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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's Third Quarter 2021 Conference Call. [Operator Instructions]Thank you. I would now like to turn the call over to Mr. Dan Cuthbertson, Director of Investor Relations. You may begin.
Thank you, and good morning. Joining me today will be Dean Setoguchi, President and CEO; Eileen Marikar, Senior Vice President and CFO; Jamie Urquhart, Senior Vice President and Chief Commercial Officer; and Jarrod Beztilny, Senior Vice President, Operations and Engineering. We will begin with some prepared remarks from Eileen and Dean, after which we will open the call to your 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 of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, please refer to Keyera's public filings available on SEDAR and on our website.With that, I'll turn the call over to Dean.
Thanks Dan, and good morning, everyone. The steps we've been taking to increase the competitiveness of our assets and has our integrated value chain are setting us up well for the future. With commodity prices at multi-year highs and positive industry momentum, we're seeing an increase in demand for services.In the Gathering and Processing segment, we have available capacity at our plants, which allow us to capture increasing volumes and generate incremental margins. The optimization program in our South region produced the consolidated portfolio of our most efficient plants. This translates to lower per unit costs and higher per unit margins, making us more competitive. The Nordegg gas plant was originally planned to be shut down next year as part of our optimization program. However, because of increased demand in our capture area, we have now canceled the suspension of this facility. This means the optimization program we launched in 2020 is now complete.This resulted in increased plant utilization in our Southern region, $15 million in ongoing annual cost savings only realized in 2022, and the 12% reduction in absolute emissions compared to 2019. With the program complete, you can now better direct our future investments to the remaining plants to drive further efficiencies, including emissions reduction.In the North region, Pipestone continues to set new quarterly high. At Wapiti, we quickly regained momentum after a planned maintenance outage. It continues to be work at Wapiti aimed at increasing reliability and long-term performance. This work will progress while the plant operates and is expected to cost about $5 million in the fourth quarter.Moving now to our Liquids Infrastructure segments. Our assets continue to be highly utilized and generate stable cash flows. We're seeing continued high demand for our fractionation cavern storage and transportation services. At our KAPS project, construction is well underway. The pipeline is a critical link that will further integrate our value chain, expanding our service offerings for our customers. It's an end-to-end solution that will deliver value to producers and margin growth for Keyera.As we already know, the Montney is set to drive the next era of growth for Canadian natural gas and NGL production. And KAPS is positioned to be an integral part of enabling this growth. Visible catalyst includes growing export capacity for natural gas, NGL and crude oil, increased in-basin demand from coal to gas switching and expanding petrochemical industry in Western Canada, including a new net-zero ethane cracker announcement and the startup of LNG Canada in 2025.Our Marketing business continues to enable Keyera to deliver premium returns by leveraging our infrastructure assets and employing it's disciplined risk management program. With strong year-to-date performance and our ability to lock in margins for the remainder of the year, we are once again raising our guidance for the segments where we now expect to deliver between $300 million and $320 million for the year.Turning to our ESG priority, during the quarter, we issued our 2020 ESG performance summary. I like to include a year-over-year 16% reduction in absolute emissions. In the coming weeks, we'll release our first time report, which will include emissions reductions targets, and other information aligned ETFs.With more tailwinds that we've seen in quite some time, I'm excited about the outlook for our business. The hard work we've done during the downturn has positioned us well to capture the upside of the industry recovery.Now I'll turn it over to Eileen to provide an update on our financial performance.
