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Keyera CEO dissects winter rail crunch for NGL output, looks to avoid repeats

Keyera Corp.'s burgeoning NGL business was squeezed by competition for rail service in the past two quarters after a pipeline outage sent oil producers scrambling for alternate transportation.

The Calgary, Alberta-based company's expanded fractionation plants and pipeline network ran at full speed in the first quarter, and sales of propane and other products boosted profits, company executives said on their first-quarter earnings call. But the rail curtailments in the region "affected both our propane and iso-octane shipments" in late 2017 and the first months of 2018, President and CEO David Smith said.

"Thankfully, it turned out to be not a huge impact, but those are volumes that we really can't get back just because of the fact that the plant is generally running flat out," Smith said on the call to discuss first-quarter results. "With respect to propane volumes, we will catch up on those shipments eventually, but as you can appreciate, it's more lucrative to be moving railcars of propane in January and February than it is in May and June."

Canada's railway companies were caught by a surprise upswing in demand following an outage on TransCanada Corp.'s Keystone pipeline network in the U.S. in November. The outage and subsequent lower volumes that persisted through the first quarter sent oil sands crude producers scrambling for railcars to ship their output. Surging production from the liquids-rich shales that straddle the Alberta-British Columbia border also boosted demand for railcars to move propane and other NGLs.

"I don't think the curtailments are what I would describe as material, but certainly, it was a disappointment," Smith said. "We're working very hard with the parties involved to try and make sure that we have contingency plans in place for next winter."

Keyera reported first-quarter adjusted EBITDA of C$189.4 million, an increase from C$148.2 million a year earlier. The S&P Global Market Intelligence consensus estimate of adjusted EBITDA was C$186.1 million. The company's distributable cash flow in the quarter was C$155 million, an increase from C$121 million in the prior-year period. Keyera reported net income of C$88 million, a decrease from C$96 million a year earlier.