CALGARY, Aug. 6, 2019 /CNW/ - Keyera Corp. (TSX:KEY) ("Keyera") announced its 2019 second quarter financial results today, the highlights of which are included in this news release. The entire news release can be viewed by visiting Keyera's website at www.keyera.com, or, to view the MD&A and financial statements, visit either Keyera's website or Keyera's filings on SEDAR at www.sedar.com.
HIGHLIGHTS
- Keyera delivered outstanding financial results in the second quarter of 2019, with adjusted earnings before finance costs, taxes, depreciation and amortization ("Adjusted EBITDA")1 of $249 million (Q2 2018 – $210 million). All three business segments generated strong results.
- Net earnings doubled over the same period last year to $219 million or $1.03 per share (Q2 – 2018 $107 million or $0.52 per share).
- The Gathering and Processing segment recorded operating margin of $70 million (Q2 2018 – $64 million), as new infrastructure supporting liquids-rich Montney and Duvernay production added incremental margin, including phase one of the Wapiti gas plant that began operating in May.
- The Liquids Infrastructure segment reported operating margin of $93 million (Q2 2018 – $77 million), as new assets such as the Base Line Terminal generated incremental margin and Keyera's condensate system handled more volume than in the same period last year.
- The Marketing segment delivered operating margin of $117 million (Q2 2018 – $74 million) and a record realized margin2,3 of $115 million (Q2 2018 – $90 million). These results were largely due to a higher contribution from iso-octane sales. Keyera continues to expect the Marketing segment to generate realized margin between $280 million and $320 million in 2019.
- Distributable cash flow1 was $144 million or $0.67 per share (Q2 2018 – $156 million or $0.75 per share) due to the timing of maintenance capital and higher current income taxes.
- Keyera is extending its long history of steady dividend growth, increasing its monthly dividend by 7% from $0.15 per share to $0.16 per share or $1.92 per share annually. The increase is effective for the August dividend payable on September 16, 2019.
- Keyera currently has a significant capital program underway that extends secured growth out to 2022. This program includes projects such as the Simonette gas plant expansion, the Wapiti and Pipestone gas plants and the KAPS liquids pipeline system.
- Keyera expects to fund its current growth capital program without issuing common equity, aside from the existing DRIP program. To enhance financial flexibility, Keyera issued $600 million of subordinated hybrid notes in June.
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1 Keyera uses certain "Non-GAAP Measures" such as adjusted EBITDA, funds from operations, distributable cash flow, distributable cash flow per share and payout ratio. See section titled "Non-GAAP Financial Measures", "Dividends: Funds from Operations and Distributable Cash Flow" and "EBITDA" of the MD&A for further details.
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2 Realized margin is a "Non-GAAP Measure" and excludes the effect of non-cash gains and losses from commodity-related risk management contracts.
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3 With the adoption of IFRS 16, Leases on January 1, 2019, the Marketing segment financial results are not directly comparable between periods. Refer to the unaudited condensed interim consolidated financial statements as at and for the three months ended March 31, 2019 and related MD&A for further information.
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Three months ended
June 30,
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Six months ended
June 30,
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Summary of Key Measures
(Thousands of Canadian dollars, except where noted)
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2019
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2018
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2019
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2018
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Net earnings
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219,447
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106,773
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253,246
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194,488
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Per share ($/share) – basic
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1.03
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0.52
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1.19
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0.94
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Cash flow from operating activities
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191,221
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100,926
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415,030
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289,315
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Funds from operations1
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197,414
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179,734
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325,980
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341,211
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Distributable cash flow1
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143,568
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155,781
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251,516
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310,683
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Per share ($/share)1
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0.67
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0.75
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1.18
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1.51
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Dividends declared
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96,085
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86,882
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191,384
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173,187
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Per share ($/share)
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0.45
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0.42
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0.90
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0.84
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Payout ratio %1
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67%
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56%
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76%
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56%
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Adjusted EBITDA2
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249,371
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209,906
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413,781
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399,269
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Gathering and Processing:
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Gross processing throughput (MMcf/d)
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1,471
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1,532
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1,543
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1,559
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Net processing throughput (MMcf/d)
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1,146
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1,175
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1,222
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1,206
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Liquids Infrastructure:
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Gross processing throughput3 (Mbbl/d)
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173
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160
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176
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173
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Net processing throughput3 (Mbbl/d)
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79
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76
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85
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79
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AEF iso-octane production volumes (Mbbl/d)
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15
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15
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13
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14
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Marketing:
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Inventory value
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131,646
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238,132
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131,646
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238,132
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Sales volumes (Bbl/d)
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139,700
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134,600
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145,100
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147,700
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Acquisitions
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332
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212,355
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549
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222,355
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Growth capital expenditures
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234,193
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254,300
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524,742
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493,093
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Maintenance capital expenditures
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40,487
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23,077
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47,845
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29,089
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Total capital expenditures
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275,012
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489,732
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573,136
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744,537
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Weighted average number of shares outstanding – basic
and diluted
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213,239
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206,646
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212,364
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205,960
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As at June 30,
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2019
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2018
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Long-term debt
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2,688,686
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2,095,481
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Credit facility
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—
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—
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Working capital deficit (surplus)4
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(84,446)
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(140,770)
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Net debt
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2,604,240
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1,954,711
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Common shares outstanding – end of period
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214,127
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207,347
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Notes:
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1
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Payout ratio is defined as dividends declared to shareholders divided by distributable cash flow. Payout ratio, funds from operations, and distributable cash flow are not standard measures under Generally Accepted Accounting Principles ("GAAP"). See the section titled, "Dividends: Funds from Operations and Distributable Cash Flow", for a reconciliation of funds from operations and distributable cash flow to the most closely related GAAP measure.