Thanks, Dean. Adjusted EBITDA for the quarter was $214 million. This was impacted by $25 million in realized hedging losses on product inventory. These losses are expected to be more than offset by physical sales over the next 2 quarters.Distributable cash flow was $149 million and net earnings were $70 million. The Gathering and Processing segment delivered realized margin of $76 million. This result was impacted by a planned maintenance outage at the Wapiti gas plant as well as reduced ethane volumes at Rimbey. The combined impact was about $8 million for the quarter.The liquid infrastructure segment delivered a quarterly realized margin of $98 million with high utilization across our key assets. Performance was impacted by lower seasonal propane loading and a planned outage at a third-party facility in which we own a minority interest.The Marketing segment contributed realized margin of $59 million. As Dean mentioned, we are increasing our 2021 Marketing segment guidance and now expect to deliver between $300 million and $320 million this year. We expect strong performance from the Marketing segment into Q4 and Q1 of 2022. This provides incremental cash flow that ensures the continued strength of the balance sheet as we execute our growth capital plan.Moving on to capital spending. We've revised our expected CapEx for 2021 to range between $460 million and $490 million. The increase is mostly due to higher costs to complete the Saskatchewan facility. We also increased maintenance capital spending to range between $40 million to $50 million. The increase is mostly due to maintenance work being conducted at the AEF facility.We also provided 2022 capital spending and cash tax guidance in this morning's news release. Maintenance capital for next year is expected to be between $100 million and $120 million. About $60 million of this is for planned 6-week maintenance outage at the AEF facility in the third quarter of next year.Growth capital is expected to be between $520 million to $560 million of which about $450 million is related to the KAPS project and cash taxes are expected to be between $15 million and $30 million. For reference, there is a detailed maintenance turnaround and outage list included in this morning's news release. We exited the quarter in a strong financial position. Net debt to adjusted EBITDA was 2.7x well within our targeted range of 2.5x to 3x and we have $1.4 billion in available liquidity.I'll now turn it back to Dean.
Thanks, Eileen. We're feeling encouraged and optimistic about the future. We have strong macro backdrop, fully funded growth projects well underway. Our balance sheet remains strong and our customers have never been in better shape. On behalf of Keyera's Board of Directors and our management team, I thank you for your continued support.With that, I'll turn it back to the operator for Q&A.
[Operator Instructions] Your first question comes from Rob Hope of Scotiabank.
Can you maybe -- I know it's early days, but looking out to 2022, especially Q1, how much of the Marketing margin have you locked in there in terms of propane? And then how are you thinking about higher butane costs or I guess, how do you think butane costs will trend through the winter and then into the new NGL year?
So thanks for the question, Rob. This is Jamie Urquhart. On the propane side, yes, we've locked in essentially the margins that we would historically be realizing in the winter season. So we're well positioned on that side of our business. On the butane side, lots of different dynamics going on in butane right now with respect to increased exports out of North America, but also just seasonal winter demand that has prices elevated. Based on the current -- our current outlook and others, the third-parties that would publish their views and ultimately the forward curb in North America, we would expect and I think we've been telegraphing this over the last year or so that we will get back likely to more historic butane levels for the upcoming season.
All right. I appreciate that. And then just turning over to the to the GMP side of the business. So the decision to keep Nordegg running, are you seeing an acceleration of growth at your plants? Especially, you're getting a little bit tight at the northern plants, the southern plants have been moving up. Maybe some commentary on how you think volumes trend into 2022?
Yes, Rob. So it's Jamie still. Yes, I think that's being on. I think we were, I put it, pleasantly surprised respect to how quickly our producers have got their balance sheet in order and getting after drilling. Obviously, commodity pricing is a big part of that. The fact that we've got cal 2022 of eco pricing north of $4 and also balance of year north of $5.50, we've seen producers obviously accelerating their drilling programs even in '21 to take advantage of that strong winter pricing. So those things all went into our decision to keep Nordegg running at least for the next four years in its turnaround cycle.But that's a reflection of activity throughout the south, right? Like, I mean, everybody hopefully is reminded that we have very strong interconnectivity between all those facilities in the south. And as a result of that Nordegg is just an element of the overall network that we operate.
Rob, maybe just add to Jamie's comments is that, we did have discussions with the producers in that area and behind that facility and based on their plans, we thought that was the right decision, which is great for us and them as well.
Your next question comes from Matt Taylor of Tudor, Pickering, Holt.
Yes. Going back to GMP, just following up on Rob's question there, with the north region largely contracted besides Simonette, when you guys are talking about capturing this subside, are you talking about more gas-directed drilling in the south region or are you looking at doing some bolt-on expansion opportunities? I'm thinking about Pipestone since it's already fully utilized.
