Keyera Corp. Announces Second Quarter 2015 Results

CALGARY, Aug. 5, 2015 /CNW/ - Keyera Corp. (TSX:KEY) announced their 2015 second quarter results today, the highlights of which are included in this news release. The entire news 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 

  • Keyera continued to deliver strong results in the second quarter of 2015 and generated adjusted earnings before interest, taxes, depreciation and amortization2, 3 ("Adjusted EBITDA") of $157 million, 10% higher than the $143 million reported in second quarter 2014. Year to date, Adjusted EBITDA was 36% higher than the same period in 2014.
  • The Gathering and Processing Business Unit reported solid operating margin of $56 million (Q2 2014 - $64 million) despite completing three major gas plant turnarounds. The NGL Infrastructure segment delivered operating margin4 of $55 million (Q2 2014 - $49 million) as demand for its essential services continues to grow and the Marketing segment's operating margin4 was $53 million (Q2 2014 - $53 million), reflecting another strong contribution from Alberta EnviroFuels ("AEF") and Keyera's effective risk management strategy.
  • Distributable cash flow2, 3 increased to $92 million ($0.54 per share1) in the second quarter of 2015 compared to $84 million ($0.52 per share1) recorded in the same period last year. Keyera's payout ratio was 63% for the quarter and 49% year to date.
  • Net earnings were $16 million or $0.09 per share1 in the second quarter compared to $63 million or $0.39 per share in the same period last year due to a non-cash loss related to changes in the fair value of currency swaps, higher depreciation associated with Keyera's growing asset base and an increase in current income tax expense.
  • With the continued growth in cash flow as a result of the completion of various capital projects, Keyera is increasing its dividend by 9%, from $0.115 per share per month to $0.125 per share per month, or $1.50 per share annually. The dividend increase is effective with the August dividend payable on September 15, 2015 to shareholders of record on August 24, 2015. The ex-dividend date is August 20, 2015.
  • Several capital projects have been completed and are beginning to add incremental cash flow, including the 400 million cubic feet per day turbo expander at the Rimbey gas plant, the 110 million cubic feet per day Alder Flats gas plant and the Josephburg rail terminal.
  • Progress was made on a number of other projects in Keyera's business units to support the infrastructure needs of the industry, including the 54 million cubic feet per day Zeta Creek gas plant and the 35,000 barrel per day fractionation expansion at Keyera's Fort Saskatchewan ("KFS") complex, which is backed by long-term contracts.
  • During the quarter, three planned maintenance turnarounds were successfully completed on time and on budget at the Rimbey, Brazeau River and Bigoray gas plants. The last turnaround of 2015, at the Minnehik Buck Lake gas plant, is scheduled for the third quarter.
  • Total growth capital investment was $182 million in the second quarter of 2015, including $14 million of acquisitions. In 2015, growth capital investment, excluding acquisitions, is expected to be between $700 million and $800 million5.

1

Keyera completed a two-for-one split of its outstanding common shares payable to shareholders of record on April 1, 2015.

2

See "Non-GAAP Financial Measures" on page 37 of the MD&A.

3

See pages 34 and 35 of the MD&A for a reconciliation of distributable cash flow to cash flow from operating activities and Adjusted EBITDA to net earnings. 

4

See note 13 to the accompanying financial statements.

5

See "Capital Expenditures and Acquisitions" on page 31 of the MD&A for further discussion of Keyera's capital investment program.





Three months ended

June 30,

Six months ended
June 30,

Summary of Key Measures
(Thousands of Canadian dollars, except where noted)

2015

2014

2015

2014

Net earnings

15,587

62,930

72,167

118,163


Per share ($/share) – basic1

0.09

0.39

0.43

0.74

Cash flow from operating activities

126,434

106,675

403,997

226,168






Distributable cash flow2

92,305

84,015

232,099

162,235


Per share ($/share)1

0.54

0.52

1.37

1.01

Dividends declared

58,479

51,044

114,248

98,649


Per share ($/share)1

0.35

0.32

0.68

0.62


Payout ratio %2

63%

61%

49%

61%

Adjusted EBITDA3

156,923

143,043

341,430

250,790

Gathering and Processing:





Gross processing throughput (MMcf/d)

1,436

1,358

1,486

1,349

Net processing throughput (MMcf/d)

1,098

1,113

1,162

1,107

NGL Infrastructure:





Gross processing throughput (Mbbl/d)

116

118

122

120

Net processing throughput (Mbbl/d)

32

29

34

33

Marketing:





Inventory value

97,456

193,806

97,456

193,806

Sales volumes (Bbl/d)

101,300

83,000

110,300

91,200






Acquisitions

13,592

114,159

16,407

119,942

Growth capital expenditures

168,605

157,021

378,534

355,619

Maintenance capital expenditures

38,754

39,604

43,059

42,883

Total capital expenditures

220,951

310,784

438,000

518,444




As at June 30,




2015

2014

Long-term debt



1,097,950

1,154,172

Credit facilities



230,000

Working capital deficit (surplus)4



155,299

(319,846)

Net debt



1,483,249

834,326






Common shares outstanding – end of period1



169,747

167,870

Weighted average number of shares outstanding – basic1



169,164

160,392

Weighted average number of shares outstanding – diluted1



169,164

160,392


Notes:

1

On April 1, 2015, Keyera's outstanding common shares were split on a two-for-one basis.  All per share information has been presented on a post-share split basis.

