Keyera Corp. Announces Third Quarter 2011 Results

CALGARY, Nov. 1, 2011 /CNW/ - Keyera Corp. (TSX:KEY)(TSX:KEY.DB.A), announced their third quarter 2011 results today, the highlights of which are included in this press 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

  • Continued industry focus on liquids rich gas drilling and oil sands development supported strong results in all of Keyera's business segments.

  • Net earnings for the quarter were $38.6 million ($0.54 per share), an increase of 86% on a per share basis compared to the same period last year.  Year-to-date, net earnings totaled $156.4 million ($2.21 per share), compared to $80.8 million ($1.19 per share) in 2010.

  • Earnings before interest, taxes, depreciation and amortization1 ("EBITDA") were $77.0 million in the quarter, compared to $56.5 million in the third quarter of 2010.  This 36% increase in EBITDA compared to the previous year is the result of strong business performance, including the Simonette gas plant acquisition completed in late 2010.

  • Distributable cash flow1 for the quarter was $50.5 million ($0.71 per share), compared to $51.8 million ($0.75 per share) in the third quarter last year.  Dividends to shareholders were $34.2 million ($0.48 per share), resulting in a payout ratio of 68% (67% year-to-date).

  • Keyera is increasing its dividend by 6.3%, from $0.16 per share per month to $0.17 per share per month, or $2.04 per share annually, beginning with its dividend payable on December 15, 2011.  This will be Keyera's second dividend increase this year and ninth increase since going public in 2003, representing a 7.6% compound annual growth rate in dividends per share.


  • Construction is continuing on pipeline, pumping, storage and terminalling projects in the Edmonton/Fort Saskatchewan area to support the previously announced oil sands services agreements with Imperial Oil and Husky.

  • Keyera's Marketing group entered into a five-year supply agreement to purchase up to 8,700 barrels per day of NGLs from a large Alberta producer.

  • Engineering design is underway, and discussions with customers ongoing, on a number of plant and pipeline initiatives in the Gathering and Processing business to further enhance NGL extraction and transportation capabilities.

  • Total growth capital investment was $22.6 million during the quarter and $77.7 million year-to-date.  Keyera expects its 2011 growth capital investment, excluding acquisitions, to be between $100 million and $130 million.  In 2012, growth capital investment, excluding acquisitions, is expected to be between $125 and $175 million2.

  • Subsequent to the quarter, Keyera agreed on terms with a syndicate of Canadian banks to extend and increase its unsecured credit facility for four years.  The amendments which are scheduled to close on November 2, 2011 subject to normal closing conditions, will increase the facility from $300 million to $500 million, with the potential to increase to $750 million, subject to certain conditions.

1    See pages 30 and 31 of Keyera's Third Quarter 2011 MD&A for a reconciliation of distributable cash flow to cash flow from operating activities and net earnings to EBITDA. See also "Non-GAAP Financial Measures" on page 36 of the MD&A.
2    See "Capital Expenditures and Acquisitions" on page 28 of the MD&A for further discussion of Keyera's capital investment program.
                             
        Three months ended
September 30,
      Nine months ended
September 30,
Summary of Key Measures
(Thousands of Canadian dollars, except where noted)
      2011     20105       2011     20105
Net earnings       38,587     19,834       156,406     80,841
  Per share ($/share)3 - basic       0.54     0.29       2.21              1.19
Cash flow from operating activities       (64,800)     193       127,423     86,327
                             
Distributable cash flow1       50,460     51,759       150,980     141,934
  Per share ($/share) 3       0.71     0.75       2.14              2.10
Dividends declared       34,192     30,918       100,415     91,606
  Per share ($/share) 3       0.48     0.45       1.42              1.35
  Payout ratio %1       68%     60%       67%     65%
EBITDA4       77,013     56,524       228,281     176,560
Gathering and Processing:                            
Gross processing throughput (MMcf/d)       1,159     1,137       1,149     953
Net processing throughput (MMcf/d)       888     809       873     766
NGL Infrastructure:                            
Gross processing throughput (Mbbl/d)       83     89       84     92
Net processing throughput (Mbbl/d)       26     24       26     26
Marketing:                            
Inventory value       168,731     138,010       168,731     138,010
Sales volumes (bbl/d)       68,300     60,800       72,600     65,500
                             
Capital expenditures       26,167     30,161       100,104     97,737
  Growth capital       22,577     29,387       77,669     85,507
  Maintenance capital       3,590     774       22,435     12,230
                             
Long-term debt                     481,950     505,323
Working capital (surplus)2                     (196,000)     (149,357)
Net debt                     285,950     355,966
Convertible debentures                     16,588     46,710
Net debt (including debentures)                     302,538     402,676
                             