Matt, it's Jamie again. Yes, I think all of the above, right? Like, I mean certainly we're seeing a continued elevated activity up in the north and continuing to find ways to maximize the utilization of those assets as well. And Pipestone would be right in the heart of what we view as being the best geology in the Alberta Montney. Yes, and then back to the south, it's just a function of strong commodity pricing, allowing people to access really good geology, very close to existing infrastructure and therefore, can get their production on in a quick manner.
And Matt maybe just to add, at Wapiti we actually do have a bit of capacity left that we can contract. So again, we think there's opportunities there. The production of that region is very liquids heavy. So we're looking at ways to handle the increased liquid volume and utilize the infrastructure that we already have in place, which is the gas plant. So we've had a number of discussions with different customers in the area. And again, we think that this is good opportunity.I think, down in the south in -- sorry, south of Wapiti, which is in from that region, again we have more capacity there as well. And as you know, I think there's starting to be familiar developments more so in the Duvernay. So I guess we'll see how that plays out in 2022 and beyond, but certainly at these price levels there's more attractiveness to proceed that way.
That's great. Thanks for your answers there. Just as a follow-on to that, is it a function more of upside coming from excess capacity and you being able to push volumes through there? Or is there a margin component here too, if the costs saving initiatives that you've done, where you could be able to earn more on each barrel that -- each molecule that's going to your plants?
I think -- if we just think of things overall, I mean it was pretty tough circumstances over the last few years, right? And so as our contracts come up for renewal and if the 2020 prices where they are, I think over time, it provides an opportunity for us to restructure some of our contracts that could be more beneficial for us and our shareholders which is, again, reflective of the 2020 price environment that we're in today.
Okay. Great. And then one last one, if I may, maybe a question for you, Dean. You've talked about future capital being weighted towards the liquid segments. So wondering if you could comment on the mix you'd be willing to do there, whether it's development and/or M&A to grow that business. And how you're focused and what you're focused on there, if it's just acquiring or developing contracted assets, or do you see some strategic value in maybe buying or developing assets that may be less contracted but help you capture more volumes for KAPS and give you some downstream optionality?
Well, definitely we do want to increase our contracted base. Returns are first and foremost for us. So our allocation of capital is front and formal. So we won't do anything unless this is a value-add for our shareholders. It certainly has to be strategic in terms of our greater footprint. So what I think you could see opportunities in different parts of our business.So as Jamie said, we're seeing a lot of demand in our northern Montney gas plants. And so could we make some investments there? Yes, it's very well possible, but we're going to make sure that we have the contracts and the contractual certainty to back those types of investments, if we are going to pursue them.I think post KAPS, I think the strength of our company is in the Industrial Heartland between Edmonton and Fort Saskatchewan. We have an incredible footprint there that is also capable of helping the industry transition. So if you think about some of the petrochemical developments that are likely to happen in the future, some of that probably are announced yet, they're going to require services, like what we could provide, which is feedstocks, fractionation, storage, demethanization kind of services. So we see a lot of opportunity in Industrial Heartland where we have a big advantage already because of the footprint that we have.
Your next question comes from Patrick Kenny of National Bank Financial.
I'm just wondering guys, if you can provide an update on how the outage at the Plains PFS facility is impacting your business, whether you're having to manage any bottlenecks upstream or on the flip side if there's been any incremental volumes coming your way until the facility is back fully up and running.
Pat, it's Jamie. Yes. Certainly the challenges Plains has had has tightened up the frac market in Alberta, and that's created some challenges for primarily industry in general and the customers that we collectively deal with. So the opportunity we see is we're working with those customers that maybe have been impacted by the outage and just ensuring that their production and the value of their production is maximized. So that's the opportunity in the short term, and ultimately our ability to help those customers hopefully will translate into longer term relations and value for our shareholders.
And with KFS operating at full capacity and given the outlook for drilling activity, are you in discussions today with customers regarding an expansion of KFS? Or when might we hear of some development there?
