Keyera Corp. Announces First Quarter 2017 Results

CALGARY, May 9, 2017 /CNW/ - Keyera Corp. (TSX:KEY) ("Keyera") announced its first quarter 2017 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 delivered strong financial results in the first quarter of 2017 with net earnings of $96 million ($0.52 per share) compared to $70 million ($0.41 per share) reported in the first quarter of 2016.
• Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")¹ was $148 million, compared to the $145 million reported in the first quarter of the previous year.
• The Gathering and Processing segment recorded an operating margin of $66 million in the first quarter (Q1 2016 – $68 million). Although quarterly gross processing throughput volumes of 1,411 million cubic feet per day decreased compared to the same period last year, volumes increased over the fourth quarter of 2016.
• The Liquids Infrastructure segment reported a record operating margin of $65 million (Q1 2016 – $62 million) as recent investments are generating incremental margins and demand for condensate handling services continues to grow.
• The Marketing segment's operating margin was $68 million (Q1 2016 – $44 million), including unrealized gains of $35 million related to risk management contracts. Marketing's results were affected by lower iso-octane sales volumes due to an unplanned outage at Alberta EnviroFuels ("AEF") that started in mid-February. AEF is currently operating at its capacity.
• Distributable cash flow¹ was $121 million or $0.65 per share (Q1 2016 – $116 million or $0.68 per share), resulting in a payout ratio of 61%¹ for the first quarter of 2017.
• Keyera is increasing its monthly dividend approximately 6% from $0.1325 per share to $0.14 per share, or $1.68 per share annually. The dividend increase is effective with the May dividend payable on June 15, 2017.
• During the quarter, construction progressed on our major joint-venture projects: the Norlite diluent pipeline, the South Grand Rapids diluent pipeline and the Base Line Terminal crude oil storage facility. All three projects are expected to come in to service over the next 2 to 8 months.
• At the Keyera Simonette gas plant, work is underway to expand the liquids handling capacity. The $100 million project is targeted for completion in mid-2018, based on the current schedule².
• Keyera is also advancing work on its Keylink NGL pipeline system, which will connect eight of its gas plants providing a safe, reliable and cost effective transportation alternative. The $147 million project is targeted for completion in mid-2018, based on the current schedule². 
• Work on the proposed Wapiti gas plant and gathering system continues with the support of the primary customer. Assuming sanctioning in the near term, the project is expected to be operational in mid-2019².
• In 2017, Keyera expects to invest growth capital of between $600 million and $700 million², including the acquisition cost of Keyera's 50% interest in the South Grand Rapids diluent pipeline. This growth capital range for 2017 does not include the proposed Wapiti project.

^1	Keyera uses certain "Non-GAAP Measures" such as Adjusted EBITDA, Distributable Cash Flow, Distributable Cash Flow per Share and Payout Ratio.  See sections titled "Non-GAAP Financial Measures", "Dividends: Distributable Cash Flow" and "EBITDA" of the MD&A for further details.
^2	See section titled "Capital Expenditures and Acquisitions" 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)		2017	2016
Net earnings		96,342	70,131
	Per share ($/share) – basic	0.52	0.41
Cash flow from operating activities		218,621	177,691
Distributable cash flow^1		120,682	116,449
	Per share ($/share)^1	0.65	0.68
Dividends declared		74,125	64,662
	Per share ($/share)	0.40	0.38
	Payout ratio %^1	61%	56%
Adjusted EBITDA^2		148,220	145,062
Gathering and Processing:
Gross processing throughput (MMcf/d)		1,411	1,558
Net processing throughput (MMcf/d)		1,110	1,193
Liquids Infrastructure^3:
Gross processing throughput (Mbbl/d)		161	145
Net processing throughput (Mbbl/d)		55	52
AEF iso-octane production volumes (Mbbl/d)		8	11
Marketing:
Inventory value		88,045	54,340
Sales volumes (Bbl/d)		140,600	134,800
Acquisitions		55,087	32,160
Growth capital expenditures		174,725	110,846
Maintenance capital expenditures		6,722	6,147
Total capital expenditures		236,534	149,153
		As at March 31,
		2017	2016
Long-term debt		1,432,192	1,118,646
Credit facilities		180,000	368,877
Working capital deficit^4		105,070	117,593
Net debt		1,717,262	1,605,116
Common shares outstanding – end of period		186,884	172,794
Weighted average number of shares outstanding – basic		186,286	172,258
Weighted average number of shares outstanding – diluted		186,286	172,258

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 2017, even with an unscheduled outage at AEF and a slow-moving industry recovery. All three of Keyera's business segments delivered solid financial results, generating Adjusted EBITDA of $148 million compared to $145 million reported in the first quarter of 2016. Net earnings were $96 million, $26 million higher than in the same period of 2016, and distributable cash flow was $121 million, slightly higher than the same period of 2016. Our strong quarterly operating results were driven by contributions from our growth projects, acquisitions completed over the past year and increasing demand for our oil sands services. We continue to position ourselves for future growth with a number of projects nearing completion, new initiatives underway and a strong balance sheet to pursue business development opportunities.  

