Keyera Corp

TSX:KEY

Q2-2025 Earnings Call

[Operator]

Good morning. My name is Angeline, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera's 2025 Second Quarter Conference Call. [Operator Instructions]

I would now like to turn the call over to Dan Cuthbertson, General Manager of Investor Relations. You may begin.

[Dan Cuthbertson, executive]

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'll begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions.

I'd like to remind listeners that some of the comments and answers that we'll give today relate 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.

[Dean Setoguchi, executive]

Thanks, Dan, and good morning, everyone. Keyera delivered strong results in the second quarter and advanced its long-term strategy. Strong commercial momentum led to the sanctioning of key growth projects.

We also secured more access to LPG exports off the West Coast and announced a transformational acquisition that significantly expands our scale and enhances our service offering for customers. So far in 2025, we've sanctioned 3 capital-efficient growth projects. These are the Frac II Debottleneck, Frac III and KAPS Zone 4. In the last several months, we've also secured over 100,000 barrels per day of new long-term contracted volumes on KAPS Zones 1 to 4. These have been mostly integrated deals and as a result, frac capacity at KFS, including both expansions is now substantially contracted.

These developments keep us well on track to achieve our growth target of 7% to 8% annual fee-based adjusted EBITDA from 2024 to 2027, and they'll continue to drive growth well beyond that time frame. This continued visibility to fee-for-service growth gives us the confidence to continue to sustainably raise our dividend. Yesterday, the Board approved another 4% annual increase.

In June, we announced the transformational acquisition of Plains' Canadian NGL business, a defining step that expands our scale, reach and service offering across the NGL value chain. This acquisition creates a much larger integrated network, adding more efficient connectivity to key demand hubs across the Prairies, Ontario and the U.S. It also strengthens our ability to serve customers across all NGL products, specifically enhancing our propane market access.

For customers, it means better connectivity, optimized product flows, increased diversification and stronger netbacks. For shareholders, the deal is expected to be mid-teens accretive to DCF per share in the first full year, assuming $100 million in near-term synergies. Our fee-based adjusted EBITDA will increase by approximately 50% over that period.

And it's also important to note that this transaction is a great Canadian story. This deal brings strategic infrastructure under Canadian ownership, supporting energy security and ensuring that value creation and decision-making remain right here at home. With this expanded footprint, Keyera is even better positioned to enable the next phase of volume growth.

The basin continues to benefit from low-cost, long-life resources in the Montney and Duvernay. Increased demand from LNG exports, oil sands and petrochemical development is driving sustained increases in natural gas and NGL volumes. Our combined platform will play an important role in meeting that demand efficiently.

With that, I'll turn it over to Eileen to walk through our financial performance this quarter.

[Eileen Marikar, executive]

Thank you, Dean. We delivered solid financial results in the second quarter, driven by continued strength in our Gathering and Processing and Liquids Infrastructure segment. Adjusted EBITDA was $252 million, which includes $12 million in onetime transaction costs related to the Plains' acquisition.

This is compared to Q2 2024 of $326 million. Distributable cash flow was $159 million or $0.69 per share. Net earnings were $127 million compared to $142 million last year. Our fee-for-service segments, which are G&P and Liquids Infrastructure together contributed $255 million in realized margin. This is up over 8% from the same period last year.

This steady growth in high-quality contracted cash flow continues to strengthen the foundation of our business and underpins the long-term sustainability of our dividend.

The Gathering and Processing segment delivered realized margin of $111 million, up from $102 million last year. The increase was driven by strong performance in the North region, including a new daily throughput record at Wapiti and higher throughput at Simonette. Liquids Infrastructure delivered $143 million in realized margin, up from $133 million in the same period last year.

This segment benefited from continued growth in long-term contracted volumes on KAPS and strong utilization at our fractionation assets and condensate system. Marketing realized margin was $60 million compared to $136 million last year. The decline mainly reflects softer commodity pricing as both periods included outages at AEF.