Yes. We're always obviously looking to expand our business. As Dean said, though, we need to make sure that we've got the contracts in place to make sure that that's a good investment for the company and our shareholders. But yes, we're always talking to customers and forward looking with respect to when we think frac capacity is going to be required off of our network. Certainly KAPS is a big part of that as well, when that gets in service and ultimately provides another alternative for customers for bringing NGLs down into the Fort Saskatchewan area. So sorry for the long-winded answer, but yes, we're obviously in conversation with all our customers.
Yes. Pat, certainly we see for the growth in our basin because of some of the drivers that I've talked about before, certainly a lot of increased [ digress ] for our basin, which is fantastic. Our KAPS pipeline is going to grow over time and deliver more mixed volumes to the Fort Saskatchewan. So we do think that industry is going to require more frac capacity at some point in the future. And we're very well positioned. We have obviously a very competitive site, a brownfield development obviously is much more economic than someone else trying to build a greenfield one somewhere else. And we have the best connectivity at that site, which obviously makes it valuable. So again we're very well positioned when the time comes to increase our capacity.
Thanks for that. And maybe last follow-up for me. Just maybe you can just help us distill the opportunities that you see for Keyera related to Dow's Net Zero project announcement?
Well, first of all, I mean, I think that this is incredibly exciting. I mean, it's not sanctioned yet, but I think it's incredibly exciting potential for Canada or Alberta to have the first -- the world's first net zero ethane cracker. So I won't specifically speak to them. I think there's other companies that are looking at petrochemical developments and Industrial Heartland. But obviously as a big driver of feedstocks, I mean, we have a lot of feedstocks in our system as part of our strength of our company, in terms of all the assets that we have and our expertise.Yes, we have feedstocks, we have de-ethnization, we have fractionation, we have storage capacity and expertise around that and transportation. So all infrastructure and expertise that would help enable projects like the shift project without doing. So generically we think that we're very well positioned to capture some of that upside in the industry.
Your next question comes from Linda Ezergailis of TD Securities.
Maybe I can just build on Pat's question and ask for maybe a bigger picture vision of how Keyera might participate in the petchem value chain. The AEF facility also could be expanded brownfield. There are potentially opportunities for extension down the value chain as well. Maybe you can provide some guardrails as to size, how willing you would be to partner with others, whether it be on brownfield facilities or new greenfield facilities? And how ultimately that might translate into a shift in your business mix overall?
Thanks for the question, Linda. That's a lot. You know what, overall I think our industry has to get better at developing strategic partnerships. And part of that is that you have to think about how our basin and how Canada and Alberta is going to be competitive globally. I think to be competitive, you have to be super, super efficient in terms of your costs to be competitive. But you also have to be a leader in terms of ESG and emissions. So I think that we can solve for both, but if you're really good at it, we have to work together.So in Industrial Heartland, we always have active discussions with different players that are looking at developments there. And as I said before, there will be a need for more petrochemical feedstock and whether that's ethane or propane. Obviously, butane is a big part of our integrated value chain. We can be a big supplier for that. And I think over time there's going to be demand for lower carbon versions of that.So when we think about our gas plants, our frac facilities or DF facilities over time, we'll work to lower the carbon footprint of those facilities so that the products that we process are lower carbon version, which is going to help feed the future low carbon petrochemical developments.So I think there's opportunities there. We have great pipe connectivity between Edmonton and Fort Saskatchewan. So again that existing pipeline infrastructure we can continue to leverage in terms of transportation that's required within the Industrial Heartland. And whether that's hydrogen in the future, which I think that there's good potential for that or CO2, that's possible, but we do have some capacity that make some that happen.I think any petrochemical development certainly needs storage and we have the largest underground storage position in Fort Saskatchewan already, the very core part of our expertise. And in our industrial undeveloped land Heartland lands, we have 1,300 acres there, where we have most of the underground storage rights to. So again, as the industry needs more storage capacity, we can build right there.As it relates to AEF, we already have a premium gasoline additive. And again, we think that we can continue to increase the value demand for that product if we go down a path to decarbonize it, which again we're looking at opportunities to do that there as well.
