Keyera Corp.

Thank you and good morning, everyone. It’s my pleasure to welcome you to Keyera’s second quarter conference call for 2019.

Joining me today is, David Smith, our President and CEO; Steven Kroeker, Senior Vice President and CFO; Brad Lock, Senior Vice President and COO; and Dean Setoguchi, Senior Vice President and Chief Commercial Officer. As we released our financial results yesterday, the focus of our call this morning will be on our business strategy, operations, business development opportunities, and financing.

After our prepared comments, we will open the call to questions. I would like to remind listeners that some of the comments and answers that we will provide speak to future events.

These forward-looking statements are given as today's date and reflect events or outcomes that management currently expects. In addition, we will also refer to some non GAAP financial measures.

For additional information on non GAAP financial measures and forward looking statements, please refer to our public filings which are available on SEDAR and our website. With that, I'll turn it over to David.

Thank you and good morning. Keyera delivered outstanding financial results in the second quarter of 2019.

Adjusted EBITDA increased 19% over the same period last year, and net earnings doubled. We are on track to deliver another year of strong financial performance.

Our midstream services remain in high demand and our capital projects are on schedule and on budget. Favorable market fundamentals are supporting higher fractionation fees and iso-octane margins that are both expected to extend into the first quarter of 2020.

We continue to successfully execute our long-term growth strategy, which is focused on extending and enhancing our integrated value chain. Over the past few years, we have been extending our infrastructure into Northwestern Alberta to support the liquids-rich Montney and Duvernay developments.

Wapiti phase 1 was commissioned in the second quarter, and the latest Simonette expansion will be completed this quarter. Once we complete phase 1 of the Pipestone gas plant in 2021, Keyera will be one of the largest gas processing and condensate handling companies in the region.

To further enhance our integrated value chain, we recently announced that we are proceeding with KAPS, in partnership with SemCAMS and KKR. This pipeline system will transport growing liquids production from Northwestern Alberta to Fort Saskatchewan, where Keyera can offer fractionation, storage, and rail services, as well as access to our industry-leading condensate hub.

We remain confident in our long-term business strategy and are committed to providing our shareholders with stable long-term dividend growth. As a result, we are increasing our monthly dividend by 7% to $0.16 per share per month or $1.92 per share annually.

This extends Keyera’s long history of steady dividend growth since our IPO in 2003. I will now turn it over to Brad to discuss our operations.

Thank you, David. During the second quarter, our facilities operated very well, and we continue to advance our capital program.

In May, we completed phase 1 of the Wapiti gas plant and in July, the acid gas injection system at our Simonette gas plant began operating as well. We also completed a three-week turnaround at Rimbey, one of our largest and most complex gas plants both on time and on budget.

Even with the activity in the quarter, safety remains a priority with Keyera, and we continued our outstanding performance in the second quarter, representing the sixth consecutive quarter without a lost time incident amongst our employees, and the third consecutive quarter without lost time instant amongst our contractors. Keyera also held our annual safety stand down with each of our executives spending time in the field, listening to worker feedback and discussing the importance of safe operations to our workers and our communities.

At Keyera, we recognize that providing a safe and healthy work environment is an integral part of being a responsible employer, operator, and good corporate citizen. Looking ahead to the second half of the year, our operations will be affected by planned maintenance turnarounds at our Cynthia and Ricinus gas plants in the third quarter and a planned outage at AEF scheduled for the fourth quarter.

This six-week outage at AEF is to perform preventive maintenance which will ensure optimal performance of the facilities through the next two years allowing the next full run around to be deferred until 2021. This is an exciting time for Keyera as we are beginning to realize the benefits of our capital program and generate incremental cash flow.

In addition to Wapiti phase 1, this year we expect to complete the north Wapiti, pipeline system and Simonette gas plan expansion and over the next three years, the Wapiti phase 2 and Pipestone gas plants, Wildhorse Terminal and KAPS. These projects will extend our secured growth into 2022.

I’ll now pass it over to Dean to talk about our business development opportunities.