Common shares outstanding - end of period 3                     71,337     68,814
Weighted average number of shares outstanding - basic 3                     70,632     67,687
Weighted average number of shares outstanding - diluted 3                     71,926     71,004
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 and, therefore, may not be comparable to the calculations of similar measures for other companies.
2  Working capital is defined as current assets less current liabilities.
3  For the comparative period, shares and dividends were previously referred to as "units" and "distributions" reflecting Keyera's income trust structure prior to its conversion to a corporation effective January 1, 2011.
4  EBITDA is defined as earnings before interest, taxes, depreciation, amortization, accretion, impairment expenses and any other non-cash items such as gains/losses on the disposal of assets.  EBITDA is not a standard measure under GAAP, and therefore may not be comparable to the calculations of similar measures for other companies.  See section titled "EBITDA" on page 31 of Keyera's Third Quarter 2011 MD&A for a reconciliation of EBITDA to its most closely related GAAP measure.
Certain comparative amounts in the condensed interim unaudited consolidated financial statements have been restated to conform with the transition to International Financial Reporting Standards effective January 1, 2010.  Refer to note 20 of Keyera's Third Quarter 2011 condensed interim unaudited consolidated financial statements for further information on the transition to International Financial Reporting Standards.

Message to Shareholders

Keyera delivered strong results this quarter, as natural gas liquids continued to play a prominent role in our business activities.  With our integrated assets and connections to energy infrastructure throughout North America, Keyera continues to deliver value to our customers while pursuing growth opportunities to enhance the services we offer in support of liquids-rich natural gas drilling and oil sands developments.

In the third quarter, net earnings were $38.6 million ($0.54 per share), compared to $19.8 million ($0.29 per share) for the same period in 2010.  Earnings before interest, taxes, depreciation and amortization ("EBITDA") were $77.0 million in the third quarter, 36% higher than the $56.5 million posted in the third quarter of 2010.  Year-to-date, EBITDA was $127.4 million, 48% higher than in 2010.  Strong performance from all business segments, including the Simonette gas plant acquired in the fourth quarter of 2010, contributed to these results.

Distributable cash flow was $50.5 million ($0.71 per share), slightly lower than the $51.8 million ($0.75 per share) for the same period last year.  Because distributable cash flow represents the cash available for the payment of dividends, unrealized gains from financial contracts associated with Keyera's risk management programs are removed and maintenance capital expenditures are deducted in the calculation.  In the third quarter of 2011, these items resulted in significant reductions in distributable cash flow.  Dividends to shareholders were $34.2 million ($0.48 per share), resulting in a third quarter payout ratio of 68%.  Year-to-date, distributable cash flow was $151.0 million ($2.14 per share), and distributions to shareholders were $100.4 million ($1.42 per share).

With the continued growth in our business, we are pleased to announce an increase in our monthly cash dividend by 6.3% to 17 cents per share per month, or $2.04 per share annually.  The increase will be effective with the November 2011 dividend, payable to shareholders on December 15, 2011.  This is our second increase this year and ninth since going public in 2003.  Since that time, we have provided shareholders with a 7.6% compound annual growth rate in dividends per share, reflecting Keyera's commitment to providing steady value growth to shareholders.

In the Gathering and Processing business segment, operating margin for the third quarter was $37.3 million, an increase of 4% over the same period in 2010.  Increased throughput at several of our facilities and the addition of the Simonette gas plant late in 2010 accounted for this increase.

In the Liquids Business Unit, ongoing demand for services, particularly storage, resulted in operating margin of $16.9 million from the NGL Infrastructure segment for the third quarter, an increase of 14% over the third quarter in 2010.  In particular, demand for condensate-related services was high, resulting in steady condensate deliveries to ADT during the quarter for sale as diluent.  Our Marketing segment posted exceptionally strong results for all products in the third quarter, delivering operating margin of $31.7 million, compared to $12.7 million in the same period last year.

During the past year, we have seen record land sale activity in Alberta, driven by interest in the Duvernay shale as well as the Montney and other geological zones, where the gas is rich in natural gas liquids.  Much of this increased land sale activity occurred in our core operating areas.  These areas have also seen a large portion of the recent well licensing and gas drilling in the province, as producers focus on liquids-rich natural gas development to achieve higher netbacks.

Drilling activity around our Simonette gas plant has steadily increased during the quarter, as a number of producers are targeting the Montney, Duvernay and Wilrich zones in the area.  A significant producer recently completed a 12-inch pipeline connection to our North Cabin gathering pipeline.  The producer anticipates incremental volumes will be delivered to the Simonette gas plant by year-end.  After receiving preliminary expressions of interest from producers earlier this year, we have undertaken engineering estimates and developed commercial terms for a plant expansion, including the addition of deep-cut facilities and the construction of additional gathering pipelines.  We are currently in discussions with producers in the Simonette area regarding these plans.  Should commitments be secured and terms and conditions met in a timely manner, our goal would be to complete the project by late 2013.