And as a follow-up, as you look at the opportunities related to energy transition, is there potentially a way to accelerate that through acquisitions to either gain capabilities or new assets that maybe can't be achieved through innovative partnerships? And conversely might there be a rationale for divesting of some assets that might be of higher value to other energy infrastructure or energy participants that can maximize the value in other ways beyond what you can do with the assets?
Yes. First of all, we are absolutely looking at our portfolio and assets that are not core to our future. Certainly, we'll look to some of those. Again, when we think about energy transition, I think that our best opportunity is to leverage with what we already have. The Industrial Heartland is not going away. And in fact, there's going to be more development there. So what we need to do is help that industry again with the feedstock they need, but also to decarbonize the products that we handle and also help to decarbonize the industries that are within that fairway. And we see great opportunities to do that. But again, it's leveraging off of the infrastructure, we already have -- an expertise that we already have.
Your next question comes from Ben Pham of BMO.
I had a question on the KAPS project. In the report, you've mentioned more pressures and you brought a business with utility costs and power costs, whatnot, and you had the TGM project also experiencing CapEx pressure. Are you still confident in terms of that $1.6 billion CapEx budget for KAPS?
Ben, it's Jarrod here. We are -- the projects tracking on plan in terms of cost and schedule, and certainly we are seeing some inflationary pressures. I'd say, particularly around the labor market. So we're monitoring those closely. But really nothing material at this point. The other portion of that that we've been monitoring throughout the project has been steel costs. And again, the majority of that's been contracted already and our pipe production will be completed in early 2022. So the remaining exposure in that regard is limited. So long way to go yet, but we're feeling pretty good about where we're at from the cost perspective.
Okay. That's great. And you mentioned the utilization improvement in itself. What are your thoughts about Phase 2 on Wapiti selling that and potential timing?
Ben, it's Jamie. Well, as Dean was saying that one of the characteristics of Wapiti Montney formations is high liquids loading of that the production as those wells come on. And we've seen that over time where particularly water. So the water cut has come on quite significantly at the beginning of bringing wells on and ultimately has leveled off into what we would have expected when we built that facility. But as the producers are developing up around that area, that is one of the challenges that we face.And so as we continue to see more maturation of the wells that are being drilled there, and we are funding alternative mechanisms by which to handle the water, that's giving us more line of sight as to how we're going to be able to fill up Wapiti and that's a progression. So we fully expect that by mid-2022 we'll have the first phase of Wapiti falls from a processing side and ultimately then get some momentum into starting to fill up Phase 2.
Maybe if I could just add to that, Ben. So generally, we see a lot of demand in the area and from new sort of producers that have been sort of inactive, now they're getting more active in the area, which is great. We have a more diversity of potential customers.Our philosophy is that we want to fill that second train with the least amount of capital. And so it might require some capital to debottleneck some parts of the infrastructure that feeds it, but we're also trying to leverage off of infrastructure that exists in the area. So there's a third-party service provider that has a water disposal facility in area. So let's go fill up their facility first without deploying more capital and so that we can direct more gas to our gas plant. So that's our overall strategy, the demands there, the question is how do we fill it with the least amount of capital.
Yes. That helps a lot more. I just wanted to clarify on additional CapEx. I mean, didn't you already spend monies to facilitate that phase or maybe I have that wrong?
Sorry. I'm not sure if I understood your question, Ben.
Wapiti Phase 2 you've spent close to $1 billion for entire phases and you've got added some water disposal infrastructure at the same time. So I would think as the volumes come into the Montney, those areas that wouldn't just be an immediate benefit to EBITDA without any CapEx.
Yes. I mean, further to what Jamie said, is that the liquid capacity at that facility, in some areas, some parts of it is nearing capacity. So we don't have enough liquid handling capability to maximize the capacity of the gas plant itself. So that's where, again, we're trying to use third-party facilities for that liquid handling to again just try to utilize our gas plant more.
