. Also affecting our volume in the second half of the year will be a planned maintenance shutdown at the Minnehik Buck Lake gas plant and short planned maintenance outage at Cynthia.

We're, however, expecting to partially offset the effect of these activities with incremental volumes from recently completed projects, including the Twin Rivers pipeline system which became operational in April and is now delivering incremental volumes to our Brazeau River and West Pembina gas plants; Phase 1 of the Alder Flats gas plant which was completed and brought on-stream in late May and the 54 million cubic feet per day Zeta Creek plant being constructed by Velvet Energy which is expected to be on-stream by the end of the third quarter, assuming construction schedules are met. The Simonette gas plant expansion, condensate stabilizer and Wapiti liquids pipeline commissioned in the first quarter continue to operate well and provide additional capacity to both Montney and Duvernay producers in the Wapiti-Simonette region.

And, finally, the 400 million cubic feet per day turbo expander at the Rimbey gas plant was commissioned in July and is now operating well, allowing us to extract ethane from the raw gas at the plant on a fee-for-service basis for sale under a long-term contract while creating additional value to our producer customers by providing economically recovered barrels of higher-value ethane as opposed to sales gas heating. At Keyera, we work with our customers each and every day to deliver essential midstream solutions and provide high-quality, value-add services.

We recognize that this is a challenging time for our customers and continue to look for ways to help bridge the short-term challenges in our industry to enhance the long-term success of Keyera and our customers. I will now turn it over to Dean to discuss the Liquids business unit.

Thanks, Brad. The Liquids business unit also had a strong quarter with both our NGL Infrastructure and Marketing segments performing well.

Growing demand for our fractionation and diluent-related services, strong margins for iso-octane and an effective risk management strategy continue to support our success. Given the solid foundation and our long-term view of the industry, we continue to enhance and expand Keyera's asset base in the Edmonton-Fort Saskatchewan area.

The new 30,000 barrel a day de-ethanizer at Keyera Fort Saskatchewan or KFS, performed well during its first quarter of operation. We'll continue to ramp up volumes over the remainder of the year and into 2016 as producers increase their production and our fractionation expansion is completed.

As a reminder, our share of the facility's capacity is contracted under a long-term take-or-pay agreement. In July, our Josephburg rail terminal became operational and will increase the amount of propane Keyera transports by rail from our Fort Saskatchewan hub to markets throughout North America.

The Josephburg terminal has the capacity to move up to 40,000 barrels per day by rail improving propane egress for the industry. Some of this volume will be transported to our rail terminal at Hull, Texas which is currently the only rail offloading facility for propane in the Mont Belvieu area.

Propane demand in the Mont Belvieu area benefits from access to export terminals and petrochemical producers. Using our infrastructure and market knowledge, Keyera is working hard to find our customers the best price for their propane.

With growing demand for NGL storage solutions, we continue to expand our underground storage caverns at KFS and expect to have our 13th storage cavern in service in the next couple of months. We're washing the 14th cavern and expect to begin washing the 15th cavern in the third quarter.

We continue construction on our fractionation expansion at KFS which will more than double our C3-plus fractionation capacity onsite when it is completed in the first half of 2016, assuming construction schedules are met. All of these projects are expected to add incremental cash flow over the next several quarters.

Beyond these, projects such as the Norlite pipeline and the Base Line crude oil storage terminal are expected to provide Keyera with fee-for-service cash flow growth in 2017 and 2018, as David previously mentioned. In addition to the growth projects I just mentioned, the volumes in our industry-leading diluent system continue to grow as we supply the increasing needs of our oil sands customers with their new developments.

As Brad mentioned, these are challenging times for our customers and we're committed to deliver the most reliable and cost-effective services for our customers. Moving on to the Marketing business, I'm pleased to report another very strong quarter.

As the largest contributor to this segment's results, our iso-octane business continued to perform well, operating near capacity and earning a strong margin during the quarter. With reliable access to a large local and North American supply of butane which is a primary feedstock for AEF and Keyera's development of new markets for iso-octane, the already strong return on this investment made in early 2012 continues to improve.

