Keyera (TSX:KEY) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Keyera achieved strong financial performance in Q3 2026, driven by the successful integration of acquired Plains assets and strong customer demand, resulting in adjusted EBITDA of $466 million.
Strategic initiatives include expanding infrastructure to support increased condensate demand and capital-efficient projects like the Fort Saskatchewan debottleneck, aiming for a 15% capacity increase by early next year.
The company updated its 2026 guidance, increasing Marketing realized margin expectations and maintaining gross capital guidance, with a focus on deleveraging the balance sheet by 2028.
Operational highlights include record margins in Liquids Infrastructure and challenges with AEF reliability, necessitating interim repairs and a long-term fix scheduled for May 2027.
Management emphasized confidence in Canada’s energy market opportunities and ongoing efforts to enhance infrastructure and customer service, with synergies from Plains acquisition already delivering significant value.
Full Transcript
Mel (Conference Operator)
Good morning. My name is Mel and I will be your conference operator for the day. At this time I would like to welcome everyone to Keyera’s 2026 third quarter conference call. All lines are placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key.
Thank you. I would now like to turn the call over to Dan Catherine, General Manager of Investor Relations. You may begin.
Dan Catherine (General Manager of Investor Relations)
Thank you and good morning. Joining me today will be Dean Setaguchi, President and CEO; Eileen Maricar, Senior Vice President and CFO; Jamie Urquhart, Senior Vice President, Liquids Business Unit; and Brad Slesser, Senior Vice President, G&P and NGL Pipelines Business Unit. We will 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 will 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 it over to Dean.
Dean Setaguchi (President and Chief Executive Officer)
Thanks, Dan, and good morning, everyone. We delivered a strong quarter across our expanded platform. With acquired Plains assets continuing to perform ahead of our expectations, we’re on track to achieve our near-term synergy targets. And as we integrate these businesses, we’re identifying additional opportunities to create value beyond our initial expectations. In addition, all our major growth projects remain on schedule and are tracking on or below budget.
This progress reinforces our confidence in the strategy we’ve been executing and the opportunities ahead of us. We believe Canada has a generational opportunity to strengthen its position as a global energy supplier. Growing demand for secure and reliable energy combined with greater alignment amongst governments and industry is creating a more constructive environment for investment and growth. Our strategy has been to build the infrastructure and connectivity needed to help Canadian producers grow and efficiently access higher value markets. With our expanded platform, we’re better positioned than ever to support that growth while creating significant opportunities for Keyera and our shareholders.
Turning now to our operating performance, we delivered strong results across both fee-based segments. In Gathering and Processing, strong customer demand drove continued growth in our North Region, with both Wapiti and Simonette approaching full operating capacity. In Liquids Infrastructure, we delivered another record quarter of realized margin, primarily driven by the full contributions from the acquired Plains assets and our additional 50% interest in CAPS, together with strong throughput across our asset base.
Turning to the outlook for condensate demand, planned pipeline projects are expected to support further oil sands production growth, driving increased demand for condensate. We’re positioning our business to support this growth, including a capital-efficient debottleneck of our Fort Saskatchewan condensate system that will increase capacity by approximately 15%. This additional capacity is expected to be in service early next year. Now turning to AEF. Reliability at AEF has fallen short of our expectations. The repaired heat exchanger performance has deteriorated more quickly than anticipated and we now expect to undertake an interim outage of approximately four weeks in early January to complete repairs. Installation of the permanent replacement equipment is planned for May 2027 with a return to full production expected by the end of that month. We’ve undertaken a comprehensive review of the facility and are making changes to our operating and maintenance approach.
Our priority is to restore sustained, reliable performance and we’re committed to getting this right. We continue to believe in the strong underlying fundamentals of our iso-octane business and its long-term contribution to Keyera. Looking ahead, we’re encouraged by the opportunities across our expanded platform. Customer demand remains strong and we’re focused on executing our strategy and delivering on our growth commitments. With that, I’ll turn the call over to Eileen to walk through our financial results and outlook.
Eileen Maricar (Senior Vice President and Chief Financial Officer)
Thanks, Dean, and good morning, everyone. Excluding transaction and integration costs related to the Plains acquisition, adjusted EBITDA was 466 million and DCF was 247 million, or $0.84 per share. We reported a net loss for the quarter of 68 million. In our fee-based segments, we delivered another strong quarter of financial performance. Gathering and Processing realized margin was 125 million. In Liquids Infrastructure, we delivered record realized margin of 272 million, reflecting strong performance of our legacy asset base and full-quarter contributions from the Plains and CAPS acquisitions.