And then maybe my other question, as you look towards 2022, where do you think you're going to trend on that EBITDA? Where does it peak? Have you talked to credit rating agencies around that temporary bump up before it trends lower into 2023?
It's Eileen. So based on our forecast today we're quite comfortable funding KAPS from cash flow and using the balance sheet. We don't see any requirement for any discreet, common equity. There's always other levers that we can pull such as the sale of non-core assets as Dean already spoke about. That's something that we're always looking at, but again, in general, we are okay to go above our 2.5x to 3x leverage targets for a short period that as KAPS spending -- as KAPS ramps up in 2022, but the leverage comes in line quite quickly as KAPS starts to generate cash flow. So there have been no issues with rating agencies based on our forecast.
Your next question comes from Robert Catellier of CIBC.
Most of these are going to be follow-ups, but I just wanted to dig into the Dow opportunity a little bit more. It doesn't seem like the timing is perfectly aligned for KAPS in terms of getting in that thing pipe in that caps trench. So maybe you could just talk to it to that, how the timing lines up with some of your current projects and the ability to maybe get an ethane pipeline in the KAPS system.
Yes, I mean, if there were demand for ethane plus line, ethane mixed line, it would not be able to be built constructed with the timing of KAPS because obviously we're building it today. We would never pursue that project again enough that we're contractually underpins where we could achieve our rate of return with our contract. And if so we could build it in incrementally, whether we built it with existing two lines or we built it separately we looked into and the cost isn't significantly different. So if there's demand for it, we can absolutely create a solution. Yes, hopefully that answers your question.
Yes. And then just do have a sense of big picture understanding that Dow hasn't officially sanctioned the project that it does sound like it's going to be a reality, but just in terms of timing, in terms of when they would need supporting infrastructure and have to start contracting for that.
I can't speak to Dow needs at this point. I mean, I think more generically, Rob, is that we're obviously in the business to provide services to our industry and you're very well positioned. And whether it's Dow or anybody else, you look at our infrastructure in Industrial Heartland and you want to use Dow as an example. I mean, there's sandwich -- we're sandwiched on other side of them, with our undeveloped lines to the east that Josephburg and our KAPS lines and we have a lot of pipe connectivity that goes right to their land. So again we have a lot of infrastructure in the area that can enable petrochemical development, whether that's Dow or anybody else.
Right. And just moving on to the drilling here, just to follow up a bit on -- your decision on Nordegg. Maybe you can mention which producers, but if you don't want to talk about your customers that way then which place and which other plants are seeing the most activity, there are supporting decision to keep Nordegg open.
Yes Robert, this is Jamie. So I hope you can understand, we wouldn't share any specifics around what producers, but like can mean anybody with Accumap or Geoscout can figure out who's drilling around those facilities, is that the formation is primarily the Spirit River, very economic play, especially in today's commodity price environment. The facilities around Nordegg, Brazeau River and East [indiscernible] plants that partners with Spartan Delta of the striking gas plant, those are all in the fairway of the developments in the activity that we're seeing.
There's one pretty active private company in the area. Again, I think their strategies may be a little bit different than the public comment. I mean, they see the quality places today and economic they can generate and they're taking full advantage of it.
It's got to be irresistible at this point. And then just on the -- I just want to follow up on the AEF business in the iso-octane margin compression. I mean, the curve itself speaks to compression of those margins because of the butane costs. But I'm wondering how much of that you think is structural? I think your earlier comments referred to going back to more traditional levels of pricing for butane. But do you think there's anything structural going on based on petchem demand, butane exports? So it might be actually causing -- might cause prices for butane to go higher than what we've seen traditionally.
Yes. Robert, there's just a ton of things going on in the world right now, that's a function of why butane pricing is where it's at right now. And maybe encourage, we could take that offline with Dan and his team, because we'd be happy to share our thoughts, but I could eat up the next 20 minutes talking in detail about all the global dynamics that's driving butane demand and ultimately pricing.
