Title: Toby McKenna (Rockpoint) — Building North America's #1 Independent Gas Storage Company
Show: Trevor Rose (podcast)
Guest: Toby McKenna — CEO, Rockpoint Gas Storage Inc. (TSX: RGSI)
Date: 2026-09-10
URL: https://youtu.be/0OOPjDZz8Uo
Length: ~88m30s (5310s)
Note: Auto-caption transcript. Fillers (um/uh/you know/like as tics) and stutters removed; wording otherwise verbatim, every (mm:ss) cue kept in place. Auto-caption mis-hearings corrected to the intended entity where unambiguous: "Acho/Ako/echco" = AECO, "Softfield" = Suffield, "Countis" = Countess, "Vegggerville" = Vegreville, "Loi and Kirkp Hills" = Lodi / Kirby Hills, "Trey's Pelosious/Trace Palasio" = Tres Palacios, "M Bridges/Nbridge" = Enbridge, "Nisca/Niscu" = Niska, "Drafus/Drifus" = Louis Dreyfus, "Hybrbridge" = Highbridge, "Joel Mloud" = Joel MacLeod, "Nimsdale" = Nimsdale (now AltaGas), "TACA" = TAQA, "LG/LG2/LG Canada" = LNG / LNG Canada, "IBITA/ebida" = EBITDA, "OBAs" = operational balancing agreements, "bumen" = bitumen, "CPU" = the CPUC (California Public Utilities Commission), "meta$13 billion" = Meta's $13bn Alberta data-centre announcement. Timestamps past the hour are written (h:mm:ss).

(00:00) Good morning, Mr. Toby McKenna. Thank you very much for doing this. I appreciate your time. >> My pleasure, Trevor. Thanks for having me. >> For the listener, you are the CEO of Rockpoint Gas Storage. But what is Rockpoint Gas Storage? What's your value proposition to the market? >> Rockpoint Gas Storage is a 280 Bcf storage company.
(00:18) We're the largest independent storage company in North America. We've got six facilities, all very strategic. Three are in Northern California, three are in Alberta. In both of those markets, we would have about 30% market share. And so we'll talk a lot about storage today hopefully and we can explain why we're so important.
(00:39) But the value proposition at the end of the day is to help supply peaking during the winter typically and to help with price discounting during the summer prototypically. We've witnessed a massive change to the way supply and demand in North America works. And so the demand on us for operational purposes has changed not just the way our customers use storage, but the way that storage is being used broadly in North America.
(01:04) And that's added to an enormous amount of new volatility coming in the market. And ultimately, we're here to help suppress volatility and offer services to customers to help them manage their own version of volatility. >> So market cap of approximately $1.4 billion in the public markets, but including Brookfield's about 60% class B ownership, that takes the equity value up to almost $4 billion, I think.
(01:26) >> Yeah. That's about right. >> So it's a pretty sizable company. >> It is. And we're growing, and so we've made a lot of progress over the last couple of years. We still have a long road to go. We've got a great 5-year plan in place to continue to grow.
(01:42) As mentioned, the market continues to need us in unique ways. So where we're really spending a lot of time at the end of the day, Trevor, is just trying to optimize our facilities, be a little bit faster on rate, be a little more flexible for being able to manage larger amounts of gas in shorter periods of time. With the introduction of LNG, ultimately the new demands coming from AI and data center demand, the already new electrification demand on EV vehicles, etc.
(02:10) And then lastly, the ultimate sort of ace in the hole, at least in the Alberta market, is new demand coming from oil sands. All of those segments that I just mentioned don't use storage the same way that the old storage was used. When I started my career back in the mid '90s, every pipeline being built was targeted at Chicago, New York, Toronto, Montreal, Pacific Northwest, and California to a lesser extent.
(02:35) Those markets were using natural gas storage as a heating load. Today, all of the new demand is using natural gas for operational purposes, and that's really changed the dynamic and really changed the way that our services are being used and valued. >> In simple terms, your product offering to your customers is a responsive way to access the gas.
(02:54) It can be on stream very quick when they need it for their services. >> That's absolutely right. And in the old days, that responsiveness was needed on withdrawal. Now, we need that same responsiveness on injection. And that's the big difference. An LNG company, for example, where they're having most of their disruptions is on injection.
(03:11) So if a ship doesn't show up, if there's some sort of an operational hiccup, large amounts of gas have to flow back into the market. And those require large injections. And of course, that's the put option that hadn't existed for the past three decades. That's really changed the value proposition. >> So, quick access in a nutshell.
(03:26) >> Quick. >> You're also the largest independent pure play natural gas storage operator in North America. >> Yeah. >> So, that's a great start. >> It is a great stat. I think what's also really compelling is the fact that most of our competitors are owned by large strategic integrates.
(03:42) These are companies that love their storage, right? Your Williams, your Kinder Morgans, your TransCanada, your Enbridges. And so while we're the largest independent, we do offer now that we're public, since October, the introduction to investors to be able to participate in a pure-play storage opportunity.
(03:59) But at the end of the day, what we also love is that we're in a really big pond and we're really important just like our competitors are. It is a rising tide floats all ships story. But at the end of the day, we have a lot of respect for our competitors and we all are sharing in this new value proposition that's upon us.
(04:17) >> Yeah. And as you mentioned, you went public in October 2025. It was about a $700 million raise, 10 times oversubscribed. So, there was a lot of demand. >> There was a lot of demand. It was one of the most exciting times of my career. We had no idea what to expect to be honest.
(04:35) Our advisers had told us there wasn't a lot of energy companies coming to market. There were some previous iterations of energy coming to market in a market that maybe wasn't as excited about it. When we hit the road, probably within the first 2 days, we started to see this massive amount of interest that I was a little bit surprised with.
(04:55) Ultimately, it made a lot of sense to me because it really resonated with customers that the macro backdrop was changing in a considerable way. The invasion of Ukraine from Russia on Ukraine was a big disruptor in Europe that exposed Europe and some of their energy disadvantages. As we started to see LNG grow on the North American market, it became pretty apparent to investors that natural gas in North America is being used to balance worldwide supply and demand.
(05:23) And now all of a sudden with all of this new growth coming into the market, it's very obvious I think now that the market's understanding that the volatility is a major issue that needs to be dealt with and there's a way to participate in it and that way is physically through natural gas storage.
(05:38) We're really one of the only ways to get that exposure and so investors' take-up was high. The story really resonated. We're thrilled with the take-up and really excited to be public and to see what's next. >> So, do you remember when interest started to pick up and it was surprising and you started getting calls? >> Yeah, I shouldn't be surprised but I was. I think we just anticipated that there would be more education required.
(06:03) We didn't know that investors could write the size of checks that they could write in the very short period of time for something that wasn't potentially as well understood given we were brand new in the market. And so our team did a really good job I think on helping simplify a message of suppression of volatility, the opportunity to sell customers services that really matter, that is critical to their decision-making and critical to the way they operate.
(06:31) As we simplified it and we were able to show investors a path towards growth and stability of our income streams, they were signed up and I believe we had an 80% hit rate as well. So, in addition to the stats that you mentioned, we felt really good about that. That means things were going really well.
(06:48) So I was thrilled that it was resonating with investors and really thankful that they were taking it up as quickly as they were. >> So, your phone starts to light up and you have to tell people, "No, I'm sorry. We've sold a lot of shares." >> Well, my phone doesn't light up, but the advisers, which was RBC and JP Morgan, I think they were the ones giving us the advice and dealing with the interaction with customers.
(07:06) I think they were having a lot of fun with the interactions as well. And I think our shareholder Brookfield was also pretty happy with the outcome of how much demand there was for something that they had believed in for a long time. >> But you also have a pretty interesting story before Rockpoint which maybe we'll get into.
(07:26) So originally I think you're from out east. Where did you grow up? >> Yeah, born and raised in New Brunswick which is not necessarily an energy hub as you're aware. So grew up there, went to high school there and then went to university at St. Francis Xavier in Nova Scotia which has become a very important institution for my family.
(07:46) Since that time that I went to school I was the oldest of three and my parents had went there and I went just because I was seeing interesting pictures and so forth. There was not a lot of pressure to go per se but I'd always seen the ring and I'd always heard their stories. Since that time not only did my parents and many of my aunts and uncles and my grandparents go to St. X.
(08:07) Since then, my brother and sister have gone and now every one of the children in the family have either gone to St. X or applied to go to St. X. We have one left. My one niece in New Brunswick and if she goes, it'll complete the sweep of four generations. So, real proud to have graduated from St. X. >> So, you went there and then what were you thinking when you graduated? >> I just thought it would be an interesting opportunity to go west just like many young people to experience what it was like to live out west when I grew up
(08:34) entirely out east and hadn't had really any exposure. My story is probably not much different than many folks that migrated from the east to west. I met a girl which is now my wife. So she enticed me that this was a great place to raise a family and as we started our young journey and our young careers, our love for the mountains and lakes, it became evident that this would be a great place to raise a family and I had started in energy pretty young and was having a great career and just thought
(09:03) it was a great place to lay roots. >> So you were thinking energy had a good career ahead of you and this was a good spot to start. >> Yeah, I was very fortunate to have started in a really interesting firm. West Coast Energy had started what was considered more or less a high-tech company at the time, Natural Gas Exchange or NGX.
