CALGARY, AB – AltaGas Ltd. (“AltaGas” or the “Company”) (TSX: ALA) today reported third quarter 2021 financial results and provided an update on the Company’s operations.
HIGHLIGHTS
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)
- Normalized FFO per share1 of $0.61 in the third quarter of 2021 compared to $0.40 in the third quarter of 2020, representing 53% year-over-year growth and continues to provide the foundation for increased returns of capital to shareholders and to fund ongoing organic expansion.
- Normalized EPS1 of $0.02 in the third quarter of 2021 compared to $0.04 in the third quarter of 2020 and positions AltaGas well to deliver on 2021 financial guidance.
- Normalized EBITDA1 of $244 million in the third quarter of 2021 compared to $213 million in third quarter of 2020, representing 15% year-over-year growth. Results reflected strong execution across the platform, particularly within the Midstream segment which demonstrated robust growth across the business.
- Midstream normalized EBITDA of $186 million in the third quarter of 2021 compared to $114 million in the third quarter of 2020, representing a 63% year-over-year increase. Performance included record global export volumes of liquified petroleum gases (LPGs) that averaged approximately 105,000 Bbls/d to Asia, an 11% year-over-year increase in gathering and processing volumes, and a 15% year-over-year increase in fractionation and liquids handling volumes.
- Utilities normalized EBITDA of $62 million in the third quarter of 2021 compared to $80 million in the third quarter of 2020. The largest factors behind the year-over-year decrease were the one-time pension accounting adjustment in the third quarter of 2020 and the unfavourable impact of the CAD/USD exchange rate, partially offset by continued Accelerated Pipeline Replacement (ARP) investments and the impact of the Maryland and D.C. rate cases.
- Washington Gas received approval from the Maryland Public Service Commission (PSC) to support the Piscataway Bioenergy Project, which is AltaGas’ first renewable natural gas (RNG) project in partnership with the Washington Suburban Sanitary Commission (WSSC Water) to transform biowaste into renewable energy.
- Subsequent to quarter-end, AltaGas filed an application with the Canada Energy Regulator for a 25-year butane export license for 40,000 Bbls/d. The application is a proactive step to ensure AltaGas and its partners are positioned to continue to connect the growing LPG production volumes from Western Canada that exceed local demand to global markets, which benefits its upstream and downstream customers.
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 September 30, 2021, which is available on www.sedar.com. |
CEO MESSAGE
“AltaGas’ diversified business model delivered another strong quarter with results underpinned by the Company executing on its corporate strategy of operating long-life energy infrastructure assets that connect markets and provide resilient and durable value for our stakeholders” said Randy Crawford, President and Chief Executive Officer. “Normalized EBITDA increased 15% year-over-year, which was in-line with our expectations, and continued to provide steady returns that are compounding value for our stakeholders.
“Our Midstream business continued to benefit in the quarter from our industry-leading LPG export capabilities, our strategic position in the Montney and our alignment with leading producers that have long-term development plans for the basin. The operational synergies of the combined AltaGas and Petrogas businesses also continued to be demonstrated in the third quarter, which is driving better outcomes for all our stakeholders. For the second consecutive quarter we achieved record global export volumes by shipping approximately 105,000 Bbls/d of LPGs to Asia, which was spread over 18 very large gas carriers (VLGCs). As we look ahead, we are pleased with the pace of the activity recovery that we are experiencing across the basin and we remain well-positioned to capitalize on the corresponding growth of LPG’s that we expect from the increasing rig counts.
“Our Utilities operations continue to reflect the regulatory, capital and cost discipline that we have been focused on instilling over the past two years. As evidenced by the current global energy shortage and cascading negative effects that are taking place across the world, we continue to believe in the role, benefits, and reliability that responsibly sourced natural gas will provide to our customers as we embrace the energy evolution. Consistent with that message, I am excited to share that Washington Gas received Maryland PSC approval to support the Piscataway Bioenergy project, which is Washington Gas’ first RNG project in partnership with WSSC Water to transform sewage waste into renewable energy. Our Utilities are well-positioned to facilitate increased RNG development and provide access to end market use for these environmentally responsible and emerging forms of energy.”
BUSINESS PERFORMANCE
Utilities
The Utilities segment reported normalized EBITDA of $62 million in the third quarter of 2021 compared to $80 million in the third quarter of 2020. Results were reflective of typical seasonality in the summer and fall when natural gas demand declines during the shoulder season. During the third quarter of 2021, AltaGas’ results were also reflective of warmer-than-normal weather in Michigan and colder-than-normal weather in Alaska, where the Company does not have decoupled rate structures like AltaGas’ two larger jurisdictions in Maryland and Virginia. Year-over-year performance was impacted by the $17 million favourable pension accounting change that took place in the third quarter of 2020 and did not take place in the third quarter of 2021 as well as the unfavourable move in the CAD/USD foreign exchange rate which drove a $4 million year-over-year decrease in the third quarter of 2021 results.
