Earnings call transcript: KeyCorp’s Q4 2024 earnings exceed expectations

KeyCorp (NYSE:KEY), with a market capitalization of $19.37 billion, reported its fourth-quarter 2024 earnings, surpassing analyst expectations with an adjusted earnings per share (EPS) of $0.38, compared to the forecasted $0.33. Despite this positive earnings surprise, the company’s stock saw a pre-market decline of 5.46%, reflecting investor concerns over revenue shortfalls. Actual revenue came in at $865 million, significantly below the anticipated $1.74 billion. According to InvestingPro analysis, the stock is currently fairly valued based on its Fair Value assessment.

Key Takeaways

• KeyCorp’s EPS exceeded expectations by 15.2%.
• Revenue fell short of forecasts, contributing to a stock price decline.
• The stock dropped 5.46% in pre-market trading.
• The company achieved record annual adjusted EBITDA and net earnings.
• KeyCorp raised its dividend by 4%.

Company Performance

KeyCorp demonstrated strong financial performance in 2024, achieving record annual adjusted EBITDA of $1.3 billion, up from $1.2 billion in 2023. The company also reported record net earnings of $487 million, compared to $424 million the previous year. These results underscore KeyCorp’s ability to deliver consistent growth despite challenging market conditions.

Financial Highlights

• Revenue: $865 million, significantly below the forecast of $1.74 billion.
• Earnings per share: $0.38, beating the forecast of $0.33.
• Adjusted EBITDA for Q4: $313 million.
• Distributable cash flow: $771 million for the full year.
• Dividend payout ratio: 61%.

Earnings vs. Forecast

KeyCorp’s EPS of $0.38 surpassed the forecasted $0.33, marking a positive surprise of 15.2%. However, the revenue shortfall was significant, with actual revenue of $865 million falling short of the $1.74 billion forecast. This discrepancy highlights potential challenges in revenue generation or market conditions affecting sales.

Market Reaction

Despite the earnings beat, KeyCorp’s stock fell 5.46% in pre-market trading, dropping from $18.3 to $17.3. This decline reflects investor concerns over the substantial revenue miss. With a beta of 1.26, the stock shows higher volatility than the market average. The stock’s current price is near its 52-week low of $13.11, indicating potential investor caution.

Outlook & Guidance

For 2025, KeyCorp is targeting growth capital expenditures of $300-$330 million and maintenance capital expenditures of $70-$90 million. The company aims for a 7-8% fee-based EBITDA growth, signaling confidence in its strategic initiatives and market position. InvestingPro data reveals two key insights: analysts anticipate sales growth in the current year, and net income is expected to grow this year. There are 6 more exclusive ProTips available for subscribers.

Executive Commentary

CEO Dean Sediguchi stated, "We continue to execute our strategy and deliver value to both our customers and shareholders." CFO Eileen Maricar highlighted the company’s competitive edge, saying, "Our integrated value chain has without doubt made us more competitive as a company."

Risks and Challenges

• Potential U.S. tariffs could impact operations, though the company expects minimal effects.
• Revenue generation challenges, as evidenced by the recent shortfall.
• Market volatility and economic uncertainties could affect future performance.
• Competition in the energy market may pressure margins.
• Supply chain disruptions could impact project timelines.

Q&A

During the earnings call, analysts questioned KeyCorp’s strategies for addressing the revenue shortfall and its plans for market expansion. The company discussed potential partnerships, including with AltaGas (TSX:ALA), to enhance market access and address octane market dynamics.

Full transcript - Keycorp (KEY) Q4 2024:

Joelle, Conference Operator: Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kiara twenty twenty four Year End Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

Thank you. I would now like to turn the conference over to Dan Kupferson, General Manager of Investor Relations. You may begin.

Dan Kupferson, General Manager of Investor Relations, Kiara: Thank you, and good morning. Joining me today will be Dean Sediguchi, President and CEO Eileen Maricar, Senior Vice President and CFO Jamie Urquhart, Senior Vice President and Chief Commercial Officer and Jared 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 our 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 Acura’s public filings available on SEDAR and on our website. With that, I’ll turn the call over to Dean.

Dean Sediguchi, President and CEO, Kiara: Thanks, Dan, and good morning, everyone. Kiara had an outstanding year in 2024. We continue to execute our strategy and deliver value to both our customers and shareholders by leveraging the strength of our integrated value chain. In terms of safety, we were pleased that we had no lost time incidences for the second year in a row. We also set new volume records across many core assets.

This led to record margin contribution across all three business segments and record annual adjusted EBITDA and net earnings. We ended the year in a strong financial position giving us the flexibility to allocate capital in a way that will maximize value for our shareholders. We also raised our dividend by 4% and received approval for a normal course issuer bid. With our guidance in December, we announced a new target of 7% to 8% fee based EBITDA growth. This growth is mostly driven by filling available capacity where we’re already making great progress.

In our North G and P segment, Wapiti and Pipestone hit record annual volumes. In our Liquids Infrastructure segment, CAPS continues to ramp up and attract new customers. At KFS,

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: our fracs delivered

Dean Sediguchi, President and CEO, Kiara: record annual margin contributions and our condensate system also set volume records. Moving on to growth projects, which continue to progress well. We’re pleased to announce today the sanctioning of the KFS Frac two debottleneck project. This project will add about 8,000 barrels per day of capacity and is now expected to be in service in mid-twenty twenty six. The project will generate strong returns on a standalone basis.

We’re also advancing contracting and engineering for KFSRAC3. We expect to sanction this project later this year for it to be on stream in 2028. For Capstone four, we have completed engineering and we’re working towards securing sufficient contractual backing to move ahead. We decided to proceed. This project is expected to be in service in 2027.

