Keyera Corp. Announces 2018 First Quarter Results

CALGARY, May 8, 2018 /CNW/ - Keyera Corp. (TSX:KEY) ("Keyera") announced its first quarter 2018 financial 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 Keyera's filings on SEDAR at www.sedar.com.

HIGHLIGHTS 

• Keyera delivered strong financial results in the first quarter of 2018 with adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")² of $189 million, compared to $148 million reported in the first quarter of the previous year.
• Net earnings for the period was $88 million ($0.43 per share) compared to $96 million ($0.52 per share) last year, primarily due to increased depreciation and income taxes as a result of a growing business.
• The Gathering and Processing segment recorded operating margin of $71 million (Q1 2017 – $66 million) as gross processing throughput volumes reached a new record and increased 12% over the same period in 2017.
• The Liquids Infrastructure segment reported operating margin of $82 million (Q1 2017 – $65 million) as recent investments such as the Norlite Pipeline and the Base Line Terminal generated incremental margins.
• The Marketing segment's operating margin was $66 million (Q1 2017 – $68 million), while realized margin^1,2 was $57 million (Q1 2017 – $33 million). In the first quarter of 2017, Marketing's results were affected by a lower contribution from iso-octane sales due to the unscheduled outage at Alberta EnviroFuels ("AEF").
• Distributable cash flow² was $155 million or $0.75 per share (Q1 2017 – $121 million or $0.65 per share), resulting in a payout ratio² of 56% for the first quarter of 2018.
• During the quarter, the Base Line Terminal crude oil storage facility was commissioned and six of the twelve tanks are now in service. The remaining six tanks are expected to be completed in the third and fourth quarters of 2018.
• Keyera recently completed two pipeline projects. The Keylink NGL system connects eight Keyera gas plants into its Rimbey gas plant for fractionation and provides a cost effective transportation solution. The Hull Terminal pipeline system extends through Keyera's Hull Terminal and ends at Mont Belvieu, North America's largest NGL hub.
• In early April, Keyera entered into a 20-year infrastructure development and midstream service agreement with Encana to support their condensate focused Pipestone development. The project includes a liquids hub and a 200 million cubic feet per day gas plant with 24,000 barrels per day of condensate processing capacity.
• At the Simonette gas plant, Keyera recently completed the liquids handling expansion and announced today it is expanding the processing capacity of Simonette by 150 million cubic feet per day. This expansion supports additional liquids-rich Montney and Duvernay production in the area and is expected to be completed in the fourth quarter of 2019 for approximately $85 million.
• For 2018, Keyera is expecting to invest between $900 million and $1 billion, primarily for approved growth projects currently underway plus the acquisition of 50% of the South Grand Rapids diluent pipeline. Keyera is well positioned to fund this program.

^1	Realized margin is a "Non-GAAP Measure" and excludes the effect of non-cash gains and losses from risk management contracts.
^2	Keyera uses certain "Non-GAAP Measures" such as Adjusted EBITDA, Distributable Cash Flow, Distributable Cash Flow per Share and Payout Ratio. See section titled "Non-GAAP Financial Measures", "Dividends: Distributable Cash Flow" and "EBITDA" of the MD&A for further details.

				Three months ended March 31,
Summary of Key Measures (Thousands of Canadian dollars, except where noted)				2018	2017
Net earnings				87,715	96,342
	Per share ($/share) – basic			0.43	0.52
Cash flow from operating activities				205,106	218,621
Distributable cash flow^1				154,902	120,682
	Per share ($/share)^1			0.75	0.65
Dividends declared				86,305	74,125
	Per share ($/share)			0.42	0.40
	Payout ratio %^1			56%	61%
Adjusted EBITDA^2				189,363	148,220
Gathering and Processing:
Gross processing throughput (MMcf/d)				1,586	1,411
Net processing throughput (MMcf/d)				1,237	1,110
Liquids Infrastructure:
Gross processing throughput^3 (Mbbl/d)				187	161
Net processing throughput^3 (Mbbl/d)				81	55
AEF iso-octane production volumes (Mbbl/d)				13	8
Marketing:
Inventory value				120,212	88,045
Sales volumes (Bbl/d)				161,000	140,600
Acquisitions				10,000	55,087
Growth capital expenditures				238,793	174,725
Maintenance capital expenditures				6,012	6,722
Total capital expenditures				254,805	236,534
				As at March 31,
				2018	2017
Long-term debt				1,742,763	1,432,192
Credit facility				—	180,000
Working capital (surplus) deficit^4				(108,227)	105,070
Net debt				1,634,536	1,717,262
				Three months ended March 31,
				2018	2017
Weighted average number of shares outstanding – basic				205,267	186,286
Weighted average number of shares outstanding – diluted				205,267	186,286
Common shares outstanding – end of period				205,982	186,884

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	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.
^4	Working capital is defined as current assets less current liabilities.

Message to Shareholders

Keyera recorded strong financial results in the first quarter of 2018 as all operating segments performed well. Adjusted EBITDA was $189 million, an increase of 28% compared to $148 million reported in the first quarter of 2017. Distributable cash flow was $155 million and $0.75 per share, which represents a 15% increase on a per share basis over the same period last year. Our quarterly net earnings were $88 million, compared to $96 million in the first quarter of 2017. Our strong quarterly performance was driven by record processing throughput volumes, contributions from new growth projects and another solid quarter from Marketing. We continue to position Keyera for the future and plan to invest between $900 million and $1 billion this year in our growth capital program, which we are well positioned to fund.