AltaGas continued to execute on the Company’s various ARPs in the quarter with an ongoing focus on replacing aging infrastructure to improve the safety and reliability of the system. Over time, these investments should reduce operating costs and emissions through leak reductions, which drive better customer, environmental and societal outcomes. AltaGas also continues to focus on cost efficiency and improving customer service. The Utilities segment also benefited from a strong price environment with higher gas margins in the Retail business, increased returns on pension assets, continued customer growth and lower COVID-19 related costs. These were partially offset by higher G&A and lower power margins from WGL’s retail business.
Midstream
The Midstream segment reported normalized EBITDA of $186 million in the third quarter of 2021, a 63% year-over-year increase. Robust growth was attributed to solid execution across the platform, the Company’s increased ownership in Petrogas, record global export volumes, and continued growth in throughput volumes. Midstream results in the third quarter of 2021 were also positively impacted by approximately $20 million due to recognizing revenue for LPG export cargos that were loaded at the end of the third quarter at spot prices with the offsetting hedge not being realized until delivery at the destination point in the fourth quarter. These strong results were partially offset by no Allowance for Funds Used During Construction (AFUDC) being recorded on the Mountain Valley Pipeline, a blend and extend contract at the Gordondale plant that was signed in 2018 with the impact of the lower processing fees being recognized for accounting purposes starting in 2021, and the loss of contribution from the U.S. Transportation and Storage business following the monetization that took place on those assets during the second quarter of 2021, with all of these events having benefited results in the comparable quarter of 2020.
Global exports contributed $106 million in normalized EBITDA during the quarter ($86 million, prior to the previously mentioned hedging timing issue) and achieved record volumes of 105,070 Bbls/d of LPGs shipped to Asia, which was spread across 18 VLGCs. This included the Ridley Island Propane Export Terminal (RIPET) shipping an average of 58,056 Bbls/d of propane across nine ships and the Ferndale terminal exporting an average of 47,014 Bbls/d of combined butane and propane across nine ships in the quarter. Record global export volumes were underpinned by strong operating efficiencies across the two terminals, ongoing operational synergies through sharing best practices, strong demand for North American LPGs in Asia, and ongoing growth in throughput volumes in AltaGas’ gas processing and fractionation facilities.
AltaGas’ integrated Midstream business is strategically positioned and supported by the rising global demand for cleaner burning fuels, including natural gas and LPGs, and the abundant low-cost supply within the Western Canadian Sedimentary Basin, which is expected to play a growing role in helping provide long-term energy security in the growing Asian markets. AltaGas’ gathering and processing volumes increased 11% year-over-year in the third quarter of 2021 while fractionation and liquids handling volumes increased 15% year-over-year. Growth within AltaGas’ facilities continued to be more pronounced within Montney facilities compared to facilities outside this region.
AltaGas’ realized frac spread averaged $12.63/Bbl, after transportation costs, as 94% of AltaGas’ frac exposed volumes were hedged at approximately $26/Bbl in the quarter, prior to transportation costs. AltaGas remains well hedged through the remainder 2021 with approximately 95% of fourth quarter of 2021 expected frac exposed volumes hedged at approximately $26/Bbl, prior to transportation costs, and 66% of fourth quarter 2021 expected global export volumes tolled or financially hedged. The latter includes an average FEI to North American financial hedge price average of US$12.64/Bbl, including both propane and butane for the hedged and non-tolled volumes.
Q3 2021 and Q4 2021 Midstream Hedge Program
Q3 2021 |
Q4 2021 |
|
Global Exports volume hedged (%)(1) |
86 |
66 |
Average propane/butane FEI to North America Average hedge (US$/Bbl)(2) |
12.44 |
12.64 |
Fractionation volume hedged (%) |
94 |
95 |
Frac spread hedge rate – (CAD$/Bbl)(3) |
25.86 |
25.67 |
(1) Approximate expected volume hedged, includes contracted tolling volumes and financial hedges; based on the assumption of average exports of 90 MBbls/d. |
(2) Approximate average for the period; does not include physical differential to FSK for C3 volumes. |
(3) Approximate average for the period. |
Corporate/Other
The Corporate/Other segment reported a normalized EBITDA loss of $4 million, compared to $19 million earned in the same quarter of 2020. The $23 million year-over-year decrease was driven by the combination of higher expenses related to employee incentive plans as a result of AltaGas’ rising share price over the course of 2021, the monetization of Pomona Energy Storage Inc. and AltaGas Ripon Energy Inc. in the third quarter of 2020, and the absence of recoveries related to the Canada Emergency Wage Subsidy that were present in the third quarter of 2020.
