Keyera Corp. Announces Third Quarter 2016 Results

CALGARY, Nov. 8, 2016 /CNW/ - Keyera Corp. (TSX:KEY) ("Keyera") announced its 2016 third quarter results today, the highlights of which are included in this news 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 

  • Keyera's distributable cash flow1,2 was $101 million ($0.55 per share) for the quarter compared to $127 million ($0.75 per share) in the third quarter of 2015, primarily due to lower contributions from the sale of iso-octane in the Marketing segment and higher turnaround costs. On a year to date basis, distributable cash flow was $356 million, comparable to the $359 million reported for the first nine months of 2015.
  • Net earnings for the period were $52 million ($0.28 per share) compared to $110 million ($0.64 per share) in the same quarter of 2015. Year to date, net earnings were $182 million, virtually unchanged from 2015.
  • Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")1,2 was $148 million in the third quarter of 2016 (Q3 2015 - $188 million) and $452 million year to date (2015 - $529 million).
  • Effective with the August dividend, Keyera increased its dividend by 6% to $0.1325 per share per month or $1.59 per share annually. Keyera's payout ratio1 was 71% for the third quarter and 57% year to date.
  • The Gathering and Processing Business Unit generated an operating margin3 of $72 million in the third quarter of 2016 (Q3 2015 - $69 million) even with lower throughput volumes due to low drilling activity.
  • The Liquids Infrastructure segment reported a record operating margin3 of $63 million for the quarter (Q3 2015 - $56 million) as recent investments are generating incremental margins.
  • The Marketing segment delivered operating margin3 of $24 million, including $9 million of unrealized losses, in the third quarter (Q3 2015 - $99 million, including $26 million of unrealized gains) due to a lower contribution from iso-octane sales, as a result of the scheduled turnaround at Alberta EnviroFuels ("AEF") and lower iso-octane margins.
  • During the quarter, Keyera closed the acquisition of an additional 35% ownership interest in the Alder Flats gas plant from Bellatrix Exploration Ltd. Bellatrix continues to advance Phase 2 of the gas plant, which is expected to be on stream in the first half of 2018.
  • During the quarter, we advanced front-end engineering and design work on the Wapiti gas plant and associated gathering system and expect to have a detailed cost estimate by year end.
  • Construction progressed on Keyera's three major Liquids Infrastructure joint-venture projects: the Norlite pipeline, the Base Line Terminal above ground crude oil storage facility and the South Grand Rapids pipeline.
  • Growth capital investment4 in the third quarter of 2016 was $130 million and Keyera remains on track to invest approximately $600 million in 2016. Based on current plans, Keyera expects growth capital investment in 2017 to range between $500 million and $600 million, with the majority focused on Liquids Infrastructure projects, including the acquisition of the South Grand Rapids pipeline.

 


1

See "Non-GAAP Financial Measures" on page 39 of the MD&A.

2

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.

3

See Note 14 to the accompanying financial statements.

4

See "Capital Expenditures and Acquisitions" on page 32 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)

2016

 

2015

2016

2015

Net earnings

52,420

109,538

182,230

181,705


Per share ($/share) – basic

0.28

0.64

1.02

1.07

Cash flow from operating activities

137,145

117,714

372,703

521,711






Distributable cash flow1

101,451

126,843

355,577

358,942


Per share ($/share)

0.55

0.75

2.00

2.12

Dividends declared

71,819

62,178

203,921

176,426


Per share ($/share)

0.390

0.37

1.14

1.04


Payout ratio %1

71%

49%

57%

49%

Adjusted EBITDA2

148,424

187,961

451,592

529,391

Gathering and Processing:





Gross processing throughput (MMcf/d)

1,367

1,476

1,454

1,479

Net processing throughput (MMcf/d)

1,073

1,121

1,125

1,145

Liquids Infrastructure4:





Gross fractionation throughput (Mbbl/d)

150

140

144

130

Net fractionation throughput (Mbbl/d)

56

47

53

41

AEF iso-octane production volumes (Mbbl/d)

