Keyera Provides 2024 - 2027 Growth Target, Business Update and 2025 Guidance

CALGARY, AB, Dec. 10, 2024 /CNW/ - Keyera Corp. (TSX: KEY) ("Keyera") is pleased to provide a business update and 2025 guidance.

Keyera Provides 2024 – 2027 Growth Target, Business Update and 2025 Guidance (CNW Group/Keyera Corp.)

"Keyera continues to leverage the strength of its integrated asset base to deliver value for customers while driving strong returns for shareholders," said Dean Setoguchi, President and CEO. "With a strong outlook for volume growth in Western Canada, we will continue to grow our fee-for-service cash flow by filling available capacity and through capital-efficient growth investments. As we look toward 2025 and beyond, our financial flexibility enables us to allocate capital to the most value-accretive opportunities".

HIGHLIGHTS

• Continued strong execution against Keyera's strategy in 2024, on-track for another record year for adjusted EBITDA¹.
• Keyera is expected to achieve the upper end of its Compound Annual Growth Rate (CAGR) target for adjusted EBITDA holding Marketing constant¹ of 6-7% over the 2022 to 2025 timeframe.
• To enable better peer comparability and improve clarity, the company is adjusting its growth target to a fee-based adjusted EBITDA¹ calculation which now excludes the Marketing segment.
• On this new basis, the company has implemented a target for fee-based adjusted EBITDA¹ to reach 7-8% CAGR over the 2024 to 2027 period.
  • Most of the margin growth over this period is from continued filling of available capacity for modest incremental investments. Available capacity exists in the Gathering and Processing (G&P) segment, KAPS, condensate storage and Keyera's Fort Saskatchewan Condensate System (FSCS).
  • This EBITDA growth is also supported by yet to be sanctioned capital-efficient growth projects. These include a debottleneck of Keyera Fort Saskatchewan Fractionation Unit II (KFS Frac II) and KAPS Zone 4. Keyera Fort Saskatchewan Fractionation Unit III (KFS Frac III) is expected to be in-service in 2028 and therefore contributes to additional margin growth beyond the 2024 to 2027 timeframe.
• Keyera has identified further potential growth opportunities beyond 2027. A preview of some of these opportunities is below.
• 2025 Capital Guidance
  • Growth capital expenditures are expected to range between $300 million to $330 million.
  • Maintenance capital is expected to range between $70 million and $90 million.

DELIVERED ON THE STRATEGY IN 2024

Keyera demonstrated another year of strong execution against its strategy. Select accomplishments include:

• Continued strong safety performance, with Lost Time Incident Frequency (LTIF) rate of zero as at the end of November.
• On track to achieve new record realized margins¹ from fee-for-service business segments, leading to expected record annual adjusted EBITDA¹.
• Strong financial position with net debt to adjusted EBITDA² at 1.9 times as at Q3 2024.
• Delivered another annual common share dividend increase of 4%.
• Received approval for a normal course issuer bid.
• Progressed capital-efficient growth projects:
  • Gained contractual backing and ordered long lead items for the KFS Frac II debottleneck.
  • Advanced contracting, successfully completed pre-Front End Engineering Design (pre-FEED) and advanced to FEED on KFS Frac III.
  • Progressed commercial support and completed FEED for KAPS Zone 4.
• On pace to deliver 2025 emissions intensity reduction target of 25% from 2019 levels.

IMPLEMENTING 7-8% FEE-BASED ADJUSTED EBITDA¹ CAGR TARGET FROM 2024 to 2027

As demand for its integrated services continues to rise, the company has set a new growth target of 7-8% for fee-based adjusted EBITDA¹ over the 2024 to 2027 period. The key drivers of this growth are outlined below:

• Continued filling of available capacity:
  • Rimbey Gas Plant – Emerging South Duvernay play driving liquids growth.
  • Wapiti Gas Plant – Unlocking more capacity, new customer tie-ins.
  • Simonette Gas Plant – Land turnover leading to increased drilling activity, driving growth.
  • KAPS – Continues to ramp-up steadily.
  • Condensate handling systems (storage and transportation assets) – Rising diluent demand due to oil sands production growth.
• Capital-efficient growth projects:
  • KFS Frac II debottleneck – 8,000 barrels per day capacity expansion, expected sanction in early 2025, in service late 2026.
  • KAPS Zone 4 – Potential to access BC Montney and more Alberta Montney volumes, if sanctioned, project expected to be in service in 2027.