At Rimbey, the Carlos pipeline has seen steady volumes since it began operation in the second quarter.  Two producers are constructing compressors on the pipeline.  Indications are that they will be put in service in early 2012.  When operational, these compressors should enable significant additional volumes to be delivered to the Carlos pipeline and the Rimbey gas plant.

We continue to work on a number of other initiatives related to the extraction and transportation of NGLs.  The turbo-expander projects at the Minnehik Buck Lake and Strachan gas plants are proceeding on schedule.  At the Brazeau River and Nordegg River gas plants, projects intended to improve propane recoveries are underway and are targeted to be operational later this year.

Preliminary engineering and field work is underway on a proposed NGL pipeline to connect Keyera's Brazeau River, Minnehik Buck Lake and Rimbey gas plants.  The purpose of the pipeline would be to aggregate an ethane rich stream of NGLs from west central Alberta for delivery to the Rimbey gas plant for processing.  Concurrent with this work, we are in discussions with a number of producers regarding the commercial terms of the project.  In order to accommodate the volume of ethane expected to be associated with the proposed pipeline project, we have also initiated preliminary engineering relating to increasing the ethane extraction capacity at the Rimbey gas plant.

At our Edmonton and Fort Saskatchewan facilities, demand for storage and handling services continues to strengthen, particularly for condensate.  At ADT, we commissioned a condensate storage tank during the quarter, providing additional storage solutions for our customers.  We anticipate the solvent facilities associated with Imperial Oil's Kearl oil sands project will be in service by year end.

Work also continued during the quarter on the Fort Saskatchewan Condensate System.  This system includes our connection to the Southern Lights pipeline, a new pump station at the Edmonton Terminal, and transportation, terminal and storage facilities.  The 20-inch pipeline from our Fort Saskatchewan facility to the Polaris diluent pipeline and pumping facilities at the Edmonton Terminal are currently under construction.  Both are expected to be completed in the first half of 2012.  This infrastructure system will provide diluent handling services for Imperial Oil and Husky under long term agreements in place with both companies.

With the expected completion of additional deep cut facilities in Alberta later this year, Keyera has reached an agreement with a large producer to purchase up to 8,700 barrels per day of NGLs under a five-year supply agreement.  Volume deliveries under this agreement are expected to begin in December 2011.

Given that producers are increasingly extracting an ethane rich NGL stream, known as C2+, at field gas plants in western Canada, Keyera is evaluating modifications to its Fort Saskatchewan fractionation facility ("KFS") to accept a C2+ feedstock at the facility.  With significant infrastructure already on site, the cost of adding de-ethanization at KFS is expected to be relatively low, and all inlet and product delivery pipelines are currently in place.  Should this project proceed, Keyera would likely dedicate its twelfth cavern, currently under development, to C2+ raw feed storage for the de-ethanizer unit.  Keyera is currently in discussions with customers interested in securing capacity in the new facility.

Looking forward, we are encouraged by the numerous growth initiatives we have under consideration.  As part of our strategic planning process, we try to maintain flexibility and scalability in our growth capital program so that we can be responsive to market demands and shifts in the economic climate.  At this time, we anticipate that 2012 growth capital investment, excluding acquisitions, could range between $125 million and $175 million.  However, with the portfolio of projects currently under development, our growth capital outlook could increase.

In anticipation of this increased level of activity, we expect to close a four-year extension on our unsecured credit facility with a syndicate of Canadian banks on November 2, 2011, subject to normal closing conditions.  Under the terms of the pending agreement, the facility will increase from $300 million to $500 million and will include the ability to expand the facility to $750 million at the option of Keyera, subject to certain conditions.  Pricing of the new credit facility was arranged on terms more favourable than the existing facility.

On behalf of Keyera's directors and management team, thank you for your continued support.

Jim V. Bertram
Chief Executive Officer
Keyera Corp.

DISCLAIMER
Certain statements contained in this document 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 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; 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 unitholders, and in particular any differential effects relating to unitholder'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 17, 2011 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.  As a result, expected timing, costs and benefits associated with these projects may differ materially from the descriptions in this document.

Many of the projects described in this document that are currently in the developmental stage are subject to Keyera receiving sufficient commitments from producers and customers before a decision will be made on whether to proceed.  If there is insufficient support for the projects or if other circumstances change, such as changes in the demand for the services, the development of competing projects, identification of other priorities, regulatory changes, or changes in economic conditions, Keyera may decide not to proceed with such projects or if it does decide to proceed, the expected timing and benefits may differ materially from those described in 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.

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

All forward looking statements contained in this document 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 Corp., please visit our website at www.keyera.com or contact:

John Cobb, Director, Investor Relations or Heidi Christensen Brown, Senior Advisor, Investor Relations.
E-mail: ir@keyera.com, Telephone: (403) 205-7670 / Toll Free: (888) 699-4853, Fax: (403) 205-8425.


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