Beyond 2027, we continue to progress potential growth opportunities, including expanding rail and logistics solutions to accommodate higher spec product volumes. On this front, last week we announced long term commercial agreements with Eltagas, which helps support these growth projects. The deal also efficiently extends our value chain, allowing us to expand market access and diversification for our customers. You would have seen in our release this morning that we’ll be taking AEF offline in the spring for approximately six weeks to address an unexpected operational issue. This work is necessary to ensure continued safe and reliable operations.

The margin impact of this outage is expected to be about $40,000,000 We continue to expect to deliver our long term base marketing guidance of $310,000,000 to $350,000,000 this year and we’ll update our annual marketing guidance in May. I also want to take a moment to address the threat of U. S. Tariffs. This is a much needed call to action.

Rarely have we seen our federal and provincial governments so aligned on the need to improve Canada’s competitiveness and diversify our market access. Ultimately, this could be very positive for Canada, the energy industry and Kiara. For Keyera overall, we don’t expect a material impact. Our fee for service segments are volume based and much of the cash flow is under long term contracts. Within our marketing segments, we expect tariffs on ISO arcane will mostly be offset by lower butane input costs, higher RBOB spreads and beneficial FX movements.

While tariffs create some near term uncertainty, I’m confident in our ability to continue to deliver shareholder value. With that, I’ll turn it over to Eileen to provide a further update on our quarterly and annual financial performance.

Eileen Maricar, Senior Vice President and CFO, Kiara: Thank you, Dean. Adjusted EBITDA was $313,000,000 in Q4 and a record $1,300,000,000 for the full year compared to $339,000,000 and $1,200,000,000 for the same period last year. These results were largely driven by record annual margin contributions from all three of our business segments. Distributable cash flow was $168,000,000 in Q4 and $771,000,000 for the full year compared to $234,000,000 and $855,000,000 for the same period last year. The year over year decrease in distributable cash flow is mostly due to higher cash taxes.

Net earnings were $89,000,000 for the fourth quarter and a record $487,000,000 for the full year compared to net earnings of $49,000,000 and $424,000,000 for the same periods last year. In 2024, corporate return on invested capital was 16% and the dividend payout ratio was 61%. We ended the year in strong financial position with net debt to EBITDA of two times on a covenant basis. This gives us the flexibility to allocate capital to maximize value for shareholders either through dividends, growth investments or share buybacks. Looking forward, our 2025 guidance remains unchanged.

Growth capital expenditures are expected to range between $300,000,000 and $330,000,000 Maintenance capital expenditures are expected to range between $70,000,000 and $90,000,000 Cash taxes are expected to range between $100,000,000 and $110,000,000 dollars For the time being, our marketing realized margin guidance will be our long term base guidance of $310,000,000 to $350,000,000 As is our usual practice, we will revise this with our Q1 results in May at the end of the marketing contract season. As a reminder, our marketing cash flows are reinvested into long life infrastructure projects, in turn driving growth in high quality fee for service cash flows. I’ll now turn it back to Deep.

Dean Sediguchi, President and CEO, Kiara: Thanks, Eileen. We remain confident in the basin’s continued volume growth. Canada has one of the largest oil and gas reserves in the world coupled with a very competitive cost of supply. Our customers are in strong financial positions and have a proven track record of adapting to changing market conditions, supporting further volume growth. Kiara is an essential enabler of this growth.

On behalf of Kira’s Board of Directors and management team, I want to thank our employees, customers, shareholders, indigenous rights holders and other stakeholders for the continued support. With that, I’ll turn it back to the operator for Q and A.

Joelle, Conference Operator: Thank you. Your first question comes from Rob Hope with Scotiabank (TSX:BNS). Your line is now open.

Rob Hope, Analyst, Scotiabank: Good morning, everyone. Maybe the first question is on the recent AltaGas agreement. Can you maybe speak to the genesis and kind of the background of that agreement? And more importantly, the potential that it could be further expanded in the future, just given the synergies between the two asset bases?

Dean Sediguchi, President and CEO, Kiara: Yes. Good morning, Rob, and thanks for the question. First of all, when we think about our business, we think about how do we make our we’re a service company and how do we make our customers and our energy or our industry more competitive. And that’s what we should be focusing on. And if we do that, I think as an industry, we have an opportunity to supply the world with more energy.

And so when it comes to accomplishing that, if we can create a more efficient service, that’s a win win for our customers and for partners, we’re happy to work with other partners to make that happen. So when we think about AltaGas, they have assets that are complementary to our integrated value chain. And so we’re very happy to work with Vernon and his team to create a win win. And they’re supporting our infrastructure, including our frac and we’ll be moving their barrels to our downstream terminals, use our storage and ultimately real a lot of product out to UltiGas site on the West Coast. So I think it’s a win win for everybody where we can provide a more efficient integrated service and bring more volumes to our system, but also support AltaGas’ system and everybody wins.

And maybe to your second part of your question, I mean, we have a great relationship with AltaGas and for sure we want to find opportunities to continue to work together again to provide a better service for industry where we can all benefit from. Jamie, is there anything else you want to add? No.

Rob Hope, Analyst, Scotiabank: All right. I appreciate that. And then maybe just for just the volumes, it seems like volumes at condensate KFS were very, very strong. Was this in anticipation of tariffs or are we just seeing the base kind of liquids volume growth stronger than we originally expected? And then I guess maybe some commentary on how you think volumes progress through the year and into 2026?

Dean Sediguchi, President and CEO, Kiara: Yes. Well, first of all, I mean, when we see basin growth and we expect to see more basin growth over the next five, six years with again Coastal GasLink and TMX, which is probably going to fill up faster than everyone anticipated because of the threat of tariffs. When the basin grows, we help enable that growth. And what that means is more demand for our services and volume to our system. And that’s exactly what we’re seeing.