CONSOLIDATED FINANCIAL PERFORMANCE
Normalized EBITDA for the third quarter of 2021 was $244 million, which represented an approximate 15% year-over-year increase compared to $213 million for the same quarter in 2020. The factors leading to the variance are described in the Business Performance section above. For the third quarter of 2021, the average CAD/USD foreign exchange rate decreased to 1.26 from an average of 1.33 in the same quarter of 2020, resulting in a decrease in normalized EBITDA of approximately $6 million on a consolidated basis.
Normalized net income was $5 million or $0.02 per share for the third quarter of 2021, compared to normalized net income of $12 million or $0.04 per share reported for the same quarter of 2020. Higher normalized EBITDA was more than offset by higher net income applicable to non-controlling interests, higher depreciation and amortization expense and higher normalized income tax expense due to adjustments to accumulated deferred tax liabilities.
Normalized FFO for the third quarter of 2021 was $170 million ($0.61 per share), compared to $112 million ($0.40 per share) for the same quarter in 2020. The increase was mainly due to the same previously referenced factors impacting normalized EBITDA, partially offset by higher interest expense.
Depreciation and amortization expense for the third quarter of 2021 was $111 million, compared to $108 million for the same quarter in 2020. The increase was mainly due to new assets placed in-service and amortization expense on Petrogas assets upon consolidation.
Interest expense for the third quarter of 2021 was $69 million, compared to $65 million for the same quarter in 2020. The increase in interest expense was mainly due to higher average debt balances, partially offset by lower average interest rates and a lower average CAD/USD foreign exchange rate.
Q3 2021 Consolidated Financial Results
Three Months Ended |
||||||
($ millions) |
2021 |
2020 |
||||
Segmented Normalized EBITDA(1) |
||||||
Utilities |
62 |
80 |
||||
Midstream |
186 |
114 |
||||
Sub-total: Operating Segments |
$ |
248 |
$ |
194 |
||
Corporate/Other |
(4) |
19 |
||||
Normalized EBITDA (1) |
$ |
244 |
$ |
213 |
||
Add (deduct): |
||||||
Depreciation and amortization |
(111) |
(108) |
||||
Interest expense |
(69) |
(65) |
||||
Normalized Income Tax Expense |
(18) |
(6) |
||||
Preferred share dividends |
(13) |
(16) |
||||
Other (3) |
(28) |
(6) |
||||
Normalized net income (1) |
$ |
5 |
$ |
12 |
||
Net income (loss) applicable to common shares |
$ |
25 |
$ |
(47) |
||
($ per share, except shares outstanding) |
2021 |
2020 |
||||
Shares outstanding – basic (millions) |
||||||
During the period (2) |
280 |
279 |
||||
End of period |
280 |
279 |
||||
Normalized net income – basic (1) |
0.02 |
0.04 |
||||
Normalized net income – diluted (1) |
0.02 |
0.04 |
||||
Net income (loss) per common share – basic |
0.09 |
(0.17) |
||||
Net income (loss) per common share – diluted |
0.09 |
(0.17) |
(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 non-controlling interest portion of non-GAAP adjustments, accretion expense, net income applicable to non-controlling interests, and foreign exchange gains (losses). |
FORWARD FOCUS, GUIDANCE AND FUNDING
Looking ahead, AltaGas continues to be focused on many of the same priorities the Company has over the past two and half years. This includes executing on AltaGas’ long-term corporate strategy of building a diversified platform that operates long-life energy infrastructure assets that are positioned to provide resilient and durable value for the Company’s stakeholders.
AltaGas continues to focus on delivering durable and growing EPS and FFO per share while targeting lowering leverage ratios and increasing margins of safety within the business over time. This strategy should support steady dividend growth and provide the opportunity for ongoing capital appreciation for its long-term shareholders.
AltaGas is reiterating its 2021 increased guidance ranges that were provided in April 2021, including:
- 2021 Normalized EPS guidance is $1.65 – $1.80 per share.
- 2021 Normalized EBITDA guidance is $1.475 billion – $1.525 billion.
AltaGas’ 2021 capital expenditure plan is being reduced from $910 million to $850 million, excluding asset retirement obligations. The largest drivers for the reduction are: 1) a lower forecasted Utilities spend, which is partially driven by a stronger CAD/USD foreign exchange rate, which reduces the cost of capital expenditures in Canadian dollar terms; and 2) select Midstream spending now expected to rollover into early 2022 instead of 2021. The capital expenditures program remains heavily weighted towards the lower-risk Utilities business and is comprised primarily of ARP and system betterment projects that are anticipated to deliver stable and transparent rate base growth and strong risk-adjusted returns. These investments are directed at delivering improved long-term customer, safety and environmental outcomes.