(09:23) And we were trying to get trading to come away from the over-the-counter phone transactions through brokers onto a screen, with the benefit of anonymity, strong credit and clearing and quick and secure transactions. And as easy as that sounds, given how successful that company has been to date, it was a really hard challenge.
(09:44) And that's where I started my career, understanding commoditization of natural gas, deregulation of natural gas, understanding from the customers what the woes were with the contract profiles and how it worked and flows and nominations and on and on. And soon thereafter, I was recruited to go into trading.
(10:02) It was a great way to start my career. Started with a wonderful group of people out of West Coast Energy which is Engage Energy. Spent 10 years there and that was the beginning of sort of my natural gas career but also my natural gas storage career. >> This podcast episode is powered by ATB Capital Markets. ATB Capital Markets provides financial solutions and strategic advisory services to help businesses thrive.
(10:27) With a track record of successful deal execution, ATB is a full-service investment dealer with a deep understanding and commitment to the industries it serves. Visit atbcapitalmarkets.com for more information. >> So it has been in the 90s. >> Mid-90s. Yeah, you bet. >> So you had a good job out west and life was good. >> Yeah, it was good.
(10:46) >> Then you ended up at Louis Dreyfus Energy Canada as a co-founder I think. So maybe for the listener that is an interesting company. What was that opportunity and why did you take it? >> Yeah, so a man by the name of Dave Delaney was the real founder of the company. He was good friends with the William Louis Dreyfus family and he had a lot of experience with energy.
(11:07) He invited myself and two or three others to start this adventure with him and we were going to brand it under the Louis Dreyfus Energy Canada name. The family of course have been in commodities for over a hundred years and are one of the most prolific families in commodities in the world.
(11:23) They own ships. They're obviously one of the biggest soft commodity players in the world still today. I never met Mr. Dreyfus myself, but he was an amazing man by all accounts. I know a lot of my colleagues did. And yeah, we started the company. We had a lot of fun. That company had morphed into a partnership with a company called Highbridge Energy and became Louis Dreyfus Highbridge or LDH Energy and then shortly thereafter had brought in new ownership and became Castleton Commodities which is the name
(11:53) that that company's origins exist today. >> So 2003 they came into Canada, they spotted an opportunity for commodities trading in the country. >> Yeah, exactly. >> And you saw that opportunity too because you were a co-founder. I think you had part ownership. >> Yeah, I didn't have ownership per se.
(12:10) It was more of a phantom structure, but yeah, it was a really interesting time. A lot of different companies were coming into Canada during the various cycles of commoditization and deregulation and Canada looked really interesting at that time. It had matured since the mid '90s a little bit. And there was a lot of growth through new producers coming to Canada from the United States in particular.
(12:35) There was some Asian companies starting to enter into the market and all of this just drove sort of an interest from some of the sophisticated money or smart money from, in this case, the US that said hey there may be an opportunity for us to extract value by being smart in a market that we can have an advantage in from a cost of capital and risk understanding. And I learned a lot about risk management from them. They were very sophisticated, very analytical, a fundamentals approach bottom up which is from
(13:03) my perspective a great way to learn and the reason they're so successful today is because of how smart their approach has been and continues to be. >> So you spotted the opportunity. It eventually went into Castleton though. So how did that work? >> Yeah, nothing really from my perspective changed on the Canadian side.
(13:20) It was more or less just a shareholder change and the company continued to grow. They did as a company continue to expand and in fact did acquire some storage assets both in the NGL space and the gas space and so, more being an observer from the Canadian side, we were really segregated by region. We became regional specialists so I was able to watch what they were doing in the US and learn a little bit from it but for the most part I was really just a hired gun. I was just a financial and physical trader with expertise in
(13:51) the Alberta market at that time. >> That was the time in the late 90s into the early 2000s of a commodity bull run, too. Did you get a sense of that and did you realize it? >> No. I would, if I did, I'd probably still be there. No. From my perspective, you're right. There was a bull run.
(14:09) There was a lot of things changing in the market. It was met pretty quickly with a bear run. And so, if you talk to my former colleagues, most of them will say Toby's a bear. I think all traders learn one way or another through pain and where we all have PTSD is when you have your wins, you get really good at trying to repeat them and when you have your losses, you get really good at trying to never do it again.
(14:32) And I ended up making most of my money in my career on the bearish side of the equation. So I missed a lot of that bull run, I would say, and probably why I had to morph and change my career pretty quickly to try new things. >> But you had the run up in '08 with crude oil at that time, too. So I don't know if you were trading in that period.
(14:50) >> Yeah. I know for sure. I traded all the way through. We didn't always see these macro trends, right? We really were isolated with risk management capital or risk capital or VAR. And so when you're straddled with such a strict guideline on where and how you can deploy your risk capital, you tend to have shorter lenses and less ability to have a long-term focus which is actually really what I was craving. I'd always
(15:16) felt that that for me personally took away sort of one of the strengths that I felt I had, which was I can feel where things are going, but it's really hard to participate in a trend if you're going to get stopped out three times before you arrive. To say it differently, the market can stay irrational longer than you can stay liquid.
(15:36) And we've all heard that saying, didn't we? And so for me, it was a wonderful, wonderful career, Trevor. I loved every minute of it. I just over time decided that I needed to do something new and different. And part of my upbringing, before my dad went into politics, I know you're going to ask me a few questions about that in a few minutes.
(15:55) He was very entrepreneurial. He was a lawyer, but he was very entrepreneurial and he always had that entrepreneurial sort of influence on me. I was always intrigued by new and wonderful ideas and I wanted to be an entrepreneur to be honest for a long time. So leaving trading was as important a step for me as what I learned from trading.
(16:12) >> So you decided to leave trading. Did that lead into Tidewater then? How did that work? >> Exactly. Yeah. So I was very lucky. I kind of tried to spread my wings and I went out to speak to a number of entrepreneurs and folks that I knew that understood me a little bit and said, "Guys, the only thing I offer the planet right now is a view on whether natural gas is going up or down.
(16:35) I don't feel that I'm very interesting at cocktail parties. Is there anything that I can do to be a little different and try something new?" And my old boss Mike Broadfoot, I remember speaking to him. He was the Engage Energy president CEO at the time. You may know him from Solium and others.
(16:52) He's a very successful guy. He said, "You still have lots to offer. You can be an entrepreneur in the space." So I did a bunch of research on small businesses, medium businesses, everything there was outside of energy. And then determined through some push from folks that I had worked with that I could be an entrepreneur in energy too with a broader view that we were entering a massive bear cycle.
(17:16) I was of the view that we had to figure out a way somehow entrepreneurially to participate in a way to convert natural gas into something better. LNG was an obvious area to look at. But from little-me perspective, the capital required would be way too high. And so I had built a bit of a business plan where I wanted to get into the NGL business and figure out a way to get as much distressed gas as possible, convert it over to those more high value components of the natural gas value chain, your C2 plus, propane, butane
(17:46) etc. which you'd be familiar with. And I was introduced to a guy named Don Garner who is the former CEO of TAQA. He introduced me to Joel MacLeod. And Joel MacLeod, for many listeners, they'll know he's one of the best entrepreneurs in the energy space and was a wonderful opportunity for me when I met Joel for him to encourage me that yeah, you have a skill set.
(18:08) I can help you kind of get it going. You can help me especially on the natural gas side. And so we started Tidewater Midstream and off to the races we went. >> So the idea was it was a midstream business with the processing of natural gas to high value propanes and butanes and whatnot. >> I'd say that at its basic the most obvious principle was, how do we get into a place where we can convert cheap gas into liquids? So where do we find distressed gas? Where do we find new markets? Joel's team that he had
(18:39) worked with on a prior iteration were really strong in logistics and I had the strength on the natural gas side. So we teamed up and we grew through acquisition of gas processing facilities. We bought our first storage facility at Brazeau which was the Wild Rose deep basin asset.
(19:02) We started to build and acquire distressed pipelines. We were buying and building distressed rail facilities. And to this day — I'd left six seven years ago — but it morphed into refineries and so forth. So owning parts of the value chain that were in some form either distressed on a selling or a buying opportunity, putting it together to build the vertical value chain so that you could win off of one of those distressed parts of the value chain.
(19:31) And Joel is a master of figuring out how to unlock value. And taught me — I call it two PhDs worth of energy in my time at Tidewater. It was a wonderful learning experience. I ended up personally doing around 30 different transactions and I learned a lot on the M&A side which I was new to obviously, learned about the value chain and how deep it can go and how important the different components are and really prepared me for where I am today.
(19:58) There's so much to energy. It's so exciting and that entrepreneurial piece really scratched the itch that I had needed. >> This podcast episode is brought to you by Remote Power Corp. Remote Power rents, leases, sells and services industrial natural gas and propane generation systems, providing prime and backup power for drilling and completions, compression pipelines, and other off-grid applications.