10

13

11

13

Marketing:





Inventory value

120,918

93,738

120,918

93,738

Sales volumes (Bbl/d)

117,000

103,100

127,500

107,800






Acquisitions

130,300

1,288

182,342

17,695

Growth capital expenditures

130,429

133,804

382,485

512,338

Maintenance capital expenditures

28,188

15,669

36,234

58,728

Total capital expenditures

288,917

150,761

601,061

588,761




As at September 30,




2016

2015

Long-term debt



1,185,568

1,138,602

Credit facilities



365,000

325,000

Working capital (surplus) deficit3



(7,734)

75,689

Net debt



1,542,834

1,539,291


Three months ended

September 30,



2016

2015








Common shares outstanding – end of period



184,520

170,677

Weighted average number of shares outstanding – basic

183,962

170,191

177,865

169,510

Weighted average number of shares outstanding – diluted

183,962

170,191

177,865

169,510

 

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 Generally Accepted Accounting Principles ("GAAP"). See the section titled, "Dividends: Distributable Cash Flow", for a reconciliation of distributable cash flow to its most closely related GAAP measure.

2

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.

3

Working capital is defined as current assets less current liabilities.

4

Fractionation throughput in the Liquids Infrastructure segment is the aggregation of volumes processed through the fractionators and the de-ethanizers at the Keyera and Dow Fort Saskatchewan facilities.

 

Message to Shareholders

As the oil and gas industry continues to manage its way through this economic downturn, Keyera's midstream infrastructure is demonstrating its strategic significance and operational value. Overall, our Adjusted EBITDA was $148 million, Distributable Cash Flow was $101 million and Net Earnings were $52 million for the three months ended September 30, 2016. Our Gathering and Processing Business Unit and Liquids Infrastructure segment both generated increased cash flow, quarter over quarter and year over year, while lower contributions from iso-octane sales affected Marketing's results.

With a long-term view, we have used this industry slowdown to strengthen Keyera's competitive position. We have successfully reduced our operating costs in a meaningful manner, strengthened our balance sheet and focused on operational excellence. With a disciplined investment strategy, we continue to look for the right opportunities to increase shareholder value. I am pleased with Keyera's performance during this challenging time and am confident about our future.

Gathering and Processing Business Unit

In the third quarter of 2016, our Gathering and Processing business delivered a strong operating margin of $72 million, 4% higher than the $69 million reported in the same period in 2015. More than two years into the economic downturn facing the oil and gas industry, our Gathering and Processing business has consistently delivered results that demonstrate the benefit of our strategically located and interconnected network of gas plants and our disciplined capital investment strategy. Although gas processing volumes were lower in the third quarter of 2016 compared to the same period in 2015, producer commitments, expanded service offerings and operating efficiencies have resulted in stable operating margins. We have also had considerable success in our ongoing efforts to reduce operating costs for the benefit of our customers.

Gross processing volumes averaged 1,367 million cubic feet per day in the third quarter of 2016, 4% lower than the 1,425 million cubic feet per day reported in the second quarter of this year. Reduced drilling activity, natural declines from existing wells and sales gas pipeline curtailments were the largest contributing factors affecting the decline in throughput volumes. However, with the recent modest recovery in commodity prices, there are indications that drilling activity may increase in certain areas around our gas plants.

Keyera currently has 17 gas plants with approximately 2.9 billion cubic feet per day of licensed processing capacity and we continue to look for the right opportunities to expand our integrated system. In August, we acquired an additional 35% ownership interest in the Alder Flats gas plant and its associated gathering pipelines. We now have a 70% ownership interest in this fully utilized facility and are looking forward to expanding the capacity of the plant with our partner, Bellatrix Exploration Ltd. Phase 2 is currently in the detailed engineering stage and is expected to be on stream in the first half of 2018, based on the current schedule.

We are also continuing to advance the proposed Wapiti gas plant and associated gathering system.  We expect to have a detailed cost estimate for the complex by year end. This project is an exciting opportunity to expand our presence in the liquids-rich Montney formation.

