Keyera Approves KAPS - A Montney Condensate & NGL Pipeline System
May 14, 2019
Benefits of KAPS to Customers
KAPS is a transportation solution highly desired by industry and is expected to:
Keyera Corp. (TSX:KEY) ("Keyera") is pleased to announce it is proceeding with the development of the Key Access Pipeline System ("KAPS"), a natural gas liquids ("NGL") and condensate pipeline system that will transport growing Montney and Duvernay production in northwestern Alberta to Fort Saskatchewan. Keyera has partnered with SemCAMS Midstream ULC, owned jointly by SemGroup Corporation® and KKR, to develop this open-access system with initial connections into Keyera's fractionation assets and condensate system in Fort Saskatchewan.
This project is highly desired by industry as it provides an additional and alternative transportation solution to deliver production from Alberta's liquids-rich developments to market. KAPS is expected to be operational in the first half of 2022 and provide Keyera with secure, long-term, take-or-pay revenues and strong project returns. The project is expected to generate an annual return on capital of between 10% and 15% starting in 2024. KAPS is also an important link between Keyera's growing gathering and processing franchise in northwestern Alberta and its strong liquids infrastructure network at Fort Saskatchewan, creating a platform for significant future opportunities.
Keyera and SemCAMS Midstream ULC ("SemCAMS") will develop this world-class pipeline under a 50/50 joint venture agreement. Keyera and SemCAMS will have nine gas plants operating in northwestern Alberta by 2022 with access to approximately 2.25 billion cubic feet per day of natural gas processing capacity and 130,000 barrels per day of condensate handling facilities. This new joint venture replaces the arrangement between Keyera and Wolf Midstream that was signed in late 2018.
Highly Contracted Project with Growth Opportunities
The project is anchored by multiple long-term agreements, averaging 14 years in length with 75% take-or-pay commitments, as well as specific facility and area dedications. The customer base for KAPS is broad and includes meaningful commitments from investment grade counterparties. The firm volume commitments over the length of the agreements make up over 60% of the initial aggregate capacity of the pipeline system. Several discussions are ongoing with additional producers for incremental volumes and Keyera and SemCAMS will collaborate as they pursue additional volume commitments. Should the industry require more capacity, KAPS can be cost-effectively expanded with additional pump stations.
Based on the current scope, KAPS will consist of a 16-inch pipeline for condensate and a 12-inch pipeline for NGL mix. KAPS will initially be constructed from northwest of Grande Prairie to Keyera's Fort Saskatchewan Fractionation and Storage Facility ("KFS"). Along this route, KAPS will initially be connected to Keyera's Pipestone, Wapiti and Simonette gas plants and several third party gas plants with volume commitments to KAPS. Shippers will also have direct access to Keyera's condensate hub that offers unmatched connectivity for transporting condensate to high-value diluent markets. Keyera will construct and operate the pipeline system.
The cost of the pipeline system is currently estimated at $1.3 billion, or $650 million net to Keyera. With the majority of the capital investment expected to occur during the second half of 2020 and into 2021, Keyera plans to fund its 50 percent ownership interest without issuing additional common equity, apart from the existing DRIP program. The project does not change Keyera's 2019 capital guidance estimated between $800 million and $900 million. As Keyera funds its entire current capital program, it may consider issuing term debt, hybrid notes or preferred shares.
"We are excited and pleased to develop this highly desired alternative transportation solution along with our partner SemCAMS Midstream," said David Smith, Keyera's President and CEO. "We are confident in the outlook for this condensate rich region in northwestern Alberta and we thank our customers for their endorsement and commitment to our solution. Keyera is dedicated to developing this pipeline system in a responsible manner for all stakeholders."
Benefits of KAPS to Keyera
KAPS is a strategic asset that will connect Keyera's NGL business in Fort Saskatchewan to its gathering and processing assets located in a key region of the Western Canada Sedimentary Basin. KAPS is expected to:
This project is highly desired by industry as it provides an additional and alternative transportation solution to deliver production from Alberta's liquids-rich developments to market. KAPS is expected to be operational in the first half of 2022 and provide Keyera with secure, long-term, take-or-pay revenues and strong project returns. The project is expected to generate an annual return on capital of between 10% and 15% starting in 2024. KAPS is also an important link between Keyera's growing gathering and processing franchise in northwestern Alberta and its strong liquids infrastructure network at Fort Saskatchewan, creating a platform for significant future opportunities.
