CALGARY, Nov. 7, 2017 /CNW/ – Keyera Corp. (TSX:KEY) (“Keyera”) announced its third quarter 2017 results today, the highlights of which are included in this news release. The entire press 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 the System for Electronic Document Analysis and Retrieval at www.sedar.com.
HIGHLIGHTS
- In the third quarter of 2017, Keyera delivered net earnings of $38 million ($0.20 per share) compared to $52 million ($0.28 per share) reported in the third quarter of 2016.
- The Gathering and Processing segment recorded steady operating margin of $69 million (Q3 2016 – $72 million) in the third quarter. Quarterly gross processing throughput volumes were strong at 1,477 million cubic feet per day, higher than both the same period last year and the second quarter of 2017.
- The Liquids Infrastructure segment reported record operating margin of $72 million (Q3 2016 – $63 million) for the quarter as demand for our condensate services continued to increase, the remaining Norlite take-or-pay contracts came into effect and incremental fractionation volumes were processed.
- The Marketing segment’s operating margin was a loss of $15 million while realized margin1,2 was $10 million (Q3 2016 – $33 million). Marketing’s results were affected by the seasonality of propane and by the timing of settling risk management contracts associated primarily with propane inventory at September 30, 2017. A significantly higher operating margin is expected over the next two quarters as the inventory is sold.
- Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”)2 was $138 million, compared to $148 million reported in the third quarter of the previous year.
- Distributable cash flow2 was $108 million or $0.57 per share (Q3 2016 – $101 million or $0.55 per share), resulting in a payout ratio of 73%2 for the third quarter of 2017 and 69%2 year to date.
- Keyera continues to advance several growth initiatives to support Montney and Duvernay production. During the quarter, Keyera entered into a 20-year midstream agreement with Chevron Canada Limited to fractionate and handle natural gas liquids from their Kaybob Duvernay operations. Keyera also continues to work with producers on a range of business development opportunities at its Simonette and Wapiti gas plants.
- In September, Keyera closed a private placement of 10-year senior unsecured notes totaling $400 million with a group of institutional investors. The notes bear interest at 3.68% and mature on September 20, 2027.
- Recently, DBRS Limited assigned Keyera an Issuer Rating of “BBB” with a “Stable” trend and S&P Global assigned Keyera a Long-term Corporate Credit Rating of “BBB/Stable”.
- For 2017, Keyera expects to invest between $700 million and $750 million of growth capital, updated to exclude the acquisition cost of Keyera’s 50% interest in the South Grand Rapids diluent pipeline, which is now expected to be completed by mid-2018.
- In 2018, Keyera expects to invest between $700 million and $800 million primarily based on growth projects currently underway, including the acquisition of the South Grand Rapids diluent pipeline.
1 |
Realized margin is a “Non-GAAP Measure” and excludes the effect of non-cash gains and losses from risk management contracts.. |
2 |
Keyera uses certain “Non-GAAP Measures” such as Adjusted EBITDA, Distributable Cash Flow, Distributable Cash Flow per Share and Payout Ratio. See sections titled “Non-GAAP Financial Measures”, “Dividends: Distributable Cash Flow” and “EBITDA” of the MD&A for further details. |
Three months ended September 30, |
Nine months ended |
||||
Summary of Key Measures |
2017 |
2016 |
2017 |
2016 |
|
Net earnings |
38,464 |
52,420 |
201,868 |
182,230 |
|
Per share ($/share) – basic |
0.20 |
0.28 |
1.08 |
1.02 |
|
Cash flow from operating activities |
80,698 |
137,145 |
301,088 |
372,703 |
|
Distributable cash flow1 |
108,293 |
101,451 |
336,544 |
355,577 |
|
Per share ($/share)1 |
0.57 |
0.55 |
1.80 |
2.00 |
|
Dividends declared |
79,317 |
71,819 |
230,842 |
203,921 |
|
Per share ($/share) |
0.42 |
0.39 |
1.23 |
1.14 |
|
Payout ratio %1 |
73% |
71% |
69% |
57% |
|
Adjusted EBITDA2 |
138,177 |
148,424 |
419,616 |
451,592 |
|
Gathering and Processing: |
|||||
Gross processing throughput (MMcf/d) |
1,477 |
1,367 |
1,444 |
1,454 |
|
Net processing throughput (MMcf/d) |
1,147 |
1,073 |
1,130 |
1,125 |
|
Liquids Infrastructure: |
|||||
Gross processing throughput3 (Mbbl/d) |
186 |
150 |
175 |