Liquids Business Unit − Liquids Infrastructure Segment

Our Liquids Infrastructure segment reported a record quarter with operating margin of $63 million, compared to $56 million for the same period last year. As capital projects are completed, this segment continues to perform and demonstrate its importance to the industry. Utilization of our condensate network and storage caverns has been growing and we continue to expand these assets.

Keyera's three large joint-venture projects continue to progress, with costs trending lower than budget. The Norlite diluent pipeline joint venture with Enbridge is on schedule for completion in mid-2017 and the South Grand Rapids diluent pipeline joint venture project with TransCanada PipeLines and Brion Energy is on schedule for completion in late 2017. The Base Line Tank Terminal crude oil storage joint venture with Kinder Morgan is progressing well and the first set of tanks are expected to be ready for commercial use in early 2018.

As demand for natural gas liquids storage continues to be strong, we are progressing with our cavern development program. During the quarter, we continued washing two caverns, which are expected to be ready for use in the first half of 2017 and 2018, and we completed drilling two other caverns. This next phase of cavern development will expand our 12.5 million barrels of capacity to meet customer demand.

Keyera continues to look for the right opportunities to expand our Liquids Infrastructure assets. We have been working with customers to find new opportunities to provide midstream solutions that will add value by expanding capacity and lowering costs.

Liquids Business Unit − Marketing Segment

The Marketing segment continued to contribute to Keyera's integrated value chain during the quarter, generating an operating margin of $33 million, excluding unrealized losses from risk management contracts. Results were lower than in the same period last year due to a lower contribution from iso-octane, as a result of the scheduled turnaround at AEF and lower iso-octane margins. After a very strong year in 2015, iso-octane margins have returned to levels comparable to the healthy levels experienced in 2014.

AEF operated at over 100% of its licensed capacity in July and August, prior to its scheduled turnaround that began in early September. The facility was off-line approximately two weeks longer than planned to complete some additional work identified during the maintenance shutdown. After two years of careful planning, I am pleased to report that the turnaround was completed safely and on budget, and AEF has now resumed production.

Outlook

While we are confident in Keyera's strategy, we will continue to face pressures on our throughput volumes, fees and revenues until industry activity levels recover. We have a strong track record of growing shareholder value and increasing our monthly dividend and plan to extend this trend. We continue to improve our operational efficiencies, work with customers to develop solutions for the industry and look for the right acquisitions to enhance our asset portfolio. With our conservative balance sheet and strong competitive advantages, we are well positioned for continued growth as and when the industry recovers.

On behalf of Keyera's board of directors and management team, I would like to thank our employees, customers, shareholders and other stakeholders for their ongoing support. I am confident that we will continue to weather this low commodity price environment while creating long-term growth and value for shareholders.

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

ABOUT KEYERA

Keyera Corp. (TSX:KEY) operates one of the largest midstream energy companies in Canada, providing essential services to oil and gas producers in the Western Canada Sedimentary Basin. Its predominantly fee-for-service based business consists of natural gas gathering and processing, natural gas liquids fractionation, transportation, storage and marketing, iso-octane production and sales, and an industry-leading condensate system in the Edmonton/Fort Saskatchewan area of Alberta. Keyera strives to provide high quality, value-added services to its customers across North America and is committed to conducting its business ethically, safely and in an environmentally and financially responsible manner.

DISCLAIMER

Certain statements contained in this news release 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 news release and accompanying documents 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; compliance with regulatory requirements; 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 10, 2016, 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, conditions or delays (including possible intervention by third parties); 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. Expected closing of acquisitions and financings are subject to satisfaction of closing conditions which may vary depending on the nature of the transactions. Acquisitions may be subject to rights of first refusal and other third party consents.

Readers are cautioned that they should not unduly rely on the forward-looking statements in this news release and accompanying documents. Further, readers are cautioned that the forward-looking statements in this document 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 and accompanying documents are expressly qualified by this cautionary statement. Such statements speak only as of the date hereof. 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: 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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