Annual impact of the 2025 AEF outage remains estimated at $50 million. We ended the quarter with net debt to adjusted EBITDA of 2x, well below our 2.5 to 3x target. This is excluding acquisition-related costs. Our strong financial position enabled us to pursue the Plains' acquisition while preserving our investment-grade credit ratings and long-term leverage target.

Turning to 2025 guidance. We are reaffirming our marketing realized margin range of $310 million to $350 million. Growth capital is now expected to range between $275 million to $300 million compared to the previous range of $300 million to $330 million. The difference is mostly related to project timing. Maintenance capital and cash tax guidance are unchanged.

With that, I'll turn it back to Dean for closing remarks.

[Dean Setoguchi, executive]

Thanks, Eileen. Our strategy is clear, and we're executing it. We're advancing capital-efficient growth projects, securing long-term contracts, expanding our integrated platform and creating value for both customers and shareholders. The Plains' acquisition builds on this momentum and positions us for the next phase of growth.

Combined with the strong macro tailwinds for volume growth, we are very confident in our long-term outlook. On behalf of Keyera's Board of Directors and management team, I want to thank our employees, customers, shareholders, indigenous rights holders and other stakeholders for their continued support. With that, I'll turn the call back to the operator for Q&A.

[Operator]

[Operator Instructions] Your first question comes from Rob Hope with Scotia Bank.

[Robert Hope, analyst]

Regarding the next wave of unsanctioned growth projects, what's looking most attractive currently, whether it be kind of a G&P expansion in the North, some rail expansions or future extraction projects?

[Dean Setoguchi, executive]

Rob, it's Dean. Thank you for the question. We're very excited about our entire business, to be honest. And first of all, I'd start with the macro outlook. We see a lot of continued growth across our basin, both for natural gas and crude oil growth, which obviously we support with diluent. So with that, we just see a lot of opportunity.

We're looking at our rail logistics options and some of that might be through the Plains' acquisition and optimizing it or it might mean building a new unit train facility on our Josephburg site. And so that's a project that we're doing some early-stage engineering work on. Certainly, we're very excited about opportunities that we see in our G&P business up in the Montney, Duvernay fairway.

And certainly, we see a lot of growth up in that area. So we're looking at opportunities where we may be able to acquire some assets and enhance them, certainly looking at ways that we can expand our capacity at our existing facilities and potentially a new greenfield facility. So again, lots of opportunity.

I would emphasize that any opportunity that we pursue on the G&P side will be based on very solid contracting for any assets or investments we make in that part of our business. But also the contracts will be integrated contracts with our downstream KAPS fractionation and marketing business as well.

So we just see tremendous opportunities to provide a lot of great service for our customers to enable them to grow. Outside of that, I might also mention that some people have made note of a condensate fractionator, a license that we applied for very recently. And what it is, is it's a fractionator that would process condensate into various hydrocarbon products, and that would include light to midweight condensates, NGLs and also crude oil.

And anyway, this is still early stages. So we're working on engineering and also contracts with customers to potentially toll through a facility like that. So anyway, those are just some of the examples of the opportunities that we see long term. But at the same time, we don't want to get ahead of ourselves.

And we do have a lot of projects, as you know, that we need to execute well on in addition to the Plains' acquisition. So we have a very full plate, but we have a team that's very eager to do a great job at it, and I have full confidence that we will do it, too.

[Robert Hope, analyst]

Great. Appreciate that. And then maybe sticking with contracting. So good to see the KFS is largely contracted now. Looking forward, how do you expect your contracting strategy to evolve as you layer in the Plains' assets as well as kind of what you would target for fees for service and marketing?

[Dean Setoguchi, executive]

Well, one thing I'd like to point out, maybe I can throw it over to Jamie as well. But I'd just point out that, to your point, we've signed a lot of long-term contracts across our business. The demand for our services is very strong, as you saw. 100,000 barrels of contracting on KAPS Zone 1 to 4. I'm very pleased with that.