Keyera's goal in Marketing is to access the best NGL markets for our customers while applying a disciplined risk management program to reduce variability and achieve our expected results. In addition to iso-octane, our Marketing business includes ethane, propane, butane and condensate.

The ethane we sell is on a contractual basis and provides no commodity price exposure. For propane, our supply arrangements and our risk management strategy significantly reduce any direct commodity price exposure.

Keyera's AEF facility is the largest single consumer of butane in Alberta, as it is the feedstock for the production of iso-octane. And, for condensate, we purchase Western Canadian supply and sell barrels in our system based on the same pricing index for a small margin.

Additional volumes are railed in as needed to support demand and when the economics are positive to do so. For all those commodities, we hedge virtually all of our inventory exposure.

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

Thanks, Dean. As David mentioned earlier, we were pleased with how all segments of our business performed during the second quarter of 2015.

Our adjusted EBITDA was CAD157 million, the highest second quarter result we have reported. On a trailing 12-month basis, adjusted EBITDA reached CAD621 million.

The Gathering and Processing business unit reported solid operating margin of CAD56 million, down CAD8 million from the second quarter of 2014 primarily as a result of the turnarounds and associated downtime Brad talked about earlier. In addition, 2014's second quarter adjusted EBITDA included one-time revenue items of approximately CAD8 million.

The NGL Infrastructure segment delivered operating margin of CAD55 million or CAD6 million higher than the same period last year as demand for its essential services continues to grow and our investments in growth projects began to generate incremental cash flows. The Marketing segment delivered operating margin of CAD53 million, on par with the second quarter of 2014, reflecting another strong contribution from AEF and Keyera's effective risk management strategy.

Despite the drop in oil prices, iso-octane margins remain strong because of attractive feedstock prices, continued strong RBOB and iso-octane premiums and attractive foreign exchange rates. Prior to non-cash unrealized gains and losses, the Marketing segment has generated a margin of CAD149 million in the first six months of 2015, including approximately CAD40 million of margin related to lower-priced inventory held at the end of 2014.

Net income was CAD16 million compared to CAD63 million in the second quarter of 2014 due to a non-cash loss related to changes in the fair value of currency swaps, higher depreciation associated with Keyera's growing asset base and an increase in current income tax expense. We refined our cash tax estimate for this year given the increase in the provincial corporate tax rate and now expect 2015 cash taxes to be between CAD85 million and CAD95 million, CAD10 million more than previously indicated.

We estimate our tax pools at CAD1.5 billion as of June 30th consisting primarily of 25% UCC class pools. We anticipate cash taxes for 2016 will be reduced as a result of increased capital cost allowance deductions related to several major capital projects that have or will become available for use in 2015.

Year to date, our growth capital investment excluding acquisitions is approximately CAD380 million and on track with our guidance of CAD700 million to CAD800 million for the year. Across our business, from 2013 to the end of 2015, we expect to have invested over CAD2 billion of growth capital supported primarily by fee-for-service contracts.

Our capital liquidity continues to be strong with a net debt to EBITDA ratio of 2.45 times at June 30th compared to our strictest bank covenant of 4 times. With a strong balance sheet, low payout ratio and access to capital, we're well-positioned to prudently fund the rest of our 2015 capital plan and to selectively pursue acquisition opportunities.

That concludes my remarks. David?

Thanks, Steven. As Brad mentioned earlier, we recognize that this is a challenging and uncertain time for the oil and gas industry and for our customers.

With lower commodity prices and reduced cash flows, industry investments have been substantially curtailed. To date, there has not been a material effect on our operations and we believe that our business model provides insulation from short-term changes in activity levels.

At Keyera, we're well-positioned with our network of interconnected gas plants, pipelines and facilities providing essential services to the industry. Our assets are strategically located in the Western Canada sedimentary basin where prospective geology and proximity to infrastructure have enabled select liquids-rich stones to remain economic in the current environment.

In the Edmonton-Fort Saskatchewan hub, our condensate service offering is industry-leading and demand for our services continues to increase as oil sands production grows. We will continue to focus on building strong relationships with our customers during this period, developing efficient infrastructure solutions and positioning Keyera for long-term growth.

