CALGARY, AB – AltaGas Ltd. (AltaGas or the Company) (TSX: ALA) today reported second quarter 2020 financial results and provided an update on its operations and outlook, inclusive of COVID-19 considerations.
“Although the second quarter included large economic disruptions due to the global pandemic that has impacted us all, we continue to be encouraged with the resiliency and performance of our operations during a period of extraordinary challenge and duress,” said Randy Crawford, AltaGas’ President and Chief Executive Officer. “We were able to maintain safe and reliable operations, continue to deliver critical energy to end users, and honor our social and moral contract that we have in the communities where we serve. This feat was only possible through the tireless efforts and adaptability of our committed workforce and our valued vendor partners. As we look to the second half of the year, we remain steadfast about the goals we laid out coming into 2020.”
HIGHLIGHTS
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)
- Normalized EBITDA1 was $206 million for the second quarter. Excluding the $29 million reduction in normalized EBITDA as a result of the asset sales in 2019, second quarter normalized EBITDA would have increased 13 percent as compared to the second quarter of 2019.
- Normalized net income1 was $17 million ($0.06 per share) compared to $1 million ($0.01 per share) in the second quarter of 2019.
- Net income applicable to common shares was $21 million ($0.08 per share) compared to $41 million ($0.15 per share) in the second quarter of 2019.
- Net debt decreased to $6.8 billion as at June 30, 2020, compared to $7.2 billion at December 31, 2019.
- Strong Midstream segment performance was underpinned by record volumes at the Ridley Island Propane Export Terminal (RIPET), which continues to see strong operating performance with exports of 41,460 Bbls/d (seven ships) of Canadian propane to Asia during the quarter.
- Utilities segment results were representative of the lower demand spring and summer months. Growth in each of the regulated utilities underpinned by 2019 rate cases and accelerated pipe replacement program (ARP) spending was more than offset by lower realized margins in the retail business and COVID-19 related impacts in the quarter.
- During the quarter, AltaGas successfully refinanced all its remaining 2020 debt maturities across the platform through two debt financings. This included SEMCO completing a private placement of US$450 million of first mortgage bonds on April 21, 2020 and AltaGas closing a $500 million issuance of senior unsecured medium-term notes on June 10, 2020.
- On June 15, 2020, AltaGas entered into a stock purchase agreement with Clarion Energy LLC to sell a 49.5 MW gas fired facility in Ripon, California. The transaction is expected to close in the third quarter. On July 20, 2020, AltaGas closed the disposition of AltaGas Pomona Energy Storage Inc. and land related to a gas fired power generation facility in the U.S. The effective date of the sale was January 1, 2020, and gross proceeds, before working capital and other adjustments, were approximately $63 million (US$47 million). Although these transactions were smaller relative to the overall size of AltaGas, they are a continuation of our efforts to focus the platform and are expected to be credit accretive.
- Although there were headwinds in the quarter, the platform continues to show strong resilience and durability. At this stage, the Company expects to land within its previously stated guidance range and is maintaining its 2020 outlook for expected normalized EBITDA in the range of $1.275 – $1.325 billion and normalized net income1 of $1.20 – $1.30 per share.
- AltaGas remains committed to protecting the health and safety of its employees while providing essential services to its customers and communities. The Company continues to closely monitor developments related to COVID-19, including the existing and potential impact on global and local economies in the jurisdictions where it operates.
1. |
Non-GAAP measure; see discussion in the advisories of this news release and reconciliation to US GAAP financial measures shown in AltaGas’ Management’s Discussion and Analysis (MD&A) as at and for the period ended June 30, 2020, which is available on www.sedar.com. |
CEO MESSAGE
Randy Crawford, President and Chief Executive Officer commented, “As a provider of essential services we are committed to providing the much-needed energy to homes and businesses of our Utilities customers and ensuring access to global markets for our Midstream customers. We are clearly living in unprecedented times as COVID-19 has impacted us all and continues to pose a significant challenge globally. We continue to closely monitor regional developments and we remain focused on maintaining the safety of our employees, stakeholders, and the communities we serve.