But again, a lot of those contracts tied to volumes in through our frac and into our marketing business. So on an enterprise level, we can generate superior results. When we look at the combination of Plains, -- and with those growing contracted fee-for-service cash flows.

Overall, our business is going to be roughly 70% fee-for-service and 30% marketing with the Plains assets, too. So the overall composition isn't going to be significantly different. We're going to apply a very disciplined and rigorous risk management strategy to the Plains straddle business like -- and again, no different than the discipline we apply to our marketing business today. So yes, it's a bit different.

But overall, the composition of our business doesn't change that much. And we think that the marketing piece will again be a differentiator that helps us generate best-in-class return on capital metrics. But anything else you want to add to that?

[K. Urquhart, executive]

Yes. The only thing I'd add, Dean, is that we are confident that with the acquired assets with Plains' that does have some commodity exposure that we will adhere to the same disciplined risk management process that we do in our existing business, and we're very comfortable with the assets that we're bringing in through the Plains' acquisition.

[Operator]

The next question comes from Robert Catellier with CBIC Capital Markets.

[Robert Catellier, analyst]

I wondered if you could just comment on any initial customer feedback you've had on your agreement to buy the Plains' NGL assets and how that might influence the Competition Bureau strategy.

[Dean Setoguchi, executive]

Rob, yes, thanks for the question. And you know what, I can tell you that our customers have been very supportive generally overall. I think that they can see what we're trying to do for our industry, which is to create very, very efficient solutions for our customers that maximize their netbacks.

And they can see that it's still a very competitive space. Any customers that -- if you look at a situation like where we have our KAPS and Pembina's Peace pipeline, anybody that is in that fairway knows that we compete very hard with Pembina and our goal is to be the most competitive integrated midstream operator.

And with that, we aim to provide our customers the very best service and again, to maximize their netback. So I think that they can see that. It's not to say that they don't have any concerns, but certainly, we're addressing what those -- any questions that they might have.

As for the Competition Bureau, all I can say with that is that we're certainly working with the Competition Bureau. It's a process that is necessary to get the closing. We'll provide an update when it's appropriate. And I just want to reiterate that we're very confident that we'll close this deal as disclosed in every material aspect.

[Robert Catellier, analyst]

Yes. That's great. Obviously, there's a lot more to it than just price. Obviously, the entire netback and flexibility matters a lot. And I'm just curious, you're still very confident in the time line as well, given that you've just started up with the Competition Bureau. Is that time line still on a high level of confidence?

[Dean Setoguchi, executive]

Yes. We believe in the time line, but obviously, some of that is out of our control. It's -- we're going through the process. We're working very closely with them and plans through this process. So we believe Q1 is a sweet spot. But again, we'll provide an update when it's appropriate.

[Robert Catellier, analyst]

Okay. Great. Last one for me then. Just on the Duvernay, I wondered what your specific plans are there. just get the sense that maybe activity there is picking up. And do you need to add any capacity or services to help support the Duvernay?

[Dean Setoguchi, executive]

Sure. I'll turn that one over to Jamie.

[K. Urquhart, executive]

Yes, Rob, thanks for the question. I guess I want to get specific on what portion of the Duvernay you're referring to? Is it the West Shale around our Ruby gas plant? Or are you talking more up in around our Simonette gas plant? -- or both?

[Robert Catellier, analyst]

I was thinking more of Simonette.

[K. Urquhart, executive]

Yes. So yes, we're -- the Simonette gas plant, we actually -- I think people will have noticed, we had more throughput through that facility over the last couple of quarters than we have historically. And we've had some good success in being able to attract additional volumes, but we're also consciously looking to see what that facility can do. It originally wasn't built for a Montney, Duvernay type gas.

And so we've actually gotten some comfort that we're going to be able to get the effective capacity at that facility up by about 50 million a day from about the low 200s to the higher 200 million a day range and the associated liquids that come with it. And ultimately, obviously, that is destined for the KAPS pipeline and downstream markets.