2

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 35 for a reconciliation of distributable cash flow to its most closely related GAAP measure.

3

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.

4

Working capital is defined as current assets less current liabilities.

Message to Shareholders

Keyera's strategically located and integrated portfolio of midstream assets once again demonstrated its value, delivering strong results for the second quarter in 2015. Adjusted EBITDA was $157 million in the second quarter of 2015, 10% higher than the same period last year. We continue to grow, with year-to-date Adjusted EBITDA up 36% over the prior year as our capital investments, supported by customer demand, generated incremental cash flows.

Our network of interconnected gas plants, pipelines and facilities as well as our diverse service offering position us for continued success. Within the Western Canada Sedimentary Basin, our assets are located above some of the most economic geological zones where producers continue to focus on development of liquids-rich horizons. Our industry-leading condensate network provides producers with access to the most receipt and delivery points and storage options, and demand continues to increase with growing oil sands production. Across our business, from 2013 through the end of 2015, we expect to have invested over $2 billion of growth capital, supported primarily by fee-for-service contracts.

Gathering and Processing Business Unit
The Gathering and Processing Business Unit successfully completed three major plant turnarounds at the Rimbey, Brazeau River and Bigoray gas plants during the quarter. The turnarounds were completed on time and on budget, but with about seven weeks of total downtime. Further, a 12-day planned outage at the Simonette gas plant, as well as continued curtailments on TransCanada's sales gas pipeline system, also affected volumes. As a result, gross throughput declined approximately 6% from the previous quarter. In comparison to the same period last year, gross throughput increased approximately 6%. However, operating margin for the business unit decreased approximately 12% to $56 million as the second quarter of 2014 included non-recurring revenue items.

Several projects were completed or advanced across west central Alberta in the second quarter. At the Rimbey gas plant, the 400 million cubic feet per day turbo expander was completed and is now generating incremental cash flow as we are producing ethane on a fee-for-service basis. In July, we completed the debottlenecking of the fractionation plant at Rimbey, increasing the gas plant's nominal fractionation capacity from 21,000 barrels per day to 28,000 barrels per day. In addition, we expanded the NGL truck offload capacity at the Rimbey gas plant. I would like to congratulate the hundreds of employees and contractors who worked together to complete these projects at Rimbey safely and on schedule. We also began construction of the Wilson Creek inlet facilities and continued to advance the engineering and design of the 17-kilometre extension of our Wilson Creek pipeline, which is targeted to be on stream in early 2016.

We continue to work with customers to provide the infrastructure needed to help develop the Western Canada Sedimentary Basin. The south leg of the Twin Rivers pipeline came on line in April, which has allowed incremental volumes to flow to Keyera's interconnected Brazeau River and West Pembina gas plants. Phase One of the Alder Flats gas plant was completed and brought on stream by Bellatrix Exploration in late May. The Zeta Creek gas plant is nearing completion and is expected to be commissioned by Velvet Energy late in the third quarter, assuming construction schedules are met. Once construction is complete, Keyera will take over operation of the Zeta Creek gas plant.

Liquids Business Unit - NGL Infrastructure Segment
Keyera's NGL Infrastructure segment reported an operating margin of $55 million in the second quarter, an increase of 12% over the same period in 2014. Growing demand for our services continues to support the success of this business unit. During the quarter, we continued to enhance and expand Keyera's asset base in the Edmonton/Fort Saskatchewan area.

At our KFS complex, the new de-ethanizer performed well during the first quarter of operation, and we progressed construction of the fractionation expansion. This project will more than double the fractionation capacity at KFS when completed in the first half of 2016, assuming construction schedules are met. With growing demand for NGL storage solutions, we continue to expand our underground storage caverns at KFS. We completed the washing of the 13th cavern and expect it to be in service in the third quarter. We continue to wash the 14th cavern and expect to begin washing the 15th cavern in the third quarter of 2015.