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2
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Adjusted EBITDA is defined as earnings before finance costs, taxes, depreciation, amortization, impairment expenses, unrealized gains/losses and any other non-cash items such as gains/losses on the disposal of property, plant and equipment. EBITDA and adjusted EBITDA are not standard measures under GAAP. See the section of the MD&A titled "EBITDA" for a reconciliation of adjusted EBITDA to its most closely related GAAP measure.
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3
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Fractionation throughput in the Liquids Infrastructure segment is the aggregation of volumes processed through the fractionators and the de-ethanizers at the Keyera and Dow Fort Saskatchewan facilities.
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4
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Working capital is defined as current assets less current liabilities.
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Message to Shareholders
Keyera delivered outstanding financial results in the second quarter of 2019. Adjusted EBITDA increased 19% over the same period last year and net earnings doubled. All three business segments performed well and our results benefited from new capital projects completed over the last 12 months.
We are on track to deliver another year of strong financial performance. Our midstream services remain in high demand and our capital projects are on schedule and on budget. Favourable market fundamentals are supporting higher fractionation fees and iso-octane margins that are expected to extend into the first quarter of 2020.
With confidence in our business, we are increasing our monthly dividend by 7% to $0.16 per common share or $1.92 per share annually. This extends Keyera's long history of steady dividend growth since our IPO in 2003.
Gathering and Processing Operations
The Gathering and Processing segment operating margin was $70 million during the second quarter even with a three-week maintenance turnaround at Rimbey, one of our largest gas plants. Although our gross processing throughput volumes were lower, averaging 1,471 million cubic feet per day, our operating margin increased over the same period last year. This was primarily due to processing additional liquids at our Simonette gas plant and our Pipestone liquids hub, along with the startup of phase one of the Wapiti gas plant.
Over the past few years we have been focused on building our footprint in northwestern Alberta to support the liquids-rich Montney and Duvernay developments, and we are beginning to see the benefits of these investments. Phase one of the Wapiti gas plant began operating in May, earning incremental margin. We expect the contribution from this gas plant to continue to grow, as our anchor customer increases production and the North Wapiti Pipeline System is completed later this year. This growth will be complemented by the completion of the Simonette gas plant expansion in the third quarter of 2019, the second phase of the Wapiti gas plant in mid-2020 and the Pipestone gas plant in 2021. Once the Pipestone gas plant is completed, Keyera will be one of the largest gas processing and condensate handling companies in this region, providing 950 million cubic feet of sour gas processing capacity and 90,000 barrels per day of condensate handling capacity. Our gathering and processing operations are the foundation of our integrated value chain, providing volumes to our Liquids Infrastructure assets and Marketing business where we generate incremental cash flow.
Liquids Infrastructure Operations
In the second quarter, the Liquids Infrastructure segment continued to generate strong results, reporting operating margin of $93 million, a 21% increase over the same period last year. These results were driven by the Base Line Terminal that was completed in the fall of 2018, along with growing demand for our strategically located Liquids Infrastructure assets.
With producers continuing to focus on liquids-rich gas developments in Western Canada, demand for fractionation capacity has increased. As a result, we were able to recontract our short-term capacity at higher fees effective with the new NGL contract season that began April 1, 2019.
