Keyera Corp

Keyera Corp

Chevron Agreement Highlights Strategic Infrastructure At Fort Saskatchewan

Our Conclusion
While early stages, the announcement has positive implications for utilization at Keyera’s Fort Saskatchewan facilities and should improve market sentiment regarding throughput and competition. It may also indicate Chevron’s commitment to the Duvernay. We maintain our $46 DCF-based price target and Outperformer rating.

What’s The Event?
Keyera announced a 20-year area dedication agreement with Chevron Canada (Moody’s Aa2\Stable), covering 50% of NGLs from 230,000 acres (the “area of dedication”) in the Kaybob region of the Duvernay. Under the agreement, Keyera will provide fractionation,
storage, and terminalling services under individual fee-for-service
contracts. Initial services will be provided from Keyera’s Fort Saskatchewan complex, utilizing existing capacity. Longer term, potential expansion is possible depending on Chevron’s success in the play.

The agreement reflects Keyera’s integrated service offering at Fort Saskatchewan, and securing a base level of volumes can increase utilization and benefit margins. The positive implications for throughput trends should also help sentiment. Additionally, the agreement ensures the company will not get shut out of the Duvernay, potentially mitigating some concerns around the company’s competitive position. Expansion opportunities provide
upside, though these are less certain and longer dated.

On February 16, Chevron and Pembina entered into a capital agreement for a similar 20-year contract in the Kaybob Duvernay, but covering gas gathering and pipeline, processing, and liquids stabilization facilities. With this agreement, Chevron is effectively splitting NGL commitments between Keyera and Pembina, which could indicate its bullishness on the play.