So, when natural gas volumes grow, it’s going to grow in the most economic parts of the basin. And we’re situated there both in the Deep Basin and up in the Montney Duvernay, a fairway near Grand Prairie. So we’re seeing that increased volume growth and with it a lot of liquids and that liquids flows downstream through our pipes and our caps pipeline obviously is a big service that we provide there to supply our frac business and also to supply condensate, which is used for diluent for the oil sands. So all parts of our business, our upstream natural gas processing and NGL business and also our oil sands services businesses have been performing very, very well again to service the growth that we’re seeing in our industry.

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: Yes. The only thing I’d add Dean is that, I think we have a lot of focus on the North and obviously we’ve got some very key assets in the North and we’re looking to expand our position in the North.

Dean Sediguchi, President and CEO, Kiara: North GMP.

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: The North GMP, yes, sorry. And but also, we’ve seen some really good activity and changing of the guard in some transactions that have happened in the last few months in our Central Alberta assets, which we’re excited for. And we’ve got strong relationships with those parties and we expect to hopefully enable their growth as well as we progress into 2025.

Ben Pham, Analyst, BMO: Thank you.

Joelle, Conference Operator: Your next question comes from Maury Choe with RBC Capital Markets. Your line is now open.

Maurice Choe, Analyst, RBC Capital Markets: Thank you and good morning everyone. Just to follow-up on the AltaGas arrangement, which you characterized as a win win situation here. I guess my question is about timing. Were there past situations where such an arrangement couldn’t happen and why right now it’s the right time to do such arrangement and separate to that, are there any other entities that you also see yourself having a win win arrangement?

Dean Sediguchi, President and CEO, Kiara: Good morning, Maurice and thanks for the questions. First of all, with AltaGas, we have been exporting product through their terminal at RIPET. And like any service, we probably start smaller to understand how it works, understand the markets, the logistics behind it and before we jump in a bigger way. And that worked out very well, both from again, just from a logistics perspective, from a business and relationship perspective. So when we look at our business now and the likelihood of our frac expansions likely getting sanctioned and we sanctioned our frac two debottleneck today.

We see the need to clear more product, we’ll have more spec product in our system and we have to access the highest value markets. So we’ve always thought that it’s great to have a diversified market access. So we can offer access to IPL’s PDH, local industrial markets, the Mid Continent in U. S. But certainly the market on the West Coast is going to continue to grow and be a valuable market for us to clear product out of.

So we thought it was a good opportunity to work with AltaGas to increase our ability to export out of the facility. And we think it’s just a great arrangement for both parties. So anything else you want to add?

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: No, Dean, I think you hit the nail on the head. It’s just to emphasize the fact that we’ve been flowing barrels through RIPET since day one. But as Dean said, it’s a new market to us, needed to get familiar with the market and understand the intricacies and the logistics associated with being able to maximize the value of being in those markets. And the thing I’d also identify is we’ve publicly stated how much incremental capacity that we’re taking out at the RIPET and REEF facility. But there is a phasing in over the time period of our ability to be able to access more capacity and that will start in 2025.

Maurice Choe, Analyst, RBC Capital Markets: Thanks. And just to summarize

Dean Sediguchi, President and CEO, Kiara: that go ahead. Yes. And just maybe to answer the second part of your question, without going into specifics, to my earlier comments, we’re always looking for opportunities to make the base in the industry more efficient. And we’re open to work with other parties to make that happen where we can create win win situations. And so I’ll leave it at that, but we do see other opportunities as well.

Maurice Choe, Analyst, RBC Capital Markets: That’s great. Maybe just to finish up, I want to see if you could elaborate a little bit more on your comments about tariffs or impact for that on your ISO octane business. You touched on the feedstock costs, the RBOB spreads and FX. Could you speak to the market dynamics that could influence the ISO octane premium such as competition for alternatives and also the quality differentials?

Dean Sediguchi, President and CEO, Kiara: Yes. Well, listen, I’ll let Jamie comment on this as well. But to my earlier comments, I mean, the bottom line is, is we don’t think there’s a material impact. When you look at the demand and the balance of octanes in North America, North America is net short octanes. So what it means is that they have to import octanes from a place like us or they also import from Europe and Asia.

So from our perspective, we might get hit with the 10% tariff, but if everybody is tariffed at the same level, at least at the same level, we’re not disadvantaged. And so if Europe and Asia are they have to pay a 10% tariff as well, What we think happens because again, they’re going to have to track those incremental barrels into North America is that the price of octanes is going to actually reprice higher to compensate for that 10% tariff. So we don’t know exactly how that trades, but that’s a possibility, just because North America is short tariffs. And the other comment I want to make is that even if we are we have to pay a 10% tariff directly from Kiara. The reason why we feel pretty good about the compensating factors is that a couple of days leading up to when everyone thought tariffs were going to put into place up to February 1.

The market started to trade as if that was happening. And again, during those couple of days before when people expected tariffs to be in place, we saw FX widen, We saw the price of butane in Edmonton fall off and we also saw WTI strengthened. So those are all offsetting factors that would offset the cost of a tariff if we had to pay up. Is there anything else you want to add?

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: Eddyne, you’re doing great this morning. Not much to add other than as you pointed out is that North America is that net importer of octanes. And just to put it into perspective, like we produce 14,000 barrels a day of isooctane. The octane demand in North America is in excess of 1,000,000 barrels a day. So, like I mean, as we think about the markets that we’ve established over the years, these people value our product and the superior nature of our product and we expect to retain those markets regardless of whether tariffs come into place or not.

Maurice Choe, Analyst, RBC Capital Markets: Just a quick follow-up. So now that you’re approaching the conclusion of your NGL contracting season for 2025, has those prices particularly the feedstock costs already priced in a tariff such that those costs have come down?

Dean Sediguchi, President and CEO, Kiara: Yes. You know what, that’s a great question. And what I’d say is that this year, the contracting is happening a bit later. And I guess that’s to be expected just given the uncertainty around tariffs. So we will work towards having all the contracts in place in April.