And I might add that, as we grow, our cash flows are becoming more diversified. On behalf of Keyera's directors and management team, I would like to thank our shareholders for their continued support and our employees for their hard work and dedication.

Hundreds of employees and contractors worked together to complete a number of projects during the second quarter, including three maintenance turnarounds and the expansions at the Rimbey gas plant, safely and on schedule. I look forward to continued success in the second half of 2015.

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

I just wanted to touch on -- you had mentioned a potential for an acquisition. Just wondering if there's any certain areas of focus that you had and maybe talk about size of potential acquisitions that you'd be considering as well.

Well, we make it a habit, first of all, not commenting on potential acquisition opportunities until we have something concrete to talk about. So, it's a little difficult to speculate.

You know, I think certainly in the gathering and processing world, we would expect that producers are looking a little bit more carefully at their capital allocation, capital budgets, right now and that may result in a desire to have companies like Keyera either build or buy the infrastructure that they need. But, as I mentioned, at this point, it would be a little early to speculate on those kinds of opportunities.

Okay. And my next question would be just on the liquids segment.

Just with the strong contribution from iso-octane business, just wondering if you'd give a little bit more color on, I guess, how much that was or percentage or how to think about that.

Well, we don't talk specifically about product-by-product contribution, but I don't think -- what I can say is that the iso-octane value chain, as we call it, is the largest single contributor to our Marketing results.

Okay. And then just considering that the AEF has been running at capacity for or near capacity for a while, do you have any thoughts about how you'd look at that business going forward?

Is there opportunities to maybe grow it? Just wondering what your thoughts were or if you're just considering this more seasonal in nature right now.

Well, we certainly see that we have built a very strong franchise with our iso-octane business and, as you mentioned, operationally we're operating that facility at capacity which is near 14,000 barrels per day. But, also, we've enhanced the business with our logistics expertise, our rail terminals or truck terminals and also accessing new markets to achieve the best premiums for our octane.

We're always looking at ways to enhance the facility to add more capacity, but I think the incremental investments would be significant if we wanted to build more capacity. So, it's something that we're always considering, but there's nothing imminent.

Just if we can move to propane in Josephburg. Over the last couple of years you've been very vocal about how you've been de-risking your business mix.

However, now that you have an export terminal in Alberta and an import terminal in Texas and you have the opportunity to lock in very attractive locational arbitrage opportunities, I'm just trying to get a sense of who will really benefit from that economic windfall there.

I mean what we're trying to do is to serve the needs of the producer community in Western Canada. And so, what we hope is that some of these investments will eventually lead to stronger propane prices for the industry.

Having said that, we're making these investments with the expectation of being able to either make a fee-for-service kind of a profit or capture some margin opportunity with the demand for the capacity that we see at both those facilities. We do see Hull as kind of a part of the integrated value chain that we have for NGLs and we see the new Josephburg terminal the same way.

I think that's probably -- in both cases I think we're kind of taking small steps now and looking to what they could lead to in terms of other products and greater capacity.

I would also add, I mean as Dave mentioned, we're trying to find the best markets for our customers and we're able to pass on some of those price discoveries to our customers so that, while propane is very weak right now, again, every cent counts to them so we're trying to find the best markets. Hull does give us an advantage because it is the only rail facility in the Mont Belvieu area where you can offload propane.

So, right now, if you look at the pricing in Mont Belvieu there is a positive price relative to, say, Conway. So, again, we're always watching where the best markets are to export that product and, again, try to pass on some of that benefit to our customers.

On top of that, when there are regional arms between hubs, obviously we can also do some U.S. to U.S.

business and lock both ends in for our margin.

And then just on your G&P side, there was some verbiage in the release about working with your customers. Just wanted to get a sense of whether or not you're seeing any softness on your fees or some downward pressure there.

You know, certainly we continue to engage with all of our customers and they're seeing challenges in their own net-backs. In cases where we can provide them some solutions that make sense for them and us, then we're happy to work with those.

And they tend to be one-off in nature. We don't have an overall stance of how we position it, but we look at each individual situation, the net-backs of the producer and the facility and try to find unique solutions that really preserve long-term value for both them and us.

And that's the way we continue to look at it, as a long-term basis.