MONTHLY COMMON SHARE DIVIDEND AND QUARTERLY PREFERRED SHARE DIVIDENDS
The Board of Directors approved the following schedule of Dividends:
Type |
Dividend (per share) |
Period |
Payment Date |
Record |
Common Shares1 |
$0.0833 |
n.a. |
15-Dec-21 |
25-Nov-21 |
Series A Preferred Shares |
$0.19125 |
30-Sep-21 to 30-Dec-21 |
31-Dec-21 |
16-Dec-21 |
Series B Preferred Shares |
$0.17883 |
30-Sep-21 to 30-Dec-21 |
31-Dec-21 |
16-Dec-21 |
Series C Preferred Shares |
US$0.330625 |
30-Sep-21 to 30-Dec-21 |
31-Dec-21 |
16-Dec-21 |
Series E Preferred Shares |
$0.337063 |
30-Sep-21 to 30-Dec-21 |
31-Dec-21 |
16-Dec-21 |
Series G Preferred Shares |
$0.265125 |
30-Sep-21 to 30-Dec-21 |
31-Dec-21 |
16-Dec-21 |
Series H Preferred Shares |
$0.204038 |
30-Sep-21 to 30-Dec-21 |
31-Dec-21 |
16-Dec-21 |
Series K Preferred Shares |
$0.3125 |
30-Sep-21 to 30-Dec-21 |
31-Dec-21 |
16-Dec-21 |
(1) |
Eligible dividend for Canadian income tax purposes |
CONSOLIDATED FINANCIAL REVIEW
Three Months Ended |
Nine Months Ended |
|||||||
($ millions, except normalized effective income tax rate) |
2021 |
2020 |
2021 |
2020 |
||||
Revenue |
2,339 |
969 |
7,433 |
3,897 |
||||
Normalized EBITDA (1) |
244 |
213 |
1,148 |
918 |
||||
Net income (loss) applicable to common shares |
25 |
(47) |
386 |
437 |
||||
Normalized net income (1) |
5 |
12 |
389 |
249 |
||||
Total assets |
21,303 |
19,799 |
21,303 |
19,799 |
||||
Total long-term liabilities |
11,302 |
9,886 |
11,302 |
9,886 |
||||
Net additions of property, plant and equipment |
209 |
142 |
210 |
530 |
||||
Dividends declared (2) |
70 |
67 |
211 |
201 |
||||
Cash from (used by) operations |
209 |
(48) |
895 |
765 |
||||
Normalized funds from operations (1) |
170 |
112 |
910 |
675 |
||||
Normalized effective income tax rate (%) (1) |
28.6 |
15.8 |
21.6 |
22.7 |
||||
Three Months Ended |
Nine Months Ended |
|||||||
($ per share, except shares outstanding) |
2021 |
2020 |
2021 |
2020 |
||||
Net income (loss) per common share – basic |
0.09 |
(0.17) |
1.38 |
1.56 |
||||
Net income (loss) per common share – diluted |
0.09 |
(0.17) |
1.37 |
1.56 |
||||
Normalized net income – basic (1) |
0.02 |
0.04 |
1.39 |
0.89 |
||||
Normalized net income – diluted (1) |
0.02 |
0.04 |
1.38 |
0.89 |
||||
Dividends declared (2) |
0.25 |
0.24 |
0.75 |
0.72 |
||||
Cash from (used by) operations |
0.75 |
(0.17) |
3.20 |
2.74 |
||||
Normalized funds from operations (1) |
0.61 |
0.40 |
3.25 |
2.42 |
||||
Shares outstanding – basic (millions) |
||||||||
During the period (3) |
280 |
279 |
280 |
279 |
||||
End of period |
280 |
279 |
280 |
279 |
(1) Non–GAAP financial measure; see discussion in Non-GAAP Financial Measures section of this MD&A. |
(2) Dividends declared per common share per month: $0.08 beginning on December 27, 2018, increased to $0.0833 per share beginning December 2020. |
(3) Weighted average. |
CONFERENCE CALL AND WEBCAST DETAILS
AltaGas will hold a conference call today, October 28, at 8:00 a.m. MT (10:00 a.m. ET and 14:00 BST) to discuss third quarter results for 2021 and other corporate developments.
Members of the investment community and other interested parties may dial 1-416-764-8659 or toll free at 1-888-664-6392. 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 third quarter call, a replay will be available commencing at 10:00 a.m. MT (12:00 p.m. ET) on October 28, 2021 by dialing 416-764-8677 or toll free 1-888-390-0541. The passcode is 369978#. The replay will expire at 9:59 p.m. MT (11:59 p.m. ET) on November 4, 2021.
AltaGas’ unaudited condensed interim Consolidated Financial Statements and accompanying notes for the third quarter ended September 30, 2021, 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.