Turning to the Marketing segment, Marketing realized margin was 95 million for the quarter. Results were impacted by the previously disclosed disruption to Enbridge’s Line 5 system as well as lower utilization at AEF during the quarter. These impacts were partially offset by stronger iso-octane pricing and sales of butane. Now turning to our financial position, we ended the quarter with net debt to adjusted EBITDA of approximately 3.6 times. While leverage remains above our long-term target range, we remain focused on deleveraging and expect to return to our target range in 2028.
This morning we updated our 2026 guidance. We are increasing our 2026 Marketing realized margin guidance range to between $400 million and $430 million. The revised outlook reflects stronger than anticipated iso-octane and butane margin contributions and approximately 50 million of incremental benefits from the revaluation of inventory and related hedges associated with the Plains acquisition. Gross capital guidance remains unchanged. Maintenance capital expenditures are expected to increase by 20 million and are now expected to range between 260 million and 280 million.
Cash taxes are expected to range between 55 million and 75 million. Turning to our 2027 guidance, we remain on track to achieve our targeted fee-based adjusted EBITDA per share CAGR of 16% to 18% from 2025 through 2027 and 7% to 8% between 2027 and 2029. As usual, Marketing segment realized margin guidance will be provided in May in conjunction with the release of our first quarter financial results. Growth capital is expected to range between $630 million and $670 million, primarily consisting of projects that are already underway.
Maintenance capital expenditures are expected to range between 250 million and 280 million, including approximately 20 million for planned equipment replacement and associated work at AEF and 20 million for one-time IT integration-related projects across the acquired facilities. Cash taxes are expected to range between 130 million and 150 million. With that, I’ll turn it back to Dean for closing remarks.
Dean Setaguchi (President and Chief Executive Officer)
Thanks, Eileen. Keyera is executing on a clear strategy to strengthen and extend our integrated value chain while positioning the business to benefit from what we think will be a generational opportunity in the Canadian energy sector. As we look ahead, our focus remains on disciplined integration, operational reliability, advancing growth projects and delivering long-term value for our customers and shareholders. On behalf of our board and management team, I want to thank our employees, customers, shareholders, Indigenous rights holders and other stakeholders for their continued support.
With that, we’ll open the line for questions. Operator, please go ahead.
Mel (Conference Operator)
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the number one on a touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline the polling process, please press star followed by the number two. If you are speaking using a speakerphone, please lift the handset before pressing any keys. One moment, please. For your first question, we have in the lineup Rob Hope, Scotiabank.
Your line is now open; you may ask your question.
Rob Hope (Analyst)
Good morning, everyone. So at AEF, can you add some incremental details on what you expect to achieve in the January outage, how you will run the facility from now until May, as well as is there any flexibility to work with suppliers to accelerate equipment availability so you could potentially accelerate that May outage?
Dean Setaguchi (President and Chief Executive Officer)
Hey, Rob. Good morning. All very good questions, and I’m going to turn it over to Jamie to provide more color on AEF.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, Rob, so thanks for the question. So what we intend to do in January is something very similar to what we did when we had the initial failure in January of 2026. We have a really good sense of what the primary cause of failure was that occurred back in January. Now, when we did the repair that ultimately got us up back towards the end of May of 2026, we recognized that that was only going to be a temporary solution. We took the existing design, which is actually a redesigned heat exchanger that was installed in 2022, and that heat exchanger did not perform the way that we expected and ultimately resulted in that failure that we experienced in January.
So we have a really good understanding in our minds of what’s happening within that exchanger. What we’re going to do is go in and exact some repairs to the exchanger tubes and ultimately get that exchanger back up and running. When we do that, we expect to get close to, if not at, full capacity of the facility. But then we expect that we’re going to see the same phenomena that we’ve been seeing over the last four or five months, which has been a slow deterioration of the effectiveness of that.
Then we’re going to solve the problem permanently with the permanent exchanger that we’re going to install in May. To your last question: yes, we’ve been working with all the different providers in the value chain—sourcing materials, actually manufacturing components, and then ultimately assembling those components—and then there’s the delivery of that piece of equipment to our site. So there are four different streams that we’re working with. The team understands the urgency of that, and we feel confident that May is the outside date. We feel very confident we’ll probably do a little bit better, but that’s a matter of weeks better, not months better.
Rob Hope (Analyst)
All right, appreciate that color. And then maybe pivoting over to the Plains transaction. So in the prepared remarks, once again, you highlight that it is tracking ahead of expectations. Can you add a little bit incremental color here where you’re seeing the outperformance, whether in terms of kind of qualitative or quantitative, as well as kind of what you think the next leg of opportunities from the Plains assets to be?