Our industry-leading condensate system, which includes condensate storage and transportation services, continues to be in high demand. The volume of condensate delivered through our system in the second quarter increased 13% compared to the same period last year. As our system has the most condensate supply and delivery options, as well as significant cavern storage, our system handles the majority of condensate transported to the oil sands. With oil sands production expected to increase, we expect demand for our system to remain strong.
Marketing Services
Marketing adds value to our integrated business by effectively utilizing Keyera's infrastructure to earn additional margin on the products we handle and enhance returns from our fee-for-service businesses. It also generates free cash flow and provides an additional source of funding for our capital projects.
During the quarter, the Marketing business generated an operating margin of $117 million and a record realized margin of $115 million. Marketing's results were primarily driven by a strong contribution from iso-octane, due to lower butane feedstock prices and AEF operating slightly above its capacity.
To ensure optimal performance of the AEF facility, we have decided to take the plant off line for approximately six weeks in the fourth quarter of 2019 to perform preventative maintenance. As a result of this work, the maintenance turnaround planned for AEF in 2020 will be deferred to the fall of 2021. We continue to expect Marketing realized margin for 2019 to range between $280 million and $320 million.
Business Development
This is an exciting time for Keyera as we are completing a number of new growth projects over the next few years, extending our secured growth into 2022.
Most recently, we announced that we are proceeding with the KAPS project and have partnered with SemCAMS Midstream ULC, owned jointly by SemGroup Corporation and KKR, to develop this NGL and condensate gathering system. The pipeline system is expected to be in service in the first half of 2022 and will transport NGL and condensate from the liquids-rich Montney and Duvernay developments in northwestern Alberta to Keyera's fractionation assets and condensate system in Fort Saskatchewan.
KAPS is a strategic asset for Keyera, improving the integration of our value chain. With stronger integration, we expect to attract additional volumes to our gas plants, fractionators, storage caverns and condensate system. These additional volumes provide Keyera with the foundation for significant future investment opportunities, within our areas of expertise.
As we execute on our growth strategy, we will maintain our disciplined investment approach and focus on creating long-term value for our shareholders. We will ensure our capital is deployed effectively and continue to generate strong rates of return on our invested capital.
Outlook
While our industry continues to have challenges accessing global markets, we are encouraged with the federal government's decision to proceed with the Trans Mountain Pipeline expansion and the progress being made on LNG projects on the west coast of Canada. To help continue this positive momentum, we are working with other energy companies and organizations to educate Canadians about the importance of our industry not only to Canada, but to our world. Canada is one of the most responsible energy producing countries in the world, and the world will continue to need Canadian oil and gas for the long term as it makes the transition to cleaner sources of energy. With Keyera's strong values and integrated network of midstream assets, we are well positioned to be an important part of this change.
On behalf of Keyera's board of directors and management team, I would like to thank our employees, customers, shareholders and other stakeholders for their continued support.
David G. Smith
President & Chief Executive Officer
Keyera Corp.
SECOND QUARTER RESULTS CONFERENCE CALL AND WEBCAST
Keyera will hold a conference call and webcast on Wednesday, August 7, 2019 at 8:00 am Mountain Time (10:00 am Eastern Time) to discuss its quarterly financial results.
Members of the investment community and other interested parties are invited to participate by calling 888-231-8191 or 647-427-7450. A recording of the conference call will be available for replay until 10:00 pm Mountain Time on August 23, 2019 by dialing 855-859-2056 or 416-849-0833 and entering passcode 2597578.
A live webcast of the conference call can be accessed on Keyera's website at http://www.keyera.com/news/events. Shortly after the call, an audio archive will be posted on the website for 90 days.
ABOUT KEYERA
Keyera Corp. (TSX:KEY) operates an integrated Canadian-based midstream business with extensive interconnected assets and depth of expertise in delivering midstream energy solutions. Its predominantly fee-for-service based business consists of natural gas gathering and processing; natural gas liquids processing, transportation, storage and marketing; iso-octane production and sales; and an industry-leading condensate system in the Edmonton/Fort Saskatchewan area of Alberta. Keyera strives to provide high quality, value-added services to its customers across North America and is committed to conducting its business ethically, safely and in an environmentally and financially responsible manner.