Thanks, Brad. As David mentioned, we continue to successfully execute our growth strategy with the focus on extending and enhancing our integrated value chain .

we are very pleased with recently announced KAPS project which will be a very strategic investment, not only does this pipeline system provide Keyera with strong returns and secure long-term cash flow, it improves the integration of our value chain. With stronger integration we expect to attract additional volumes to our gas plants, fractionators, storage caverns, condensate system, and marketing supply book to generate incremental margin.

These additional volumes provide Keyera with a foundation for future investment opportunities that could include additional gas and condensate processing investments, fractionation, and additional storage caverns. There's no shortage of business development opportunities for Keyera where we can leverage our expertise.

In addition to looking at opportunities, which provides long-term growth, we will continue to focus on maximizing returns on our existing assets. With that, I'll turn over to Stephen to talk about a financial position and strategies.

Thanks, Dean. Keyera continues to experience strong growth in its fee for service realize margin, growing 16% during second quarter compared to the second quarter of 2018.

In addition, our marketing business continues to be a strong contributor to our cash flow, generating a record realized margin this past quarter. For 2019, we still expect realized margin from marketing to be between $280-320 million.

Even with the planned six weeks maintenance shutdown at AEF in the fourth quarter. Maintenance capital is now expected to increase modestly to between $105-115 million hundred given the planned outage at AEF, but partially offset by the deferral of some other maintenance capital.

Cash taxes continue to be forecasted between $90-105 million for 2019 and at less than $10 million for 2020 since capital projects like the Wapiti plant has become available for use. Keyera continues to grow shareholder value through prudent capital investments that are expected to generate attractive returns on capital.

We have now invested 1.3 billion of our 2.9 billion multi-year capital program currently underway. We remain committed to a strong financial position, and in June, issued 600 million of senior subordinated hybrid notes.

These notes provide us with attractive all-in financing costs given we receive 50% equity treatment from the credit rating agencies With hybrid notes being subordinated debt, our net debt to EBITDA covenant ratio fell to 2.3 times at June 30 compared to 3.0 times at the end of the first quarter. We continue to believe the remaining 1.6 billion of our current capital program, which is expected to be incurred over the next three years can be funded without issuing common equity, apart from the DRIP and the Premium DRIP.

With our strong balance sheet and financial flexibility, Keyera is well positioned to take advantage of the right investment opportunities and will continue to focus on delivering attractive returns on our invested capital. With that, I'll turn it over to David for closing remarks.

Thanks, Steven. While our industry continues to have challenges accessing global markets, we are encouraged with the federal government's decision to proceed with the Trans Mountain pipeline expansion and the progress being made on LNG projects on the west coast of Canada.

To help continue this positive momentum, we are working with other energy companies and organizations to spread the word about the importance of our industry not only to Canada but to our world. Canada is one of the most responsible energy producing countries in the world.

And the world will continue to need Canadian oil and gas for the long term as it makes the transition to cleaner sources of energy. I’m proud to lead a team that wants to be part of this important change.

We are dedicated to safety, operational excellence, and environmental responsibility while adding value for our customers and our shareholders. On behalf of Keyera’s Board of Directors and management team, I would like to thank our employees, customers, shareholders, and other stakeholders for their continued support.

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

Thank you. I'm wondering if you could give us some more context around your maintenance activity beyond this year.

Is it reasonable to take the prior 2020 maintenance capital guidance [Technical Difficulty] and then add it to a run rate for 2021? Or there a few other moving parts?

Yeah, it's probably a fair -- fair assumption there on the maintenance capital there. I mean, there's a little bit of maintenance capital deferred from this year into -- into 2020.

But as we highlighted before, I don't think we actually gave guidance on 2020 before, but that would have had an AEF turnaround, which would have kept it relatively comparable to ‘19 levels. But yeah, it's probably fair to -- to back off that kind of a number or smaller for 2020.

And given some of the accelerated maintenance into this year for ETFs, what would be the scope of the 2021 outage? Would it be typical or maybe a little bit shorter?

Or can you provide some context around how things have shifted around and if that will continue prospectively or was this was just kind of an opportunistic one-time shift?