Dean Setaguchi (President and Chief Executive Officer)
Yeah, thanks for The question, Rob. I just want to reiterate that we are very pleased with the acquisition and we’ve obviously put out guidance on our synergy target for the first 12 months post close. So that would take us to May of 2027 and that guidance range was $120 to $140 million. And you know, I mean, get Brad to speak to that in more detail. But you know, when I think about the transaction as a whole, you know, I look at it as to how much value, you know, do we see above the deal thesis.
You know, what we went to our board with and they sanctioned. And so, you know, there’s a few different buckets associated with that. One is that the business is generally performing better than what we modeled. So volumes are higher, liquids yields and Empress are higher. Voluntary Empress are also higher. So the base business is performing better than expectations, which is great to see. We’ve also seen opportunities where the one time where we’ve avoided capital. But again that adds up to dollars and savings, which is great for us to see now that we’ve had several months operating these assets, these new assets. We’ve identified a number of new capital opportunities that are very capital efficient opportunities that we’ll, you know, continue to evaluate and likely make investments in the coming years. So that’s another opportunity where we see that we can add value from this business that was included in our deal thesis.
And it’s not classified as a synergy. The fourth, the fourth bucket is the synergies. And with that I’ll turn over to Brad. Brad is our senior executive that oversees our integration and synergy management team. So Brad, maybe just add more color on the synergies.
Brad Slesser (Senior Executive overseeing integration and synergy management)
Yeah. Thank you, Dean, and Rob, thank you for the question. As Dean mentioned, at the end of September, we’ve already delivered $115 million of run-rate synergies. That’s aligned against our $120 to $140 million target that we were going to deliver within 12 months. So we obviously feel very good about what we’ve delivered so far. The other thing I really want to point out is this. Everything we’re doing with the new assets, it’s making us a better service provider for our customers. It’s giving them, like with this expanded platform across the country, it’s giving our customers greater flexibility, better market access, and more options to manage through operational disruption. So we feel very good about the services we’re able to provide to our customers. And then beyond that, we continue to see meaningful opportunities as we integrate our new teammates, get their thoughts, understand what we could work on together, and we integrate systems and optimize our operations.
We continue to see many opportunities in front of us that we’ll be excited to in the coming quarters.
OPERATOR
Thank you. Next question comes on the line of Aaron McNeil with TD Cowen. Your line is now open. You may ask your question.
Aaron McNeil (Analyst at TD Cowen)
Hey. Morning all. Thanks for taking my questions. Can you provide a bit more detail on the 2027 capital program? I guess I’m just wondering, like, has any timing around spending changed at all? Is there anything new or different in terms of scope and, you know, based on the projects you have in hand today, what does the sort of trajectory of capital look like beyond 2027?
Dean Setaguchi (President and Chief Executive Officer)
Yeah, good morning, Aaron, and thanks for the question. Generally, I just want to make sure that we convey the message that we’re very pleased with how we’re executing our capital projects and they’re all advancing on or ahead of schedule and on budget or below budget. So with that, I’ll just turn it over to Eileen and she can provide more color.
Eileen Maricar (Senior Vice President and Chief Financial Officer)
Sure. Thanks, Aaron. And thanks, Dean. Yeah, I just want to reiterate the same message that our projects, you know, everything that’s well underway is on time and trending at or below budget. So we’re really pleased with that. Some of the spend that you’re seeing, you know, in ’27 is likely around the ACE terminal, where the spend is mostly going to occur in 2027 versus 2028. So that might be the, you know, the difference there. So when we look forward, most of our capital spend will be completed for these major projects that we’ve announced by the end of ’27. And then as we get into 2028, that really does come off. And that’s what really helps to deleverage the balance sheet and we start to get the EBITDA from all of these projects. So that’s how we see the balance sheet come back into line.
Aaron McNeil (Analyst at TD Cowen)
Makes sense. And then maybe switching gears a bit on the condensate system debottleneck and the 15% more capacity, how much of that customer demand is sort of already there or you expect to be there by the time it’s in place and how much further can you sort of push that system before you need a more capital-intensive expansion.
Dean Setaguchi (President and Chief Executive Officer)
Yeah, that’s a great question. Obviously we have a very strong condensate system. We provide a valuable service to the oil sands producers and certainly we’re very excited about, you know, the potential of adding a million to 2 million barrels of more oil egress capacity. So with that there’ll be a lot more condensate demand. And, you know, with even Trans Mountain coming into service the last several years, we’ve seen a lot of, you know, demand for our services and that’s what’s also helped to drive our record liquids infrastructure margins.