Just wondering if, in the current market environment and maybe just kind of persisting on that, we've heard a number of producers talk about a desire to share more of the downside risk related to falling commodity prices with its midstream partners. Are you hearing this from your customers?

And, if so, how might this materialize in your agreements going forward, understanding that there may not be any impact on your current agreements?

David, it's hard to comment on that in general terms because each situation is different. I think what Brad was just saying is probably kind of the best way to describe it.

We've had producers that have approached us about a different fee arrangement in order that they can continue to produce their gas. And, obviously, we're anxious to accommodate that because we don't want to lose the throughput.

We've also had situations where producers have asked us for, perhaps, a relaxation of volume commitments that they may have made to support investments that we've made. But, it would be inappropriate for me to comment on the specifics.

I think each one is situation-specific and what we're trying to do is to find a way to make sure that, as Brad mentioned, from a long-term point of view that we do what's in the best interest of Keyera and our customers.

Okay. And then maybe just turning to Josephburg.

Can you give us any color on what you expect utilization for Josephburg to be in Q3 and what's the anticipated ramp-up?

We're going to start with a 12-hour shift. So, we won't be going the full 24 hour because it's not needed to get to 40,000 barrels a day yet.

You know, I can't give you an accurate volume forecast right now, but, certainly, we expect volumes to ramp up in the winter months as more barrels get exported out of our basin to meet seasonal demand. But, also, with the addition of our fractionator, our second fractionator next year, there will be more volumes for us to handle.

So, again, I see an upward increase in the volumes that we move out of that facility from now until through the winter and into the first half of next year when we bring that fractionator on-stream.

And then, can you remind us of what the Hull terminal receipt capacity is?

Off the top of my head -- you know what? I'll have to get back to on that.

Okay. And then, on to curtailment from the NGTL system.

You talked a bit of this potentially continuing on to Q4. Can you just describe exactly what's being done to remove the curtailment and why the delay and maybe the potential for delay beyond Q4?

TransCanada has got an ongoing maintenance program that's been continuing on through the summer. And when you compile that with unplanned maintenance outages that they've had on some of their compressor stations, along with what I would describe as hard-to-predict load factors on their systems given recent upturn with the current commodity price pressures on producers, they're doing their best to try to speculate as to how long they think the combination of those three events will impact production.

And they provide us as good guidance as they can and we try to work with our producers to make sure that they have capacity to fit within the curtailments that TCPL puts in place. But it's certainly not an exact science.

And the system is loaded quite heavily right now and, consequently, any upset in the system tends to cause a ripple effect through both their system as well as our gas plants. And we expect to continue to see that through the next, certainly the third quarter and into the fourth quarter.

Okay. And then one last question, just on the Minnehik Buck Lake turnaround.

Can you provide us an expected impact on the Q3 results of that turnaround?

Hard to predict. We know the downtime is going to be about two weeks so there will be certainly some volume impacts as a result of that.

I don't expect the results to be that significant one way or another.

I guess the question is for David. And it's just if we look out over the next few years, you're actually building a pretty significant set of more traditional infrastructure assets with Base Line, the storage at KFS, Norlite, the interest in Norlite.

And so, when you think about the business, say, in 2017 or 2018, does that give you a lot more room to really bulk up your G&P business to a greater degree? And does that also lead to the dynamic of maybe stepping outside your existing asset footprint at this stage?

Well, the short answer is, yes. I think there's, as we grow and as we grow more diversified and established as a stronger and stronger base from which we can grow, it's -- I wouldn't want to predict in what direction that might go because it really will depend on a number of industry factors and the growth that we see in the various parts of the business and the services that we provide.

What I would say is in the short-term, I think, we're seeing a bit of slowdown in the growth rate of the investments required on the gathering and processing side of the business. With drilling activity significantly lower than where it was a year ago, some of the growth capital investments that we would have anticipated in the Gathering and Processing business are probably going to slow down somewhat.

Having said that, I think we're preparing for continued growth as we look out two or three years. And the growth in demand for our capacity in the Liquids business unit continues.

As far as going beyond the existing footprint, we certainly look at opportunities on a regular basis, but we've got lots of opportunities, still, within our own backyard. And so, it's not something that we're looking at imminently.