They’re just happening a little bit later in the cycle than they normally would because of the uncertainty.

Ben Pham, Analyst, BMO: Makes sense. Perfect. Thank you.

Dean Sediguchi, President and CEO, Kiara: Thank you.

Joelle, Conference Operator: Your next question comes from Robert Katzurier with CIBC (TSX:CM) Capital Markets. Your line is now open.

Robert Katzurier, Analyst, CIBC Capital Markets: Hey, good morning everyone and congratulations on your ongoing strong safety record. I just wanted to follow-up quickly on the tariff issue here. I have really two questions. I just want to understand how you’re approaching the NGL marketing year in light of the tariff uncertainty. In other words, trying to get a sense of what level of exposure you might be looking for.

In other words, are you maybe paring down your exposure a little bit because of the uncertainty or is it business as usual? And then on the customer side, just in terms of supporting new infrastructure, does the threat of potential tariffs cause customers to hesitate in supporting new infrastructure?

Dean Sediguchi, President and CEO, Kiara: Good morning, Rob, and thanks for the questions. I’m going to answer your second question and then I’ll turn it over to Jamie to answer the first one. Overall, no one really knows what will happen if 10% tariff were applied to our energy industry and whether the buyer absorbs that or it’s the producer or the seller of the product or it’s some combination in between. So I think that remains to be seen. But at the end of the day, our base in Western Canada is a very low cost producer environment.

So we have some of the best reserves and we can produce them at the lowest cost. And so will 10% actually make a difference in terms of what gets producer basin? I doubt it. And we’re not getting the sense from the producers either. So when we look at infrastructure that’s required, we still see a lot of developments in the Deep Basin and for sure in that Montney Duvernay Fairway.

We see more development extending into BC, which is why there’s a lot of interest in our our Zone 4, CAPS zone four project. And right now in our basin, one of the most significant bottlenecks is fractionation capacity. And because we have CAPS and because we have an integrated service that we offer now with all of our integrated deals, again in our system, we have a lot of demand for incremental frac capacity. So again, I don’t think tariffs would affect any of those projects in a material way. And we see strong demand based on the conversations and contracts we signed with our customers.

Jamie, do you want to address the first question?

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: Yes. So Rob, thanks for the question on the contracting season. As Dean alluded to, because of the tariffs, it’s really put a pause on contracting throughout industry. It’s not unique to Kiara. And I think as we’ve had conversations with our customers, they’re understanding ultimately of the impact it potentially could have on them and ultimately on Kyra as well.

So we’ve been looking at and discussing with customers inserting tariff language into our contracts for 2025 and frankly probably from here on out because like I mean Trump is going to be in office for the next four years and we just never know where his mind might be taking him on any given day. But as we look at it from the perspective of the different commodities on the C3 side, it points to the value of our access to the West Coast. And also then as we think about C3 leaving down into The U. S, traditionally our model is to sell that product FOB Edmonton. So we don’t take a lot of risk on the C3 side of our business.

And then on C4, because Alberta is a net butane, sorry, is a net exporter of butane out of Western Canada. We just look at tariffs as likely resulting in a reduction in the value of butane molecule in Alberta, given the fact that Tiara is a consumer of butane in our business and net short, we’re going to benefit from that if tariffs are coming into place. But really at the end of the day, we’re striving to get the maximum value for our customer, but also recognizing that the risk should be borne by the appropriate party within our contract and structure.

Robert Katzurier, Analyst, CIBC Capital Markets: Okay. I’d say helpful and full some answer. I would I want to just move on to GMP for a minute here. Obviously, the volumes have been very strong in the North Region, now less on the South, which is not a surprise. But I’m curious what you think needs to happen to increase throughput in the South Region?

And maybe you can provide updates on the South Duerne play and development at Rimbey and any other development you think is possible for the Keeling pipeline system?

Dean Sediguchi, President and CEO, Kiara: We’re excited about the emergence of the Duvernay play in the South. And we’ve talked about it before. I mean, it’s great to have more oil weighted plays, oil condensate weighted plays down in our Central Alberta portfolio. And in that way, the producers have more than one way to win. It’s not just off of natural gas.

And that gas is very rich. So we’re always very interested in the NGLs that are get extracted and we have capabilities to do that. So we think it’s a great development, but overall, Jamie, you want to talk about our self portfolio?

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: Yes. We talk a lot about the Duvernay and Duvernay, we’re very excited about the development of the Duvernay in the Rimbey area, but also as it trends up through towards Drayton Valley and some of the assets that we have up in the Drayton Valley area as well. And as Dean alluded to is that play is really about the condensate or the light oil that’s coming off of that play. But the natural gas that comes along with it is very high in ethane and C3 plus So the but in the Spirit River, which is the primary play for the rest of our South assets, the economics for drilling those wells are very robust, even at the gas prices that we’re seeing right now, because as Dean says, they’ve got a lot of natural gas liquids in them. And as I alluded to in the previous question is that we’ve seen some of our key customers sell themselves and basically roll over into other companies’ hands that really they’re that these are becoming their Tier one assets.

So if you look at some of the presentations of the companies that have done some acquiring over the last six to twelve months, you’ll see that they bought those assets, because they’ve now become their Tier one assets. And as a result of that, their intent is to get after developing those assets where the previous company perhaps just had run the course and had been positioned themselves for a sale process. So the economics are good for those plays and now with the right players and a willingness to work with an infrastructure provider such as Keyera, we see that there’s lots of opportunities for future growth in 2025 and beyond.

Robert Katzurier, Analyst, CIBC Capital Markets: Okay. Thanks everyone.

Dean Sediguchi, President and CEO, Kiara: Thanks.

Joelle, Conference Operator: Your next question comes from Aaron McNeal with TD Cowen. Your line is now open.