“I am extremely proud of our employees for the work they continue to do to refocus this great Company and I would like to thank them for their dedication, adaptability and hard work during this pandemic. Our people are the heart of this Company and their spirit and resilience ensures my confidence that we will continue to execute our strategy and maintain our commitment to safety and operational excellence.
“Apart from the specific actions we have taken in response to COVID-19, our strategy and focus remains unchanged. We continue to execute on our near-term priorities while operating our businesses in a safe and reliable manner. The measures we took in 2019 to focus the business on our core capabilities and strengthen our balance sheet leave us well positioned to manage the headwinds facing the global economy. We are operating a diversified and enduring business with approximately 85 percent of earnings underpinned by rate-regulated utilities or contracted midstream operations that we believe will demonstrate strong durability through this challenging landscape.
“Our second quarter financial results reflect the stability and resiliency of our diversified business mix which continue to provide predictable and reliable earnings. Our Utilities strategy is centered around providing safe and reliable service to our customers. We maintain a disciplined approach to growing the rate base through our accelerated replacement programs and we continue to make strong progress towards achieving operational excellence and attaining our target returns. Approximately 70 percent of the Utilities earnings is protected through decoupling and fixed-billing charges. All of the jurisdictions where our Utilities operate have allowed us to create regulatory assets to facilitate the recovery of any incremental costs related to COVID-19.
“Our Midstream strategy is designed to leverage our industry leading export capability to access premium pricing in Asia to support our customers. We believe in the long-term fundamentals of the Montney and we continue to see strong and stable demand for Canadian propane within Asia.
“Performance at RIPET remains strong. We continue to deliver on our goals, setting a record in the second quarter with 41,460 Bbls/d of Canadian propane exported to Asia on seven ships. We are pleased with the progress we continue to make at RIPET and we remain on track to hit 50,000 Bbls/d before year-end.
“Our self-funded capital plan of approximately $900 million is more than three-quarters directed towards low-risk Utilities investment where we earn more immediate returns with roughly 80% of that amount invested through accelerated replacement programs and maintenance spending that is calibrated to match depreciation.
“We recently expanded our integrated Midstream service offering with the completion of the North Pine and Townsend 2B expansions and will look to further expand our footprint through the Petrogas put option. Through this we will expand our Midstream value proposition through increased exposure to assets at Ferndale and Fort Saskatchewan, and continue towards our goal of operating an integrated logistics network.
“We are well positioned to have significant organic growth opportunities within both of our businesses. We will remain focused on maintaining a strong balance sheet, continuing to de-lever our capital structure and operating with acute capital discipline, which is critical to our long-term strategy.
“We continue to monitor the macro environment and assess the potential impacts that COVID-19 could have on our business. We have seen strong resilience in our business to date and we believe that will endure through the years to come.
“The work we completed in 2019 to focus the business and strengthen our balance sheet provides us with the stability and financial flexibility required to navigate challenging economic environments, like the one that we are in. Despite the headwinds, the platform we developed continues to show resilience, and at this stage we expect to land within our previously stated guidance range and we are maintaining our 2020 outlook for expected normalized EBITDA in the range of $1.275 – $1.325 billion and normalized net income of $1.20 – $1.30 per share. We believe this is a testament to the resiliency of our diversified businesses and the purposeful actions we have taken over the past 12-18 months.”
BUSINESS PERFORMANCE
Second quarter Utilities segment results were representative of the lower demand spring and summer months. Growth in each of the regulated Utilities underpinned by 2019 rate cases and ARP spending was more than offset by lower realized margins in the retail business and COVID-19 related impacts. AltaGas’ low-risk Utilities business continues to provide stable and predictable earnings. More than 70 percent of Utilities customers are residential and approximately 70 percent of Utilities earnings are protected through decoupling and fixed-billing charges. In addition, all of AltaGas’ Utilities jurisdictions (Washington DC, Maryland, Virginia, Alaska and Michigan) have approved the creation of regulatory assets for the recovery of incremental costs related to COVID-19.
