Keyera Corp. Announces First Quarter 2014 Results

CALGARY, May 6, 2014 /CNW/ - Keyera Corp. (TSX:KEY) announced their 2014 first quarter results today, the highlights of which are included in this press release. The entire earnings 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 

  • Net earnings were $55.2 million ($0.70 per share) in first quarter 2014, $31.8 million ($0.40 per share) higher than the $23.4 million ($0.30 per share) in first quarter 2013.

  • Earnings before interest, taxes, depreciation and amortization1, 2 ("EBITDA") were $107.7 million in first quarter 2014, 10% higher than the $97.8 million posted in first quarter 2013.

  • Distributable cash flow1, 2 was $78.2 million ($0.99 per share) in first quarter 2014 compared to $83.3 million ($1.07 per share) recorded in first quarter 2013.

  • Keyera's Gathering and Processing business delivered record operating margin3 of $48.3 million in first quarter 2014, compared to $39.9 million in the same quarter last year. The NGL Infrastructure segment also delivered record operating margin3 of $39.1 million in first quarter 2014, 35% higher than the $29.0 million recorded in first quarter 2013.  Marketing operating margin3 was $36.9 million in first quarter 2014, compared to $23.9 million in first quarter 2013.

  • Keyera is increasing its dividend by 7.5%, from $0.20 per share per month to $0.215 per share per month, or $2.58 per share annually, beginning with its dividend payable on June 16, 2014. This will be Keyera's twelfth increase since going public in 2003, representing a 7.5% compound annual growth rate in dividends per share.

  • On May 1, Keyera closed its previously announced acquisition of ownership interests in certain gas processing assets in west central Alberta and associated oil and gas reserves. The total purchase price was approximately $113 million.  Some of the assets are subject to third party claims, including certain reserves which closed in escrow pending the exercise or expiry of rights of first refusal.

  • Keyera's turbo expander project at Rimbey has received all regulatory approvals and construction is now underway. The turbo expander is expected to be operational in the first half of 2015.

  • Keyera entered into a long-term, take-or-pay and fee-for-service agreement to provide Cenovus Energy Inc. with diluent handling services, including transportation and storage capacity that will increase to the equivalent of approximately three storage caverns by 2018.

  • Keyera has developed a plan for the next phase of cavern development at Fort Saskatchewan, which could add approximately four million barrels of additional storage capacity at the site.  As part of this program, Keyera expects to begin drilling its fifteenth cavern later this year.

  • In April, Keyera closed the final $75 million portion of its private debt placement announced in the third quarter of 2013.

  • Total growth capital investment was $198.6 million in the first quarter of 2014, of which $5.8 million was acquisitions.  In 2014, growth capital investment estimates, excluding acquisitions, have been updated and are now expected to be between $600 million and $700 million.4

1  See "Non-GAAP Financial Measures" on page 36 of the MD&A.
2  See page 32 and 33 of the MD&A for a reconciliation of distributable cash flow to cash flow from operating activities and EBITDA to net earnings.
3  See note 15 to the accompanying financial statements.
4  See "Capital Expenditures and Acquisitions" on page 30 of the MD&A for further discussion of Keyera's capital investment program.

   
  Three Months Ended March 31,
Summary of Key Measures
(Thousands of Canadian dollars, except where noted)
2014   2013  
Net earnings 55,233 23,445
  Per share ($/share) - basic 0.70 0.30
Cash flow from operating activities 119,493 136,688
     
Distributable cash flow1 78,220 83,285
  Per share ($/share) 0.99 1.07
Dividends declared 47,605 42,074
  Per share ($/share) 0.60 0.54
  Payout ratio %1 61% 50%
EBITDA2 107,747 97,848
Gathering and Processing:    
Gross processing throughput (MMcf/d) 1,356 1,237
Net processing throughput (MMcf/d) 1,114 980
NGL Infrastructure:    
Gross processing throughput (Mbbl/d) 122 115
Net processing throughput (Mbbl/d) 38 40
Marketing:    
Inventory value 159,493 144,263
Sales volumes (bbl/d) 99,400 116,800
     
Acquisitions (including business combination) 5,783 3,907
Growth capital expenditures 198,598 53,116
Maintenance capital expenditures 3,279 2,007
Total capital expenditures 207,660 59,030
     
  As at March 31,
  2014   2013  
Long-term debt 1,098,347 625,966
Credit facilities 80,000
Working capital surplus3 (158,832) (93,851)
Net debt 939,515 612,115
     
Common shares outstanding - end of period 79,417 78,013
Weighted average number of shares outstanding - basic 79,301 77,862
Weighted average number of shares outstanding - diluted 79,301 78,381
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 GAAP. See page 32 for a reconciliation of distributable cash flow to its most closely related GAAP measure.
2  EBITDA is defined as earnings before interest, taxes, depreciation, amortization, unrealized gains / losses, accretion, impairment expenses
and any other non-cash items such as gains/losses on the disposal of property, plant and equipment.  EBITDA is not a standard measure
under GAAP.  See section titled "EBITDA" on page 33 of the MD&A for a reconciliation of EBITDA to its most closely related GAAP measure.
3  Working capital is defined as current assets less current liabilities.