(20:23) Remote power generators can reduce operating costs by 40 to 70% while extending service intervals and reducing emissions, from 170 kW to 30 megawatts. Remote power generators are mobile, remotely monitored and engineered for your application. Visit remotepowercorp.com for more information. >> So that took us roughly to 2020 I think is when you left Tidewater and got involved with Rockpoint.
(20:47) >> That's right. >> But before we get into Rockpoint, I thought we'd do a couple questions on your dad, Mr. Frank McKenna. Very prominent person in Canadian politics and business. Did you ever have political ambitions like your dad? >> No. [laughter] And I can say that definitively.
(21:06) And I think my brother and sister would say the same. I think we saw the positives, but we also saw the negatives. And I get that question asked to me quite often to be honest. It's really hard on families. You have more perspective as you get older. But looking at my own family with my own situation, one, I'm not sure I would get elected and it'd be a lot of effort.
(21:29) But two, it is really hard on families if I was in that position. >> It's a tough job. >> Yeah. >> You also had some interesting contacts from the USA, which I think we talked about a little bit before we started. One was George Bush Senior and the other was Bill Clinton. So do you remember when those guys started to come up in conversation in the family? >> Yeah.
(21:51) Well, my dad was premier with Brian Mulroney and so we as a family kind of grew up with the Mulroneys and the various premiers of the late 80s into the '90s. You may be aware my father had resigned 10 years to the day he was elected saying that every politician should expire at some stage which is a reminder of where we sit today.
(22:13) But moving forward, he was fortunate enough to be called by Paul Martin to become the ambassador to the United States and it was a really awesome and unique opportunity. I think him and my mother were at a point in their life where it was an interesting adventure and so they packed up and moved down to the US and so he had a relationship with George W.
(22:35) But it actually, I think, was more solidified due to his prior experience where he had relationships with the Northeast governors because of his time being premier, but he had also had relationships with George Senior through other iterations and with Bill Clinton, who he ended up becoming fairly good friends with. So he's always had a strong US connection and had strong US relationships, which was to a lot of people really interesting.
(23:01) To us, it was kind of normal. >> How do you mean George HW? That's an interesting one. >> Well, he was the president at the time and so we were — sorry, George HW Senior. So he met him through, I believe, a relationship through his TD Bank time where they did some recruiting of some of these prolific speakers to come in and talk to business leaders as part of a networking opportunity.
(23:30) And ultimately because George HW was from Kennebunkport, Maine or at least lived in Kennebunkport, Maine, he had a real strong connection to the Maritimes. And so my dad has an amazing note from Barbara Bush. They came to visit my parents' property in New Brunswick at one point. It was really neat time. They were up there for a speech and decided to come to the house for dinner or something to that effect.
(23:55) I actually wasn't there personally at the time, but my brother and sister were. And there were secret service all around. There were airplanes and helicopters and all the rest of it. And days or weeks later, my dad got a note from Barbara Bush who had observed that they were struggling growing flowers in their yard.
(24:11) And she was sharing her experience with the best flowers to grow in such a salty harsh environment because of their time at Kennebunkport. And so the Kennebunkport–New Brunswick connection, I think, is really what made them friends. And because of that friendship, they stayed in touch.
(24:26) And that allowed, when my dad was ambassador with George Jr., him to have that discussion about how George Junior had already known him a little bit because of his father. >> And despite being different sides of the political aisle or however you want to phrase it, your dad was, despite your views on the various politics of the country, your dad was good at doing deals.
(24:48) What do you think you took from your dad on doing deals and getting them closed? >> Well, that's it. I think that is what I did take. You nailed it — is that he had a way of seeing through the short term and understanding that everything had a consequence, cause and effect. And so he was willing often to put to the side a short-term part of a deal that most people would get consumed by and bogged down by and look at the big picture.
(25:13) And when you become transactional, which he did, the call centers were one of the big movements that he had where he was bringing businesses in from other parts of Canada and other jurisdictions into New Brunswick with the promotion that New Brunswick had a cheaper labor force and they were bilingual and that they were really willing to work hard and they were entrepreneurial.
(25:33) And he hit every business imaginable. I'll never forget it. He went to the UPS's of the world, the FedEx's, the Xeroxes, all of these large multinational corporations and said, "Hey, we'd love to have your facilities located in New Brunswick." And I think ultimately that led to hundreds if not thousands of jobs.
(25:52) And for him, that's really what he cared about was the jobs, the new jobs for the New Brunswick people. We weren't going to see an immediate benefit from it, but a year later when a family can eat and a year later when a family's buying a new deck and a new car, all of those things stimulate the economy.
(26:09) And he always knew that the big picture would play out. So his macroeconomic view is one that really stood with me as a businessman, and that's really where I kind of hang my hat today, which is see through tomorrow, focus on five and 10 years out. That's when you're really going to see the fruits of your labor for a lot of the decisions that you make today.
(26:27) And I think that's something that had been a little bit lost. People are really focused on short-term gains and he saw through that. >> So getting back to Rockpoint, 2020 is when you took over as CEO. >> Yeah. >> So that was a time of a lot of difficulty in the energy sector, but you spotted the opportunity.
(26:46) What did you see in the opportunity at the time that led you to believe this was a great company? >> Well, truthfully, I didn't. This is going to sound a little odd, but I really wasn't that interested in going to Rockpoint at the time. One of the recruiters had called me and had mentioned that this would be a really great opportunity given my experience in storage and in midstream.
(27:07) Prior to coming to Rockpoint I had traded storage at the AECO facility. I also had done work with the Alberta Energy Company to build the index for the AECO storage facility and had been around storage in some form for the majority of my career. When we went to Tidewater, not only did we acquire a storage facility, but we also were building one from the ground up, which is the Nimsdale facility, which is now owned by AltaGas.
(27:35) And so having touched all parts of storage, including the acquisition of land and dealing with the regulatory onlining and mineral rights and so forth, the recruiter identified me as a really good fit to take Rockpoint as it stood in a different direction.
(27:53) I thought at the time that I was a little too early in my time to maybe leave Tidewater, which was really one of my favorite parts of my career ever. It was a wonderful learning experience. I was learning, had a knife fight alongside Joel MacLeod which was a wonderful time in my life. I really didn't want to leave.
(28:09) It was a hard decision. But ultimately the recruiter asked me to show the offer to my wife and my wife being very pragmatic said you would need to take this. It's a stability thing that you've not had for a long time which I didn't care about. But she said you're really good at gas storage.
(28:27) And so I agreed with her reluctantly. And it was one of the better decisions I've ever made. It's been a phenomenal career going over to Rockpoint. It's a career move and we've really had a lot of success and I'm thrilled to say that I really did and was able to help make a difference almost immediately. >> Before we get into the operations of the Rockpoint Gas Storage stuff, I thought we could do a bit of history because it has a lot of history on how the stuff got built.
(28:52) Originally, it was an AEC gas storage property in Alberta for its own use in peak winter months. Expanded through the '90s and then AEC merged with PanCanadian to form EnCana. I think that's how the property started. >> That's how some of the property started. So our main AECO facility, the Suffield facility, the Countess facility and the Wild Goose facility which are three in our fleet were all started by the AEC and/or EnCana.
(29:18) AEC for sure did start the Suffield facility which is the biggest facility I believe in North America. Our other facilities were added on over time as they grew and understood the business. And as that morphed over the many, many years, Brookfield took notice and sort of in the 2012 area or so, Brookfield acquired the Warwick facility, which was a perpetual asset.
(29:40) They continued to kind of bolt assets on and then ultimately acquired Niska assets and sort of by the mid-teens had formed a portfolio of eight really great storage assets — seven fully owned and operated, one a Tres Palacios asset, a 49.9% non-op position with a company called Crestwood. And I was brought over to take these assets to the next level, sort of taking my understanding of midstreaming with commercialization risk management and see if we could make a different angle. And
(30:15) that's what we did. So when I got there, looked immediately at our very strong risk management practices and tried to understand where things were too restrictive, not restrictive enough, not as well understood, sort of taking some Castleton experience at that point going okay, this is how we would look at it there, and then from a midstreaming perspective what restrictions were we putting on ourselves from a physical perspective. And what I think all of us know and find in business, especially
(30:42) with companies that have been acquired, is that if everyone's been conservative at every move of the entire chain and over the years nothing's been really investigated or challenged, you get 10 conservative decisions that can lead to a 20 or 30% inefficiency. And so I was really just looking for every inefficiency I could find to help identify new ways for the company to grow.
(31:09) And it was from there that things really started rolling and then we had the macro trend starting to click in and that's where we stand today with sort of a double-edged sword of many things happening all at once, a confluence of bullish events. And I'm thrilled with where we took Rockpoint to where we are today.
(31:26) I'm probably even more excited about the future. >> Because in 2006 Carlyle Riverstone bought the EnCana gas storage unit, renamed it to Niska, which side note is a Cree word meaning Canada Goose, but then they took it public in 2010 and it had some difficulties due to shale I think is maybe one way to put it. So the question might be what's different now between the time in shale when things were a little bit more difficult for the company.