But with that I’ll just turn it over to Jamie and perhaps he can talk a little bit more about our condensate system.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, so thanks for the question, Aaron. To answer your question, specifically around the bottleneck that we announced yesterday, that essentially is contracted. That capital investment is in response to contracting that we’ve been able to secure over the last three to six months. And I can share, we’re in additional conversations with the major oil sands players to look at the next phase of expansion on our system. You know, and you know, as Dean says, we’re very excited about our role in supporting that growth within the basin.
Dean Setaguchi (President and Chief Executive Officer)
Yeah. And I just want to point out too that, you know, when you look at our condensate system, we do have more capacity available on our CAPS condensate line, which now we own 100% of. You know, Jamie spoke about our system in Edmonton, Fort Saskatchewan, where we also have, you know, condensate storage services as well. And we also own 30% of the Norwegian pipeline which also has a couple hundred thousand barrels of capacity with Enbridge. So again we have, you know, the right infrastructure to help support growth for the oil sands players.
Aaron McNeil (Analyst at TD Cowen)
Understood. Thanks everybody. I’ll turn it back.
OPERATOR
Thank you. Next question comes on the line of Maurice Choi of RBC Capital. Your line is now open. You may ask your question.
Maurice Choi (Analyst at RBC Capital)
Thanks and good morning everyone. Maybe just sticking to the theme of contracting. As Jamie mentioned, the debottleneck project is essentially contracted similar to the existing capacity. But if I could just zoom it out a little bit and just talk about this philosophically. Liquids infrastructure project sanctionings and securing contracting from customers have traditionally tended to be in lockstep. And I wonder if you see that to remain true today based on your competitive landscape that you see today as well as the next few years.
Dean Setaguchi (President and Chief Executive Officer)
I didn’t fully understand the question. Jamie, did you?
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
No. Yeah, Maurice, maybe you could expand a little bit on what you mean by contracting.
Maurice Choi (Analyst at RBC Capital)
So traditionally, I suppose if you were to move forward with a liquids infrastructure project, on the day itself, the contracts are already secured. We can debate a little bit about the pace at which the contracts come into force, but you would have those contracts in place when you sanction. Would that be true as you move forward with future sanctionings?
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, like, I mean, that’s always been our philosophy with respect to ensuring that we’ve got contracts in place, you know, to justify and give us comfort that we’re going to make smart investments that are going to get our desired rate of return. One of the beautiful things about having an existing system though is that, you know, you can build off of that system in increments that are very capital efficient and ultimately in a timely manner that allows you to meet customer needs as their growth materializes as well.
Dean Setaguchi (President and Chief Executive Officer)
Yeah. And I’d just like to add that wouldn’t be just unique to our liquids infrastructure business. Certainly on our gas gather and processing side, the same investment philosophy applies as well. We will look for contracting contracts to back our capital investments.
Maurice Choi (Analyst at RBC Capital)
Understood. And if I could just finish off with a question on AEF. You’ve had multiple comprehensive reviews of the facility over the last two years and you’ve had multiple resets on expectations, including outages, utilization rates and margin impact. Given all this, what steps have you taken to gain even more certainty that the solution you plan to install in May 2027 will actually solve the problems you’re experiencing today?
Dean Setaguchi (President and Chief Executive Officer)
You know what, that’s a very, a very good question. And, you know, first of all, we take this very seriously because our reliability is within our control. And, you know, I know our team’s going to get it right and Jamie will just speak to that in a minute. But I do want to emphasize that that iso-octane business is, the fundamentals of that business are still very strong and it will be a very strong contributor to our business once we get these heat exchangers fully up and running.
And we certainly believe in the long-term fundamentals of the business. So with that I’ll turn it over to Jamie.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, so Maurice, thanks for the question. Just to build off of my answer to Rob, which was really more short term in nature, let’s step back as you suggested, and just really look at the long-term fix for our current issue, but also the things that we’ve been doing to give us comfort that the facility will run long-term reliably beyond just our immediate issue. Right. So I referenced, when I answered Rob’s question, that really what’s happening right now is we’re operating with a repair of a heat exchanger that was installed in 2022.
And that redesign that we made did not perform the way that we expected and ultimately resulted in the failure that we experienced in January. So we did a root cause analysis and determined exactly, you know, what caused that failure and what the decision that we’ve made is. We’re basically going to replace it with a design that we had put in the facility previously and that had very successfully and reliably provided that service for over 25 years.
So, you know, we’re going back to the original design, but we also needed to take time back in the earlier part of this year to establish which design we should pursue. And that’s the reason why we pursued the repair of the exchanger in place. That was always identified as a temporary solution. So the other thing though that we’ve done, as you noted over the last 12 months in particular, is really challenge how we operate the facility, across the facility. So, you know, following that review, we’ve shifted from maximizing short-term production to operating within very well-defined reliability parameters supported by more frequent planned maintenance. And we believe that once you couple those things together, you know, we’re going to, you know, applying those learnings.