Okay. Fair enough. We could take that offline. And just I noticed there were some recontracting on the condensate side for storing on other services. I wonder how much of a book was recontracted and is it similar in terms of what can you tell about the relative change in any of the economics there?
On the condensate side?
Yes.
I mean, our book -- they were 2 meaningful contracts within our book. Can't really share from a percentage perspective what percentage that they would account for, but all those contracts are long-term contracts. This was an opportunity to work with a customer, frankly, that had existing contract that made sense for them and made sense for us to extend that contract out and provide some flexibility for their business. That also made sense for Keyera.
So is this how it didn't extend type deal?
Yes, I can't really get into the details other than saying it made sense for us and it made sense for them.
Your next question comes from Andrew Kuske of Credit Suisse.
I'll apologize in advance because this question's going to have a lot packed into it and it really sort of speaks to the nexus of your strategy, your operational performance and just the finances in relation to emissions profile. And just how do you think about paying a carbon tax, generating offsets or buying offsets and what's really the dynamic around your decision process, now on a go forward basis. And then maybe a collateral question to that is, does Canada need a 45Q like credit system to really stimulate investments now?
This is a big macro question. You know what, I think to -- I won't comment specifically on policies will work or not, but certainly with the increasing carbon taxes, they're off to 170% it's like 20-30, it's certainly going to motivate companies to find ways to reduce their carbon footprint. And so for us, we model all of our facilities and how we can continue to improve. And as we said, we're going to be issuing our reports under CFE reporting standards here later this year, early November. So that's going to be helped shortly, I guess, in the next couple weeks.And we're going to outline sort of our targets of which I think are very meaningful of what we're going to do concretely in the near to medium term and in the longer term. So it's sending the right behaviors. We think Canada can be a very responsible company in terms of resource -- country in terms of resource development and also competitive from a production extraction cost as well.So as a midstream service provider, we think that we can offer services that help to enable that. And so again, I guess maybe to answer your question is I think the carbon taxes already are going to drive us a path of carbon reduction, and us and the rest of our industry is already heading down that path.
Okay. That's helpful color and context. And I guess when you look at your portfolio of assets right now, just from an emissions reduction standpoint, would you target investments on emissions reductions of activity, whether they be CCS or something else on your fractionators and your gas processing facilities, just because the high intensity of the emissions that come off.
Yes, absolutely. And part of that could be power. Part of that could be CPUF, low carbon power, CPUF. I think what's also going to evolve is that we certainly believe that they have low carbon feedstocks in our system is going to be also a competitive advantage because the end purchasers, they're going to have to look at all scopes of their emissions and if they have a low carbon product sell, they will be able to achieve a premium for it, I believe. So it backs up for us, how do we get a low carbon product feedstock in our system to deliver to them. And again, it will get a premium for that as well, I believe, in the future.
So if I may sneak in just one more and it's related, and it's really do you see a bridging of your effect of your carbon and emissions reporting with your capital program in the next year or 2?
Yes, very much so. I think, as Dean said, the emissions targets that we will be disclosing in a few weeks, it's been very much drive strategy and when I talk about strategies, what are we going to be investing in in the future? And what might we be divesting of as well to fit those emissions targets? I would say overall. So as Dean already alluded to, we have the assets that can really be an important part of the overall solution.
Your next question comes from Robert Kwan of RBC Capital Markets.
Let me just start with questions just on the NGL market, as you think out to 2022 and a bit of the recontracting season. Just with frac space getting tight, whether that's just in general or with the planes outage and the NGL mix in market getting a little bit sloppy here, what do you think we'll see for frac fees next year?
Yes, Robert. This is Jamie, sorry. Did I cut you off?
No. Yes, just obviously you're probably not going to give a specific number, but just if you can frame it like you did on butane, where we are today versus where you think we might be going into '22.