Keyera and SemCAMS Midstream ULC ("SemCAMS") will develop this world-class pipeline under a 50/50 joint venture agreement. Keyera and SemCAMS will have nine gas plants operating in northwestern Alberta by 2022 with access to approximately 2.25 billion cubic feet per day of natural gas processing capacity and 130,000 barrels per day of condensate handling facilities. This new joint venture replaces the arrangement between Keyera and Wolf Midstream that was signed in late 2018.
Highly Contracted Project with Growth Opportunities
The project is anchored by multiple long-term agreements, averaging 14 years in length with 75% take-or-pay commitments, as well as specific facility and area dedications. The customer base for KAPS is broad and includes meaningful commitments from investment grade counterparties. The firm volume commitments over the length of the agreements make up over 60% of the initial aggregate capacity of the pipeline system. Several discussions are ongoing with additional producers for incremental volumes and Keyera and SemCAMS will collaborate as they pursue additional volume commitments. Should the industry require more capacity, KAPS can be cost-effectively expanded with additional pump stations.
Based on the current scope, KAPS will consist of a 16-inch pipeline for condensate and a 12-inch pipeline for NGL mix. KAPS will initially be constructed from northwest of Grande Prairie to Keyera's Fort Saskatchewan Fractionation and Storage Facility ("KFS"). Along this route, KAPS will initially be connected to Keyera's Pipestone, Wapiti and Simonette gas plants and several third party gas plants with volume commitments to KAPS. Shippers will also have direct access to Keyera's condensate hub that offers unmatched connectivity for transporting condensate to high-value diluent markets. Keyera will construct and operate the pipeline system.
The cost of the pipeline system is currently estimated at $1.3 billion, or $650 million net to Keyera. With the majority of the capital investment expected to occur during the second half of 2020 and into 2021, Keyera plans to fund its 50 percent ownership interest without issuing additional common equity, apart from the existing DRIP program. The project does not change Keyera's 2019 capital guidance estimated between $800 million and $900 million. As Keyera funds its entire current capital program, it may consider issuing term debt, hybrid notes or preferred shares.
"We are excited and pleased to develop this highly desired alternative transportation solution along with our partner SemCAMS Midstream," said David Smith, Keyera's President and CEO. "We are confident in the outlook for this condensate rich region in northwestern Alberta and we thank our customers for their endorsement and commitment to our solution. Keyera is dedicated to developing this pipeline system in a responsible manner for all stakeholders."
Benefits of KAPS to Keyera
KAPS is a strategic asset that will connect Keyera's NGL business in Fort Saskatchewan to its gathering and processing assets located in a key region of the Western Canada Sedimentary Basin. KAPS is expected to:
- Generate stable, long-term, take-or-pay, fee-for-service revenues;
- Increase Keyera's overall competitive position, allowing the company to attract additional volumes to its Pipestone, Wapiti and Simonette gas plants;
- Improve the integration of Keyera's value chain, allowing the company to attract additional volumes to its downstream infrastructure that includes liquids transportation, condensate services, NGL fractionation, storage and terminalling, and marketing;
- Create a platform for numerous future investment opportunities that could include additional gas and condensate processing investments, new NGL infrastructure or other value added services; and
- Provide long-term growth for Keyera.
Benefits of KAPS to Customers
KAPS is a transportation solution highly desired by industry and is expected to:
- Provide a competitive transportation alternative for moving NGL and condensate from the liquids-rich Montney and Duvernay developments in northwestern Alberta to Alberta's liquids hub in Fort Saskatchewan;
- Enhance customer condensate netbacks with direct access to Keyera's industry-leading condensate network that includes storage and connections to all major delivery pipelines servicing Alberta's oil sands resource; and
- Increase the liquids takeaway capacity from the region, ensuring customers can grow their volumes.
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