We’re confident that once the permanent exchangers are back in place in May, AEF will operate reliably go forward.
Maurice Choi (Analyst at RBC Capital)
Yeah. And Jamie, the maintenance you’re talking about, more frequent maintenance would be sort of a four-year cycle with a two-year sort of pit stops.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah. So in the past we’ve been, you know, striving to a four-year turnaround, which would be more traditional in other parts of our business, and just a recognition of the uniqueness of AEF. We are, you know, we’re all going to plan to actually have a much shorter outage. It won’t be a full turnaround every two years. What we’re doing on the outage in May is we’re going to basically do what we were proposing to do in 2028 and do that work in 2027 to allow us then to be able to avoid another outage in 2028.
You know, I’ll maybe turn that over to Eileen. But all I can reinforce with you is the level of confidence that we have on the schedule of that piece of equipment and the fact that it’s a design that we’re very confident that has been put in place. You know, we have a high degree of confidence in our ability to run at full production post that outage. And in answering Rob’s question, we have a high degree of understanding of what the existing heat exchanger is going to be able to provide us once we execute the repairs that we’ve identified in January.
Eileen Maricar (Senior Vice President and Chief Financial Officer)
Yeah, I think just building off of what Jamie said, we feel very confident that we can give guidance for 2027 in May, given that we will be well into the heat exchanger repair and our supply season will be. And it’s always based on assumptions behind that guidance. And certainly that main assumption is that AEF will continue to run as we expect for the remainder of the year.
OPERATOR
Thank you. Next question comes on the line of Robert Catellier of CIBC Capital Markets. Your line is now open. You may ask your question.
Robert Catellier (Analyst at CIBC Capital Markets)
Hey, good morning. I just wanted to go back to the synergies for the Plains acquisition. Where would you say, I mean it does sound like it’s going really well. Where would you say the surprises are coming from? Is it something commercial or is it on the capital or the OPEX side?
Dean Setaguchi (President and Chief Executive Officer)
Yeah, thanks for the question, Rob, and good morning. You know what, we definitely see a lot of opportunities and, again, we really didn’t get a chance to get under the covers until we closed on May 12th. And, you know, generally what we’ve seen is that these assets have been under-invested. And again, it’s because Plains is more of a crude oil company. They’re based in the United States. So, you know, we just see a lot of low-hanging fruit and opportunities based on what we’ve seen so far.
And I think it’s also important that we’ve been prioritizing so we can’t get everything all at once. So Brad’s done a good job prioritizing. But Brad, I’ll turn it over to you and maybe you can speak to some of what you see.
Brad Slesser (Senior Executive overseeing integration and synergy management)
Yeah, thanks Dean. And thanks Robert. As Dean said, we’ve literally identified hundreds of opportunities where we can increase margin by cutting costs or doing other things. And we’ve racked and stacked those by things that we can execute quickly and that are the most impactful to us. And so we’re kind of working through that list on a very diligent basis and knocking those off one by one. You can see that with the 115 million of synergies already delivered.
And like I said before, as that list expands and we continue to prioritize and execute on the opportunities that, frankly, the team that we’ve inherited, most of them they already knew about; they just weren’t able after them, as Dean said. And so now we’re giving them the ability to get after that. And so we remain very confident in delivering the target and far beyond that.
Robert Catellier (Analyst at CIBC Capital Markets)
Okay, thank you for that. And then just same sort of question on the capital project side. It looks like Zone 4 is now, you know, 40 million under your original budget, and the ACE terminal is also tracking well. So I wonder if there’s something systemic there. You know, could just be you had enough contingencies and you’re coming in under that. But is there something systemic like productivity or you leveraging procurement now that you have more scale?
Is there any trend that you’ve identified in the performance on your capital projects?
Dean Setaguchi (President and Chief Executive Officer)
Yeah, Rob, that’s a great question about our capital projects. And, you know, and as an infrastructure company, it’s very important to demonstrate that we can execute on projects very well. And I do want to reiterate that I’m very pleased with how our projects have been progressing, both from a cost and a schedule perspective. You know, I’ll turn this over to Jamie to give you more color, but I’d say, I mean, we built a number of larger projects.