Also in July, construction and commissioning was completed at the Josephburg Rail Terminal located east of KFS. The terminal is now operational and is providing a much needed outlet for Western Canadian propane. At our South Cheecham rail and truck terminal near Fort McMurray, we received regulatory approval to proceed with our previously announced solvent handling project. Detailed engineering is essentially complete and civil work is expected to begin in the third quarter. The solvent handling project is underpinned by an agreement with Suncor for the Fort Hills joint venture oil sands project.

In April, Keyera entered into a long-term lease-to-own arrangement for a 49-kilometre pipeline, which will complement our NGL pipeline infrastructure in the Edmonton/Fort Saskatchewan area. The northern segment of this pipeline, between Redwater and Fort Saskatchewan, is expected to be used to receive diluent from the North West Sturgeon Upgrader under terms of a long-term diluent handling agreement. The southern segment is expected to provide us with increased flexibility and capacity of up to 60,000 barrels per day to provide additional NGL transportation services in the Edmonton/Fort Saskatchewan area. These plans are conditional on completion of due diligence and receiving regulatory approvals. 

Liquids Business Unit – Marketing Segment
Operating margin for the Marketing segment was $53 million in the second quarter, significantly higher than the $36 million reported in the first quarter of 2015 and slightly above the results reported in the same period of 2014. As the largest contributor to the segment's results, Keyera's iso-octane business performed well, with the AEF plant operating near capacity and margins continuing to strengthen during the quarter. In an environment of low commodity prices, our Marketing segment continues to manage risk effectively.

Outlook
Over the past several years, Keyera has focused on developing projects to meet the infrastructure needs of the industry, supported by long-term contracts. We are realizing the benefits of this strategy as these projects become operational and generate cash flow growth to enhance shareholder value. For 2015, we still expect to invest between $700 million and $800 million in growth capital projects and will continue to make decisions with a long-term view. Our strong balance sheet and access to capital enable us to fund our capital expenditures and also provide us with the flexibility to selectively pursue acquisitions.

We are pleased to announce a 9% dividend increase to $0.125 per share per month, beginning with our dividend payable on September 15, 2015. This latest increase reflects Keyera's continued growth in cash flow as a result of our successful completion of various capital projects.

We recognize this is a challenging and uncertain time for the oil and gas industry and our customers. With lower commodity prices and reduced cash flows, industry investment has been substantially curtailed. We will continue to build strong relationships with our customers during this period, providing them with efficient infrastructure solutions and positioning Keyera for long-term growth.

On behalf of Keyera's board of directors and management team, thank you for your ongoing support and we look forward to delivering continued growth in the second half of the year.

David G. Smith
President & Chief Executive Officer
Keyera Corp.

ABOUT KEYERA

Keyera Corp. (TSX:KEY) operates one of the largest natural gas midstream businesses in Canada. Its business consists of natural gas gathering and processing as well as the processing, transportation, storage and marketing of NGLs, the production of iso-octane and crude oil midstream activities.

Keyera's gas processing plants and associated facilities are strategically located in the west central, foothills and deep basin natural gas production areas of the Western Canada Sedimentary Basin. Its NGL and crude oil infrastructure, including pipelines, terminals and processing and storage facilities, as well as its iso-octane facility, are located in Edmonton and Fort Saskatchewan, Alberta, a major North American NGL hub. Keyera markets propane, butane, condensate and iso-octane to customers in Canada and the United States.

DISCLAIMER

Certain statements contained in this news release 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 news release 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 news release may also contain forward-looking statements attributed to third party sources.  Management believes that its assumptions and analysis in this news release 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 news release and in Keyera's Annual Information Form dated February 11, 2015, 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 schedules and expected in service dates; contractor productivity; contractor disputes; quality of cost estimating; decision processes and approvals by joint venture partners; changes in project scope at the time of project sanctioning; regulatory approvals; and macro socio-economic trends.  Pipeline projects are also subject to Keyera's ability to secure the necessary rights of way; and underground cavern development is dependent on sufficient water supply. As a result, expected timing, costs and benefits associated with these projects may differ materially from the descriptions in this news release.  Further, some of the projects discussed in this news release are subject to securing sufficient producer/customer interest and may not proceed if sufficient commitments are not obtained.  Typically, the earlier in the engineering process that projects are sanctioned, the greater the likelihood that the schedule and budget may change.  Alberta's move toward a single regulator has affected approval processing times for projects that are subject to regulatory approval.  The new regulatory requirements implemented with the transition to the AER, and possible 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 news release.  Further, readers are cautioned that the forward-looking statements in this news release speak only as of the date of this news release. 

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 news release 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: For further information about Keyera, please visit our website at www.keyera.com or contact: Keyera Corp., Lavonne Zdunich, Director, Investor Relations, or Nick Kuzyk, Manager, Investor Relations, Email: ir@keyera.com; Telephone: 403.205.7670 / Toll Free: 888.699.4853

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