(31:52) >> Well, you nailed it. Okay. So, good for you, Trevor, because I do tell this story a lot. I used to tell it a lot. People, I think, have agreed with my overall view of where we are today. But if you look at storage from the '90s when I started, really it was a story of a bull, right? We had deregulation.
(32:12) Everyone was building pipelines to these large centers that needed load balancing. The pipelines needed operational balancing. And at that point, of course, shale didn't exist. And so it was a pretty exciting time for natural gas storage and its role in the value chain. All of a sudden fast forward to shale and that was really the game changer.
(32:31) So no one knew exactly what was going to happen. People were excited about the new technology and what it meant for the cost side of going after energy. But the bigger picture is that with that reduced cost and that abundance of supply readily available at any time due to that awesome technology, it meant that you could find gas anywhere it felt and you could turn it on at any time.
(32:51) And we all know that that resulted in overall a pretty bearish time. And on the one hand that's great for the industrials who were the large consumers of gas moving businesses into Canada even at the time. And that was all adding to the overall volatility just with new demand. But really, it was a major story of oversupply.
(33:11) From a storage perspective though, that shale was the number one competitor to natural gas storage. When the price would go to two bucks or three bucks, Chesapeake would turn on drill-baby-drill times, right? And all of a sudden the price would drop and then when you got down to a dollar, they would shut in.
(33:26) And I know both sides of this because I was a trader, both long and short, and getting stopped out at both ends of that spectrum. So I have a really strong memory of how elastic the signals of price were to shale producers. Fast forward to where we are today, we have simply a much different — it's a structurally different market.
(33:48) Not only are we still providing load balancing with producers who are under distress in the summer and buying their gas and giving them good cash flow to help their business going forward. In the winter, we're still providing load balancing for consumers who are short natural gas, but now the production side has changed considerably.
(34:08) The producers of today aren't going after shale or dry gas necessarily anymore as a target. They're going after liquids rich targets. And in fact, ever since the attack on Iran, it's exposed how much associated gas is coming from oil. So anyone targeting oil or oil associated price targets don't have the same elasticity towards low prices as the shale guys did and as a result the competition from production has simply gone away.
(34:36) We always had, call it four — in 10, 15 years ago, four Tcf of storage. And everyone always spoke about how much working gas do we have to get through a cold winter in North America. And what the market never talked about was, at what price does shale come on to help supplement that need for that critical amount of gas and what price do they shut in? Today, that second lever, the lever from the producers, is way less elastic.
(35:06) Producers have not just lower price thresholds or higher tolerance for lower price because they're selling most of the products based on a higher oil price, but they're also using different technology. Here we are today horizontal drilling and you're drilling horizontally on a very expensive well into a different formation. Those wells can't turn on and off at will.
(35:27) Any engineer will tell you it's going to potentially damage the well or it will have some impact on the long-term production of the well. And so producers are less readily available to shut in when prices are low. And because they're going after those oil targets, they're not so interested in shutting in when prices are low.
(35:47) So it's really been a big game changer on the supply side. >> So an observer would say right now all I keep hearing about is the oversupply of gas in Canada, North America in general, but the mechanics are slightly different because it's not as responsive. >> That's 100% right. Yeah. So not only are we seeing now in natural gas in North America, a major change with how people are using the gas storage because again 20 Bcf of exports on the Gulf, 5 Bcf coming into the Canadian market, a half a Bcf in the Mexican market. So you've got massive new demand
(36:17) that's just on the borders using current existing infrastructure and so from a demand side we can all understand the strain that that puts on infrastructure. The ability for production to get to that demand has been strained because oil pipelines or gas pipelines are needed in order to make the supply and demand match and of course these are 10 and 20 and 30-year projects. And when I talk to people about the demand side and they say wow this is really an exciting time, things have
(36:44) become — I'm very bullish. This is a problem that we should have solved 10 years ago. We shouldn't be here. We should have had those pipeline developments with the foresight by our various governments at the time to realize that there would be a need for more energy going forward. But without focusing on that, on the supply side now, we have the same issue.
(37:04) You're bang on. There's less elasticity to price. And because the lower for longer or the oversupply can happen for an extended period of time, we're now benefiting and our customers are benefiting from buying distressed gas. Something that I had not even put into our models over the past 5 years that we're now starting to focus on going forward is how long will producers produce at below variable cost on a dry gas basis.
(37:30) And last year we saw it during all of Q3 with prices at AECO for example down in and around the dollar level. This year we saw pricing in California well below variable for much of the summer. And so people are effectively using these pipelines as a way to get rid of gas. They're not looking at the gas value as part of the major decision process on where they're going to allocate capital.
(37:52) That's resulted in more spread volatility. It's resulted in a higher insurance value on the put. So the ability to get rid of gas. And both of those have benefited our customers and created new value premiums in natural gas storage. >> So you help some of the producers take that liability or cheap gas, you store it and then you provide it to someone else who may need it, very responsive on demand.
(38:15) >> Yeah, 100%. And it's typically not the producers to be honest, Trevor. Some of the producers are taking storage out today more than ever because many of them are vertically integrating due to egress issues into new markets. Right. It used to have producers focused in a particular basin and would sell effectively at market and then the marketers or the merchants would take the transport risk and move it into different markets. Right, today producers more than ever are taking downstream risk and they're even taking
(38:42) on LNG contracts so they have offtake risk as well. So both of those components of a producer decision have led producers to come and become storage customers because of operational needs within the value chain and they're taking that away from the merchant part of the community. But on the merchant part of the community, they're going, "Okay, Toby, we're going to have a really warm winter.
(39:05) I don't want to pay a big premium for insurance for the call in the event that it's going to be cold when I think it's going to be warm. But because this lower for longer continues to exist, I know I'm going to make money." So everyone's benefiting from what storage brings to the table.
(39:22) And storage, you'll see, has continued to grow considerably over the past decade. And when you look at it, what happened in the Gulf of Mexico, Trevor, we think that AECO is on the precipice of an expansion that could be significant. It's not our guidance, per se, but if you look at the one anecdote of what happened in the Gulf, Gulf of Mexico saw its first LNG arrive in 2014.
(39:46) By 2015, there was no real movement in the storage values in that market. Fast forward to today, and storage values in the Gulf of Mexico are 300% of what they were. So over 10 to 12 years, you've seen a tripling of storage rates in that market. The reason for that isn't just that there's new demand coming into the market that's exposed to international price signals.
(40:06) Okay, so that would be the logical one answer of why it's happening. What's really happening is much bigger than that. An LNG customer comes into the market and whether they're directly or indirectly participating with the storage on their own, they bring volatility that is not just inelastic to pricing both in the winter and the summer because they're protecting a $10 or $20 value chain of what their export market is bringing them, but they're also reserving space in some form of storage that is taken away from the conventional users of
(40:35) storage, the utilities. So it takes roughly three times the amount of space to reserve the injection capability for a storage player that now is taken away from a prototypical user of storage. And so the market share continues to effectively shrink for conventional users. And at the same time, the volatility continues to grow.
(40:55) So you're getting not just less storage available to solve a problem, you're getting more volatility creep into the market. So that's the double-edged sword I speak of. And that's why you continue to see the value of storage grow. And the insurance value, particularly the non-intrinsic value, that is the part that's growing at a bigger pace and that's because the value of the call and the value of the put in almost every market in North America is higher than it was for the past two to three decades.
(41:21) >> Yeah. In terms of operations there's like you mentioned six facilities, roughly 280 Bcf of working gas capacity. There's the AECO hub, Suffield and Countess. There's the Warwick hub. There's Vegreville. There's the Wild Goose hub. There's the Lodi and Kirby Hills hub. There's Salt Plains hub.
(41:44) Tres Palacios hub. >> Palacios. Yeah. So in 2023, we did an evaluation internally on what was core and non-core. And we determined the best path forward would be to divest of some of our non-core assets. The Tres Palacios asset was a 49.9% ownership non-op that we had with Crestwood in a really strong market in the Gulf that we decided to go through a sale with and sold that to Enbridge.
(42:12) And in 2023 we sold our very small Salt Plains asset to Spire. >> And so in terms of how the gas gets stored, a basic primer to the listener: it's not literally a tank underground. It's a reservoir, geological reservoir that's being utilized to store the gas. Is that correct? >> Yeah,
(42:31) you're bang on. Yeah. So in all of those cases, with the exception of Tres Palacios, that was a salt cavern. So today, realistically, across the North American fleet, almost all of the storage is either depleted reservoir or a salt. Salt is much smaller. It's a totally different formation. You go in and you're able to wash out from the surface a certain size of capacity.
(42:55) And salt is much smaller. It's shallower. It's easier in some ways, but it's really expensive because it's not a depleted reservoir. It's not something that existed. So you need a lot of man-made intervention to create or wash out a salt cavern. The benefit to a salt cavern is that it can provide higher deliverability injection and higher deliverability withdrawal.