So we right now have a higher level of confidence in being able to contract with the Duvernay or Montney producers in that area. And then we're also doing some further work to see how we can unlock even more natural gas and liquids capacity over the next year or 2.

[Operator]

The next question comes from Aaron MacNeil with TD Cowen.

[Aaron MacNeil, analyst]

Dean, maybe to build on Rob Hope's question, with fractionation capacity now fully contracted, does that make it more challenging for you to provide that sort of full path service and contract incremental volumes on KAPS? And then just as an extension of that, how should we think about spare capacity on the Plains' fractionation assets and what potential connectivity to KAPS might that create if you're able to successfully...

[Dean Setoguchi, executive]

Yes. No, thanks for the question, Aaron. And certainly, we're very pleased with the long-term contracts that we signed on our frac complex at KFS. What I'd say is that it's not 100% contracted. When we say substantially all, we're kind of saying around the 90% and greater mark. So we do have some capacity.

Most of the contracts are long term, and when I say long term, 10-plus years, but we do have some -- a few shorter-term contracts that will be expiring over the next few years. So we will have some capacity available to work with. Certainly, we are going to -- when we integrate the Plains assets in, one of our objectives, too, will be to improve reliability overall between both complexes.

Some of that is with utilizing our storage more effectively between the 2 complexes. -- to manage any short-term outages and again -- but also keep the reliability run rates super high. So those are some of the things that we're looking at in capacity. Certainly, we are here to provide the capacity that the industry needs.

So if there's more demand in the future, we're going to be looking for the most capital-efficient way between the Plains and Keyera assets to add that capacity when it's needed. So I certainly believe we could bridge that time period when we see growth above and beyond what we're building already. Go ahead, Jamie.

[K. Urquhart, executive]

Yes. The only thing I'd add, Aaron, is that you made reference to KAPS and PFS, Plains' Fort Saskatchewan. We're already in the process of having Plains' Fort Saskatchewan be connected to KAPS. That happened -- that commitment was made a couple of years ago to help support customers on KAPS and our commitment to customers that they're allowed to connect to any fractionator that they so choose off of the KAPS system. It's an open system for our customers.

[Aaron MacNeil, analyst]

Makes sense. And that's what I was expecting in terms of other contracts potentially rolling and allowing you to re-up. And then maybe just keeping with the 100,000 barrels per day of contracted capacity on KAPS. Can you give us a sense of how those contracts layer in by quarter or year? And if we need to see any compression adds to the pipe in order to accommodate those contracts?

[Eileen Marikar, executive]

Aaron, it's Eileen. I can try to answer that question. I think just really stepping back, it is -- we have that 7% to 8% EBITDA growth, and that's from our existing -- up to 2027, that's our existing KAPS 1 to 3. And beyond that, our new projects like Zone 4 and all of this additional contract, whether it's on the fractionation expansions as well as Zone 4, those will continue to ramp up all the way into even the next decade.

So again, it's -- but the ramp on Zone 4 will be quicker than what we saw on Zones 1 to 3 when we initially brought KAPS on. So it will be a quicker ramp as we bring on Zone 4. But again, this will just help to push out growth well beyond that 2027 time frame and well into the 2030.

[Dean Setoguchi, executive]

Yes. And so just to further add on to Eileen's comments is that when we look at our profile, it's really in the early into the new decade is where we reach the max capacity of the contracts that we've signed, not the max capacity, the max production flow of the contracts that we signed early 2030s.

[Operator]

The next question comes from Maurice Choy with RBC Capital Markets.

[Maurice Choy, analyst]

Sticking with the theme about contracting here. You've highlighted that over the past several months, you've added more than 100,000 barrels a day of new long-term contracts at KAPS and also are fully contracted at KFS.

