Keyera Corp. 2020 Earnings, Price Target Update

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Keyera Corp. (KEY) operates one of the largest natural gas midstream businesses in Canada with total assets at Dec-31-2020 of $7.5B compared to $7.5B as at Dec-31-2019 and $6.8B as at Dec-31-2018. Keyera's growth has mainly been from internally sourced capital development projects, not acquisitions. Assets include regional gathering pipelines and natural gas processing facilities that extract natural gas liquids from natural gas and a marketing division that purchases and sells NGLs including the production from Keyera. Growth strategies have added petroleum liquid products including condensate sold to oil sands producers, the addition of iso-octane processing used in gasoline production, expansion of NGL processing capacity and hydrogen production. Growth capital expenditures for 2020 were initially forecast at $700M-$800M (2019 – $986M) were $594.1M actual. During 2019, Keyera invested $986M in growth capital. Capital spending for 2018 was $1.3B the largest capital program in their history. The first major project, phase one of the Wapiti gas plant commenced operation during Q2-2019 as planned, the Pipestone Facility was completed in Q3-2020. The largest project is the $650M expansion of gas gathering and processing (KAPS) in the Montney region planned for completion in 2023. By operating segment Gathering & Processing contribute 40% of annual operating income, with the balance split between NGL processing and Marketing.

Operating Segments

Gathering and Processing – Keyera owns and operates raw gas gathering pipelines and processing plants, which collect and process raw natural gas, remove waste products and separate the economic components, primarily natural gas liquids (NGLs), before the sales gas is delivered into long-distance pipeline systems for transportation to end-use markets. Keyera also provides condensate handling services through its condensate gathering pipelines and stabilization facilities. Keyera currently has interests in 14 active gas plants, down from 19 as at Dec-31-2019. Keyera has the option to become the operator of the Pipestone gas plant on Jan-1-2026, approximately five years after the commencement of its operations. All facilities are located in Alberta. Facilities have been closed in response to lower COVID related demand. Processing at the closed plants has been reallocated to more efficient facilities in the network. Several of the gas plants are interconnected by raw gas gathering pipelines, allowing raw gas to be directed to the gas plant best suited to process the gas. Keyera's facilities and gathering systems collectively constitute a network that is well positioned to serve drilling and production activity in the WCSB.

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