Gathering and Processing Business Unit

Operating margin for the first three months of 2017 was $66 million, or $2 million lower than the same period in 2016, even though net processing throughput volumes were 7% lower. With the modest recovery in commodity prices year over year, we are seeing increases in drilling activity in areas rich in natural gas liquids around our Simonette, West Pembina and Brazeau River gas plants. In the first quarter of the year, overall gross processing throughput volumes were 1,411 million cubic feet per day, 4% higher than the prior quarter.

To meet growing customer demand in the liquids-rich Montney development, we initiated a project during the quarter to expand the liquids handling capabilities at our Simonette gas plant. The project is intended to maximize producer netbacks by increasing liquids recoveries at the facility and provide long-term growth opportunities for Keyera in one of the most exciting developments in the Western Canada Sedimentary Basin. The project is estimated to cost approximately $100 million and is anticipated to be operational by mid-2018, assuming construction proceeds as planned. Upon completion of this project, the condensate handling capacity at the Simonette gas plant is expected to be approximately 27,000 barrels per day.

During the quarter, we continued to advance the first phase of the Wapiti gas gathering and processing project to maintain the schedule for an expected startup date in mid-2019. The site has been cleared, major equipment packages have been ordered and Keyera continues to negotiate with other Wapiti area Montney producers to commit additional volumes, all while working towards an official sanctioning decision with our primary customer.

Liquids Business Unit – Liquids Infrastructure Segment

The Liquids Infrastructure segment once again posted record quarterly financial results. Operating margin was $65 million in the first quarter, an increase of 5% over the same period in 2016. These results were largely due to higher demand associated with Keyera's condensate network, including transportation and storage revenue from long-term, fee-for-service arrangements with oil sands producers.

Demand for Keyera's diluent handling services has been strong and we continue to invest in our industry-leading network to accommodate contracted growth and provide oil sands customers with a comprehensive and reliable suite of services. I am pleased to report that our three major oil-related projects are nearing completion and costs are trending lower than originally budgeted. The Norlite diluent pipeline, a joint venture with Enbridge, is fully constructed and will begin line-fill activities this month. The South Grand Rapids diluent pipeline and associated pump station, a joint venture with TransCanada PipeLines and Brion Energy, is expected to be completed late in the year. And the first set of crude oil storage tanks at the Base Line Terminal, a joint venture with Kinder Morgan, are on schedule to be commissioned in early 2018.

To provide Keyera with further growth opportunities and enhance our integrated service offering, we began development of the Keylink NGL gathering pipeline system, which will connect eight Keyera gas plants and provide producers with a safe, reliable and economically improved alternative to transporting NGL mix volumes by truck. This system will comprise over 240 kilometres of newly constructed and existing pipelines and will transport NGL mix primarily to the Rimbey gas plant where we can provide onsite fractionation into specification products. Assuming progress continues on schedule, we expect to have the Keylink pipeline system operational in the second quarter of 2018 at an estimated cost of $147 million.

In the first quarter, we also acquired 1,290 acres of undeveloped land in the Industrial Heartland area near Fort Saskatchewan. Located adjacent to our Josephburg rail terminal, this large parcel of land is expected to provide Keyera with a wide range of future growth opportunities, including the possible development of underground storage caverns. We continue to expand our underground storage at Keyera Fort Saskatchewan and in April our 14^th cavern became operational, increasing our gross storage capacity to approximately 13 million barrels.

Liquids Business Unit – Marketing

The Marketing segment recorded solid first quarter financial results with an operating margin of $68 million, an increase of $24 million from the first quarter of 2016 despite an unscheduled outage at AEF. Excluding the effect of unrealized gains from risk management contracts, Marketing's realized margin was $33 million or $4 million lower than the first quarter of 2016. The lower realized margin in 2017 was primarily due to lower iso-octane sales volumes as a result of the unscheduled outage at AEF. AEF returned to normal utilization rates in April.

Outlook

Looking ahead, I am confident in Keyera's business plan and growth prospects. Over the next eight months we expect to commission our three major joint venture projects, followed by the Simonette gas plant expansion and the Keylink NGL gathering pipeline system. Across Keyera, we are working with our customers to capitalize on long-term business development opportunities. As producer netbacks continue to strengthen, we expect to participate in the growing willingness of customers to invest in new resource development projects.

We remain focused on executing our successful business strategy and are committed to delivering long-term shareholder value growth. I am pleased to announce a dividend increase of approximately 6% to $0.14 per share per month, beginning with our dividend payable on June 15, 2017. This represents Keyera's sixteenth dividend increase since going public in 2003.

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 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 14, 2017, 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 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 about Keyera, please visit our website at www.keyera.com or contact: Lavonne Zdunich, Director, Investor Relations, or Nick Kuzyk, Manager, Investor Relations, Email: [email protected]; Telephone: [phone] / Toll Free: 888.699.4853