Message to Shareholders

Demand for Keyera's services continued to grow in the first quarter of 2014.  This demand is being driven by producer activities that are focused on liquids-rich drilling and oil sands development.  Our customers continue to see value in our integrated service offering, which provides them with access to the processing, transportation and logistics facilities necessary to turn their production into cash flow.  This is resulting in increased cash flow from our existing business and opportunities to acquire and expand facilities to provide added value for shareholders in the future.

Financially the year had a good start, with EBITDA in the first quarter of 2014 being 10% higher than the same period last year.  Operating margins were strong across all business segments once again this quarter, with both of our fee-for-service segments reporting record results.  With growing cash flow from our business and a number of new projects under development, we are pleased to announce an increase in our monthly cash dividend.  Effective with the May 2014 dividend, payable to shareholders on June 16, 2014, our dividend will increase by 7.5% to 21.5 cents per share per month, or $2.58 per share annually.  This is Keyera's twelfth dividend increase since going public in 2003. Since that time, we have provided shareholders with a 7.5% compound annual growth rate in dividends per share.

Our Gathering and Processing business reported operating margin of $48.3 million, 21% higher than in the first quarter of 2013, primarily due to increased throughput at most of Keyera's facilities. Drilling activity around many of our plants continues to be strong and the utilization of several of our gas plants continues to increase.  Net throughput increased in the first quarter, averaging 1.1 billion cubic feet per day, 14% higher than the first quarter of last year.  This increased throughput is coming from a number of geological horizons, including the Mannville, Cardium, Montney, Duvernay and Glauconite zones.

This increased producer activity has led to several gathering pipelines being built to deliver incremental production to Keyera plants.  In west central Alberta, construction proceeded on two gathering pipelines to deliver raw gas to the Rimbey gas plant.  Modifications made to the Carlos pipeline system, including construction of a short pipeline segment to connect to other existing pipeline infrastructure, added an additional 40 million cubic feet per day of capacity when the pipeline began operation in April.  The Wilson Creek pipeline system was completed in April, although it will not begin operation until producer facilities are completed, which is expected in June.  In the first quarter we reached agreement with a producer to construct the Twin Rivers pipeline, which will deliver production to the Brazeau River gas plant from the southeast.  Construction of that pipeline is expected to begin later this year.

In the first quarter, we reached agreement with a Deep Basin producer interested in securing the remaining capacity on the Wapiti pipeline.  Unfortunately, adverse weather conditions and an early spring breakup hampered construction of the pipeline, requiring us to suspend work prior to completion.  The remaining work is expected to be completed in the summer and we currently anticipate putting the pipeline into operation in the third quarter if the remaining construction goes as planned.

In April, we received all regulatory approvals for our turbo expander project at the Rimbey gas plant.  Construction is now underway and, assuming there are no further delays, we anticipate the turbo expander will be operational in the first half of 2015.

On May 1 we closed our previously announced acquisition of ownership interests in certain gas processing assets in west central Alberta and associated oil and gas reserves.  There are some rights of first refusal that we are working through as we transition ownership of the assets. These assets are complementary to our existing gas facilities in the west central area of Alberta.  We were also successful in increasing our ownership at the Rimbey, Strachan, Brazeau River and Bigoray gas plants, increasing our net processing capacity by approximately 13 million cubic feet per day and our ownership in the Strachan and Bigoray gas plants to 100%.

Our NGL Infrastructure segment results also set a new record in the first quarter, with operating margin of $39.1 million, a 35% increase over the first quarter of 2013.  The higher operating margin was due to higher level of activity at our facilities, as well as increased fees for many of our services.  Our Marketing segment contributed significantly to our results, with operating margin of $36.9 million in the first quarter of 2014 compared to $23.9 million in the first quarter of last year.

Significant progress has been made on the agreements associated with the Norlite pipeline and we anticipate announcing our participation as a 30% non-operating owner shortly.  The Norlite pipeline will be a diluent transportation pipeline delivering condensate from the Fort Saskatchewan area to the Athabasca oil sands region in northeast Alberta.  Enbridge will construct and operate the pipeline and anticipates having it in service in the second quarter of 2017.  The scope of the pipeline will be finalized later this year, at which time we will receive an updated capital cost estimate from Enbridge for the project.  Keyera's diluent transportation system in the Fort Saskatchewan area will deliver product into the Norlite Pipeline, providing the Norlite shippers with access to multiple sources of diluent supply.

In January, we announced that we will be adding 35,000 barrels per day of C3+ fractionation capacity at our facility in Fort Saskatchewan.  This is in addition to the 30,000 barrels per day de-ethanizer currently under construction and the existing 30,000 barrels per day fractionator at that site.  The fractionator and de-ethanizer projects are in response to the growing demand for these types of services and support our customers' liquids-rich drilling programs.  Based on the current schedule, we estimate that the de-ethanizer facility will be operational later in 2014, while the fractionation expansion is expected to be onstream in the first quarter of 2016.