144 |
|
Net processing throughput3 (Mbbl/d) |
72 |
56 |
63 |
53 |
|
AEF iso-octane production volumes (Mbbl/d) |
15 |
10 |
12 |
11 |
|
Marketing: |
|||||
Inventory value |
170,419 |
120,918 |
170,419 |
120,918 |
|
Sales volumes (Bbl/d) |
138,500 |
117,000 |
135,700 |
127,500 |
|
Acquisitions |
3,265 |
130,300 |
61,122 |
182,342 |
|
Growth capital expenditures |
142,202 |
130,429 |
468,238 |
382,485 |
|
Maintenance capital expenditures |
16,891 |
28,188 |
33,929 |
36,234 |
|
Total capital expenditures |
162,358 |
288,917 |
563,289 |
601,061 |
|
Three months ended September 30, |
As at September 30, |
||||
2017 |
2016 |
2017 |
2016 |
||
Long-term debt |
— |
— |
1,795,708 |
1,185,568 |
|
Credit facility |
— |
— |
95,000 |
365,000 |
|
Working capital surplus4 |
— |
— |
(21,193) |
(7,734) |
|
Net debt |
1,869,515 |
1,542,834 |
|||
Weighted average number of shares outstanding – basic |
188,650 |
183,962 |
187,469 |
177,865 |
|
Weighted average number of shares outstanding – diluted |
188,650 |
183,962 |
187,469 |
177,865 |
|
Common shares outstanding – end of period |
189,263 |
184,520 |
Notes: |
|
1 |
Payout ratio is defined as dividends declared to shareholders divided by distributable cash flow. Payout ratio and distributable cash flow are not standard measures under Generally Accepted Accounting Principles (“GAAP”). See the section titled, “Dividends: Distributable Cash Flow”, for a reconciliation of distributable cash flow to its most closely related GAAP measure. |
2 |
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, accretion, 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
Keyera recorded steady financial results in the third quarter of 2017 despite challenging industry conditions. Overall, our Adjusted EBITDA was $138 million, Distributable Cash Flow was $108 million and Net Earnings was $38 million for the three months ended September 30, 2017. Our Gathering and Processing Business Unit and Liquids Infrastructure segment both generated increased cash flow over the previous quarter. The Gathering and Processing segment results were supported by higher throughput volumes while the Liquids Infrastructure segment reported record results for the fifth consecutive quarter as we continue to grow our asset base and service offerings. As expected, Marketing’s results were affected by the seasonality of our propane sales. However, significantly higher margins are expected over the next two quarters as the inventory is sold into the North American market.
With a long-term view of the business, we continue to strengthen our foundation and pursue the right opportunities to increase shareholder value. We entered into a long-term midstream agreement with Chevron Canada Limited to fractionate and handle natural gas liquids from its Kaybob Duvernay operations. Overall, our team is looking forward to a strong finish to 2017 and we are optimistic about Keyera’s future prospects. In 2018, we are planning to invest between $700 million and $800 million of growth capital, primarily focused on projects currently underway such as the Base Line Tank Terminal, the South Grand Rapids diluent pipeline, the Keylink NGL pipeline system, the Wapiti gas plant and the Simonette gas plant liquids handling expansion.
As an indication of Keyera’s financial strength, recently DBRS Limited assigned Keyera an Issuer Rating of “BBB” with a “Stable” trend and S&P Global assigned Keyera a Long-term Corporate Credit Rating of “BBB/Stable”, both of which are investment grade credit ratings.
Gathering and Processing Business Unit
The Gathering and Processing segment recorded solid financial results for the three months ended September 30, 2017 with operating margin of $69 million, up slightly from the previous quarter. Total gross processing throughput continued to steadily increase in the third quarter averaging 1,477 million cubic feet per day, 2% higher than the second quarter of 2017 and 8% higher than the same period in 2016. A large portion of the increase was attributable to the Simonette gas plant that achieved record average throughput volumes in the third quarter even though the facility was off-line for a 17-day maintenance turnaround in August. The continued growth in volumes at Simonette is a result of strong producer activity in the Montney and Duvernay geological zones, and we continue to work with current and potential new customers at the Simonette and Wapiti gas plants to provide midstream solutions.
