Keyera is in the dog house

Keyera Corp. is a leading energy infrastructure company in Canada and has been a significant part of the country’s energy sector for the past two decades. Keyera operates assets in the oil and gas industry in the oil and gas exploration and production, and the refining and marketing of finished products.  

Keyera also markets iso-octane, propane, butane, condensate, and crude oil to customers in Canada and the U.S. Keyera’s core infrastructure is strategically located in key producing areas of the Western Canada Sedimentary basin and Edmonton/ Fort Saskatchewan energy hub.

The company operates through Gathering and Processing (~27% of realized margins),  Liquids Infrastructure (~42%), Marketing (~31%) segments. Keyera’s NGL and condensate network, including pipelines, terminals, fractionation, and storage facilities are located in major North American NGL hubs. 

Keyera currently has interests in 14 active gas plants located in Alberta. The company operates well-maintained and long-life facilities along with an extensive gathering system consisting of over 4,000 km of pipelines.

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Investment Data
 

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Revenue Growth & Market Exposure

With two decades of experience, Keyera has developed a strong reputation for expertise in operating complex energy processing facilities. Its integrated businesses provide customers with a full range of essential midstream services. Keyera’s broad customer base includes a high proportion of investment-grade counterparties.

Keyera is growing organically as well as through acquisitions. The company is strengthening its leading position by investing in capital programs that are poised to support future growth. Projects like Wapiti and Pipestone gas plants should double Keyera’s existing gas processing capacity.

The company is well-positioned to capitalize on the long-term growth opportunities within the Western Canada Sedimentary Basin, which is a rich natural gas basin in Canada. All of its projects are underpinned by long-term agreements with producers which also adds to its fee-for-service cash flows. 

Keyera continues to invest in projects that generate strong rates of RoIC with its healthy balance sheet. It is focused on enhancing its integrated value chain for higher margins. The company’s high barrier-to-entry assets in the form of strategically located gas plants in liquids-rich western Alberta, highly utilized fractionation, storage, transportation and upgrading assets, and industry-leading condensate system, etc., and access to high-value markets act as strong competitive advantages.

Keyera reported a net loss of $62 million for the full year 2020 as a result of impairment expense resulting from the shutdown of gas plants as part of the asset optimization program. The Liquids Infrastructure segment demonstrated its resilience through multiple commodity price cycles. The company should benefit from the ramp-up of the newly commissioned Pipestone gas plant, and the Wildhorse crude oil storage and blending terminal which is expected to be operational in mid-2021.

Dividends

Keyera Corp is a Canadian dividend aristocrat with a long history of steady dividend growth since its IPO in 2003. The company has an impressive yield of more than 7% currently and has compounded its dividend growth at a rate of 6% per annum over the last decade. It is targeting a payout ratio of 50%-70%. Keyera paid dividends of $423 million in 2020 representing a 7% increase over the last year.

Keyera has maintained a strong financial position and is well-positioned to fund its capital program. The company has a sound track record of delivering income and growth, supported by a predominantly fee-for-service (~70%) cash flow stream and virtually no direct commodity price exposure for Gathering & Processing and Liquids Infrastructure businesses.

Its marketing business continues to be a strong contributor to cash flow. Around 65% of Keyera’s realized margins are derived from investment grade customers and ~40% of realized margins were generated from take-or-pay contracts with an average remaining duration of 7 years.

Keyera is expecting to witness a continued ramp-up of volumes and associated cash flows from its infrastructure investments in the condensate rich Montney area. Its distributable cash flow per share is expected to gain from increased volumes through new assets, lower cash taxes, and maintenance capital and has grown at a 9% CAGR since 2008.

The company reported a full year distributable cash flow of $718 million representing an annual increase of 21%. Capital expenditure during the year was in-line with the guidance range of $500 million to $550 million and was significantly reduced as a result of deferment of the KAPS pipeline project by one year. Keyera expects growth capital to be between $400 million and $450 million and maintenance capital expenditures of $25 million-$35 million in FY2021. The company also made significant progress on its annual cost savings target of $45 million to $65 million. 

Keyera continues to grow shareholder value through prudent capital investments that are expected to generate attractive returns on capital. An extensive network of natural gas processing facilities and pipelines, a large scale, and relationships with customers form a deep moat around Keyera’s business.

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Competition

Enbridge Inc, TransCanada Corp, Pembina Pipeline Corp, and Inter Pipeline Ltd are Keyera’s leading competitors.

Enbridge is Canada’s largest natural gas distribution provider while Pembina Pipeline is a leading midstream and transportation service provider in North America. TransCanada Pipeline is a North American infrastructure company, supplying more than 25% of natural gas consumed daily across North America.

Keyera’s predominantly fee-for-service based and integrated business, strategic locations, and large scale differentiates it from peers.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:ENBENBEnbridgeEnergyOil & Gas Midstream0.6946.2274.7231.3131.311.480.07237.232.256843.340.188978Tollbooth - UnregulatedYESYESYESNOCanada1
TSE:TRPTRPTC EnergyEnergyOil & Gas Midstream0.7158.6845.8412.3812.384.740.05935.930.734243.480.129769Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:PPLPPLPembina PipelineEnergyOil & Gas Midstream0.6236.5820.120.000.00-0.870.06896.891.0000122.520.111279Tollbooth - UnregulatedNONOYESNOCanada1
TSE:IPLIPLInter Pipeline LtdEnergyOil & Gas Midstream0.4318.057.7521.5221.520.840.02662.660.5714120.480.055525Tollbooth - UnregulatedNONONONOCanada1
TSE:KEYKEYKeyera CorpEnergyOil & Gas Midstream0.5226.115.7792.7992.790.280.07357.356.8571121.920.136567Tollbooth - UnregulatedNONOYESNOCanada1
TSE:GEIGEIGibson Energy Inc.EnergyOil & Gas Midstream0.4621.913.2126.8626.860.820.06396.391.707341.400.063925Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Keyera Corp. is a lucrative stock with a high dividend yield and recovering oil demand. The company is positioned very well in terms of growth opportunities in the midstream chain through 2022.

Keyera has some growth opportunities given its expertise, a strong balance sheet, and financial flexibility. It continues to execute on significant growth capital program with the ongoing work KAPS pipeline which will further provide secure, long-term cash flow with 75% take-or-pay.

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