Can you give us a flavor as to what generally are the top reasons your customers choose you? And also take the opposite direction where what are some of the reasons why they don't choose you, which perhaps offer you upside if and when a deal like Plains is closed or through other deals that could improve your offering?

[Dean Setoguchi, executive]

That's a great question. They love us now. Listen, I think there's a number of reasons why customers deal with us. I do think that they appreciate the fully integrated service offering that we do provide. And with that, we can be very competitive when we're offering a bundled deal.

So I think that they appreciate our ability to access high-value markets for their NGLs, which help them maximize their netbacks. And as we said, with the Plains acquisition, this is going to enhance that market access out to Eastern markets, both in Canada and the United States. So it's going to give them a lot more optionality overall. I think that they like the reliability of our system, and it's something that we continue to improve.

And we're going to be able to improve reliability and again, optionality with the combined assets of Plains. So this is only getting better for our customers with the combination. So lastly, we try to be very customer-focused. It's not like one solution fits all.

We try to understand what our customers' needs are, what's important to them and what we can offer to help them successfully execute their business plan. So while we're smaller, I feel like we can be more custom fitting to the needs of our customers and hopefully nimbler. Jamie, if there's anything else you want to add?

[K. Urquhart, executive]

No, I think you hit the reasons why they choose us. Maybe I'll touch on why historically they haven't supported or chosen us. And that's just uncertainty whether we had a project or not.

And now that we have the project, and you'll see that we announced -- when we announced the sanction of Zone 4, we had 75,000 barrels, and we're now at 100,000. So once you have a real project, I think there's great -- the greatest momentum that we've got is yet to come.

[Maurice Choy, analyst]

Thanks for that wholesome answer, if I could just finish off with another big picture, but perhaps a longer-term thought here. Just curious how you think over the long term, how NGL molecules will move differently from how it does today.

Obviously, today, a lot of liquids-rich growth are being piped and fracked to and at Fort Task, including KAPS and -- but as you see more export heading out West, do you see the potential for more midstream assets in Northeast BC and North Alberta? And what does that all mean to you and your facilities?

[Dean Setoguchi, executive]

Yes, that's a great question. I mean, certainly, we see the runway for a lot of growth in natural gas and we've had a lot of NGLs in Western Canada. And obviously, that's what's driven the contracting that we've seen so far. There's absolutely -- and I certainly don't see -- I've been asked before whether there will be an LPG pipeline built to the West Coast.

There's no world I see that you can justify the capital cost of building a pipeline like that to the West Coast because there's just not enough volumes to support it. So I think that would be cost prohibitive. So a lot of barrels will still move by rail. Some of that, as you suggested, I certainly believe that there's going to be more field frac projects and whether that's in Northwest Alberta or into BC. I think we'll see more of that. And there will be some product that gets railed directly to the West Coast. But anybody that moves any product by rail would also appreciate that rail is not ratable like a pipeline. So whether the weather freeze ups, you get strikes, you get whatever, other issues that your cars get bunched up, whatever happens, there's disruptions.

And -- and so if you don't have enough storage and on-site storage, aboveground storage is very expensive. So if you are -- you can't ship out your product for a couple of weeks, that adds to a lot of dollars and a lot of value. And if you have to truck all that, that's super expensive.

And so the reliability of having a pipe to underground cavern storage to the hub where all of those NGLs, a lot of them are consumed already. Still, there's -- what the point I'm trying to make is still going to be a lot of demand for those products to still go to Fort Saskatchewan. So I see a little bit of all the above where there's still going to be field frac, but there's still going to be a lot of demand to get to the hub in Fort Saskatchewan.

And just maybe the other point I'd like to make is that the West Coast, obviously, we think that there's growing demand in Asia, and that's a good place to be, the FEI index. But I'd also point out that there's also high demand centers locally. And we want to make sure that we can provide optionality for our customers because a lot of times, they don't want to put all their eggs in one basket or one market. So again, with the Plains acquisition, we're also going to be able to help them access those Eastern markets.