In the Midstream segment, RIPET contributed $30 million of normalized EBITDA in the second quarter on exports of 41,460 Bbls/d (seven ships) delivered to Asian markets at an EBITDA contribution of approximately $8/Bbl. During the second quarter of 2020, AltaGas hedged approximately 29,585 Bbls/d of propane export volumes at an average FEI to Mont Belvieu spread of approximately US$9/Bbl. AltaGas remains on track to hit its 50,000 Bbls/d export target through RIPET by year end. The Company has secured 50,000 Bbls/d of supply as at April 1, 2020, with approximately 33 percent under long-term tolling agreements.
Fractionation volumes in the second quarter increased compared to the second quarter 2019 as the result of the North Pine expansion and additional volumes at Townsend 2B, which were partially offset by lower volumes at Harmattan and Younger. Higher gas processing volumes at Nig Creek and the new Townsend 2B facility and higher interruptible volumes at Gordondale were more than offset by lower processed volumes at the Blair Creek and Townsend Shallow Cut facilities and lower volumes at the extraction facility due to producer shut ins. During the second quarter of 2020, AltaGas hedged 10,068 Bbls/d of natural gas liquids (NGLs) at an average price of approximately $28/Bbl excluding basis differentials. The average indicative spot NGL frac spread for the second quarter of 2020 was approximately $4/Bbl, however due to our hedging program and other factors AltaGas’ realized frac spread averaged approximately $17/Bbl in the second quarter of 2020.
Q2 2020 FINANCIAL RESULTS |
|||||
Three Months Ended |
|||||
($ millions) |
2020 |
2019 |
|||
Segmented Normalized EBITDA(1) |
|||||
Utilities |
$ |
80 |
$ |
86 |
|
Midstream |
111 |
102 |
|||
Sub-total: Operating Segments |
$ |
191 |
$ |
188 |
|
Corporate/Other |
15 |
23 |
|||
Normalized EBITDA (1)(4) |
$ |
206 |
$ |
211 |
|
Add (deduct): |
|||||
Depreciation and amortization |
(93) |
(107) |
|||
Interest expense |
(71) |
(83) |
|||
Normalized income tax recovery (expense) |
(6) |
4 |
|||
Preferred share dividends |
(17) |
(18) |
|||
Other (3) |
(2) |
(6) |
|||
Normalized net income (1)(4) |
$ |
17 |
$ |
1 |
|
Net income applicable to common shares |
$ |
21 |
$ |
41 |
|
($ per share, except shares outstanding) |
2020 |
2019 |
|||
Shares outstanding – basic (millions) |
|||||
During the period (2) |
279 |
276 |
|||
End of period |
279 |
277 |
|||
Normalized net income – basic (1) |
0.06 |
0.01 |
|||
Normalized net income – diluted (1) |
0.06 |
0.01 |
|||
Net income per common share – basic |
0.08 |
0.15 |
|||
Net income per common share – diluted |
0.08 |
0.15 |
(1) |
Non–GAAP financial measure; see discussion in Non–GAAP Financial Measures section at the end of this news release |
(2) |
Weighted average |
(3) |
“Other” includes accretion expense, net income applicable to non-controlling interests, foreign exchange gains (losses), and NCI related to HLBV accounting |
(4) |
Beginning in 2020, Management no longer adjusts normalized EBITDA or normalized net income for changes in the fair value of natural gas optimization inventory. Please see the Non-GAAP Financial Measures section of the MD&A for additional detail. As such, comparative periods have been adjusted to reflect the before and after-tax impacts of this change to normalized EBITDA and normalized net income, respectively. |
Normalized EBITDA for the second quarter of 2020 was $206 million, compared to $211 million for the same quarter in 2019. Growth in the Midstream segment of $9 million was underpinned by a full quarter of RIPET ($30 million) and higher Allowance for Funds Used During Construction related to Mountain Valley ($5 million). This was offset by the impact of asset sales ($29 million), including WGL Midstream’s interest in Stonewall in May 2019, the U.S. distributed generation assets in September 2019, and WGL Midstream’s indirect non-operating interest in Central Penn in November 2019. In the Utilities segment, lower margins in the retail business ($7 million) and the cancellation of late fees and related charges by the utilities due to COVID-19 more than offset growth in the regulated utilities from 2019 rate cases and continued ARP spending. Equity earnings from Petrogas was $7 million in the second quarter. For the three months ended June 30, 2020, the average Canadian/U.S. dollar exchange rate increased to 1.39 from an average of 1.34 in the same quarter of 2019, resulting in an increase in normalized EBITDA of approximately $4 million.