Aaron McNeal, Analyst, TD Cowen: Hey, morning all. Thanks for taking my questions. Dean, maybe just to build on Maurice’s question, you mentioned that The U. S. Market is short octanes and obviously the market is quite large relative to AEF.

But can you speak to Valero’s announcement that it will increase its production by 6,000 to 7,000 barrels a day in 2026? Like what’s the potential impact to broader supply demand? And do you think the market can absorb that growth from Valero and potentially others?

Dean Sediguchi, President and CEO, Kiara: Good morning, Aaron, and thanks for the question. Overall, when we look at the gasoline pool, which is nine plus million barrels a day, and I think with what’s happening in The U. S. With President Trump and likely a callback of all incentives for electric vehicles, It just means that there’s just going to be a lot more ICE vehicles sold for a much longer period of time. So overall, we think that that gasoline demand is going to remain strong and the whole scheme of things 7,000 to 8,000 barrels or 10,000 barrels of octane is just really a drop in the bucket.

So we don’t think that that has a material impact at all. And the other thing I guess I continue to point out is that we have a very superior product with our iso octane. It’s very high in octane, low in RVP and low in sulfur. So those are very strong qualities and the customers that we have that buy it now they are very used to working with our product. So I think there’s some stickiness in terms of demand for it.

So we feel pretty confident overall. We’re aware of what’s happening. We also know that there’s going to be some refineries that are shutting down in The U. S. Too.

So that’s also going to change the balances. So overall, again, we want to reiterate, we don’t think it’s a big impact to the market.

Aaron McNeal, Analyst, TD Cowen: Yes, makes total sense. And sort of switching gears to timing of potential FIDs. I’m probably reading too much into this, but during the December update, I think you had characterized FIDs for frac three in Zone 4 as a potential first half of twenty twenty five event. And then the language this morning for frac three was sometime later this year. I know the in service dates, the timing for that hasn’t changed.

So again, probably reading too much into it. But could you give us a sense of if those timelines have remained the same?

Dean Sediguchi, President and CEO, Kiara: I’ll confirm you’re reading too much into it.

Maurice Choe, Analyst, RBC Capital Markets: Fair enough.

Dean Sediguchi, President and CEO, Kiara: Overall, starting with Zone 4, we feel pretty good about the project. I mean, we’ve always thought there’s going to be more developments along that zone for Fairway and into BC. And certainly with LNG Canada ramping up, you’re hearing the BC premier talking about fast tracking some energy projects, which when’s the last time you heard that. So I think there’s a lot of optimism what’s going to happen there. Customers along that fairway, they want competition and it’s also good to have a new pipe in service from integrity perspective and reliability of service.

So that’s our alternative that we’re providing to the market. You probably would have read that North River Midstream received their provincial approval last month. So from a project perspective, the Class III engineering is all complete. All the regulatory approvals have been received by both us and also North River Midstream. So we have a shovel ready project.

And again, that’s very meaningful to potential customers. So what I can say is that, we continue to contract up customers and volumes on that system And we have a lot of momentum. So we still think that we get to a sanction decision here sometime by the middle of this year. And that’s also the meet in service date. On frac three, Jamie and his team have done a phenomenal job and again, really leveraging and providing our integrated service offering to our customers.

So what that means is that, we’re touching our energy molecule many times to our system and again to provide an efficient service for our industry. And with that, it means that we’re contracting a lot of volumes on the downstream side with our frac business. So we continue to advance our engineering and contracting is going very well. So we think that we’ll get to a sanction decision sometime in the middle of this year as well. Anything you guys want to add?

Aaron McNeal, Analyst, TD Cowen: Thanks for the clarification. I’ll turn it back.

Dean Sediguchi, President and CEO, Kiara: Thank you for the question.

Joelle, Conference Operator: Your next question comes from Ben Pham with BMO. Your line is now open.

Ben Pham, Analyst, BMO: Hi, good morning. Maybe just to start out with the Allied business and you’ve reached a new high watermark in Q4. Can

Dean Sediguchi, President and CEO, Kiara: you talk about quarter over quarter, what was

Ben Pham, Analyst, BMO: how much was frac and storage driving that increase? And related to that is do you think the Q4 contribution is gradual going forward?

Dean Sediguchi, President and CEO, Kiara: Yes. Thanks for the question, Ben. And before I turn this over to Eileen, I just want to emphasize, when we’re building caps, people are asking about, well, what is the benefit of caps? And again, I just want to really emphasize and this exemplifies it, our results exemplify what we were accomplishing is that this basically integrates our upstream gas gathering processing business and our downstream frac business. And I can tell you pretty much every deal we sign is now integrated deal.

So with caps in place, we’re adding more volumes on that system, but it’s also supporting our downstream fractionation, storage, our Terminalling business. And then again, as we said before, our Oil Sands Services business has been very strong as well. But Eileen, please go ahead.

Eileen Maricar, Senior Vice President and CFO, Kiara: Sure. Thanks for the question, Ben. Yes, the only thing I would add is that absolutely what Dean said, in the fourth quarter, all assets, especially in LI were running really, really well. Frac utilization, we’re doing more contracts, longer term contracts through our condensate systems, storage. So all the things that we’ve been saying are coming to fruition.

The one thing I would note, when you’re looking at other quarters is frac utilization tends to be higher in the winter and in the summer, it does tend to come down. The other thing I would notice like overall our fee for service realized margin that’s G and P and LI grew by 9% year over year. And really taking it back to what Dean said, ever since caps came on in 2023, that it is that integrated value chain. It has without doubt made us more competitive as a company. So even with the strength and the year end results for 2024 on the fee based side, we continue to have lots of confidence in being able to meet our EBITDA target going up to 2027.