FORWARD-LOOKING STATEMENTS
In order to provide readers with information regarding Keyera, including its assessment of future plans, operations and financial performance, certain statements contained herein (and in the documents incorporated by reference) are forward-looking. These forward-looking statements relate to future events or Keyera's future performance. Such statements are predictions only and actual events or results may differ materially. The use of words such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "plan", "intend", "believe", and similar expressions, including the negatives thereof, is intended to identify forward-looking statements. All statements other than statements of historical fact contained in this news release are forward-looking statements.
The forward-looking statements reflect management's current beliefs and assumptions with respect to such things as the outlook for general economic trends, industry trends, commodity prices, capital markets, and the governmental, regulatory and legal environment. In some instances, forward-looking statements may be attributed to third party sources. Management believes that its assumptions and analysis are reasonable and that the expectations reflected in the forward-looking statements contained herein are also reasonable. However, Keyera cannot assure readers that these expectations will prove to be correct.
All forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events, levels of activity and achievements to differ materially from those anticipated in the forward-looking statements. Such factors include but are not limited to: general economic, market and business conditions; access to capital and debt markets to fund capital requirements and future growth plans; operational matters, including potential hazards inherent in our operations; risks arising from co-ownership of facilities; activities of other facility owners; access to third-party facilities; competitive action by other companies; activities of producers and customers, including the performance of contractual obligations by customers and demand for services aligned with production profiles; oil sands development activity and overall industry activity levels; changes in gas composition; pipeline product specification changes; fluctuations in commodity prices and supply/demand trends; processing and marketing margins; effects of weather conditions; availability of construction crews and materials; fluctuations in interest rates, ability to maintain current credit ratings; foreign currency exchange rates; changes in operating and capital costs, including fluctuations in input costs; actions by governmental authorities; compliance with regulatory requirements; decisions or approvals of administrative tribunals; changes in environmental and other regulations; reliance on key personnel; competition for, among other things, capital, acquisition opportunities and skilled personnel; changes in tax laws, including the effects that such changes may have on shareholders, and in particular any differential effects relating to shareholder's country of residence; and other factors, many of which are beyond the control of Keyera, some of which are discussed in Keyera's MD&A and in Keyera's Annual Information Form dated February 21, 2019, filed on SEDAR at www.sedar.com and available on the Keyera website at www.keyera.com.
Proposed construction and completion schedules and budgets for capital projects are subject to many variables, including weather; availability and prices of materials; labour; customer project schedules and expected in-service dates; contractor productivity; contractor disputes; quality of cost estimating; decision processes and approvals by joint venture partners; changes in project scope at the time of project sanctioning; regulatory approvals, conditions or delays (including possible intervention by third parties); Keyera's ability to secure adequate land rights and water supply; and macro socio-economic trends. As a result, expected timing, costs and benefits associated with these projects may differ materially from the descriptions contained herein. Further, some of the projects discussed are subject to securing sufficient producer/customer interest and may not proceed if sufficient commitments are not obtained. Typically, the earlier in the engineering process that projects are sanctioned, the greater the likelihood that the schedule and budget may change.
In addition to the factors referenced above, Keyera's expectations with respect to future returns associated with: (i) the growth capital projects that have been sanctioned and are in development as of the date hereof, and (ii) the KAPS project, are based on a number of assumptions, estimates and projections that have been developed based on past experience and anticipated trends, including but not limited to: capital cost estimates assuming no material unforeseen costs; timing for completion of growth capital projects; customer performance of contractual obligations; reliability of production profiles; commodity prices, margins and volumes; tax and interest rates; availability of capital at attractive prices; and no changes in regulatory or approval requirements, including no delay in securing any outstanding regulatory approvals.
Any statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future.
All forward-looking statements contained herein or in the accompanying documents are expressly qualified by this cautionary statement. Readers are cautioned that they should not unduly rely on these forward-looking statements and that the information contained in the forward-looking statements may not be appropriate for other purposes. Further, readers are cautioned that the forward-looking statements in this document speak only as of the date hereof. Keyera does not undertake any obligation to update forward-looking statements except as required by securities law.
Further information about the factors affecting forward-looking statements and management's assumptions and analysis thereof, is available in filings made by Keyera with Canadian provincial securities commissions, which can be viewed on SEDAR at www.sedar.com.
ADDITIONAL INFORMATION
For further information about Keyera, please visit our website at www.keyera.com or contact:
Lavonne Zdunich, Director, Investor Relations,
Calvin Locke, Manager, Investor Relations, or
Email: ir@keyera.com; Telephone: 403.205.7670 / Toll Free: 888.699.4853
SOURCE Keyera Corp.
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