Normalized net income was $17 million ($0.06 per share) for the second quarter of 2020, compared to normalized net income of $1 million ($0.01 per share) reported for the same quarter of 2019. The increase is due to the same factors impacting normalized EBITDA, lower interest expense and lower depreciation and amortization expense, partially offset by higher income tax expense.
Net income applicable to common shares for the second quarter of 2020 was $21 million ($0.08 per share), compared to $41 million ($0.15 per share) for the same quarter in 2019. The decrease was mainly due to the absence of the gain on the sale of WGL Midstream’s interest in Stonewall recorded in the second quarter of 2019, the same previously referenced factors impacting normalized EBITDA, and higher income tax expense. These were partially offset by higher unrealized gains on risk management contracts, lower interest expense, and lower depreciation and amortization expense.
Depreciation and amortization expense for the second quarter of 2020 was $93 million, compared to $107 million for the same quarter in 2019. The decrease was primarily due to asset sales and a one-time adjustment.
Interest expense for the second quarter of 2020 was $71 million, compared to $83 million for the same quarter in 2019. The decrease was predominantly due to lower average debt balances as a result of debt reduction from proceeds on asset sales and lower average interest rates compared to 2019.
AltaGas recorded income tax expense of $3 million for the second quarter of 2020 compared to a recovery of $33 million in the same quarter of 2019. The increase in tax expense was mainly due to higher U.S. earnings and unitary tax rate adjustments, as well as one-time tax recoveries related to the Alberta Job Creation Tax Cut in the second quarter of 2019, partially offset by lower tax expense on dispositions in Canada in the first half of 2020. Current tax recovery of $5 million was recorded in the second quarter of 2020, which did not include any tax on asset sales.
GUIDANCE AND FUNDING
The Company’s outlook for 2020 remains unchanged, with anticipated normalized EBITDA in the range of $1.275 – $1.325 billion and normalized EPS of $1.20 – $1.30. This continued stability is underpinned by increasing contributions from its core businesses, lower interest expense due to lower leverage and refinancing its rolling maturities at lower interest rates which have generally offset modest headwinds due to the challenges in the economy from the global pandemic.
Approximately 60 percent of 2020 normalized EBITDA is expected to come from the Utilities segment which provides more stable and predictable results. The Utilities segment is largely insulated from earnings volatility through decoupling, fixed components of billing and other tracking mechanisms that offset load variability and incremental COVID-19 related costs. Growth in the Utilities segment is expected to be driven by rate base growth and achieving higher returns through rate case settlements, increased utilization of ARPs as well as operating costs and leak remediation reduction initiatives. The consolidated Utilities rate base is expected to grow at approximately 8 – 10 percent annually in 2020 through to 2024.
The Midstream segment is underpinned by the Company’s unique energy export strategy and the distinct ability to handle the molecule through the entire value chain and provide access to premium-priced global markets for western Canadian producers. Overall, the near-term stability in the Midstream segment despite the broader industry headwinds is expected to be driven by a full-year of contributions and increased utilization at RIPET as well as increased volumes at AltaGas’ Northeast B.C. facilities including North Pine, Townsend and Aitken Creek, which are offset by current upstream spending headwinds that are likely to lead to overall production declines in the Western Canadian Sedimentary Basin.
Midstream earnings are largely underpinned by long-term take-or-pay and fee-for-service agreements and AltaGas’ comprehensive hedging program. At RIPET, propane price margins are protected through AltaGas’ near-term hedging program, and approximately one third of 2020 volumes are contracted under tolling arrangements. For the remaining merchant export volumes, approximately 80 percent are financially hedged at an FEI to Mont Belvieu spread of approximately $10/Bbl. Collectively, approximately 87 percent of RIPET’s propane export volumes are hedged in some form for 2020. AltaGas plans to manage the facility such that a growing portion of the annual capacity will be underpinned by tolling arrangements. This will provide AltaGas customers stronger participation in the upside of Asian pricing and the structural shipping advantage of the terminal, while increasing the predictability of throughput from an AltaGas perspective.