And I can tell you, when it's cold, they need the product, and they're going to price the product. The product is going to be priced to stay in Canada so that they get the ability to heat their homes and things like that. So bottom line, I think there's going to be great demand still at KFS Fort Saskatchewan.

[Operator]

The next question comes from Ben Pham with BMO.

[Benjamin Pham, analyst]

Maybe to expand on that last question, but more specifically on the propane market in Western Canada. Can you comment also similarly on the flow dynamic that you think could anticipate LPG exports has been viewed as taking market share from other regions. Can you comment on that and whether there's any potential impact on the Sarnia market or the U.S. export side of things?

[Dean Setoguchi, executive]

Well, thanks for the question, Ben. First of all, like I say, the NGL market is just getting over and oversupplied. We are a supply-based basin. We have a very small population. So our consumption relative to how much we produce, that is becoming more imbalanced. So you're just going to have a growing oversupply of product that has to clear the market somewhere.

And so yes, the West Coast Asian markets, yes, they're going to be a very valuable market to access and clear some of that excess surplus product. But what we've seen is that in the Mid-Continent U.S., in the Northeast U.S. and places like you get into Wisconsin and also into Michigan and Sarnia, you get into the Prairies in Canada.

I mean, it gets cold here, as you know. And when that happens, it's almost -- it's price inelastic, like they need to heat their homes. And there's a lot of homes that will never be connected to natural gas. And so they rely a lot on propane. And so when you get demand spikes because of weather, they need the product, and it's going to price higher than the West Coast because it has to, to make sure that product goes there.

So I just think it's always great to have options and optionality of accessing high-value markets because the highest place to send a molecule propane changes from time to time and even during the same season. And I'm really happy that we can hit any one of those markets and take advantage of the strong pricing.

[Benjamin Pham, analyst]

Okay. Understood. So it sounds like maybe there's some potential market share changes, but the absolute movement is on a trend up versus down.

[Dean Setoguchi, executive]

I'd say yes.

[Benjamin Pham, analyst]

And maybe my next question, you mentioned a reference to some acquisition activity. How do you think about framing that inorganic strategy now with a large deal you're getting approval for and then integrating afterwards, you pulling back on the BD side of things, telling those folks to reallocate their time? Are you still looking actively on transactions, considering just where your balance sheet is heading towards?

[Dean Setoguchi, executive]

Yes. I'd say overall that we're still looking for opportunities to enhance our integrated service offering. And at the top end of that service is our G&P business. So we're not looking to do big acquisitions right now or anything like that, but could we look at some smaller tuck-in opportunities that integrate well with our existing business? Absolutely.

So we're in the business to provide a service for our customers, and we can't start it and stop it. It's a business that continues every day. And the great thing is that with our -- the financial plan that we executed on, and Eileen can speak to that in more detail, we've left ourselves some flexibility to maintain those activities. So Eileen, is there anything you want to add?

[Eileen Marikar, executive]

No, no, just to add that, yes, as Dean mentioned, it is the strength of our balance sheet, and it was really getting our base business, the execution of it, the growth in our fee-for-service that allowed us to do such a transformational acquisition.

And so the funding plan that we did put in place was intended to maintain our targeted leverage at that 2.5 to 3x so that it didn't stop opportunities because we do see so many, and we want to continue to grow.

[Dean Setoguchi, executive]

Yes. Maybe one thing more thing, I'd just like to add is that the bulk of our people in our company are still driving our business and working hard to make it more competitive and more profitable.

And we have a segregated team that is going to be dedicated to the integration and bringing in the Plains' business and combine it with ours when closing happens. So we have different work streams in our company, but our base business is still a big focus of most of our people.

[Benjamin Pham, analyst]

Got it. And if I may, just one quick follow-up on that topic with gas processing transactions. I mean, is the focus more looking at that North Montney area where maybe utilization is already quite strong, but you're bolstering an entire footprint? Or is it more maybe the South region where you can buy for value and enhance and integrate?