Dean Sediguchi, President and CEO, Kiara: Yes. Maybe one thing I just want to add to that. We’ve been talking about being at full capacity at Afrax for the last few years. And what’s different, I’d say is that and give a lot of credit to Jared and the team at KFS is that when they’ve had maintenance outage, they found ways to find small debottlenecks so that we could run sort of higher capacity limits at that site. So with the work that they’ve done and with very good reliability, that’s helped us generate strong strong results at KFS and our frac business.

Ben Pham, Analyst, BMO: Okay. So other than just some seasonality, it sounds like if utilization rings strong, Q4 is a good ratable number going forward?

Dean Sediguchi, President and CEO, Kiara: Yes.

Eileen Maricar, Senior Vice President and CFO, Kiara: That’s fair.

Dean Sediguchi, President and CEO, Kiara: Yes. I mean, what

Maurice Choe, Analyst, RBC Capital Markets: I need

Dean Sediguchi, President and CEO, Kiara: to say is that we’re able to run our fracs higher capacity levels. So the cash flow is going to be higher in the winter months because of the cooler ambient temperatures there. So there’s a little bit of seasonality, but it’s not super significant.

Ben Pham, Analyst, BMO: Okay, got it. And when you think about the AF outage in this spring, do you plan or anticipate the rollout into the potential 2026 outage as well?

Dean Sediguchi, President and CEO, Kiara: Yes, I’ll turn that question over to Jared.

Dan Kupferson, General Manager of Investor Relations, Kiara0: It’s a good question. It’s unfortunate that we’ve had an outage of the second year in a row. And what’s important to note too is that the circumstances from last year to this year are different and the plants otherwise operated very well for us over the past couple of years. And you’ve seen that reflected in the results. So there’s nothing we found last year expected this year to see otherwise with how the plants performing to suggest that we’d require another outage before our 2026 turnaround.

So the plan is to go down this spring and address what we need to and then come back up and try to have a strong run to the 2026 turnaround.

Ben Pham, Analyst, BMO: Got it. Maybe a cleanup question on the tariffs. I know the is octane product, pretty much all of it goes to U. S. But can you clarify what else you’re exporting, I’m thinking propane is in the mix there?

Is there anything else and just general just percentages going to U. S?

Dean Sediguchi, President and CEO, Kiara: I’ll turn that over to Jamie to respond.

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: Yes, Ben. So Isooctane, the majority, 85% of Isooctane sold into The U. S. And then as I alluded to is that on the C3 side, we on propane, sorry, hopefully everybody understands what C3 is,

Robert Katzurier, Analyst, CIBC Capital Markets: is

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: on the propane side, that would be the other product that we would be exporting to The U. S. And to repeat what I said in a previous question is that the way it’s structured is traditionally we sell that product to another counterparty in Edmonton and they ultimately would take the risk associated with tariffs.

Ben Pham, Analyst, BMO: Understood. Okay. Thanks for clarifying that. Again.

Dean Sediguchi, President and CEO, Kiara: Thanks. Have a good day.

Joelle, Conference Operator: Your next question comes from A. J. O’Donnell with TPH. Your line is now open.

Dan Kupferson, General Manager of Investor Relations, Kiara1: Good morning, everyone. Maybe just shifting gears a little bit, I was hoping I could talk about capital allocation. Given the strong performance in 2024, really no change in spending guidance for 2025 and flexibility on the balance sheet. How are you guys thinking about using the NCIB in 2025? Have your views changed at all?

Dean Sediguchi, President and CEO, Kiara: I’ll turn that over to Eileen, but I just say that obviously we’re in an enviable position and I’m really pleased. In the last year, our net debt was reduced by about $185,000,000 So again, we have plenty of optionality. But Eileen, please go ahead.

Eileen Maricar, Senior Vice President and CFO, Kiara: Sure. Thanks for the question. Yes, we’re happy that this is a tool that we now have available to us. And And if anything, we would look to use it opportunistically, especially with more market volatility. It’s nice to have this option.

But as we said before, the preference continues to be to grow our underlining business and build infrastructure that’s going to be around for decades. And again, with the macro environment being so positive, there’s just several opportunities. So I think we can deliver higher returns than even buying back stock. So again, our goal remains really unchanged. It’s to allocate it to the highest value option, organic growth, inorganic growth or buyback.

Dan Kupferson, General Manager of Investor Relations, Kiara1: Great. Thanks, Eileen. Maybe just one more on the debottleneck project and that moving forward. I think you guys have already highlighted a few times about how tight the frac market is. And I’m just trying to think about how we should view that facility ramping up.

Do you kind of see that filling up almost immediately? Will it take some time? And then just as a tag along, I don’t want to get too far ahead, but if we do see KFS three get FID or sanctioned soon, can we see the timing of that project pull forward as well?

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: So thanks for the question. Yes, to confirm the debottleneck project, we expect that it will be fully utilized when it comes into service, just based on the demand growth within our basin. And then on frac three, our the in service date of 2028 that we’ve communicated, that would there’d be very little opportunity to pull that forward. We’ve been progressing that project to be able to hit that date, but there’s very little opportunity to be able to accelerate that.

Dan Kupferson, General Manager of Investor Relations, Kiara1: Okay. I appreciate the color. I’ll turn it back.

Dean Sediguchi, President and CEO, Kiara: Thanks very much.

Joelle, Conference Operator: Your next question comes from Theresa Chen with Barclays (LON:BARC). Your line is now open.

Dan Kupferson, General Manager of Investor Relations, Kiara2: Thank you, and good morning. Looking at the collapse in octane spreads recently, beyond what would be seasonally implied based on butane being in the gasoline pool during the cooler months, Based on what you are seeing, what do you think is driving this?

Dean Sediguchi, President and CEO, Kiara: So your good morning, Theresa. I just want to make sure I understand your question. So you want to talk about premium and then do you think pricing?

Dan Kupferson, General Manager of Investor Relations, Kiara2: No, no, no, no. Premium less regular gasoline that collapsed and the octane spread in gasoline specifically.

