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Keyera Corp. Announces 2019 First Quarter Results

CNW Group - Tue May 14, 3:10PM CDT

Keyera Corp. (TSX:KEY.TO) ("Keyera") announced its 2019 first 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 reported adjusted earnings before interest, taxes,
        depreciation and amortization ("adjusted EBITDA")(1 )of $164
        million in the first quarter of 2019 (Q1 2018 - $189 million),
        funds from operations(1) of $129 million (Q1 2018 - $161
        million), distributable cash flow(1) of $108 million or $0.51
        per share (Q1 2018 - $155 million or $0.75 per share) and net
        earnings of $34 million (Q1 2018 - $88 million).

    --  Keyera's gas plants, fractionators and condensate system
        operated very well during the quarter. The Gathering and
        Processing segment delivered stable operating margin of $68
        million (Q1 2018 - $71 million) while the Liquids
        Infrastructure segment reported another record quarter,
        generating $94 million in operating margin (Q1 2018 - $82
        million). These record results were due to increasing demand
        for our condensate transportation and storage services and the
        Base Line Terminal that was completed in October 2018.

    --  The Marketing segment's operating margin was a loss of $18
        million (Q1 2018 - margin of $66 million) and realized margin
        (2) was $22 million (Q1 2018 - $57 million)(3). Results were
        affected by a 17-day unplanned outage at Alberta EnviroFuels
        that resulted in a lower contribution from iso-octane. Keyera
        expects Marketing's realized margin for 2019 to range between
        $280 million and $320 million.

    --  Phase one of Keyera's Wapiti gas plant recently became
        operational, starting the next phase of growth for Keyera,
        focused on the liquids-rich Montney area in northwestern
        Alberta. Over the next two years, the North Wapiti Pipeline
        System, Simonette gas plant expansion, phase two of the Wapiti
        gas plant, the Pipestone gas plant and Wildhorse terminal will
        be completed and add to this growth.

    --  Keyera is very pleased to be proceeding with the Key Access
        Pipeline System ("KAPS") that will transport NGL and condensate
        from northwest of Grande Prairie into Fort Saskatchewan and
        Keyera's fractionation facility and condensate hub. KAPS is
        expected to provide Keyera with secure, long-term, take-or-pay
        revenues, strong project returns and a platform for significant
        future growth. Keyera has partnered with SemGroup Corporation
        and KKR to develop KAPS. Keyera plans to fund KAPS without
        issuing common equity, aside from the existing DRIP program.

    --  Keyera announced a sulphur handling project at its 50% owned
        South Cheecham Terminal. A major oil sands producer has
        contracted the capacity with a long-term, 100% take-or-pay
        contract starting in 2022.

    --  Keyera has approximately $2.9 billion in growth capital
        projects underway, including KAPS and the sulphur project, and
        may consider issuing term debt, hybrid notes or preferred
        shares to fund a portion of this program. For 2019, Keyera
        still expects to invest between $800 million and $900 million,
        as the majority of investment for these two new projects occurs
        in 2020 and 2021.
1 Keyera uses certain "Non-GAAP
              Measures" such as Adjusted
              EBITDA, Distributable Cash Flow,
              Distributable Cash Flow per
              Share, Payout Ratio and Compound
              Annual Growth Rate. See section
              titled "Non-GAAP Financial
              Measures", "Dividends:
              Distributable Cash Flow" and
              "EBITDA" of the MD&A for further
              details.


             2 Realized margin is a "Non-GAAP
              Measure" and excludes the effect
              of non-cash gains and losses
              from commodity-related risk
              management contracts.


             3 With the adoption of IFRS 16,
              Leases on January 1, 2019,
              Marketing's financial results
              are not directly comparable
              between periods. See page 36 of
              the MD&A  for further details.
Three months ended

                                                        March 31,


                     Summary of Key Measures         2019            2018

        (Thousands of Canadian dollars, except
         where noted)

    ---


       Net earnings                               33,799          87,715



       Per share ($/share) - basic                  0.16            0.43


        Cash flow from operating activities       223,809         205,106





       Funds from operations(1)                  128,566         161,477



       Distributable cash flow(1)                107,948         154,902



       Per share ($/share)(1)                       0.51            0.75



       Dividends declared                         95,299          86,305



       Per share ($/share)                          0.45            0.42



       Payout ratio %(1)                             88%            56%



       Adjusted EBITDA(2)                        164,410         189,363


                     Gathering and Processing:


        Gross processing throughput (MMcf/d)        1,616           1,586


        Net processing throughput (MMcf/d)          1,299           1,237


                     Liquids Infrastructure:


        Gross processing throughput(3) (Mbbl/d)       180             187


        Net processing throughput(3) (Mbbl/d)          91              81


        AEF iso-octane production volumes
         (Mbbl/d)                                      12              13




                Marketing:



       Inventory value                           184,703         120,212



       Sales volumes (Bbl/d)                     150,600         161,000





       Acquisitions                                  217          10,000



       Growth capital expenditures               290,549         238,793


        Maintenance capital expenditures            7,358           6,012



                     Total capital expenditures   298,124         254,805




        Weighted average number of shares
         outstanding - basic and diluted          211,480         205,267




                                                        As at March 31,


                                                     2019            2018




       Long-term debt                          2,105,229       1,742,763



       Credit facility                           260,000


        Working capital deficit (surplus)4        116,071       (108,227)





                Net debt                   2,481,300       1,634,536




        Common shares outstanding - end of
         period                                   212,368         205,982

    ---
Notes:




          (1) 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.




          (2) 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 section of the MD&A
                   titled "EBITDA" for a
                   reconciliation of adjusted EBITDA
                   to its most closely related GAAP
                   measure.




          (3) 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.




          4    Working capital is defined as
                   current assets less current
                   liabilities.

Message to Shareholders

After completing a record year in 2018, Keyera continues to achieve new milestones and our midstream services remain in high demand. In the first quarter of 2019, we achieved record gross natural gas processing volumes and our fractionation units operated above nameplate capacity at Keyera Fort Saskatchewan ("KFS"). While our gas plants, fractionators and condensate system operated well during the quarter, we had an unplanned outage at our Alberta EnviroFuels ("AEF") facility. As a result, our first quarter results were lower than planned and we reported adjusted EBITDA of $164 million, funds from operations of $129 million, distributable cash flow of $108 million and net earnings of $34 million.

Keyera is well positioned to deliver another year of strong financial performance as we are completing a number of new growth capital projects. As well, market fundamentals support higher fractionation fees and iso-octane margins for the remainder of the year. We recently completed the first phase of the Wapiti gas plant, which is an exciting achievement for Keyera as it kicks off the next phase of our cash flow growth.

Gathering and Processing Operations

The Gathering and Processing segment delivered operating margin of $68 million in the first three months of 2019, and gross processing throughput reached a new record, averaging 1,616 million cubic feet per day. Volumes increased as new wells were tied into our Strachan and Brazeau River gas plants, and our Simonette gas plant set a new quarterly record for throughput volumes.

Over the past few years we have been investing in a number of capital projects to build out our footprint in the liquids-rich Montney and Duvernay developments in northwestern Alberta, and we are beginning to see the benefit of these investments. The Wapiti gas plant is now operational. We expect throughput volumes at the plant to continue to grow as the North Wapiti Pipeline System is completed later in the year and as our two anchor tenants increase their production. This growth will be complemented by the completion of the Simonette gas plant expansion in late 2019, the second phase of the Wapiti gas plant in mid-2020 and then the Pipestone gas plant in 2021. In May, we contracted the available capacity at our Pipestone gas plant with a new customer and now have fully contracted phase one of the plant. Once the Pipestone gas plant is completed, Keyera will have 950 million cubic feet of sour gas processing capacity and 90,000 barrels per day of condensate handling capacity in this region, one of the most economic developments in the Western Canada Sedimentary Basin.

Liquids Infrastructure Operations

The Liquids Infrastructure segment continued to generate strong results, reporting a record operating margin of $94 million in the first quarter of 2019, which represents a 15% increase over the same period in the prior year. These results were driven by the Base Line Terminal that was completed in the fall of 2018 and strong demand for our condensate storage and transportation services, including the Norlite pipeline. The Base Line Terminal and our condensate services provide Keyera with long-term take-or-pay cash flows.