[Dean Setoguchi, executive]

I mean, again, we're here to supply services where there's greatest demand. And right now, the greatest demand is up along the Montney, Duvernay fairway up in our northern region. We still have capacity available in our South region. So again, most of our focus down there is to fill what we have.

[Operator]

The next question comes from A.J. O'Donnell with TPH.

[Andrew John O'Donnell, analyst]

I was wondering if we could go back to just overall NGL competition in the basin. In light of some of the contracts -- incremental contracts that you guys have been able to sign with KAPS Zone 1 to 4. Just thinking over the longer term and maybe some of the comments from larger producers in the basin about overall transport rates are looking to save on overall transport rates by the end of the decade.

How would you characterize the contracts that you've been signing? Have they been pretty competitive from a price advantage? Or are we getting into a situation where we start to build out all this NGL infrastructure in the basin, and we could potentially see some margin compression later on in the decade as things start to roll off and recontract.

[Dean Setoguchi, executive]

A.J., and again, thank you for the question. Certainly, the basin is very competitive, and that's why we have such a competitive marginal cost supply overall for the basin, which is great. And what I'd say is that our -- I said this earlier is that our objective is to build the most competitive integrated midstream platform.

And our goal is to keep on improving every day, and this is a relentless pursuit that will never stop. And -- so we're very pleased that we could be competitive to sign and attract 100,000 barrels of supply onto our system. And that led to obviously including downstream contracts through our frac and logistics and marketing business. So we can be very competitive. I do want to reiterate that all of our projects are well within our capital return expectations. So they fill that and they're well within the range on an independent basis.

And again, when you look at it on an integrated basis, we feel very confident that we're going to deliver superior return on capital returns for our shareholders. So we believe this is very sustainable. We think that there's going to be more consolidation in the basin. And if that happens, again, we're very well positioned to compete for the business in that world. and still deliver strong returns for our shareholders.

[K. Urquhart, executive]

Yes. I think the only thing I'd add, Dean, and I agree 100% with everything you said, is that, I mean, as we think about our frac expansions coming online, and as Dean has said, is that there -- the way we look at it is we contracted fracs I and II and then we contracted frac III. So when you think about fully contracted, it's not just frac III and a bunch of contracts are rolling off on I and II.

We looked at it from a stacked perspective, and it's all of our frac complex that has a high degree of contracting. The contracts that are rolling off, and there's some, not a huge amount. We think about it with respect to being able to offer that integrated offering, as Dean said. The fact that we've got another fractionation expansion coming online next year might create some very short-term oversupply in the market, but the fundamentals and the drilling activity that we're seeing is our view is that frac capacity within our basin is going to be highly utilized in the long term.

And I can't speak for our competitor, but we're already looking at the next frac expansion. We're not looking to wait another 7, 8 years like we did the last time between frac II and frac III. We believe that the basin is going to require more frac capacity much sooner than that.

[Andrew John O'Donnell, analyst]

Great. I appreciate that detail. Maybe just the last one for me. I know it's only been a couple of months in and the Plains' assets are not quite in your hands yet, but you guys have kind of talked about your prudent risk management activities and -- just wondering, as you look out over the frac forward curves into next year, maybe what your ability is like? Have you been able to lock in any additional margin or hedges on that business? Yes, just any comments on that?

[Eileen Marikar, executive]

A.J., thanks for the question. And yes, I think I can speak generally about our hedging. As we mentioned earlier, in terms of the pro forma business mix, there's not going to be that significant of a change as to the amount of marketing. It's about 30%, which is kind of what we've seen over the past few years from our stand-alone business.

And again, we view our marketing business as a true competitive advantage because we have the storage, the logistics and the risk management discipline. So as it relates to hedging specifically, really, our philosophy isn't going to be very different. What we do is we look to protect inventory, which is really key, and we look to lock in future margins.