Not all that went super well, but I think what’s most important is we applied our learnings, we put the foundation in place for us to be able to execute better and more consistently. And we’re seeing the fruits of those efforts now. But with that, Jamie, maybe you can add more color on that.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah. So thanks, Dean, and thanks for the question, Rob. To just layer on to what Dean said, we certainly learned a lot specifically on Zones 1 through 3, but we also established relationships and partnerships with service providers. And that has really paid off as we developed our strategy of who we were going to get to do the work and how we were going to work together. So certainly for Zone 4, we took the best of the service providers that we worked with in Zones 1 through 3 and allowed them to work on those projects, and we’re reaping the benefits of that. But also we’re in an environment—those projects were sanctioned at a time where we’ve been able to get the best crews from those service providers as well. The market is changing going forward; it’s getting busier in our basin. But we believe that with those partnerships we’ll be able to retain those partnerships, and hopefully that will be a differentiator for our ability to perform and execute projects going forward.
Robert Catellier (Analyst at CIBC Capital Markets)
Okay, last one for me then is just on the northern region. What are the gating factors and timing in terms of your ability to add capacity there? Thank you.
Brad Slesser (Senior Executive overseeing integration and synergy management)
Yeah, thanks Robert. It’s Brad here. So when we think about the northern gathering and processing region, we continue to see very robust gas flows through Pipestone gas plant, the Wapiti gas plant, Simonette, and frankly across the business. As we talked about before, our focus is to always work hard on contracting before we look to expand capacity. So across that kind of network we’re getting close to being at capacity. As we’ve talked about in prior quarters, we are looking at debottlenecking both the Wapiti gas plant and the Simonette gas plant.
Those projects are coming together very well and we’re working hard with customers to get there and expect to be able to talk a little bit more about that next year. In general though, we continue to see excellent wells being drilled all around our facilities. We see record wells being drilled, and they’re coming with frankly a little bit more gas than maybe we were expecting. And so that’s driving the demand for more gas processing even as these producers are targeting very liquids-rich formations.
Dean Setaguchi (President and Chief Executive Officer)
Yeah, I’d just like to add onto Brad’s comments, Rob, that when you think about the amount of incremental natural gas supply that’s going to be required to feed LNG Canada Phase 2 and, you know, potentially other LNG projects, it’s going to require more gas gathering and processing capacity. And we’re situated in really the sweet spot of the Montney where there’s very high liquids yields, including condensate. So we expect to see a lot more activity in our core area up in the north.
Robert Catellier (Analyst at CIBC Capital Markets)
Okay, thanks everyone.
OPERATOR
Thank you. Next question comes on the line of Sam Burwell of Jefferies. Your line is now open. You may ask your question.
Sam Burwell (Analyst at Jefferies)
Hey guys, good morning. Curious to get your latest confidence in Norlite being expanded reasonably soon. It seems like, based on your prepared remarks, the demand is there and certainly coming. But are there any hurdles around either your balance sheet or your partner’s appetite on that project?
Dean Setaguchi (President and Chief Executive Officer)
Good morning, Sam. And that’s a great question. And, you know, the great thing about Norlite is that when we sanctioned this project with Enbridge, we actually upsized the size of the pipe. And Brad, you did the original deal. We upsized it. It’s a 24 inch pipe.
Brad Slesser (Senior Executive overseeing integration and synergy management)
24 inch pipe. 24
Dean Setaguchi (President and Chief Executive Officer)
inch pipe. So we have a couple hundred thousand barrels of capacity that we can still access on the existing pipe. So that’s a huge opportunity for us and our whole condensate system. Jamie, anything else you want to add?
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, I think the only thing I’d add to your question around our partner is we’re very much aligned with our partner and, as Dean said, Brad and his team had the foresight to put a larger piece of pipe in that enables us to then expand capacity in a capital-efficient way by putting pump stations in along the way. So, and we’ve talked about this before, the lead time to be able to do that versus building new pipe is very preferential when we’re talking to negotiate with producers that, you know, it goes lockstep with the timing of their plants as well.
So very, very well positioned on the pipe, but also with our partners.
Sam Burwell (Analyst at Jefferies)
Okay, awesome. And then maybe a question on the 26 growth CapEx guidance. Same range, but at the higher end. Notice that you said that the major projects are all trending at or under budget. So is the high end reflective of the modest amount of CapEx for the FSCSD bottleneck or any other odds and ends that are going to hit the budget in 26?
Eileen Maricar (Senior Vice President and Chief Financial Officer)
Thanks, Sam, for the question. I think most of it is there might be some small capital even associated with some of the new assets, but the majority of this would be, again, timing of spend. Back to the key message is that all the projects are going really well, but a lot of it is just timing. And so we will be through most of our major capital spend by the end of next year and then 2028 really, really comes off.
Sam Burwell (Analyst at Jefferies)
All right, great. Thank you.
OPERATOR
Thank you. Thank you. Thank you. Next question comes from the line of Ben Pham of BMO Capital Markets. Your line is now open. You may ask your question.