So, we haven't finalized a timeline, but it'll be in that, you know, in that 40 day outage timeline as well. The work that we're getting done this year is really just an opportunity to get ahead of some of this work and take advantage of the deferral that we can get on -- on next year turnaround into 2021.

That's helpful. And maybe, given the reduced tax rates in Alberta, are you able to provide any sort of cadence of cash taxes or outlook for 2021 and beyond?

We haven't come up with formal guidance for 2021. But, in 2020, it largely depends on the capital being brought onstream.

And so, in 2020, we -- we indicated it will be less than $10 million for cash taxes, inclusions from that.

That's helpful. And maybe just in terms of a bigger picture strategic question, before I jump back in the queue, what is your latest thinking on value chain extension downstream into LPG exports and your thoughts on the merits of continuing to rail car down to the -- to the US versus potentially participate in any sort of West Coast initiative.

Linda, we continue to look at diversification opportunities into areas that we think makes sense, leveraging the competitive advantages and capabilities that we have. To this point, when it comes -- particularly -- particularly with respect to propane, our approach has been to make sure that we have the flexibility with our facilities in -- in Western Canada along with our facility at Hull, Texas.

You know, to be able -- to -- to move that product to the highest value markets. We currently have no -- no plans to be an equity participant in – in -- in that kind of an investment.

Having said that, those are the kinds of opportunities that you know that -- that we’ll -- that we’ll look out all the time.

First question is just on your financing outlook. With the strong cash flow performance in 2019, and 2020 should benefit from lower maintenance as well, just want to get a sense of how you're thinking about the DRIP and share count and the potential to shut down that early just given your strong balance sheet?

And good question, Rob. Stephen here.

I mean, from our point of view, we just continue to regularly monitor that situation. If you can appreciate, it's still a -- it's still a large capital program.

And, so we just want to be careful about when we make any kind of commitments about setting down a drip. Our overall goal is to continue to have a prudent capital structure, continue to have financial flexibility to look at projects or acquisitions or whatever might come about.

And, so I don't see anything imminent in terms of shutting it down and is a very effective cost for us to raise equity if we are raising equity. But there's nothing imminent about them.

And then when you look at a prudent balance sheet, does that evolve as you add more contracted cash flow?

Yeah, I think we've always been careful over -- over time about committing how we would move that view. The reality is we have a very strong commercial team, and when we get new assets, they -- they continue to think of ways of making -- making money that way.

That being said, I would think it's a -- it's a natural evolution of a company that when there are material shifts in the fee for service nature of the business, that you continue to look at with the optimal capital structures.

That's helpful and then just finally, just given, you know, some share price performance of your customers, how are you looking at credit for some of your counterparty risk?

Well, we've always had a pretty robust way of looking at counterparty risk. We employ various mechanisms.

I think you can see that in our AIF and -- and disclosure, especially around year end. But really we try and make sure we have the proper continued due diligence and scrutiny on how receivables are going.

Very close monitoring of collecting receivables in that respect, letters of credit, netting agreements if we can net NGLs, you have to remember a lot of times we're buying NGLs off for producers. And so we get to sometimes net those kind of commitments as well.

At the end of the day, over the last five years, we've had a very strong record in terms of, you know, doubtful accounts. I think we're at sort of $3 million right now for doubtful accounts.

So, we continue to monitor, no doubt, it is a little bit more tougher in this kind of environment, but we just continue to watch it very closely.

On marketing AEF and M&L, I know [indiscernible] kind of predict that and butane cost, I mean, there's just an inventory you can manage there. But on the utilization I guess that's stuff something you can match or control with a bit of maintenance and whatnot.

And since the beginning 2018-or-so, utilization has been a little bit above nameplate capacity and maybe can you refresh us on what's driving that? Is it just a phase of your maintenance downtime more frequently than before?

And then just how do you think about utilization on a sustained basis?

I think, certainly, AEF has had -- has when we -- when it's up and running, we get very good utilizations. We normally run it above nameplate capacity and it likes to run there.

And that's -- that's certainly good from the -- from the ability to generate iso-octane and take advantage of that margin. I think it's like any other facility.

It's complex in nature. And -- and we've got a really good team out there that -- that pays attention to the kind of the forward-looking measures and tries to predict [Technical Difficulty] potential upsets.