(43:16) So we talk about the new users of today. They need that punchiness more than they need a large amount of gas, but that's not solving the broader problem for most of the value chain. Most of the value chain still need natural gas for heating purposes. And as we talk about those new segments that are coming in and putting new demand, they need lots of gas storage, but they're all using it for different reasons.
(43:38) So you look at the rest of our fleet and most of the North American fleet has depleted reservoirs. It's the lowest cost solution to solve most of the problem. They're large depleted reservoirs, millions of years old. They're all proven because of course they've been produced prior. So they're well understood.
(43:54) The geology is well understood. In our case, most of these caverns are what we call delta pressured which means the formations were of such an excellent quality. We were able to put more gas in them than was originally produced. Most new facilities today, in the last decade, only go to an origin of pressure.
(44:14) And so the barriers to entry continue to grow, and we can come into that in a minute. But as far as the Rockpoint fleet, we have an excellent, strategically located fleet of six assets, all depleted reservoirs with ultimately a 38-year track record. When you look back at the AEC days, many of our staff have up to 30 years experience, which is amazing to me.
(44:35) I was out there yesterday meeting with some of them. So we've got this expertise and we have this market incumbency that makes us a highly reliable source of balancing in the markets that we operate. >> And so what's to prevent an E&P company from doing that themselves? >> Yeah, that's another great question. And so people say, with the price expansion that's happening in storage, why don't we just go out and do our own, right? And we talk about it a lot with our investors, but I'll give you a summary. So there's four or
(44:59) five major ways to enter a storage product into service. You have to have excellent geology. You have to have an excellent location and a market that needs it. But it's more, and those are challenging in and of themselves, but they're not unique to us. Okay? So in Alberta, for example, there's probably another dozen reservoirs that have the quality of our reservoirs, but they're not necessarily located in a great location and more importantly, how close are they to a major transmission line. So, pipeline
(45:28) costs start to creep in. Okay? So you're not now just looking at the reservoir cost, the drilling costs, which are all well understood in most basins. Now you have a pipeline cost, which is becoming more and more of a risk, which we've observed over the past 5–8 years. Cost overruns are happening on pipelines at a high pace.
(45:45) The cost of that pipe and then the regulatory process to get it built is in and of itself challenging. That can still be overcome. So assuming you can overcome those three pieces of the value chain, now you need to go into a pipeline that actually can interruptibly take gas from you and interruptibly allow you to take gas from.
(46:05) And the difference that people don't necessarily understand of the value chain today is that all of that white space is spoken for. Right? You've had a lot of CEOs come in and they tell you their number one issue is egress. They can't get enough transportation out of the province if you're looking at the Canadian example. But virtually every example producers will tell you the reservoirs are as hard as getting the gas processed and out.
(46:26) Right? That's the same problem in storage. If you can't necessarily guarantee you're going to get gas off of the system because the demand end user has spoken for it, you can't necessarily put it on the system because the producers demanded that white space, then you're taking risk. And when you're looking at a multi-hundred million investment that not only will the proponent not backstop you because they understand that risk, but even if they did, you can't necessarily with your shareholders take that risk that you're going to be
(46:53) able to perform. And therefore, you've seen this massive barrier to entry with storage. Where we have seen some storage development is in the salt cavern space and most of that is in the southern United States. Smaller bespoke projects with new pipelines with proponents that are willing to backstop both the buy and sell side to solve the problem.
(47:14) So we're seeing some storage expansion but none of that storage expansion is changing the dynamic of the current supply demand economics for the incumbent users of North American natural gas. That's the problem and that's why we've become so scarce and why we're so valuable. >> So, it's kind of like a recipe where any E&P company could in theory have the initial storage space, but you need all the ingredients to make a valuable proposition to the end customer.
(47:38) >> It ultimately comes down to risk, discipline, and capital risk, right? And we've seen this over the past 5 years especially — producers won't take risk unless they know exactly what they're getting into and nor will end users. The discipline has crept in and the sophistication from the banks and all parties in this value proposition aren't going to take undue risk. It's just unnecessary.
(48:01) So where do we focus our time as a company? Rather than going after massive greenfield developments, let's focus on really strong opportunities to develop brownfield within the existing fleet. So if you look at all of North America, we're all chasing this 1 to 5% growth opportunity within our own fence.
(48:20) The demand for more compression, the demand for maybe an adjacent reservoir, things you can bolt onto that are low risk for you because you have the operating capacity and the customer base to backstop it. Or you can sell a small project like a 5 Bcf expansion, which we just announced at our Warwick facility.
(48:36) We can backstop that with one or two contracts. But when you're looking at 30 Bcf or 40 Bcf of a 10 or 15-year commitment with a new party, the ability to have that fully de-risked without understanding the risk on transportation needs to be a major part of that equation. >> Because the customers need to know that their gas is going to get there too.
(48:55) That's the other half. >> That's right. And that's really a big reason why we have such great customer retention. 38 years we do not cut our customers. Never have. Our customers are always available to deliver and withdraw and to the extent that you have a portfolio you can de-risk that even further.
(49:15) When there's a curtailment on NGTL for example, on downstream or upstream, we have different levers to be able to make customers whole. We also have contract language that protects us. But beyond that, having a fleet of diversified assets, different size reservoirs, different characteristic reservoirs, higher deliverability, lower deliverability, higher cost, lower cost.
(49:38) We also have a portfolio of operational efficiency insofar as our compressors are both electrified and gas. So depending on the cost of the commodity at any given time, we're able to take advantage of that flexibility. All of this adds up to us being an excellent operator in our space and a big reason why our customer retention is incredibly high.
(49:57) >> And in terms of revenue, right now the main portion of the business is take-or-pay contracts. It's about 50% of the revenue. I think the goal is to get it up to 60%. You've got the short-term storage agreements and your optimization side of the business. So maybe for the listener, what are those three buckets and how do they work? >> Yeah, that's a great question.
(50:14) You've done your homework. And it's a question that our investors ask a lot. So broadly speaking, assuming you like the backdrop that I speak of and the macro is so bullish for natural gas storage with the demand that I speak of — the LNG demand is going to in our view be a major disruptor to the WCSB, 5 Bcf in a 20 Bcf region, that's 25% of new demand. I mean that's a huge disruptor and it's not using it based on cold weather. So it's an amazing — and it's going to take more market
(50:45) share than the 5 Bcf. So talking about that, it's a massive disruptor. The amount of oil expansion happening to meet new expansions from TMX and other means — oil sands are going to need to consume more gas to melt the bitumen. We've got the data center developments going on with insatiable demand in not just Alberta but everywhere.
(51:06) I think we've got something like 10 new gigs in the Alberta queue. In our California example, we have 12 1/2 gigs that just came in over the quarter. This is insatiable demand. Not all of it will go ahead, but we know the demand is there and in some form, whether it's California or Alberta, natural gas peakers are going to be required to backstop this, even if it's renewables that supply the power.
(51:28) So assuming you agree with all of those things and that production can't expand without massive pipelines, you look at our contract profile and you say, Toby, why aren't you more contracted? And the reason is we don't want to be. And so the balance that we've had is, we do have lots of customers that wanted to enter into five and 10 and 15-year contracts in Alberta and California.
(51:47) But we're not always that excited about them given the price that sometimes we observe. In California, we've witnessed pricing go up into that $2 to $3 even more on an annual basis and that allows us to want to contract a little bit more aggressively. In the Alberta example, we're in early days.
(52:07) So that 50% to go to 60% — we've told our investors that by 2029 we'll make the conversion from more of an STS or a short-term contract in nature business over to a long-term contract in nature business and we're going to contract responsibly and slowly over time as we watch the storage values expand.
(52:29) Where we see the storage values expanding is not just on intrinsic value, which is the value between summer and winter, which is a major part of how we value storage, but it's on the insurance part of the storage. For example, last year, Chicago had $70 prices during the winter during the last storm.
(52:47) That's something that would not have happened in my career, certainly not during shale, right? And so because you can go to $70 in a market like Chicago, we know all the markets are vulnerable. We've seen already $1,000 down in Oklahoma and Texas. We've seen 60 in California. And so the market's vulnerable and so they want to go out and enter into these long-term arrangements.
(53:07) But the insurance value from our perspective needs to expand a little bit before we get excited about entering into long-term components. And so we've got a balance of managing the excitement of the bullishness in our business today and being short-term in nature versus converting over to long-term nature.
(53:23) But our commitment is to get to 60 by around 2029. >> So take-or-pay contracts are great because the customer pays you regardless more or less. >> That's right. It de-risks it for us as the operator. It allows the customer to have complete flexibility. It's great for the customer too because they can optimize outside of the current year.
(53:41) A sophisticated customer will enter into hedges on their storage positions into future years if there's anomalies in the market. And so they can benefit financially even before they go to physical delivery or a physical take of that contract. So they're willing to pay those premiums. But come to the last part of the contracting nature and how we earn our revenue.
(54:04) We talked about the STS which is short-term storage which is typically deals that we do with financial institutions. So if the price of gas today is a dollar, which by the way it is — there's been some disruptions at AECO — and the price of December, let's say, is $2, we'll enter into a transaction with a financial institution where we'll say, "You can have the gas in the ground today for a dollar.