Dean Sediguchi, President and CEO, Kiara: Right. Well, you know what, first of all, what I’d say is that in 2023 and 2024, the octane spreads were exceptional. Like those are the highest we’ve ever seen since we’ve owned that facility since 2012. So I think those are exceptional years and we shouldn’t expect octane premiums to be in that range. But in the winter months, the octanes are usually trade at a lower value and as they get stronger as you get into the summer driving season, that is just a seasonal trend that you see every year.

So when we think about norms of where octane spreads are right now, we think it’s in a very normal range, so and which still generates a very healthy margins for that business. Jimmy, anything you want to add?

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: Yes, no, 100% like I mean, versus historical, the octane premiums that we’re realizing for our product are frankly strength slightly ahead of what we would have seen pre COVID. They’re not to the levels as Dean said where we would have seen over the last couple of years, but those were extraordinarily strong years. The other thing I would say is that sometimes people do focus on there typically is a suppression of talking premiums when we go from a summer spec to a winter spec on gasolines. And that’s very short lived. That’s probably a two week anomaly of which we just then hold on to our products.

It happens every year. We hold on to our product and ultimately then reengage back into the market once that market has corrected itself.

Dean Sediguchi, President and CEO, Kiara: Tristan, one thing I’d also want to I’d like to add just on octane that I think it’s important to understand is that we’ve seen a growing trend of demand for higher octane blends in the gasoline pool. And that’s because most of the engines are ICE vehicles that are being produced today are being produced with turbocharged engines with high compression. And so for example, last year, about half of the vehicles manufactured had a gasoline spec of over 90 octane requirement for the engine. So we think that the demand for higher octane blends of gassing that trend continues to increase over time. So with that, we believe that those octane premiums, we think that are going to be fairly steady in a pretty good range going forward.

Dan Kupferson, General Manager of Investor Relations, Kiara2: Got it. And just to clarify what I was talking about butane being in the gasoline pool during the cooler months, I was referring to that RVP change of spectrum between summer and winter. Going to the medium term outlook for Octane, and you alluded to this a bit earlier, Dean. So in addition to the incremental alkali production that Valero is bringing online for SEC debottlenecking project, what’s also interesting to us is the planned naphtha cracking capacity coming online globally. So when that low octane naphtha comes out of the gasoline pool and serves as a pet can feedstock instead, this would presumably decrease the need for our high octane blend stocks to counterbalance as a result and could likely be a headwind for octane economics.

So how are your assets positioned to put this in mind?

Dean Sediguchi, President and CEO, Kiara: Yes, like I say, I mean, I’ll let JV respond as well. But overall, there are a lot of factors that affect the gasoline pool, octanes. Yes, we’re aware of that. I mean, NAFTA can be used for different purposes as well versus going into gasoline feedstock. Overall, we feel pretty confident though that the trend for higher octane blends of gasoline continue to increase over time.

And on that basis and also the strength of overall gasoline demand, we just think that because we have a premium product that it will always be in pretty high demand and some of the places that we sell it to in the Mid Continent, we are the best source logistically for them to receive it off like there are a lot of places we sell that are not on The U. S. Gulf Coast where they can receive it from the local refiners or local service providers there off the water. So I think for all those reasons, we feel pretty good.

Eileen Maricar, Senior Vice President and CFO, Kiara: Thank you.

Joelle, Conference Operator: Okay. Your next question comes from Patrick Kenny with National Bank Financial. Your line is now open.

Dan Kupferson, General Manager of Investor Relations, Kiara3: Thank you. Good morning. I just wanted to go back on the performance of the condensate infrastructure in the quarter. Obviously, well positioned as TMX was ramping up there. Just wondering how we should be thinking about additional upside from here or white space available without having to spend material dollars going forward?

Or if and when we see further egress expansions come to light, whether it’s down the mainline or Trans Mountain, would that call for incremental investment into your condensate capabilities over the next couple of years to handle that additional wave of volume?

Dean Sediguchi, President and CEO, Kiara: That’s a great question, Patrick. And I’ll turn that over to Jamie. But one of the things that I’d like to point out is that, the beginning of twenty twenty three, when we bought an additional 22% interest at KFS, really we focused on the frac capacity that we’re acquiring because that was in such high demand. But with it, we also received 0.2% of 17,000,000 barrels of Cameron storage. So that gives us some capacity to provide additional services for oil sands as an example.

And we do have the hub for diluent, about 70% of all the diluent that goes up to the oil sands originates from our system. So as demand increases for diluent, certainly we see that demand and volumes on our system increase. I would also point out that we have our Norlite pipeline, which is a joint venture with Enbridge (NYSE:ENB). We own 30% of it. So we see increasing demand there as well.

So overall, we’re pretty well positioned to help service the Oil Sands business and also help it to enable growth.

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: Yes. The only thing I’d add to that Pat is that we have a really good handle on obviously the system, our condensate system, our Fort Saskatchewan condensate system with respect to what would be required to accommodate that growth. And we’ve identified it would be nominal dollars. It’s going to take some dollars, but not big dollars and ultimately there’ll be very high rate of return dollars to invest in expanding the capacity of that system.

Dan Kupferson, General Manager of Investor Relations, Kiara3: Okay. That’s great guys. Then I guess with the balance sheet in great shape, maybe this is for Eileen. There’s no need to sell anything obviously, but curious given where the Canadian dollar is, if there might be any opportunity to monetize any non core or perhaps underperforming assets in The U. S, especially with your 4.75 U.

S. Notes coming due later this year. Just curious if the plan is to roll those over and keep a small level of USD debt within the cap structure or again perhaps look to dial that back?

Eileen Maricar, Senior Vice President and CFO, Kiara: Hi, Pat. I’d say overall in the USD debt, relative to our size today, it’s not super material. I mean, it’s something that we’re always looking at, whether it is to roll it over or just pay it down. Again, given where the balance sheet is today, I think we have lots and lots of flexibility and that’s a great place to be. I think it’s a huge competitive advantage for us.