GROWTH BEYOND 2027

KFS Frac III

The company has secured a significant portion of required commercial support for the project, completed pre-FEED and has now advanced to FEED.  This will add approximately 47,000 barrels per day of additional fractionation capacity and is expected to be in-service in 2028.

Expanding North Region G&P Capacity

Strong demand for liquids-rich gas processing services in proximity to the Pipestone, Wapiti and Simonette gas plants is creating potential capacity expansion opportunities. These plants are connected to KAPS which allows Keyera to offer competitive, fully-integrated services to customers, thereby enhancing their netbacks while increasing margins for Keyera.

Alberta Envirofuels (AEF) Debottleneck

The company has identified an opportunity to increase capacity at AEF between 5% and 10%.

Expanding Rail and Logistics Capabilities

Increasing fractionation volumes at KFS and the resulting increase in spec product volumes support investments in additional rail and logistics solutions. Keyera has the opportunity to leverage its current land position to build a loop track facility. This would create efficient market access options for a variety of products from Alberta's Industrial Heartland to key markets, including the West Coast of Canada.  

Liquids Extraction Opportunities

Keyera has identified several opportunities to extract additional natural gas liquids from existing assets. Increased liquids handling capabilities will allow customers to earn incremental value on their production. Keyera expects its downstream value chain to benefit from these additional volumes.

Future Low-Carbon Hub Strategy

Keyera remains uniquely positioned to leverage its existing lands, infrastructure, and expertise to build a Low-Carbon Hub focused on offering industry-wide low-carbon solutions for customers in the industrial corridor between Edmonton and Fort Saskatchewan. The company will progress with these developments when it makes economic sense to do so.

2025 GUIDANCE

• As has been usual practice, 2025 Marketing realized margin¹ guidance will be announced along with 2025 first quarter results in May.
  • The long-term base Marketing realized margin¹ guidance range remains unchanged at $310 million to $350 million.
• 2025 growth capital is expected to range between $300 million and $330 million. This includes capital investments to advance KFS Frac II debottleneck, KFS Frac III, KAPS Zone 4, some enhancements at AEF and optimization work across the portfolio.
  • Keyera expects growth capital to average between $350 million and $450 million in 2026 and 2027. A significant portion of this capital is for growth projects that will start contributing to margin growth beyond 2027.
• 2025 maintenance capital is expected to range between $70 million and $90 million.
• Cash taxes for 2025 are expected to range between $100 million and $110 million.

CAPITAL ALLOCATION PRIORITIES

The company remains committed to allocating capital in a manner that is the most value-accretive for shareholders. Keyera continues to have the strongest balance sheet amongst its peers, which gives the company tremendous optionality. In addition to sustainable dividend growth, the company will continue to balance disciplined growth capital investments with the possibility of opportunistic share buybacks.

Financial Framework and Near-Term Capital Allocation Context
		Target	Near-Term Context
Preserve Financial Strength and Flexibility	Credit Ratings Net Debt / Adjusted EBITDA^2	BBB 2.5x – 3.0x	Maintain Credit Rating Preserve financial strength 1.9x Net Debt to Adjusted EBITDA^2(Q3 '24)
Invest to Compound Returns and Grow Fee-For- Service Margins	Corporate ROIC^1	>12%	Invest to further strengthen integrated value chain Corporate ROIC^1 was 16% (YE '23)
Increasing Cash Returns to Shareholders	Dividend Payout Ratio^1 Share Buybacks	50% - 70% Consider Opportunistically	Sustainable dividend increases supported by growth in fee-based adjusted EBITDA^1 and DCF^1 per share Payout ratio^1 was 61% (Q3 '24) Balance disciplined growth investments with opportunistic share buybacks

Note:
1	Is not a standard measure under GAAP or is an Other Financial Measure as specified under National Instrument 52-112. See section titled "Non-GAAP and Other Financial Measures" and "Forward-Looking Information" of this news release for additional information
2	Net debt to adjusted EBITDA calculation for covenant test purposes excludes 100% of the company's subordinated hybrid notes.

BUSINESS UPDATE AND 2025 GUIDANCE WEBCAST AND CONFERENCE CALL DETAILS

Date: December 10, 2024
Time: 8:00 a.m. MT (10:00 ET or 15:00 GMT)

A live webcast of the conference call with accompanying presentation, can be accessed here or through Keyera's website at http://www.keyera.com/news/events. Shortly after the call, a webcast archive will be posted on Keyera's website.