(54:25) Give it back to us in December for two and pay us a dollar for that value." The bank, for example, will typically say, "Well, we're not going to give you a dollar. We need to make a little bit for ourselves." So they'll give us, let's say somewhere between 90 and 95 cents for that value.
(54:40) The reason we get so much is because the bank themselves are physically collateralized. It's their gas that goes into the ground. So they already own the molecule. We're just going to take it back in December. And therefore, we have the win-win of effectively a financing in that case on the transactional basis. Our firm storage contracts have more of an element of you can go in on a predefined set of parameters and you can come out on a predefined set of parameters and you're going to pay the value of all of the spreads of what that
(55:10) package has been requested, but you're going to pay an insurance value above it, which is your ability to go out and make money in the cash markets or your ability to protect against something nasty like a black swan event. Our last income within the company is what we call our optimization business.
(55:27) And this business is 15% of our business that we reserve each and every day for operational purposes so that we have some flexibility when we manage our firm commitments for customers. In the event that nothing's gone wrong, which is about 99% of the time from an operational perspective, we now have the option to use that space to either inject or withdraw.
(55:48) And typically at almost any given time there's an anomaly in the market. So that same dollar I speak of today at a dollar — tomorrow cash is say $1.15, we'll inject at a dollar and then have a withdrawal scheduled for tomorrow at $1.15. The likelihood of us withdrawing at $1.15 is almost zero tomorrow. So we'll buy that back and that daisy chain carries on to infinity, that optimization business.
(56:12) What we're really proud about is it's 15% of our business but it allows our customers to have flexibility. It allows our shareholders to have exposure to black swan upsides which we've had in the past. But lastly that 15% of the business is incredibly stable. It's realized over the past 3 years an equivalency of the other contracted terms and in the past 3 years we've had no black swan events.
(56:36) So the quality of that optimization income is very high. One last point on the optimization. The differentiation between our optimization and a midstream marketing wedge is that the midstreamers have an imbalance typically due to all of the inlet substances not matching up with all of their outlet substances.
(56:55) So it's not that they want to necessarily take spot positions in the market. It's that because of the ebbs and flows of energy, it's very hard to have everything equal at any given time. And so it creates longs and shorts. You're long transport, you're long rail cars, you're long some kind of a commitment.
(57:14) You might be short gas or short inlet substances. You might have too much propane and not enough butane and so on. All of those imbalances create an exposure to the short-term market that can help or hurt the midstream situation. And so the market tends not to like that marketing wedge. In our case, the optimization wedge is only a choice.
(57:33) We never have an obligation to do anything with that business. So it's only an opportunity to enter into a profitable situation. And every single day we're long the put and every single day we're long the call. And depending on the volatility in the market, which I think we can agree is growing, the value continues to creep up in that business.
(57:49) >> Yeah. Trading can be a great business if you do it right. >> And we don't call it trading. And the reason we don't call it trading is that we don't take open positions. And so we just have that open call and put every day. So we don't carry a long or a short, if that makes sense, in any period.
(58:04) And that's another major part of why shareholders are really attracted to Rockpoint is that we're not taking on that commodity exposure. We're not exposed to high price or low price. We're not exposed at any given time to a position from one period to another. It's only ever the opportunity to take advantage of something. >> And speaking of the reasons why shareholders like the business, another reason is the gap between revenue and gross margin is next to nothing.
(58:33) You have a great setup in that sense but there are some fixed expenses which we'll get into. So how do you think about that in terms of a business — do you frame it as a toll road or a manufacturer of some point? How do you frame the business, how do you think about that, a bond proxy almost, do you view it that way? >> We would like it to look a lot like an infrastructure proxy. I think if you look at our overall share price we are trading at a discount today. There's some reasons for that. One is that that contracting profile
(59:01) that you speak of is not necessarily where we want it to be ultimately and some of our shareholders would prefer to give us the value on the infrastructure proxy when we're contracted like an infrastructure company and there's a gap there. I think the macro is so strong that investors like the balance that we're carrying but that ultimately is part of the reason why we're not trading at that premium today.
(59:29) But we will — we're on our way. We've got great — to your point, our EBITDA margin is considerable at 80%. We do have very low fixed costs in our business. We've got phenomenal levers to keep those costs low. So for example, if the power price is $1,000 at hour 22, we just don't inject at hour 22.
(59:52) We'll inject at hour 23. So we're optimizing our facilities to always have the lowest cost commodity exposure in any given case. Power and natural gas are the two major costs that we have. We have some property tax costs. But those three, and our overhead G&A would be the other, are pretty low.
(1:00:11) When you look at how much EBITDA that we're targeting. So those things are all true, but we still have great levers to keep them low, which I'm really proud of. And we're working all the time to avoid max price in power or max price in gas. We've got large OBAs with the pipelines we operate on, so we don't have to do any one thing within a 24-hour period.
(1:00:32) We have a lot of flexibility to operate at the cheapest hour at any given time. We've got sophisticated processes and staff that make sure that we're always operating at the lowest cost within any 24-hour window. So we really are an excellent operator as far as natural gas storage goes.
(1:00:49) What do we do with that excess cash is a question that we get next, which I'm sure is your next one. And really that's where the magic comes in. We've got an excellent dividend. We have a 50% payout, and so our dividend today is in and around that 5%.
(1:01:06) The remainder will go into responsible capital deployment through either capital projects. Right now we're focused mostly on the brownfield side and/or if that's not the most accretive use at any given time, share buybacks or debt reduction. Given that we're standing at a three times debt leverage ratio we don't feel that that's a great use of capital at this time but we had announced during our last quarter for example that we did share buybacks in the amount of about Canadian 10 million.
(1:01:32) So, lot of different uses for that cash, but the most exciting one for me is really getting it into those brownfield projects, taking advantage of that new demand that customers want and giving them the products that they need and they want that they're willing to pay for. >> So, speaking of brownfield and trying to increase the revenues, it's kind of an infrastructure play/bond proxy, but nevertheless, the form is corporate, so the idea is to grow revenues and increase it.
(1:02:00) Do you see lots of opportunity for new brownfield projects? What would be an example of one and how do you think about that? >> It's hard. Yeah, it's hard. There's no question. We get asked about this often. M&A is the other one that folks ask us about. So Brownfield, yes, the price signals are high. And therefore folks are doing everything they can to take advantage of what they have in the fence.
(1:02:19) We've also announced our battery project which is an excellent use of low capital for a meaningfully strategic opportunity to use infrastructure that is underutilized to make profit. Right? So I'll give you an example of why our facility for power is so interesting. The Warwick facility is where we have an announced project where we're going to introduce 11 megawatts of batteries.
(1:02:44) That facility is operating at about a third load factor. So we've got large power infrastructure that's heavily underutilized. When you look at the transmission system today, what folks are looking for is redundant infrastructure and so we're just sitting with it at all times as a storage operator because again we don't necessarily run 24 hours a day.
(1:03:02) In fact, we can go for days without operating if the price is low enough and those withdrawals that I spoke of earlier that $1.15 doesn't come through. And so our customers are still making money, we're still making money, yet the operators are sitting idle. That happens all the time in our business. And so that large infrastructure coupled with the opportunity of our internal controls, our 24-hour people that are working, the inside-the-fence security.
(1:03:27) I mean, these are all low-cost ways to participate in a value chain that's very similar to the natural gas value chain insofar as it's managing volatility. It's being called upon at peak. It injects at lows. And we can manipulate our facility to take advantage of all of those factors to ultimately profit probably as best you possibly could in the battery space.
(1:03:45) And so that's a brownfield development that we've implemented at Warwick that someday may be intriguing to expand into other facilities or other opportunities as we learn from it. Other brownfield opportunities are things like adding new compression, adding new wells, debottlenecking the size of your pipelines, or the real easy ones, the low-hanging fruit, adding new wells, or new technology to your wells to give you more deliverability.
(1:04:12) And so all those things add up in our case to a commitment of about $150 million over the next three years to unlock 5 to 7% of expansion that we feel will be in the four to six build multiple based on all of our experience, which is great value for shareholders. And then beyond that we are looking at bigger things. When I get asked about M&A the one thing that I want to remind people is most of the storage in North America is really coveted. And when you speak to a Williams who trade at a
(1:04:45) multiple much higher than Rockpoint it would be very hard for us to get one of those beautiful assets from them at an accretive price. So starting with that big disadvantage we have to be creative. But where can we be creative, and that's what's been fun about being public is that the phone's ringing like crazy.
(1:05:02) We're getting a lot of calls to have new projects have support of storage to make them work. And because we're public and because we're a specialist at this, we participate in a lot of new potential opportunities. Most of them are in the south and most of them involve salt, which both make sense to me.
(1:05:23) Large depleted reservoir projects are probably highly unlikely in the next decade or so given the aforementioned constraints that I mentioned. But we're really excited about where we can fit in. >> You're always looking around. >> Always. >> Yeah. Because the idea is to grow too. >> Some growth. Yeah. No, 100%. And that's where we need to go.