AltaGas estimates an average of approximately 9,500 Bbls/d of NGLs will be exposed to frac spreads prior to hedging activities. Hedges are in place for approximately 100 percent of frac exposed NGL volumes in 2020 including internal hedges at an average hedge rate of $29/Bbl excluding basis differentials.
AltaGas’ 2020 capital spending program is unchanged at approximately $900 million with more than three-quarters comprised primarily of projects within the low-risk Utilities business that are anticipated to deliver stable and transparent rate base growth and strong risk-adjusted returns. AltaGas expects to self-fund its capital investment plan through internally-generated cash flow and normal course borrowings on existing credit facilities.
MONTHLY COMMON SHARE DIVIDEND AND QUARTERLY PREFERRED SHARE DIVIDENDS
- The Board of Directors approved a dividend of $0.08 per common share. The dividend will be paid on September 15, 2020, to common shareholders of record on August 25, 2020. The ex–dividend date is August 24, 2020. This dividend is an eligible dividend for Canadian income tax purposes;
- The Board of Directors approved a dividend of $0.21125 per share for the period commencing June 30, 2020 and ending September 29, 2020, on AltaGas’ outstanding Series A Preferred Shares. The dividend will be paid on September 30, 2020 to shareholders of record on September 16, 2020. The ex–dividend date is September 15, 2020;
- The Board of Directors approved a dividend of $0.18318 per share for the period commencing June 30, 2020 and ending September 29, 2020, on AltaGas’ outstanding Series B Preferred Shares. The dividend will be paid on September 30, 2020 to shareholders of record on September 16, 2020. The ex–dividend date is September 15, 2020;
- The Board of Directors approved a dividend of US$0.330625 per share for the period commencing June 30, 2020 and ending September 29, 2020, on AltaGas’ outstanding Series C Preferred Shares. The dividend will be paid on September 30, 2020 to shareholders of record on September 16, 2020. The ex–dividend date is September 15, 2020;
- The Board of Directors approved a dividend of $0.337063 per share for the period commencing June 30, 2020 and ending September 29, 2020, on AltaGas’ outstanding Series E Preferred Shares. The dividend will be paid on September 30, 2020 to shareholders of record on September 16, 2020. The ex–dividend date is September 15, 2020;
- The Board of Directors approved a dividend of $0.265125 per share for the period commencing June 30, 2020 and ending September 29, 2020, on AltaGas’ outstanding Series G Preferred Shares. The dividend will be paid on September 30, 2020 to shareholders of record on September 16, 2020. The ex-dividend date is September 15, 2020;
- The Board of Directors approved a dividend of $0.20832 per share for the period commencing June 30, 2020 and ending September 29, 2020, on AltaGas’ outstanding Series H Preferred Shares. The dividend will be paid on September 30, 2020 to shareholders of record on September 16, 2020. The ex-dividend date is September 15, 2020;
- The Board of Directors approved a dividend of $0.328125 per share for the period commencing June 30, 2020 and ending September 29, 2020, on AltaGas’ outstanding Series I Preferred Shares. The dividend will be paid on September 30, 2020 to shareholders of record on September 16, 2020. The ex–dividend date is September 15, 2020; and
- The Board of Directors approved a dividend of $0.3125 per share for the period commencing June 30, 2020 and ending September 29, 2020, on AltaGas’ outstanding Series K Preferred Shares. The dividend will be paid on September 30, 2020 to shareholders of record on September 16, 2020. The ex-dividend date is September 15, 2020.