And I think our outage that we've got coming up is really just doing that. It's not impacting operations today.

But as we look out over time, we think by taking the plant down in the fourth quarter of this year would be prudent to allow a more stable operation through 2020. And that also allows us to extend our turnaround into 2021.

So it's really a predictive kind of maintenance opportunity that I think is going to play well in terms of the overall value generation for the facility.

So you're finding that rather than this big 4-year overhaul, which you got to do any way, that you kind of [indiscernible] for a shorter period of time and you have intent to run at a very high utilization in other periods it's online?

Yeah, I don't think the -- the utilization that we've seen has impacted the reliability of the facility. You know, I think if you go back before Keyera was an operator that plant -- that would plant ran in the -- in the 50% to 60% to 70% utilization and their facility reliability was actually not as good as what we're seeing today.

So, I think when we put all that together, we think continuing to run that plant at nameplate or slightly above nameplate actually gives us the maximum value of that plant.

It’s Dean. I think the other thing is, is that every time we -- we do a maintenance -- a big maintenance turnaround, our team at AEF finds -- looks for opportunities to employ strategies to try to de bottleneck the facility, you know, each time, and also enhance reliability.

That's why our run times over, -- over, you know, if you look at the history of that facility have improved, and they'll continue to look for opportunities like that.

All right. That's great for that.

So second question, Gathering and Processing. Wanted to check in the $70 million.

Is that a pretty clean EBITDA? There wasn't any sort of prior capital recoveries from that?

And then to that, just curious outside of the Montney, you flagged a plant shutting down in a few months. Just how is the volume outlook outside of the Montney?

Alright, that's great for that.

So yeah, we've been -- we've been pretty pleased with how the gathering processing business has performed even, you know, in -- in what's a challenging environment. I think certainly, we all know the commodity prices are out there today make natural gas drilling somewhat challenging.

So, we think, you know, certainly over time that may have some impacts on volumes. But I don't think it's, you know, as we've seen over the past little while those -- those impacts tend to be modest.

And we continue to find ways to provide additional value add to our customers that -- that allows us to generate incremental margin as well. Things like enhanced liquid recovery, things like healing pipeline, and things like that, that allow us to provide value to both ourselves and our shareholders as well as the customers who pull through our plans.

Then -- and then maybe just to expand on that. I mean, obviously, our results this quarter were affected by our -- mainly by our Rimbey turnaround.

And we have a couple turnarounds next quarter, as well at Ricinus and Cynthia, but I'd say that if you look at the activity and province, I mean certainly it has slowed down in terms of the levels of activity, but we certainly see the, you know, the Montney facilities being Simonette and now Wapiti that’s onstream being very active areas and again, those are the most economic areas in the province. So, we feel pretty good about what's happening there.

When you look at our Central Alberta facilities, they still been fairly resilient. And part of that is production base.

So the declines there aren't near as deep as the new production that you see up in the Montney-Duvernay. So, you know, I think we have that benefit.

And as Brad mentioned, we're always looking for ways where we can deliver our services more efficiently for our customers to make it more economic for them.

I mean, you've proven that the max costs quite well well during the past declines.

Good morning, guys. With phase 1 of the Pipestone plant now fully contracted out, wondering if we can get an update on the level of demand for phase 2 expansion, say you know versus six to nine months ago, especially now that you're looking forward with KAPS and, you know, still have 30% or so white space to potentially bundle with pace to commitments.

That is something that we're, I mean, we don't sleep, we always looking for opportunity. Obviously, we like to cite, it's a brownfield site, makes a lot of sense that if there is demand for capacity if and when that happens for us to be able to provide that service.

So, you know, I think we have -- we don't have any update today, but it's something that we're certainly very well engaged with the producers in that area to assess when -- when they'll be drilling and they'll need that demand.

And then maybe just David, your comments around the strategy of supplying propane to the west coast terminals. Just wanted to confirm that this is mainly on a fee for service basis or, you know, as the marketing group looking to take advantage of any pricing arbitrage opportunities on a quarter by quarter basis.