Maybe if I just follow up on looking outside. Do you see really increased opportunities in, say, the U.S.

market in some of the pockets that are still growing and you're still seeing increased drilling activity given the decline in MLP valuations and just some of the uncertainty about whether it's tying in production having sufficient processing capability in certain basins? Does that dynamic look a lot more attractive versus the potential soft pocket we have in Western Canada right now?

Well, as I said, we look at those opportunities all the time. Our experience is that the MLPs have been quite aggressive both on the acquisition front and on the green-field investment front.

And so, it's been challenging for us to find ways to find profitable opportunities especially in the gathering and processing world in the U.S. We have probably more of an interest in looking at the possibility of natural gas liquids investments as an extension of the North American value chain, like the Hull terminal in Texas.

And so, those kinds of specific rifle-shot opportunities are the kinds of things that we'll continue to look at. So, as we sit today, that's kind of what I would expect.

My first question is on gathering and processing. Could you please comment on the operating margin earned by the liquids fractionation activity in the G&P business at Rimbey, Gilby and Nevis and so on?

My understanding is that frac activity is on the operating margin on that side.

Certainly, there is a component of our margin business or our deeper service business at Rimbey and Nevis specifically that is tied to the fractionation business. We don't break it out specifically for reporting, but at both slants I think it's a significant part of the business, particularly in light of recent capacity constraints.

What I would add, Steven, is that the component of the operating margin within Gathering and Processing on those facilities is still a fee-for-service business. We're providing the benefit of fractionating the NGLs into spec products at Nevis and at Gilby and at Rimbey.

And, at Nevis and at Rimbey, I would add that we also have the capability to truck in NGL mix from other facilities and take advantage of the fractionation capacity that we have. But the operating margin component is still a fee-for-service.

If there's a commodity exposure as a result of the buying and selling activity associated with those products, it's in the Marketing segment. Just to finish the point, I guess the point I'm trying to make is that there is no commodity price exposure.

There's no frac spread exposure in the Gathering and Processing segment.

No commodity price exposure. Thank you.

The second question on AEF. No doubt you're seeing headlines from Valero, Marathon and others about an increasing alkylation at their refineries to boost octane.

So, is it right for us to see alkylation as a rival process to iso-octane manufacturing? And is it possible to lock in some long-term margins at AEF to protect against alkylation competition?

First of all, it's pretty difficult to hedge long ways out. I'm not sure how far you're thinking, but typically we hedge out about 12 to 18 months.

But, as you get to two or three years out and longer, the forward curve isn't as liquid. But I would say though, that, in general, I mean, obviously, driving demand has increased and gasoline demand with it has increased as well.

So, currently, we're between 9.5 million to 9.7 million barrels a day of demand. Keep in mind, we have a very high-quality gasoline octane additive that it's a really a niche product.

So, our 14,000 barrels a day that we produce is very small relative to the whole gasoline pool. And offsetting the, perhaps, more sources of octane, the feedstocks for the refineries are getting lighter and so what it's creating is sub-octane grade gasoline so they need to blend it with more octane.

So there's more octane demand for that reason, as well.

I didn't think my questions would be so interesting that would warrant an alarm. Just a couple of follow-ups to the line of question that Andrew Kuske had here on the acquisition market.

Can you sort of give your point of view as to whether or not the recent weakness in commodity prices has helped narrow the gap between [indiscernible] spreads?

Which commodities are you referring to, Rob?

Well, continued weakness in oil price or just generally how the weak commodity prices throughout the complex might be hurting producers and maybe making them more willing sellers.

It's difficult to sort of discern what effect the absolute level of prices might have on the margins that we're earning. I don't think that we've seen a particularly direct effect from that.

It's certainly not something that has come to our notice.

Okay. And, while I wouldn't expect you to comment on any specific asset--

It's rumored that MEG might be interested in selling their interest in Access pipeline. So, it makes me curious to get your thoughts on how much capital you might be interested in allocating towards oil or condensate pipelines.