CONSOLIDATED FINANCIAL REVIEW |
|||||||
Three Months Ended |
Six Months Ended |
||||||
($ millions, except normalized effective income tax rate) |
2020 |
2019 |
2020 |
2019 |
|||
Revenue |
1,059 |
1,174 |
2,928 |
3,072 |
|||
Normalized EBITDA (1) (2) |
206 |
211 |
705 |
694 |
|||
Net income applicable to common shares |
21 |
41 |
484 |
850 |
|||
Normalized net income (1) (2) |
17 |
1 |
237 |
215 |
|||
Total assets |
20,003 |
21,000 |
20,003 |
21,000 |
|||
Total long-term liabilities |
10,083 |
9,494 |
10,083 |
9,494 |
|||
Net additions (dispositions) of property, plant and equipment |
188 |
371 |
388 |
(829) |
|||
Dividends declared (3) |
67 |
66 |
134 |
133 |
|||
Cash from operations |
337 |
203 |
812 |
630 |
|||
Normalized funds from operations (1) |
141 |
120 |
562 |
496 |
|||
Normalized adjusted funds from operations (1) |
117 |
101 |
500 |
469 |
|||
Normalized utility adjusted funds from operations (1) |
41 |
36 |
350 |
330 |
|||
Normalized effective income tax rate (%) (1) |
13.3 |
(21.1) |
23.4 |
11.5 |
|||
Three Months Ended |
Six Months Ended |
||||||
($ per share, except shares outstanding) |
2020 |
2019 |
2020 |
2019 |
|||
Net income per common share – basic |
0.08 |
0.15 |
1.73 |
3.08 |
|||
Net income per common share – diluted |
0.08 |
0.15 |
1.73 |
3.08 |
|||
Normalized net income – basic (1) |
0.06 |
0.01 |
0.85 |
0.78 |
|||
Normalized net income – diluted (1) |
0.06 |
0.01 |
0.85 |
0.78 |
|||
Dividends declared (3) |
0.24 |
0.24 |
0.48 |
0.48 |
|||
Cash from operations |
1.21 |
0.74 |
2.91 |
2.28 |
|||
Normalized funds from operations (1) |
0.51 |
0.43 |
2.01 |
1.80 |
|||
Normalized adjusted funds from operations (1) |
0.42 |
0.37 |
1.79 |
1.70 |
|||
Normalized utility adjusted funds from operations (1) |
0.15 |
0.13 |
1.25 |
1.20 |
|||
Shares outstanding – basic (millions) |
|||||||
During the period (4) |
279 |
276 |
279 |
276 |
|||
End of period |
279 |
277 |
279 |
277 |
(1) |
Non–GAAP financial measure; see discussion in Non-GAAP Financial Measures section of this news release. |
(2) |
Beginning in 2020, Management no longer adjusts normalized EBITDA or normalized net income for changes in the fair value of natural gas optimization inventory. Please see the Non-GAAP Financial Measures section of the MD&A for additional detail. As such, comparative periods have been adjusted to reflect the before and after-tax impacts of this change to normalized EBITDA and normalized net income, respectively. |
(3) |
Dividends declared per common share per month: $0.08 beginning on December 27, 2018. |
(4) |
Weighted average. |
CONFERENCE CALL AND WEBCAST DETAILS
AltaGas will hold a conference call today, July 30, at 10:00 a.m. MT (12:00 p.m. ET and 17:00 BST) to discuss 2020 second quarter results, provide an update on the business and other corporate developments.
Members of the investment community and other interested parties may dial 1-647-427-7450 or toll-free at 1-888-231-8191. Please note that the conference call will also be webcast. To listen, please go to http://www.altagas.ca/invest/events-and-presentations. The webcast will be archived for one year.
Shortly after the conclusion of the call, a replay will be available commencing at 1:00 p.m. MT (3:00 p.m. ET and 20:00 BST) on July 30, 2020 by dialing 403-451-9481 or toll-free 1-855-859-2056. The passcode is 1690607. The replay will expire at 11:59 p.m. MT on August 6, 2020 (01:59 a.m. ET and 6:59 BST August 7, 2020).
AltaGas’ unaudited condensed interim Consolidated Financial Statements and accompanying notes for the second quarter ended June 30, 2020, as well as its related Management’s Discussion and Analysis, are now available online at www.altagas.ca. All documents will be filed with the Canadian securities regulatory authorities and will be posted under AltaGas’ SEDAR profile at www.sedar.com.
ABOUT ALTAGAS
AltaGas is a leading North American energy infrastructure company that connects NGLs and natural gas to domestic and global markets. AltaGas creates value by growing and optimizing its energy infrastructure, including a focus on clean energy sources. For more information visit: www.altagas.ca.