And if so, you have any hedges in place on Asian propane prices going forward.

First of all, it's --these are barrels that we're moving as principles. So, this would be some of the portfolio propane supply that we have and what we purchased from the producers in Western Canada.

I'm not at liberty to talk about what the pricing basis is for some of the product movements that we have in place to different to, you know, to different points. But we are managing things prudently and making sure that, you know, whatever -- we have a portfolio of different pricing basis for the propane that we move and we're monitoring that as you know through our risk management committee on a weekly basis to make sure that we're, you know, that the exposures that we have are -- are being managed conservatively.

Okay, great. And then just lastly, it might be a bit early but just on the back of the TMX re-approval, any update on timing or customer interest in fully expanding the baseline terminal by another couple million barrels, I believe.

We certainly been engaged with our customers on that front. But, you know, I would say it would definitely be a catalyst if Trans Mountain expansion where -- there's more certainty around that.

We feel pretty confident about it. But again, you know, once we see that moving forward, I think would see more demand for above ground storage, and we have a great facility to provide that opportunity with our expansion lands at PTT.

Just one quick question on what are the implications of suspending operations there and does it accelerate or bring forward any environmental remediation obligations?

Yeah, so I think it's, you know, from a -- certainly from a cash flow perspective, it's going to have no impact on our business. The facility has been a marginal facility for a number of years as we've tried to find opportunities.

Over the -- certainly from a reclamation perspective, we will begin the process of deconstruction, reclamation, and alignment with the Alberta energy regulator who basically has to approve our reclamation plan. That'll be a long-term project.

So, it'll be kind of a small investment for a large number of years that'll work towards getting that facility completely deconstruction, decommissioned and reclaimed back to native state. So it'll be an ongoing project, but it will have minimal impact to our financial.

So, there's no chance of keeping it up here. You're just not going to turn it into a compressor or keeping it running in hopes for a recovery, so, you're going to decommission.

That's our plan today. We've explored a number of opportunities out there to try to find ways to keep it viable and it just wasn't something that we could find a suitable way to do that.

Rob, I would add that, that you know, at this point, obviously as we get into the process, you know, we'll learn more, but at this point, we think that the cost of decommissioning and remediation is pretty much fully covered by the Asset Retirement obligation that's on our balance sheet. So, on that basis, you wouldn't expect that it would have any material kind of earnings impact.

Okay, and then just on AEF, obviously, you have more control during a planned outage. But when the -- I think when the facility went offline last time for an unplanned outage, there was no difficulty with the butane costs and you know, taking butane and installing for a loss.

What's the outlook for how you manage the outage in Q4? It sounds like you have more access to storage.

Then, maybe you will manage that situation.

Yeah, absolutely. I mean, certainly with a planned outage that we're scheduling now for the fall, we do have -- we have a provision to make sure that we have ample storage capacity to handle the supply volume that we're purchasing.

And we can put into storage and again, you know, we're acquiring a pretty attractive price. So that'll certainly help our margins going forward once the plant comes up and running again.

And Dean, does that advantage last through Q1 and into Q2 of next to year or pretty much the vagaries of your 2021 sorry, your 2020 contracting.

If you recall, our contract season does actually end in March of 2020, so for that very nature, it will extend in 2020 but the inventory that we build, it will have lasting benefits in the 2020, beyond that. So, it will help us with our margins in 2020 is the bottom line.

maybe just continuing here on the topic of AEF or just looking at marketing more broadly. So you're holding the guidance even with the 6-week downtime.

I'm just wondering as you think about, say, where the original budget was for Q3 and Q4, is there anything else that's moving around, for example, with the downtime? Did you or do you need to close off some hedges?

Yes, yes, we do have some hedges that we are unwinding. It wouldn't be significant.

I wouldn't consider it to be material in any way but we are managing that. With respect to your comment about just our budget and us being able to hold it even with our six-week outage, part of that as well is again the octane premiums have been very strong.

And part of that is because of the Philadelphia refineries that is offline now. But it's also because of a lot of the late feedstocks that are going through the refineries and it creates -- it’s -- it’s sub-octane, so it requires extra octane to meet spec, gasoline spec, so it has been very positive for our business.