Yes. Like, I mean certainly even without the planes outage, we're starting to see a tightening of frac capacity versus demand as we see growth in the basin. Simple economic supply demand is that obviously if demand is outstripping supply or getting close to supply, then when logically you could look to be able to increase fees, I think we look at it probably longer term Robert with respect to how can we work with our customer to develop maybe a longer term relationship or commitment that would enable us to solve the underlying problem, which is frac capacity in the basin.So I mean not to say that there's not an opportunity maybe that charge slightly higher fees, or maybe it's an opportunity to recontract and put some term on it that would enable us to be able to backstop an incremental investment. So there's lots of different ways that we might be able to take advantage of the current situation.
Got it. And just thinking long-term and having that kind of give and take relationship as well just with the mix market again getting a little bit sloppy, is that feeding into just your commentary around butane returning to more historical levels versus the very favorable levels we have this year, notwithstanding that historical levels are still pretty meaningfully below the butane to crude relationship we are seeing right here right now?
Yes, correct. Like historical levels are still -- our business is an attractive business based on historical butane costs. We've had an environment where the pricing is being below those historical levels and that's obviously being beneficial to our business, but once again, we look at it from a longer term view perspective and ultimately, we -- just to reiterate, we believe that based on all the different dynamics within the butane market in North American in particular, that we would expect that we'll be able to contract that at historical levels next year on the butane side.Propane, obviously interesting commodity as well with respect to the impact of exports, but also ultimately significantly low storage levels in North America right now and a huge backwardation in the curve into 2022. And we look at that and just from a fundamentals perspective, see opportunity as well for being able to contract propane at prices that would allow us to make just historical margins off of that commodity as well.
If I can just finish with a higher level question, there's been a lot of discussion on the call about all the different potential projects, you can be involved with in the Heartland area, whether that's traditional or energy transition. And you have that large spare land position you've been in no rush really to move on it. I think you've just been trying to get the highest value creation in the right contract structure, I guess, how far out do you think based on the different projects that you're looking at discussions you're having, that we might hear more about development on that spare parcel?
That's a good question, Robert. Certainly we have a lot of discussions on the land, so it's not like it's been sitting dormant and we haven't been trying to create opportunities on it. We actually do see opportunities, but the timing of that, I think that we're looking within sort of the next five years, when there could be more announcements on there, it's hard to say, I mean, we have a lot of very engaged discussions with different companies with, I think some really exciting opportunities.It's just a question of the timing of our customers plans and how definitive they are with them. So we do see a lot of opportunities. We think that there's momentum that that's gaining. But we'll have to see just how this plays out, but we certainly see good opportunity there.
So Dean, so it still sounds like it's something that's a little far out, obviously somebody steps up with an offer you can't refuse and obviously it could happen sooner. Is that kind of the right way to think about it, you guys plan it still several years out?
Well, I'm not sure how you're thinking about it from a awful perspective, but the way we think about those lands is that we want to create an industry out there where we want to build economies to scale. We already have great connectivity at that site. We have underground storage, pretty much any develop we need, you need to be able to have underground storage to help support, or almost any kind of service. We can access both rail lines from that site and put unit train tracks on there.So in terms of the infrastructure and what we'd require for a really large scale industrial development, we have all the pieces for it. And if you look at proximity, we're right adjacent to Dow, we're kitty-corner to ITL Brookfield in the PBH facility, [indiscernible] to the north and we have pipe connectivity all the way down through the Industrial Heartland right down to Edmonton.So we have I think, a very attractive piece of land to track development to their end and we provide services to enable it. So in terms of what you might describe as an offer, we're just trying to help enable development in our province and that Industrial Heartland. And I think we have the pieces to help make it happen.
Yes. The only thing I'd add Dean is that KAPS runs right through that piece of land as well. So that's a component of our overall strategy and offering as well.
Ladies and gentlemen, there are no further questions at this time. So I would like to turn the conference back over to Dan Cuthbertson. Please go ahead.
Well, thank you all again, once again, for joining us today. Please feel free to reach out to the Investor Relations team for any additional questions, and we're happy to help you go through your modeling after the call here and hope everyone has a good day. Thank you,
Ladies and gentlemen, this does conclude the conference call for today. We thank you all for participating and as such, you please disconnect your lines.