(1:05:40) We've got the skill set, we have the people, we have the internal controls, the resources, the governance. We really have an 11 out of 10 opportunity to move forward and expand and we're going to. >> So like we mentioned, natural gas prices have been low lately, which isn't necessarily a bad thing for Rockpoint.
(1:05:58) Your business model — but maybe for the listener, why are low natural gas prices not necessarily a bad thing for the company? >> Yeah, another great question, Trevor. As a new participant in the public space and as a natural gas storage company, we often get questions around is low natural gas bad for you and there is a bit of a misunderstanding that it might be.
(1:06:21) The reality is low natural gas pricing for us is as good and potentially better than high natural gas prices. And I'll explain why. The ability to keep gas in the ground always is better than pulling gas out of the ground unless you're getting paid a massive premium for it. And the reason is that you can transact on that same molecule over and over and over again with no risk.
(1:06:44) When you make a withdrawal, let's say tomorrow at $2, let's say something happens in the market. I now have to figure out a way to get that gas back in. That's a risk that we don't take. So we have to go to the cash market. We don't go and forward hedge that risk. We'll only inject when we know we physically have that opportunity.
(1:07:00) That comes down to that physical barrier to entry that we mentioned, which is I can't go and take a producer's space from them or an end user's space. I can only take it when it's interruptibly available. So by having the gas already in the ground, we're able to transact over and over and over again.
(1:07:16) And when gas stays in the ground because of low prices, that typically means an overhang of gas supply in the storage space or said differently, an overhang on storage itself. So this year storage is projected to be full. That's put low prices into the winter and then that puts commensurate low prices into next summer.
(1:07:35) So now you're looking at the opportunity for intrinsic value to ultimately expand as you exit this winter. And so low prices tend to be really good for us and our customers. Our customers are able to buy distressed molecules at a much lower than budgeted price. Typically in the old days especially we never budgeted for below variable cost gas.
(1:07:55) We're getting it all the time now at a higher frequency as I mentioned just due to this overproduction concept due to liquids, right? >> And so it's happening more frequently. They're willing to pay more for it. They're benefiting from it and we in our optimization book are also benefiting from it.
(1:08:10) >> So that's good for business. >> It's great for business. >> That's interesting. >> Yeah. >> So what would have to change for that scenario to reverse itself? Do you worry about the flip side and how that changes? >> I don't. People do ask the question which I think you're alluding to which is what would keep me up at night, like where am I wrong or where are we wrong? And I'm so excited about it.
(1:08:33) I hope I don't have blinders. I would admit, but the reality is it's really hard to suppress volatility. And at the end of the day, all of the roads that I'm seeing are pointing to enhanced volatility creeping into the market. There's so few levers to stop it. And there's so many demand factors and supply factors that are driving this volatility.
(1:08:55) At the end of the day, we're really using or repurposing the same infrastructure with a much bigger supply demand picture, right? These are 10–20 year projects that we need to solve what's actually happening. When you try to put together truly the amount of supply that wants to connect with the demand and because of that 10 to 20 year lag, you need commitments from almost state-owned participants that have the credit available and the capacity to make those commitments.
(1:09:23) And so with that major hurdle and volatility continuing to increase, I really love the position of natural gas broadly in North America. But there are some things that do have the opportunity to suppress us. One would be, if the US policy at some point decides they're not going to export LNG to world markets or Canadian policy for that matter.
(1:09:47) That would be a reduction in that growth in that sector which we continue to see growth forecasts for at a pretty high pace. There could also be changes to the way that power is produced. And there's also been a lot of technology increases in the way batteries are being deployed and used and that's another reason why we want to understand them fairly well.
(1:10:05) But given the cost of batteries, given the overall role of energy now on energy sovereignty, we just don't see nations looking at energy in the negative light that they once did and therefore we feel like we have a really strong protective moat for the growth that I speak of.
(1:10:25) >> Another thing coming up is the Brookfield option on your shares. About 60% of the equity value, the class B shares. October 15th is the date that they have the right to sell them back to Rockpoint, I think, but maybe I'm wrong. Maybe you can explain that date to the listener. And how does that work? >> Yeah, that's a lockup that they had during the IPO process that will come off at that time.
(1:10:50) Just a reminder that probably what would overshadow that date is that we and Brookfield had made an application to the CPUC for a change in control application that's required for Brookfield to sell below 50% of the company. Okay. And so at some point we had guided when we sent that application in that it would take roughly a year.
(1:11:13) We did that in Q1 of this year. So sometime between Q1 and Q2 of next year there would be an expected decision on the approval of that application which would allow them to ultimately have the opportunity to sell the remaining 60%. But you're right, from a technical perspective there could be a shorter window with the October 15th option.
(1:11:37) It's widely believed that they're waiting for the CPUC option to make their decision as opposed to that one. As I mentioned earlier, I can't speak for my shareholder, but technically you're correct. >> But it's their call regardless of what they want to do. But the concerned investor might say, "I'm not sure where the cash is going to come from to buy these shares, whether it be via equity or debt or try and use cash that you have.
(1:11:59) So, how do you think about purchasing those shares?" >> Well, the secondary would be the logical way, right? And so that will be Brookfield's opportunity at the time. And where we sit at the time based on the value proposition will be up to them. But certainly we'll have a strong evaluation when we have the opportunity to have that discussion and as mentioned earlier the fundamentals of the business are pretty strong.
(1:12:24) Brookfield believed in this company. They've been great stewards. It really was the vision that they had a decade ago. My perspective dealing with them is that they love our business and aren't terribly excited about selling. So I don't know what will ultimately happen there but they've been an excellent shareholder and steward of the assets and all of these decisions will reside with them.
(1:12:45) >> Current leverage is about three times. It could go up to 3.5 is your target I think. You've got some untapped debt capacity, you've got some brownfield capex plans, so how are you thinking about debt versus growing versus dividend expansions? What are your thoughts on that? >> Yeah, I think I covered it a bit earlier.
(1:13:04) I think with the 50% payout ratio on the dividend with the rest being deployed into brownfield and other growth development with the remaining sitting with an option to either go into share buybacks, debt reduction or other, we've got a lot of opportunity. We also historically in our business had used a lot of cash.
(1:13:27) And so you're right, we do have a lot of excess liquidity due to the reality in our business that prices could go up. We haven't seen it in a little while, but in the event that prices do go to, let's say, 10 bucks or 20 bucks, we've got a really great credit facility that gives us access to almost 400 million which is ample enough given the size of our assets relative to what we think the ultimate opportunity is.
(1:13:52) But sometimes we need cash and so it really is going to be making the right decision every quarter, every month on the most efficient use of that excess cash. And so far I think you've heard my excitement. I'm of the view that the best place for the majority of that is through brownfield expansion opportunities.
(1:14:13) And that's not just driven by my enthusiasm to do cool things within the fence. It's also driven by the demand that I hear from my customers every day. They're not so interested anymore, Trevor, in just having a long amount of gas injected in the summer and a short amount of gas come out in the winter. That was your prototypical storage customer.
(1:14:31) They really want punchy injection, punchy withdrawal, and they're willing to pay for it because that punchiness is really what's harming them. And so we've got to come up with ways to increase speed and capability within the fence and it takes a lot of money and time and it's not that easy. >> But you have the flexibility in your capital allocation.
(1:14:48) It's not a structured plan. >> Yes, that's the point. >> Exactly. Right. >> And speaking of tailwinds, so getting into Alberta infrastructure, like we've said, there's a lot of tailwinds right now for the business. One of which was the Meta $13 billion announcement for the data centers or data center planned.
(1:15:06) So, how do you convert that into your business? And how do you convert that into good business aside from just the narrative that it's good for the province? >> Yeah, I think we actually have opportunities to directly participate. You're right, it's more of a macro trend and it is early days. There's more discussion about the demand than there has actually been FID projects, right? And so we have to keep that in perspective. That said, the way the data centers are said to be wanting to use energy is a really important factor here. They want 99.9%
(1:15:36) redundancy. Okay? And so that ultimately means that Alberta for example has a tremendous advantage. It's one of the few jurisdictions that has this massive abundance of natural gas production and a lot of it's trapped, right? We've talked about it. So to the extent that you can connect a supply, let's say a Montney supplier, with a brand new demand buyer nearby and you're not necessarily having to use all that massive infrastructure that I say is so full.
(1:16:04) You can actually advance small-scale projects. I mean, they're not so small. These are billion-dollar projects. I get it. But they're small scale on the pipeline infrastructure side. Okay? So there's opportunities for them to expand and participate. Almost all of those projects regardless of that situation are going to need a backup.
(1:16:23) Okay? So the battery backup or the storage backup to back up the real battery which is the power peaker. And so to the extent that any or all of those facilities tie into storage directly or indirectly just puts more and more pressure on the storage fleet itself and as I mentioned it's very hard to solve. So I envision roughly speaking a shrinking of the natural gas storage industry because of the amount of usage that's going to change from a behavioral perspective and broadly speaking because AI and data center demand is in its early
(1:16:53) stages. We're not forecasting a massive amount of growth. We're using very conservative forecasts and if you look at how much demand is forecasted to grow on a conservative basis you're looking at LNG going from 20 to 30 for example, you're looking at Alberta power to double in the next decade, for example. So these are numbers regardless of who the proponents are that are the macro tailwind that ultimately is the real ace in the hole for storage.