Keyera remains committed to working with customers at our gathering and processing facilities to deliver cost-effective and value-added services that enhance their economics. For example, we have decided to modify our Strachan gas plant to increase efficiencies and reduce operating costs of the plant by shutting down our sour gas processing equipment. This project will coincide with Strachan’s planned maintenance turnaround scheduled in mid-2018. Other maintenance turnarounds are planned for our Nevis and Brazeau North gas plants in 2018.
Liquids Business Unit – Liquids Infrastructure Segment
For the third quarter of 2017, the Liquids Infrastructure segment posted record financial results once again. Operating margin was $72 million, an increase of $5 million over the previous quarter and $9 million over the same period in 2016. This was primarily due to the growth in demand for Keyera’s condensate network, incremental revenue from the startup of the Norlite diluent pipeline and higher fractionation volumes. Utilization at Keyera’s Fort Saskatchewan fractionation facility increased 21% since the beginning of the year and our facility operated near capacity in the third quarter of 2017.
The Norlite pipeline became operational in June, further enhancing our industry-leading condensate network. The pipeline is a joint venture with Enbridge and is backed by the owners of the Fort Hills oil sands project. A portion of the take-or-pay fees associated with the Norlite pipeline and Keyera’s condensate system commenced May 1st, with the remainder coming into effect on August 1st. As there is still available capacity on the pipeline, discussions are ongoing with additional oil sands producers to increase our long-term volume commitments and provide additional services.
During the quarter, construction advanced on a number of our capital projects. At our Edmonton Terminal, four 60,000 barrel condensate storage tanks were completed and placed into service. These storage tanks provide additional working storage and enhance Keyera’s ability to deliver diluent to the oil sands in a reliable and cost effective manner. Construction continued on the Base Line Tank Terminal project, a 50-50 joint venture with Kinder Morgan, and we expect the first set of tanks to be ready for commercial use in early 2018. We also received all regulatory approvals for our Keylink NGL pipeline system that is expected to be operational in mid-2018.
We continue to look for the right opportunities to expand our Liquids Infrastructure assets and service offerings. During the quarter, we entered into a 20-year midstream agreement with Chevron Canada Limited to fractionate and handle up to 50% of their natural gas liquids from their Kaybob Duvernay operations near Fox Creek, Alberta. With Chevron being one of the largest leaseholders in the Duvernay resource, we look forward to working with them in a long-term, mutually beneficial relationship.
Liquids Business Unit – Marketing
For the quarter ended September 30, 2017, the Marketing segment recorded a realized margin of $10 million, excluding the effect of $25 million in unrealized non-cash losses from risk management contracts. While iso-octane contributed a similar margin compared to the same period in 2016, Marketing’s results were affected by the seasonality of propane and by the timing of settling risk management contracts associated primarily with physical propane inventory at September 30, 2017. As this inventory is sold, we expect to realize a significantly higher margin over the next two quarters.
Iso-octane production averaged slightly above nameplate capacity for the third quarter. Since completing the necessary repair work earlier this year, our Alberta EnviroFuels facility has been running very well and iso-octane continues to be the largest contributor to our Marketing segment’s results.
Outlook
We are pleased with the performance of Keyera’s base business and the contribution from the capital projects that we have brought on line over the last couple of years, and we are well positioned for continued growth. We will continue to focus on maximizing utilization at our current facilities, increasing our presence in the liquids-rich gas resource development regions such as the Montney and Duvernay, enhancing our condensate network and services, and expanding our storage facilities. We remain focused on building shareholder value while balancing risk and return expectations.
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.
ABOUT KEYERA
Keyera Corp. (TSX:KEY) operates one of the largest midstream energy companies in Canada, providing essential services to oil and gas producers in the Western Canada Sedimentary Basin. Its predominantly fee-for-service based business consists of natural gas gathering and processing, natural gas liquids fractionation, 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.