To be honest, Rob, we don't really look at it from a point of view of kind of buckets of capital and trying to figure out what the appropriate balance is. We look on it more on an opportunistic basis and on an asset-by-asset basis, trying to figure out what would be a fit.

Clearly, anything to do with the condensate network that we have and building and enhancing the capacity that we have for transportation, storage and terminaling of condensate is an obvious fit for us. Likewise, in the gathering and processing world, we know the kinds of facilities and the locations of those facilities that we're most interested in.

But, it's really more of -- we look at it more on an opportunity-by-opportunity basis rather than saying; we have a target to invest X% in certain areas.

Okay. So, the pending investments in Norlite and Base Line wouldn't preclude you from adding capital to that sector, to that niche.

No, not at all. In fact, we're looking at the areas of our system that we anticipate will be bottlenecks years down the road and we're planning accordingly.

If I can just come back to working with customers. And I know, as you'd mentioned, every deal is a little bit different.

But, just generically, it sounds like there are some situations like you said you're letting people out of some level of volume commitments or maybe some fee reductions. In terms of keeping yourself whole, I think you've done this in the past is that generically kind of resulting in maybe some longer-term deals with some stepped-up either volume commitments or fees into the future just to kind of square you off on a net present value basis?

And, by the way, we apologize for the technical difficulties. Thanks for staying with us.

I guess the first thing I would emphasize is that the kinds of situations we're talking about are pretty immaterial in the overall scheme of things. We certainly don't see any kind of a broad trend.

What Brad was referring to earlier, I think, are the specific circumstances where we're trying to work with the producers to do the right thing in terms of the long-term outcome. You know, what we want to do is encourage producers to continue to drill around our facilities.

And so, what we'll propose, in many cases, is something that gives the producer relief in the short-term, but provides us with some longer-term compensation or participation down the road. But, as I said earlier, each circumstance is different.

It really depends very much on the specific situations.

I guess if we continue just on that, though, is there something -- are you working and because you've enhanced the service offering. So, I think back to fractionation being very tight.

There was, I think, a bit of a push to get people to go through your plants as a way to get access to the fractionation. And now, with Josephburg providing good egress on propane, has that been part of the discussion?

Has that been attracting more interest in using your gathering and processing facilities, going to the frac and then out through Josephburg as a way to get an improved net-back for your customers?

Yes, I would say very definitely. That's something that the producers continue to see as an important part of the value chain; that the value of the NGLs is an important part of the way they look at the economics.

And, I guess if you look at that and then the NGTL curtailments, are you able to estimate how much gas has been trapped behind NGTL in addition to, say, producer inquiries to get into facilities that are effectively full right now? i.e.

if you were to see production drop off in the basin, how much volume do you think could actually come back in because they want to come to facilities; it's just you don't have room for them right now?

I guess, for the most part, NGTL has been meeting most of its firm service commitments. So, they have had some periods where they have had to curtail firm, but they've tried hard to meet most of their firm service commitments through this entire period.

So, the issue is it's predominantly interruptible gas on the NGTL system that is not flowing. So, that being said, it's very difficult to assess how much additional gas may be sitting out there behind pipe waiting to flow in because most of it is not firmly contracted on NGTL.

Okay. But in terms of what's been restricted into your facilities, you noted Strachan, how much volume has kind of been curtailed even if it's just your customers who are sitting on IT that can't move through?

Yes. I mean you can look at the monthly production totals that kind of come through the AER reporting that show you individual volumes from individual facilities.

So, you can see there are periods in time when we've flowed significantly more volumes through our plants than we have over the past couple months. And that, for the most part, is mostly driven by NGTL curtailments.

So, that gives you a good kind of marker as to say that is relatively what is curtailed on a monthly basis.

Okay. Just last question then is on the condensate business.

There still is a lot of bitumen production that's currently under construction that will ramp up by the end of the decade. I'm just wondering, as you look at the market, do you have a sense as to how much of that production has not yet secured condensate supply/logistics/terminaling?

I'm not sure I understand the question, Robert.

I guess just, with the amount of bitumen that's currently under construction up in the oil sands, there's obviously going to need to be a [indiscernible] services given there's only one upgrader coming on. So, do you have a sense as to, based on what is under construction, how many potential deals are still out there for producers that have not yet addressed their condensate supply needs?