In March we entered into a long-term agreement with Cenovus Energy Inc. to provide diluent transportation and storage services using our Fort Saskatchewan Condensate System within the Edmonton/Fort Saskatchewan area.  The services will provide Keyera with long-term take-or-pay and fee-for-service revenues.

In order to meet the growing demand for diluent storage, Keyera is continuing to add storage caverns at our facility in Fort Saskatchewan.  Development of the thirteenth cavern on the site is well underway and drilling of the well bore for the fourteenth cavern was completed in the first quarter of 2014.  We have recently completed a plan that will allow us to wash both caverns simultaneously and expect to begin this process once regulatory approval is received.  To support this additional storage capacity, we expect to put our new brine pond into service this year.  We have developed a plan for the next phase of cavern development at Fort Saskatchewan, which could add approximately four million barrels of additional storage capacity at the site.  As part of this program, Keyera expects to begin drilling its fifteenth cavern later this year.

Late in the first quarter, Keyera completed the work necessary to tie the Cochin pipeline into Keyera's Fort Saskatchewan Condensate System.  In April, the Cochin shippers began injecting linefill into the pipeline using condensate previously stored within our caverns at Fort SaskatchewanKinder Morgan, owner of the Cochin pipeline, expects to put the pipeline into service in July of this year delivering condensate into Alberta.  Keyera's Fort Saskatchewan site is currently the only delivery point for condensate from this pipeline, so all volumes shipped will pass through Keyera's infrastructure.

Keyera has received all necessary approvals for the Alberta Crude Terminal in Edmonton which is being advanced as a 50/50 joint venture with Kinder Morgan.  Work on this project is well underway and the terminal is now expected to be completed and operational in the third quarter.  Once operational, the Alberta Crude Terminal will provide up to 40,000 barrels per day of crude rail loading services to Irving Oil.

In February, we announced construction of a propane rail loading terminal at Josephburg, located near our fractionation and storage facility in Fort Saskatchewan.  The facility will provide an additional propane outlet to meet the growing need for market access for western Canadian producers.

Alberta EnviroFuels performed well in the first quarter and continues to be an important piece of Keyera's butane value chain.  We continue to increase our deliveries of iso-octane by rail and are taking advantage of the storage and transportation services we have secured in the Gulf Coast region of the U.S.  By increasing our rail delivery capabilities, we have been able to expand our access to new markets since we originally acquired Alberta EnviroFuels and this is supporting increased utilization at the plant.

It is an exciting time for our industry and for Keyera.  As a service provider, we continually work with our customers to ensure that we are meeting their infrastructure needs.  With approximately $1.5 billion in projects currently under development and several other projects under evaluation, we are well positioned to meet our customers' needs into the future. As we look to the future, we will remain focused on maintaining a customer driven mindset and operating our business safely and reliably.

Jim V. Bertram
Chief Executive Officer
Keyera Corp.

DISCLAIMER
Certain statements contained in this document and accompanying documents contain forward-looking statements.  These 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, this document and accompanying documents may also contain forward-looking statements attributed to third party sources.  Management believes that its assumptions and analysis in this document 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; 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 other customers and overall industry activity levels; changes in gas composition; 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 and foreign currency exchange rates; changes in operating and capital costs, including fluctuations in input costs; actions by governmental authorities; 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 document and in Keyera's Annual Information Form dated February 13, 2014, filed on SEDAR 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 approvals and expected in service dates; regulatory approvals; and macro socio-economic trends.  Pipeline projects are also subject to Keyera's ability to secure the necessary rights of way.  As a result, expected timing, costs and benefits associated with these projects may differ materially from the descriptions in this document.  Further, some of the projects discussed in this document are subject to securing sufficient producer/customer interest and may not proceed if sufficient commitments are not obtained.  The acquisition of the West Pembina assets, including the Cynthia gas plant, is subject to third party claims including the resolution of ROFR issues. Depending on the resolution of these issues, Keyera's ownership and ability to operate these assets may differ significantly.  Alberta's move toward a single regulator has affected approval processing times for projects that are subject to regulatory approval and it is unclear whether this will continue.  The new regulatory requirements implemented with the transition to the AER, and possibly future changes as integration of the regulatory bodies continues, create uncertainty for project timing, requirements and compliance. Regulatory applications are also subject to intervention by interested parties which could result in delays.

Readers are cautioned that they should not unduly rely on the forward looking statements in this document and accompanying documents.  Further, readers are cautioned that the forward looking statements in this document speak only as of the date of this document.

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 document and accompanying documents are expressly qualified by this cautionary statement.  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.

SOURCE Keyera Corp.

For further information:

about Keyera, please visit our website at www.keyera.com or contact:

John Cobb, Vice President, Investor Relations and Information Technology or
Julie Puddell, Manager, Investor Relations

E-mail: ir@keyera.com, Telephone: (403) 205-7670 / Toll Free: (888) 699-4853