With producers continuing to focus on drilling liquids-rich gas formations in Western Canada, fractionation capacity has tightened in Alberta. As a result, Keyera was able to contract higher fractionation fees for the portion of our capacity not underpinned by long-term contracts. These new NGL contract prices were effective April 1, 2019 and will increase our fractionation revenue in 2019 compared to 2018, assuming customers deliver volumes as planned.

Marketing Services

The Marketing business recorded an operating loss of $18 million in the first quarter of 2019, while realized margin was $22 million, excluding the effect of unrealized gains and losses from risk management contracts. Marketing's results were affected by a 17-day unplanned outage at AEF and the timing of settling risk management contracts.

Although Keyera's Marketing quarterly results are subject to variability, our processing, storage and transportation assets, as well as our AEF facility provide a strong foundation for Marketing to deliver cash flow year after year. On an annual basis, we expect our Marketing business to contribute, on average, a base realized margin of between $180 million and $220 million. This estimated range is based on a variety of assumptions that are described in our first quarter 2019 MD&A. For 2019, we expect the Marketing segment to outperform this base range and generate realized margin between $280 million and $320 million. This is primarily due to lower butane feedstock prices effective with the new annual term supply contracts that began on April 1, 2019. Marketing adds value to our integrated business by enhancing the returns from our fee-for-service businesses and also provides an additional source of funding for our capital projects.

Business Development

We are very pleased to be proceeding with the KAPS project and have partnered with SemCAMS Midstream, owned jointly by SemGroup Corporation and KKR, to develop this world-class 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 Fort Saskatchewan and Keyera's fractionation assets and condensate system.

This project is highly desired by industry and anchored by multiple long-term agreements, averaging 14 years in length with 75% take-or-pay commitments, as well as specific facility and area dedications. The firm volume commitments over the length of the agreements make up over 60% of the initial aggregate capacity of the pipeline system and includes meaningful commitments from investment grade counterparties. We expect KAPS is to generate an annual return on capital of between 10% and 15% starting in 2024.

KAPS will be an open-access system and initially constructed from northwest of Grande Prairie to KFS. Along this route, KAPS will initially be connected to our Pipestone, Wapiti and Simonette gas plants and several third party gas plants with volume commitments to KAPS. By 2022, Keyera and SemCAMS Midstream will have nine gas plants operating in northwestern Alberta providing KAPS with access to approximately 2.25 billion cubic feet per day of natural gas processing capacity and 130,000 barrels per day of condensate handling facilities. Keyera will construct and operate the pipeline system.

The cost of the pipeline system is currently estimated at $1.3 billion, or $650 million net to Keyera, and we plan to fund this project without issuing common equity, outside of our current DRIP.

KAPS is not only a strategic asset for Keyera, connecting our NGL business to our gathering and processing assets located in a key region of the Western Canada Sedimentary Basin; it also provides numerous future growth opportunities. We thank our customers for their endorsement and commitment to our solution and are committed to developing this pipeline system in a responsible manner for all stakeholders.

Outlook

This is an exciting time for Keyera as we are completing a number of new growth projects over the next few years and have a number of new opportunities to consider. While we focus on creating value for our shareholders over the long-term, we will maintain our disciplined approach. We will focus our growth on investments that enhance our integrated value chain and we will continue to ensure our capital is deployed efficiently and effectively. We remain committed to our financing plan and may consider issuing term debt, hybrid notes or preferred shares to fund a portion of our current capital program.

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. SmithPresident & Chief Executive OfficerKeyera Corp.

FIRST QUARTER RESULTS CONFERENCE CALL AND WEBCAST

Keyera will hold a conference call and webcast on Wednesday, May 15, 2019 at 8:00 am Mountain Standard Time (10:00 am Eastern Standard 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 11:59 pm Mountain Standard Time on May 22, 2019 by dialing 855-859-2056 or 416-849-0833 and entering passcode 2388456.

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.TO) 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 in this news release (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 document 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 this 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 in this news release 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, orEmail: ir@keyera.com; Telephone: 403.205.7670 / Toll Free: 888.699.4853

SOURCE Keyera Corp.

View original content: http://www.newswire.ca/en/releases/archive/May2019/14/c6167.html

SOURCE: Keyera Corp.

 

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