We certainly have a sense for it. I think it would probably be inappropriate for me to get into specifics.

But we're continuing to work with some of those producers. But what I would mention is that the CAP has recently come out with a revised forecast for bitumen production which is a fair bit lower in the long term.

I think they've reduced by about 17% out to 2020. In the near term, there's still an expectation for a significant growth in bitumen production which we anticipate will give rise to more demand for the condensate capacity on our system

Okay. Is it fair to say that there's still some meaningful potential deals still out there, though based on what is under construction?

Yes.

Having said that, as well, Robert, if you're still on the line, we have secured a lot of long-term contracts, already for bitumen production that is about to come on-stream over the next several years. So, we have secured quite a bit of that business already.

Maybe I can switch gears a little bit and ask you for just an updated sense of what your financing plans or priorities or thoughts are for the balance of the year and next year and how that might be informed by your outlook on what an appropriate dividend growth/payout ratio might be as well as your balance sheet.

The nice thing about our company right now is that we're in a pretty solid position from an operating cash flow point of view as well as balance sheet and payout ratio. So, we don't see any imminent need for the need of equity in terms of funding the program.

And, as well, we have a very strong balance sheet and revolving facility, as well, with the banks, too. So, overall, we're feeling pretty good about that.

In terms of payout ratio, we don't normally try and put out specific targets on payout ratio, but, obviously, the low payout ratio we had in the first half of the year and the continued growth in our cash flows gave us comfort on the dividend increase that we announced yesterday. So, we were happy to do that.

But, right now, we have a very strong financial position. And, as well, as you recall, we reinstituted the premium DRP back in May, I believe and we've had strong participation on that side as well.

Altogether, we probably have about, between the DRP and the premium DRP, we probably have about a 60% participation in the program so we're quite happy with that, too.

And just as a follow-up, looking at your financial strategy and risk management. Is there any kind of update on how you look at hedging and risk management in the business with all the pricing volatility going on?

Is it harder to find counterparties willing to engage at a reasonable cost? Or is it making you rethink either trying to hedge it longer-term or changing how you look at things given all the volatility that we're seeing?

First of all, I would like to point out that our risk management strategy has worked out very well. And, if you go from a very high-price commodity environment last year to a rapidly-dropping price scenario, as you see in our results, that we've delivered pretty consistent strong results.

But, with that I would also mention that our risk management program isn't just a financial instrument that we put in place for mainly our inventory. It's also the way we contract our supply and also our sales.

So if I address, first of all, the financial contracts; we do deal with a lot of different counterparties so we've really spread that out. And, so far, there hasn't been any issues in terms of the amount that we hedge.

You know, very quickly, on the ethane side, we take no commodity exposure there. It's all basically fee-for-service.

On the propane side, we're basically buying product and we sell it on the same index. And a lot of that just comes in and out on the same monthly index.

So, we make a small margin on that transaction. And the inventory that goes into our storage to fulfill winter contracts, we do hedge out on the same index as well which is typically Conway.

Or we can use Belvieu as well. With our butane, we do have vertical integration there.

So, we do use our butane for our feedstock for our iso-octane facility and we do use hedges to lock in the spread between butane and WTI. And then we separately hedge the RBOB crack.

And, again, we go out, up to 12 to 18 months out, in terms of those hedges. Our condensate is basically in and out.

So, we buy and sell on the same index and so, again, for a small margin. And, where it's economic to do so, we'll also rail in barrels.

So, if the market here is short diluent or condensate, we'll rail in barrels and, again, we'll lock in both ends. When we purchase it, we'll make sure that we can sell it for a margin.

If we can't, we just don't rail it in. So, sorry for the long-winded answer, but that's sort of how we manage our risk.

And it's good to see that you don't really see any sort of imminent change over the next year or two in how you can execute on that.

That's right.

Thank you, operator. This completes our second quarter 2015 conference call.

We apologize for the fire alarm and technical difficulties experienced this morning, but thank you for sticking with us. Have a good day.

And if you have any questions, please feel free to call the Investor Relations group. Our contact information is in yesterday's release.

Thank you and have a good day.