And based on expected light production of the US that should be a structural positive, should that not.

Yeah, I mean, you know, there's always other variables at play, but certainly this season, it's been very strong.

Okay. I guess maybe just the last kind of question on this topic.

I'm just interested given how strong Q2 was, it doesn't sound like there's a whole lot impacting Q3. So that should be continued strength.

In Q4, though, my understanding is that AEF was not a huge driver of the quarter. That's kind of where propane starts to kick in.

So I'm just wondering with how the second quarter shaped up and the other factors that seemed to be driving above expectations for AEF, are you at least trending like -- put differently, is the guidance conservative at this point?

I guess, Robert, what I would say is that, you know, we're still comfortable with the guidance that we provided. I don't think there's -- I don't think it would be appropriate to provide any additional color at this point.

What I would reiterate is that - in planning the outage at AEF, we have the ability to minimize the impact, but six weeks of lost production is still six weeks of lost production. And, so it will be a significant impact.

I think that's being offset by the strong margin that we are seeing in Q2 and in Q3. And, so overall, we're comfortable that we're still in the same range.

Just turning to frac fees, we've seen that come up and you've talked about that extending into Q1 '20, I guess just with the NGL here. I'm just wondering, though, as we think past that, unless NGL production comes down a bunch in Western Canada without new capacity being built, is the expectation that fees should stay relatively high past that first quarter?

I think that would be a fair statement. Yes.

Okay. And then just maybe to finish, Steven, you made a comment talking about the balance sheet, that you're well positioned to take advantage of the right investment opportunities.

So, just kind of more broadly, I'm wondering, is there anything on the front burner, some color you can give, as it relates to either Brownfield initiatives, Greenfield initiatives, and especially interested in any color you have on potential acquisition activity, whether that be from producers or otherwise?

You know, it's a good question, Robert. I would say from our point of view, we've always been pretty good at disclosing, you know, what we're working on and projects and so I would say we, we do have a strong plateful of projects that we're focusing on and concentrating on.

I would say the observation is that we're seeing is that we are seeing more assets come available, or at least people exploring monetization of different assets? I think from our point of view, we just want to continue to be very prudent about how we deploy capital.

How do we view returns on a risk adjusted basis and making sure we get a strong returns? But apart from that, as you know, we've said in the past, we don't generally comment on acquisitions, etc.

But, I would say on the GNP side you are seeing, you know, more things come about, but I would say we're also pretty focused on our current organic capital program.

And I guess just on the G&P, like what's the appetite to take that part of the business higher and just with all the capital in front of you for mostly long-term contracted initiative…

I think that's good. I think that's a -- I think that's a good question.

From our point of view, we look at what's on the plate right now and see that's a pretty that's a pretty full plate in terms of projects, continue gathering and processing exposure. We like increasing that exposure in the Montney and Duvernay.

But we also recognize you always have to keep that within balance within the broader portfolio. We obviously concentrate a lot on the liquids infrastructure side and continue to look at projects on that side, as Dean alluded to earlier, and so as you've seen us in the past, we try and keep a pretty balanced portfolio.

Maybe Dave, you have another comment or two or…?

Yeah, Robert, I guess what I would reiterate is that we've got a pretty well established set of criteria, both economic criteria and also the strategic nature of the assets. And we stick -- and we've been pretty disciplined about that.

We're very encouraged by what we see around Simonette and Wapiti and Pipestone and those facilities have and will have the characteristics that we like in terms of long-term sustainability. There is, as Steven indicated, there are assets for sale, but they -- a lot of them don't have those sorts of characteristics that we would look for.

And as you're probably aware of there have been two transactions announced that come to mind in 2019 and we were not the successful acquirer of either of those assets. So, I think that's an indication that we will continue to be disciplined.

Thank you. Good morning.

There's some commentary in the MD&A about the G&P business where you reduced fees for some of the producers in exchange for long-term volume commitments. Could you just give any incremental color beyond what was in the MD&A?