Dean Sediguchi, President and CEO, Kiara: Yes. In terms of dispositions, Pat, you would have saw that we in 2024, we did sell off a number of our smaller non core assets. And that’s to make sure that we can focus our attention on assets that are more core to our business, both today and into the future. So we’re pleased with that. And I’d just say overall, we continue to evaluate our portfolio and we’ll continue to high grade it over time.

Dan Kupferson, General Manager of Investor Relations, Kiara3: Okay, perfect. So last one, if I could, on the AEF outage. Apologies if I missed it, but I just wanted to confirm that this new operational issue doesn’t give you any pause as it relates to that debottlenecking opportunity you were looking at. Or maybe on the flip side, might this six weeks of downtime just give you a chance to do some prep work and perhaps accelerate the timeline for the 5% to 10% expansion?

Dan Kupferson, General Manager of Investor Relations, Kiara0: Yes. Thanks, Todd. It’s a great question. And it would be nice if we’d be able to do that. What I would say is the outage work we need to do doesn’t really impact the bottleneck project in any way.

We continue to still develop that. As far as pulling things forward to try to do that in this outage, whether it’s related to the bottleneck or even the turnaround in 2026, there just isn’t time to do that. So it’s unfortunate. It’d be great to do that. We try to whenever we get an outage, but it’s really going to be just specific to the work that we need to do now and then the turnaround 2026.

So the development of the project will stay on the original timelines.

Dan Kupferson, General Manager of Investor Relations, Kiara3: Okay. That’s great. I’ll leave it there. Thanks, everybody.

Dean Sediguchi, President and CEO, Kiara: Thanks. Have a good day, Patrick.

Joelle, Conference Operator: Your next question comes from Nate Haywood with ATB Capital Markets. Your line is now open.

Dan Kupferson, General Manager of Investor Relations, Kiara4: Thanks very much. Good morning all. I just wanted to turn the focus back to the G and P business. And I appreciate your comments around the Duvernay and Spirit River. But focusing more on the North, we saw in the commentary there’s some additional spending towards connections for new customers at Wapiti.

And we saw really strong volumes to close out the year in the Northern Region in December, which was a really big step up from volumes we saw earlier in the quarter. So I just wouldn’t mind getting your take on the volume outlook from the region and maybe if the exit 2024 rate is a good utilization going into 2025?

Dean Sediguchi, President and CEO, Kiara: Good morning, Nate, and thanks for the question. I’ll turn that over to Jamie to respond.

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: Yes, Nate. So, yes, we have had some really good positive contracting momentum around all our Northern GMP assets, but certainly around Wapiti, we’ve gotten to a point now where we’re fully contracted on the initial capacity of that facility. And the reference is we did some tie in work back in the fall during one of our outages and we’ve got one more customer that we’ve contracted for that’s going

Dean Sediguchi, President and CEO, Kiara: to be

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: delivering volumes in 2026. And that’s what that tie in is referenced to. But fundamentally, obviously, the Montney is a world class resource. And as we look at how we’re going to be able to work with customers to be able to satisfy their growth aspirations, we’re really looking at how can we optimize around our Simonette facility that has available sulfur processing capacity and front end capacity at that facility. And we’ve got a lot of interconnection and pipe in the ground that allows us to shift some volumes around in that Wapiti, Gold Creek, Simonette area, but also looking at greenfield opportunities as well or expansion opportunities at our existing facilities.

So lots of conversations going on, very

Dean Sediguchi, President and CEO, Kiara: positive and constructive conversations. And again, just

Jamie Urquhart, Senior Vice President and Chief Commercial Officer, Kiara: want to

Dean Sediguchi, President and CEO, Kiara: emphasize that all the opportunities that Jamie’s team is working on, they’re also trying they’re also working on integrating those deals. So it’s not just G and P, it’s also caps, frac and our downstream business including marketing.

Dan Kupferson, General Manager of Investor Relations, Kiara4: Got it. I appreciate that. I don’t know, Terry. Just maybe turning back to the capital projects with KFS three and Capstone four, like you’re making good progress. I just wanted to know if you can provide some detail around the construction environment you’re seeing going into the latter half of twenty twenty five and into 2026 and maybe some considerations around cost inputs?

Dan Kupferson, General Manager of Investor Relations, Kiara0: That’s a great question, Nate. Given our plans and plans of others across the province and particularly in the Heartland, but I’d say it’s not a new challenge. We’ve had times in the past where there’s been periods of high activity that have really challenged the availability of resources. And in the recent past when we were doing caps, there was significant other pipeline construction in Western Canada at the time. So I think the key is looking further out and both around construction and operations personnel that we’ll need when those projects are done.

And the earlier that we identify those needs and the sooner we can get on it. So a couple of things that come to mind are contracting strategies in terms of who we use and how we structure those arrangements. So it will take some creativity to ensure we can get the quality workforce we need. And in terms of our own operations folks, I think about even just the importance of culture. We know workers have choices in this environment and we want to be an employer of choice.

It’s a good problem to have since it means we’ve got line of sight to growth, but it’s definitely top of mind for us as we develop those projects.

Dan Kupferson, General Manager of Investor Relations, Kiara4: Thanks very much. I’ll turn it back.

Dean Sediguchi, President and CEO, Kiara: Thanks for your question.

Joelle, Conference Operator: There are no further questions at this time. I will now turn the call over to Dan for closing remarks.

Dan Kupferson, General Manager of Investor Relations, Kiara: Okay. Thank you all once again for joining us today. For any remaining questions, just feel free to reach out to the Investor Relations team. Hope everyone enjoys a nice long weekend for those who have the extended weekend here. Thank you.

Joelle, Conference Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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