So when it comes to the frac spread exposure, the key elements to this is AECOgas, propane in particular, and butane as well as FX. These components already fit very well within our existing risk management program. So I think we feel very confident that we will be able to manage this as we close and get into next year.

[Dean Setoguchi, executive]

Yes. I'd also add, A.J., that we can't speak to this in a lot of detail, but I'd say that there are hedges in place that gives us confidence with our mid-teens DCF accretion in the first full 12 months of closing.

[Operator]

The next question comes from Patrick Kenny with National Bank Financial.

[Patrick Kenny, analyst]

Just on the G&P margin front, I know LNG Canada is still working through some growing pains. But in light of where AECO prices are at, just wondering if you could comment on how you're seeing fees and overall margins holding up across your G&P portfolio going forward, especially in the South where whether or not you might need to share the pain at least over the near term just to support current production levels at whether it's Rimbey, Brazeau or Straken?

[Dean Setoguchi, executive]

Patrick, thanks for the question. I'll turn this over to Jamie. But I just want to make a couple of quick points. One is that about 70% of our margins from our G&P business is generated from the North. So -- and that's more linked to condensate pricing. So it's less elastic to natural gas prices.

So the 30% is in the South. What I'd say is that we've seen low prices for a long time. So this is nothing new. So our volumes have been pretty steady because of that. But I'll turn it over to Jamie.

[K. Urquhart, executive]

Yes. Well, I was going to make the same point is that sharing in the pain, we've been sharing in the pain for a period of time now, Patrick. Obviously, everybody is aware of where gas prices have been over the last few years. The point I'd like to make is that the growth that we see around some of our facilities have some liquids associated with them.

So we're optimistic with respect to some of the growth opportunities we do see in the South. And that spans all of our facilities, not just around the Rimbey gas plant. But also the facilities that we do have great interconnectivity -- have deeper cuts traditionally, and they have great interconnectivity to market. So if you look at the plays that we service in the South, there's still a pretty significant liquids component and value proposition associated with them.

That still makes it attractive for customers to drill wells. Now would they prefer gas prices to be north of $2, $3, of course, but they can still make it work for them. And I think you would have seen there's just more plays that are developing to be a little bit repetitive around the Duvernay, the Belly River that we're obviously in conversations with customers to help serve their needs on those emerging plays that are more liquids based.

[Dean Setoguchi, executive]

Yes. And maybe one more thing to add, Patrick. I'd also say that Jarrod's team has done a lot of work to find optimization efficiencies across our entire portfolio, including our South G&P. And with that, it helps enable us to provide a service to our customers at a price point where it makes sense for them, but where we can also generate a margin as well.

[Patrick Kenny, analyst]

Got it. Okay. That's great color. And then just on the shift in some growth CapEx into '26. I know it's not a huge number, but just wondering if you had a bit more color on which project or projects might be experiencing a bit of a delay, whether it's specific to the project or more macro related, but also maybe what initiatives your team might be undertaking just in order to maintain the target in-service dates?

[Eileen Marikar, executive]

Patrick, I can start and maybe Jarrod has something to comment. Honestly, the reduction in growth CapEx, it's really just a shift in timing. It's largely just reforecasting. And so there's really been no impact to timing, schedule, overall cost of any of the key projects that we have sanctioned.

So I would say, overall, our guidance that we provided in December of last year, I think we said over '26 and '27, we would average $350 million to $450 million in each of those years. I think you can expect that 1 year may have higher spend versus the other, but on average, that still remains.

[Jarrod Beztilny, executive]

What I'd add, Patrick, is as some of that timing was shifting as the commercial arrangements were coming together on some of those projects, our engineering team was in lockstep with our commercial group and understood that.

So we were able to make a bunch of adjustments in terms of kind of sequencing and timing around those projects, when we ordered some of the long lead equipments and made some of those commitments to still preserve the ISVs that we originally had planned for.

[Operator]

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.