Gathering and Processing Business Unit

The Gathering and Processing segment delivered operating margin of $71 million in the first three months of 2018 as gross processing throughput reached a new record, averaging 1,586 million cubic feet per day. This represented a 12% increase over the same period in 2017 and was 4% higher than the fourth quarter of 2017. For the fifth consecutive quarter, our processing throughput increased as new well tie-ins at the Strachan and Simonette facilities contributed to the volume growth.

As prices for crude oil and natural gas liquids have strengthened over the past year, producers remain focused on liquids-rich areas of the Western Canada Sedimentary Basin, most notably in the Montney and Duvernay geological zones. To meet the growing needs of producers, we are expanding the processing capacity of our Simonette plant by 150 million cubic feet per day to 450 million cubic feet per day. The expansion is expected to be completed late in 2019 for approximately $85 million.

In the Wapiti area, northwest of the Simonette plant, we continue to progress Phase 1 of our Wapiti plant and the North Wapiti Pipeline System, both of which are expected to be completed in 2019. The contracted volumes for the plant and pipeline system provide the foundation for Keyera to sanction the second phase of our Wapiti plant in the future. The second phase would add an additional 150 million cubic feet per day of processing capacity and we continue to have discussions with producers in the area to understand the timing of their development plans.

To further strengthen our presence in this area, we recently announced a significant infrastructure development with Encana to support its condensate focused Montney development in the Pipestone area. In a joint effort, Keyera and Encana will develop a liquids hub and a natural gas processing and liquids stabilization plant. Keyera will own the infrastructure and provide processing services to Encana under a long-term fee-for-service arrangement. The liquids hub is expected to start up in the fourth quarter of 2018 while the Pipestone plant is scheduled for completion in 2021. We are pleased to add the Pipestone project to our portfolio given the strong geology and the number of  producers in the area, along with Encana's area dedication and modest revenue guarantee backing the project.

Liquids Business Unit - Liquids Infrastructure Segment

The Liquids Infrastructure segment continued to generate strong results, reporting operating margin of $82 million in the first quarter of 2018, which represents a 27% increase over the same period in the prior year. These results were driven by the startup of the Norlite pipeline in mid-2017, as well as the Base Line Terminal where four of the twelve tanks were placed into service in mid-January. These projects are backed by long-term, take-or-pay contracts providing Keyera with stable fee-for-service cash flows.

In late April, we completed two significant pipeline projects. The Keylink NGL gathering system enhances our integrated service offering and provides producers with a safe, reliable and economically improved alternative to trucking NGL volumes. Keylink connects eight Keyera gas plants to our Rimbey gas plant for onsite fractionation. The project was completed on time and under budget. We are currently advancing work on an additional pipeline segment that will connect a producer-owned gas plant to Keylink and we continue to pursue other opportunities to attract more NGL volumes to the pipeline.

The Hull Terminal pipeline system extends through Keyera's Hull Terminal and ends at Mont Belvieu, Texas, North America's largest NGL hub. This pipeline allows Keyera to transport NGLs in and out of the Mont Belvieu area and provides commercial opportunities for our Marketing business.

Liquids Business Unit - Marketing Segment

The Marketing segment continued to contribute to Keyera's integrated value chain in the first quarter, generating a realized margin of $57 million compared to $33 million in the same period last year. Even though intermittent rail service caused production curtailments, our AEF facility operated near its capacity, resulting in another good quarter for iso-octane sales and margins. As anticipated, propane generated strong margins in the first quarter, which was consistent with our strategy of utilizing our storage and transportation assets to take advantage of seasonal demand and pricing. For the 2018 contract season that began April 1, 2018, we expect to use a similar strategy resulting in high utilization of our fractionators and continued seasonality of propane margins between the summer and winter months.

Outlook

We take a long-term view of our business, we continue to enhance our integrated network of assets, and we look for opportunities to expand our value chain. I am pleased with the performance of our base business, the contributions from our new capital projects and how we continue to execute on our growth strategy. Our recently announced projects at Simonette, Wapiti and Pipestone continue to build our footprint in the liquids-rich Montney and Duvernay development areas and provide a platform for future growth. By maintaining a conservative financial strategy with a low payout ratio and strong balance sheet, we have the liquidity to take advantage of these opportunities and position the company for future growth.

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 continued support.

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

ABOUT KEYERA

Keyera Corp. (TSX:KEY) operates an integrated Canadian-based midstream business with extensive interconnected assets and depth of expertise in delivering midstream energy solutions. Its predominantly fee-for-service based business consists of natural gas gathering and processing, natural gas liquids processing, transportation, storage, 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 are 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, ability to maintain current credit ratings 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 15, 2018, filed on SEDAR at www.sedar.com 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 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.

ADDITIONAL INFORMATION: For further information about Keyera, please visit our website at www.keyera.com or contact: Lavonne Zdunich, Director, Investor Relations, or Calvin Locke, Manager, Investor Relations, Email: [email protected]; Telephone: [phone] / Toll Free: 888.699.4853