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Canada's Keyera elbows its way into Cushing, Okla., liquids hub

Keyera Corp. will build a 4.5 million-barrel storage terminal in Cushing, Okla., as the Canadian midstream operator makes a foray into the U.S. midstream market.

The Calgary, Alberta-based company plans to have its Wildhorse facility in service by mid-2020, Dean Setoguchi, who heads the Keyera's liquids business unit, said on a conference call. The terminal would help the company tap storage demand from the booming Permian Basin and heavy Canadian crude producers and complement Keyera's recently acquired Oklahoma Liquids Terminal, which is approximately 50 miles away. "We are selectively extending our liquids infrastructure into key U.S. liquids hubs," Setoguchi said on the Aug. 9 earnings call. "Oklahoma is the largest crude oil storage and trading hub in North America."

Keyera is developing businesses outside Canada, where it operates natural gas processing infrastructure, offers oil storage service and produces NGLs. Its Oklahoma facilities will allow it to store oil and then ship diluent, ultra-light oil that is used to thin oil sands crude for transportation, back to Canada via third-party pipelines or its own rail cars. Canada has not shared in the recent U.S. oil production boom as pipeline constraints have kept prices low and led producers to curtail expansion. The U.S. also offers companies a greater return on investment as Canada's dollar has languished compared with its U.S. counterpart.

The company saw profits surge in its NGL production business as demand rose for iso-octane, a gasoline additive that Keyera manufactures. As auto manufacturers produce more fuel-efficient vehicles with smaller, high-compression engines, demand for the anti-knocking agent has surged.

Keyera's Alberta EnviroFuels plant near Edmonton, the world's largest standalone iso-octane plant, ran flat out in the third quarter. Realized margins in the company's marketing segment jumped to C$90 million in the third quarter from C$23 million a year earlier, Setoguchi said. "Our iso-octane margins were exceptional, primarily due to high octane premiums from strong short-term demand," he said.

Keyera on Aug. 8 reported second-quarter adjusted EBITDA of C$209.9 million, an increase from C$133.2 million a year earlier. The S&P Global Market Intelligence consensus estimate of adjusted EBITDA for the quarter was C$174.7 million.