What I would say is that, you know, we try to work with our customers, and we understand the predicament that they're in and so when we can create a win-win situation for both them and us, you know, we try to pursue our opportunities like that and solutions like that. So for us, it just gives us, a longer term commitment from our customer and we work with them, we're very flexible with them.

I think the one thing we would add to it is that in aggregate, there is not a material amount that we're talking about.

Okay, that's helpful. And then I guess that would be the kind of approach provide potential M&A opportunities in areas that you don't have exposure in the basin, where someone might be looking for an integrated solution [indiscernible] at right now, but they have their own assignments that would be willing to transact.

Again, what I would say the answer to that is that, you know, we look very carefully at what the characteristics are of the facilities and where they're located because we want -- when we're acquiring assets, when we're building assets, we want to have long-term sustainability and visibility to growth. So, those are the kinds of things that we look at, we have discussions around opportunities like that with producers on an ongoing basis.

But we're pretty disciplined about the criteria that we apply to what we do -- to what we buy.

Then finally, could you just give us a quick update as to where you are cavern development, on what's been washed and what do you expect coming on the line in the next few years?

We have a very comprehensive program of cavern washing; we've got two caverns in wash right now. We've got certainly one waiting for -- or waiting for wash.

And we'll have caverns come online. So, I mean, the way I would think about it is probably a new cavern comes online about every year and that's the way we try to set it up.

Demand continues to be strong. The contracted nature of cavern storage is something that we really , so it will be something we will continue to develop going forward.

Following up on marketing, I know you hit on this, but can just provide a bit more color on what the premium that you're seeing to iso-octane there versus alkylating RBOB? And how long you expect that to last?

Matt, we're seeing some pretty strong premiums on our octane, which is, again, a premium over there RBOB posted prices. And again, part of that was triggered by the outage of the shutdown of the facility of -- the Philadelphia refinery.

And, you know, I would say that, while that facility is not expected to come back up again, the whole octane market will rebalance at some point, but certainly through the summer, it's been very strong. And, you know, I think long term -- longer term structurally, we see octane to be strong, but maybe not as strong as what we're seeing the summertime because there will be other sources of octane that can be sourced offshore that can be brought into, you know, into the US to help balance market a bit more.

Can you give me some sense of what's normal, even on a per gallon basis versus what you're seeing now, just trying to get a sense of magnitude?

Yeah, we don't -- we don't disclose that.

It’s called the secret sauce.

Fair enough. Fair enough.

And then over to condensate volumes. Notice there's a 13% year over year uptick, I believe Fort Saska's capacity is around 600,000 barrels a day or so, I'm just curious what system utilization was for Q2 and then obviously as you start thinking about expansions and opportunities, especially with that 16-inch caps pipe coming into the market there.

I'm just wondering how you're thinking about that system.

Well, you might recall Andrew that with the South Grand Rapids pipeline coming on stream, we now have a significant amount of additional capacity in addition to the Fort Saskatchewan pipeline between Edmonton and Fort Saskatchewan. We're now connected I think to pretty much every outlet for condensate and every source of, pretty much every source of condensate.

So, we are the best connected condensate network within the Edmonton/Fort Saskatchewan hub. We don't really see right now any near-term bottlenecks in terms of transportation capacity.

We are as Brad mentioned, continuing to look at expanding the storage and with the you know, with the KAPS pipeline coming on and getting connected in little over two years’ time, you know, that will obviously create more supply. So, we're constantly monitoring what the, you know, sort of what the next steps are in enhancing the network.

But, in the short term, we can accommodate a significant growth in volume without having to invest any additional capital in the transportation network itself.

Right, that's helpful. Then lastly, can you remind me how much of the storage at Fort Sask was more operational versus longer term.

And what I mean by that is just to take advantage of contango prices. And I'm just wondering, as we sit here, how are you seeing spreads going into this winter versus last year, just wondering what expectations are in marketing.

We don't specifically disclose the exact allocation of our cavern storage. But I would say that the majority of it is in condensate service.

And that's tied to long-term contracts with the oil sands customers.

And then the remainder obviously the NGLs.

Yes.

Thank you very much to everyone today for listening in on our conference call. If you have any follow up questions, the investor relations team will be available.

Thank you and have a good day.