Ben Pham (Analyst at BMO Capital Markets)
Hi, thanks. Good morning. I wanted to go back to AEF for 2027. I mean, if you put the $85 million headwind aside that you’ve newly disclosed, how would you characterize the marketing setup in 2027? And just think in particular about some of your comments around maybe tailwinds on the frac spread side of things. You’ve hedged 75%. Propane market’s been quite strong as well. You have additional flexibility from the Plains assets and you’ve also been opportunistically selling butane as well.
Dean Setaguchi (President and Chief Executive Officer)
Good morning, Ben. Thanks for the question. Very good question. And maybe I’ll turn over to Jamie to speak more to, you know, our marketing business. Again, want to reiterate because Eileen’s kicking me here that we’ll be providing guidance until May of next year, but maybe some general color Jamie can provide.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
I think that was a reminder for me too, as well as I answer your Question, you know, Ben, but you hit all the high points, right? Like we’ve talked about our realities at AEF and the plan that we’ve got that we’re really confident in, of getting back to reliable operations. But the underlying fundamentals for our basin, but also our marketing business, are extremely strong. So, you know, we touched on iso-octane fundamentals. I reminded everybody, iso-octane is priced off of crude and RBOB crack and then ultimately an octane premium.
And so as we’ve seen strong commodities pricing for both crude and RBOB cracks, we’ve taken the opportunity to be able to apply, as we have in the past, our risk management policy to lock in favorable prices into ’27 and starting to do that into ’28 as well. You know, you’ve touched on propane. You know, we’re very bullish on propane. Brad alluded to is that as we understand our Plains’ assets more and the value proposition of sending propane down to the eastern markets, we’re extremely excited about that. So that’s one of the tailwinds that we think about from that Plains acquisition. And then similarly on the butane side, you know, we’ve been very successful in being able to sell on a spot basis the butane that we haven’t consumed at AEF at very favorable prices and taking advantage of the current market that really frankly is driven off what’s going on internationally.
But you know, we also see the eastern markets for butane as being very attractive as well. And our ability to be able to get those barrels down to the east, whether that’s via rail and or through Line 1, Line 5, that ultimately is available to us to transport mix, that ultimately gets fracked in Sarnia. So, you know, all the things that you asked in your question are positives for our business once again. Though I’ll also reiterate that, based on the pricing that we’ve seen and the forward pricing that’s at above historic levels, we’ve taken that opportunity to be able to lock in those values for ’27.
Dean Setaguchi (President and Chief Executive Officer)
Yeah. And then, in addition to Jamie’s comment, I just want to reiterate that our combined business—you know, the Plains assets and business and Keyera’s legacy business—is performing very well. So when you think about our third quarter results that we just released, you have to remember that we just came through three turnarounds. We did one at Brazeau River; we converted the facility from sour to sweet, which will make us more competitive on a cost basis.
We’re very happy about that. But also some large turnarounds at KFS North and also at Empress 6, where we also have not only the straddle plant there—the large straddle plant—but also a fractionator. And during that outage, we also had to deal with the Line 5 disruption, which was another $35 million hit to our quarter. So, despite all that noise, our business performed very well. And so as we move forward to more normal quarters, we’re still dealing with the AEF reliability issues, which we’ve talked a lot about this morning. But we’re starting to get back to sort of normal operations. And Brad talked about a lot of our synergies. We’re going to be continuing to add value from those synergies. When you add all that up, we’re very optimistic about our future in 2027 and beyond.
Ben Pham (Analyst at BMO Capital Markets)
Okay, got it. So, I mean, it sounds like the AEF situation is trending lower than your expectations, but there’s a lot of other levers that could offset some of that potentially. Can you maybe just net that to EBITDA? I can appreciate just some of the near-term headwinds impacting the leverage. You’re still expecting 2028 to be the target timeline. Can you talk about perhaps the cadence of deleveraging from here, and is this a peak of your leverage you expect, and is there some flexibility for more capex in that you’ve initiated for 2027?
Eileen Maricar (Senior Vice President and Chief Financial Officer)
Thanks, Ben. Yes, as it relates to the balance sheet, you’re right. It’ll really peak end of the year, and we expected this. This is what was contemplated. We knew that our balance sheet would be—given that we took on the two acquisitions—and it will come back in line into our range by 2028. There is the potential to deleverage quicker as we see some of the things we just talked about within the marketing business as well as the base business, which again is performing extraordinarily well.
So there is that opportunity to deleverage faster than that. But, you know, really stepping back, our leverage target, even though we are a much bigger entity now, we never changed those targets and they’re still conservative. And so we feel like it still gives us the flexibility when we see opportunities. And that’s the key—that, you know, as we move through our major projects next year and obviously get through AEF—that we really do bring that balance sheet back in line and there’s so much opportunities to be had given the macro environment that supports it.