(1:17:20) It doesn't have to be one specific user or one specific segment. It's that all those rising tides are going to lift all ships and the ships that we and our competitors have incumbency on are just getting more and more valuable. >> So the responsiveness to the data centers is a major theme that's behind the business.
(1:17:38) But on the other hand, the egress problem has kind of been good for Rockpoint. But what happens if egress gets solved? How do you think about that? >> Well, again, if it gets solved, that would mean an overproduction opportunity again. When producers see white space, they tend to get excited, as you know, and we love them for it.
(1:17:52) They're really good at what they do. So we envision volatility happening in every category. Too much egress is as good for us as not enough egress because now you have oversupply in a basin that's just looking for any demand, right? And I don't see how that will happen to be totally honest unless we see oil prices at a high price for a long time.
(1:18:10) And maybe that's plausible. Now I don't have a view. I'm not an oil expert, but I can tell you at $100 oil we have way too much gas looking for a home. Okay. And so if that's persistent that will also add to the ire of producers and ultimately lead to the opportunity for someone to pay insurance on the injection side of our equation.
(1:18:35) So it's pretty crazy, but we tend to do really well in all scenarios. I feel good at least at the moment as I sit in this chair that we have a pretty long runway. >> You also run Access Gas, a retail arm, selling gas supply to commercial, industrial, and residential customers.
(1:18:51) So, maybe for the listener, what's that part of the business? >> Very, very small business. It's a C&I business predominantly in Ontario. There's a little bit in Alberta with a tranche into British Columbia. Very small part of our business where we have supply agreements into end users and this has been part of the history of the company for the last 20 or so years. Our customers are excellent. We tend to have a really strong position in that C&I space. But just due to the margin requirements in
(1:19:23) that space relative to the amount of capital required we don't go after wholesale sophisticated customers and we don't go after retail customers so it's very specifically focused and doesn't have, for instance, a real big growth strategy. >> You had a couple questions from Max. Do you want to do those quick before we get into it towards the end? First one was from an account titled bubble QE and that was: recontracting rates are much lower than existing.
(1:19:49) Why is this and how will it impact future cash flows relative to current rates? >> So I wouldn't say recontracting is lower than normal. We had a large recontracting renewal cycle this year in our California asset base especially. And so from time to time you're going to go through ebbs and flows with how much recontracting comes into your book.
(1:20:11) I'd only been there 6 years. So we've been shaping the waterfall of our contracts, but this takes a long, long time to get it perfect. So this year we had a pretty big recontracting cycle and our team was able to fulfill the recontracting on all of those contracts at phenomenal prices. So I would say pretty happy with how recontracting went in that market.
(1:20:35) On the Canadian side or the Alberta side of the market, we've had already early engagement on our current contracting cycle. In fact, last quarter, we announced a 10 Bcf long-term contract executed with an unannounced customer. That was an important signal to share with the market that we are executing on our long-term strategy to move from that 50 to 60%.
(1:21:00) And that we feel that we're on the precipice of a wave in the WCSB where we think we could see storage expansion happen very soon. As LNG continues to move forward through its commissioning stage and it gets more stable — once LNG is not allowed to flare, for example, that's gas that's going to come back into the system.
(1:21:20) The LNG Canada facility hasn't gone through a winter in the Pacific yet. There's a lot of things happening in the WCSB that's driving demand and supply in different directions. Ultimately, Alberta storage, in our view, is going to have to supply British Columbia with the majority of its storage solutions and so we're all going to participate in the volatility that will come from LNG Canada coming on and in the forward view of LNG, other FID projects moving up to that 5 Bcf moving forward. So we're going to be, for
(1:21:53) lack of a better word, patient. We want to recontract with long-term high-quality customers. Those customers would love to recontract with us as well. We would like to see the values go up before we enter into really long-term contracts and we're confident that's going to happen very soon. >> The second question was that Brookfield question which we already covered.
(1:22:15) So that's the question next. But before we get to the end, getting back to the conversation we had before we started and how you're excited about the Canadian energy nowadays — Rockpoint benefits from high prices and low prices in the business model. But regardless of that, you're excited about Canadian energy in general, I think.
(1:22:36) >> Yeah. And broadly speaking, I'm a bull. So when we speak about overproduction, I'm referring explicitly to natural gas being produced potentially out of the money at times just due to the strong value of the other parts of the cycle, right? And being a midstreamer, I understand the value of propane and butane and condensate especially to the Canadian economy.
(1:22:57) We're getting more and more interest from the ethane side of the equation. So the Canadian energy value chain to me is a wonderful place to be. We've got an insatiable amount of world demand that want to come into our market. We've got a really new political environment that seems to be focused on energy and at least has an understanding of how important that energy getting to market is not just for the country economically but for our country from a safety and sovereignty perspective. I mean we
(1:23:31) ultimately have the one thing that many people want and that's the stability of energy and yet we don't have those international chains completely developed yet. It doesn't take long to expand our LNG infrastructure. It doesn't take long for us to build out new ways of getting that energy to market.
(1:23:50) And broadly speaking, the insatiable demand that I continue to see from all sectors leads me to believe that this shortage will result in overall, broadly speaking, higher prices for the next decade. Will we have low and distressed natural gas during that time? Of course. Quarter to quarter we'll have low distressed gas, but I don't predict that we're going to have low gas for an extended period.
(1:24:10) I'm ultimately really bullish natural gas. And in my 30-year career, that says a lot. I think I opened with how many times I've made money on the long side of the equation. Yeah. I've been a bear for pretty much my entire career. And I can finally say I'm a secular bull. >> And the narrative was that Russian invasion of Ukraine, the problems in the Middle East, and maybe Trump rattling Canada's cages really emphasize the value of energy security.
(1:24:33) You think that's accurate? >> I think those are all true. I think the world is completely — big big picture, we're in an arms race and the arms race is getting data centers, right? That too. So it's pretty crazy to me that if the US and Canada can't get the data centers and Asia does, that it's going to strengthen their economy and give them the ability to have that dominance that the US is so desperately worried about.
(1:25:02) Europe has already been exposed and within Europe, you're seeing enormous differentiation between the haves and the have nots. France looks really good right now because they've had a long-term energy security, mostly because of their nuclear agreements. So other countries within Europe are looking at places like France and going, "Wow, we really wish we had thought about this now that the Russians are on the doorstep of Europe and they have the fragmentation in NATO." The reality is that
(1:25:32) they are vulnerable and energy is the key to that vulnerability. In Canada, I think it's fair to say it's also part of the issue. We've got a neighbor that's for the first time ever pointing sticks at us. This has never happened. And was never expected to happen.
(1:25:51) And the one key element that they want most, probably the one thing that holds them back, is the fact that we've got an abundance of safe energy. So, the world needs to grow. The world needs energy and Canada is really well positioned. And I know I share that with most of the folks that have been on this seat.
(1:26:07) But more than ever, I think the time is now and I really look forward to the next decade or two in the energy industry. >> As we move towards the end, it's September 2026. So if you were to leave a message with shareholders, what would you tell them? How are you looking to grow? >> Yeah, I appreciate — first of all, thank you for your faith in us.
(1:26:27) Like I said, we've got an enormous and very sophisticated investor base that have been with us mostly from day one. Their support is really appreciated and I appreciate their knowledge and sophistication of what we do and how we participate. I want to thank our staff for keeping us safe and for all the things they do.
(1:26:45) I was with them yesterday in Medicine Hat at a picnic and it's really important, the contributions that they have to ensure that we're operating safely and efficiently at all times. Big picture I would leave folks with this. Natural gas storage is an industry that's very hard to replicate.
(1:27:06) The barriers to entry and the scarcity value are only two of the drivers of why we continue to see storage rate expansion and why we're growing from a financial perspective. But really the demand factors on our business, the multitude of new ways that the same infrastructure is being used to service that differentiated customer, the exposure to international markets and the fact that the international markets are located in areas where there isn't sufficient pipeline infrastructure.
(1:27:35) All of this points to what I think is going to be both a bullish and a highly volatile next decade. And when you look at volatility, broadly speaking, customers need true protection against it. If you can get $50 and $60 or 70 in Chicago, that can happen here and it can happen anywhere. That's a market that has an abundance of pipelines with every reason to be able to have economic signals to win and they weren't able to attract those molecules during a winter storm.
(1:28:02) The North American market is highly vulnerable and that vulnerability will continue to lead to higher insurance premiums for natural gas storage and we love our incumbency. We appreciate everyone's support and Trevor, I appreciate your support today as well. >> It's a great business with great operating margins, relatively low fixed costs and a good business model in general.
(1:28:20) >> Yeah. Thank you. I love it and I'm thrilled to be part of it and I guess I should thank Brookfield for having faith in me and bringing me over to lead it. >> Really appreciate your time today. >> Likewise. Thank you.