Ben Pham (Analyst at BMO Capital Markets)
Okay, got it. That’s helpful. Thank you.
OPERATOR
Thank you. Our next question comes on the line of Patrick Kenny of National Bank Capital Markets. Your line is now open. You may ask your question.
Patrick Kenny (Analyst at National Bank Capital Markets)
Yeah, good morning everyone. Just back on the marketing guidance. I know you’ve been quite active on the frac spread hedging front, but just wanted to confirm if the low end of that range, the 400 million for ’26, would reflect sort of a worst-case scenario for propane demand this winter, just in light of the El Niño trends here. And also maybe you can comment on how you might be protected or potentially exposed to weather and physical propane sales volumes through Q1.
Dean Setaguchi (President and Chief Executive Officer)
So, yeah, maybe Jamie can just speak to the propane markets and then Eileen can maybe speak to our guidance range. So, Jamie.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, so great question, Patrick. Yeah. So, you know, one of the things that we identified when we did the Plains acquisition is the fact that we were getting access to more market. Right. It’s really a fundamental part of our strategy is to have as much flexibility around egress for our customers and for our marketing group. And so, you know, the way that we conduct our business specifically around the Plains barrels that go east is we basically back-to-back them.
So the barrels that are being produced are ultimately spoken for and basically are committed to be taken for the winter. As we think about the barrels in Western Canada, we similarly lock in spreads and ultimately we have so many different options with respect to where those barrels go that we’re confident that our propane business will perform well over the winter.
Eileen Maricar (Senior Vice President and Chief Financial Officer)
The only thing I would add on the guidance range itself, on the low end in particular, is that, as always, we build in some conservatism into that low end. And of course it assumes that AEF operates as we’ve planned. But otherwise we feel very confident in that range.
Patrick Kenny (Analyst at National Bank Capital Markets)
Okay, great, thanks for that. Then maybe on the rail side of the business, you know, there’s been some buzz recently with wider heavy diffs and pipes filling up just around crude by rail coming back into the market, at least temporarily until some of the larger egress projects come online. But as well certain oil sands proponents looking to utilize rail out to the West Coast. Just curious how your rail assets might be positioned to take advantage of both the shorter-term opportunities as well as any longer-term projects that might come to the West Coast.
Dean Setaguchi (President and Chief Executive Officer)
Yeah, that’s a great question, Pat. And we do have some very amazing rail assets that have a lot of flexibility to them, and rail is still a very effective means of especially taking advantage of ARBs. And we’re able to do that a lot with our infrastructure, but specifically with respect to crude. Jamie, maybe just speak to some of that right now.
Jamie Urquhart (Senior Vice President, Liquids Business Unit)
Yeah, so it’s a great question, Patrick. And we have—actually just to go back in time—our ADT facility actually used to be ACT and ADT, with ACT standing for Alberta Crude Terminal. So we have the ability to actually facilitate crude movement out of ADT. We’re going to keep it just calling it ADT and not confuse people. And I can share with you, we actually have recently done a deal and actually are facilitating crude movement out of that terminal as we speak.
But I think the other part of your question is really pertinent as well, that as you think about ACE and how we build out that, how we have our existing KJT facility that we’re actually in the throes of creating flexibility to be able to move both butane and propane out of that facility. As we’ve got a very robust rail facility at KFS North and rail facilities throughout the network west to east in Plains’ business, we see the ability—especially around ACE—to be able to grow that facility in response to the pull for hydrocarbons out of Western Canada.
So rail, as was alluded to earlier, is a really core part of our strategy and, as we think about it, certainly it’s a core part of our strategy and hopefully being able to contract enough to ultimately then perhaps step out into a bigger opportunity like pipe.
Brad Slesser (Senior Executive overseeing integration and synergy management)
Yeah. And the other thing, to Jamie’s comment, is that our terminals—especially the ACE terminal as well—that piece of land is very well connected. There’s lots of pipe that run right through the 1,300-acre parcel of land that we have there. So if we do move other products other than propane and butane, the lines are right there to connect with very short tie-ins.
Patrick Kenny (Analyst at National Bank Capital Markets)
Okay, that’s great. Thanks, everybody.
Dean Setaguchi (President and Chief Executive Officer)
Yeah, thanks, Pat. Thank you. Have a good day.
OPERATOR
Thank you. There are no further questions at this time. I will now turn the conference over to Dan Catherine, general manager of investor relations.
Dan Catherine (General Manager of Investor Relations)
Thank you all once again for joining us today. Please feel free to reach out to our investor relations team with any additional questions. Have a great day, everybody.
OPERATOR
Thank you, ladies and gentlemen. This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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