The audio-only conference call dial-in number is 1-888-510-2154 or 1-437-900-0527. A recording of the conference call will be available for replay until 10:00 PM Mountain Time on Monday, December 23, 2024 (12:00 AM Eastern Time on Tuesday, December 24, 2024), by dialing 1-888-660-6345 or 1-289-819-1450 and entering passcode 24194.

To join the conference call without operator assistance, you may register and enter your phone number here to receive an instant automated call back. This link will be active on Tuesday, December 10, 2024, at 7:00 AM Mountain Time (9:00 AM Eastern Time).

About Keyera Corp.

Keyera Corp. (TSX: KEY) operates an integrated Canadian-based energy infrastructure business with extensive interconnected assets and depth of expertise in delivering energy solutions. Its predominantly fee-for-service based business consists of natural gas gathering and processing; natural gas liquids processing, 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.

Additional Information

For more information about Keyera Corp., please visit our website at www.keyera.com or contact:

Dan Cuthbertson, General Manager, Investor Relations
Rahul Pandey, Senior Advisor, Investor Relations
Katie Shea, Senior Advisor, Investor Relations

Email: [email protected]
Telephone: [phone]
Toll free: 1-888-699-4853

Non-GAAP and Other Financial Measures

This news release refers to certain financial and other measures that are not determined in accordance with Generally Accepted Accounting Principles (GAAP) and as a result, may not be comparable to similar measures reported by other entities. Management believes that these supplemental measures facilitate the understanding of Keyera's results of operations, leverage, liquidity and financial position. These measures do not have any standardized meaning under GAAP and therefore, should not be considered in isolation, or used in substitution for measures of performance prepared in accordance with GAAP. For additional information on these non-GAAP and other financial measures, including reconciliations to the most directly comparable GAAP measures for Keyera's historical non-GAAP financial measures, refer to Management's Discussion and Analysis (MD&A) for the periods ended September 30, 2024 and December 31, 2023, which are available on SEDAR+ at www.sedarplus.ca and Keyera's website at www.keyera.com. Specifically, the sections of the MD&A titled "Non-GAAP and Other Financial Measures", "Forward-Looking Statements", "Segmented Results of Operations", "EBITDA and Adjusted EBITDA", "Dividends: Funds from Operations, Distributable Cash Flow and Payout Ratio", and "Adjusted Cash Flow from Operating Activities and Return on Invested Capital" include information that has been incorporated by reference for these non-GAAP and other financial measures.

Realized margin for the Marketing segment, fee-for-service realized margin (includes realized margin for the Gathering and Processing (G&P) and Liquids Infrastructure segments), EBITDA, adjusted EBITDA, distributable cash flow (DCF), DCF per share, payout ratio, return on invested capital (ROIC), compound annual growth rate (CAGR) for fee-based adjusted EBITDA, CAGR for DCF per share and CAGR for dividends per share are all non-GAAP or Other Financial Measures referenced in this news release. The most directly comparable GAAP measure to realized margin for the Marketing, G&P and Liquids Infrastructure segments is operating margin for these same segments, respectively. The most directly comparable GAAP measure to EBITDA and adjusted EBITDA is net earnings. The most directly comparable GAAP measure to DCF is cash flow from operating activities. DCF per share and payout ratio are non-GAAP ratios that use DCF as a component of the ratio. ROIC is only prepared on an annual basis; therefore, refer to the MD&A for the year ended December 31, 2023 for additional details related to this financial measure.

This news release includes certain non-GAAP and other financial measures that include forward-looking information or cannot be incorporated by reference to the MD&A. Refer below for additional information related to these measures.

Realized Margin for the Marketing Segment

The guidance for long-term base realized margin for the Marketing segment remains unchanged at $310 million to $350 million. The following includes the equivalent historical non-GAAP measure for this forward-looking financial measure.

Marketing Realized Margin	Three months ended  September 30,			Nine months ended  September 30,		Twelve months ended  December 31,
(Thousands of Canadian dollars)		2024	2023	2024	2023	2023
Operating margin – Marketing		190,799	69,387	370,865	351,400	554,251
Unrealized (gain) loss on risk   management contracts		(55,942)	30,327	14,435	(1,030)	(75,284)
Realized margin – Marketing		134,857	99,714	385,300	350,370	478,967

Realized Margin for the Fee-for-Service Business Segments

Realized margin for the fee-for-service business segments, or fee-for-service realized margin (defined as realized margin for the G&P and Liquids Infrastructure segments), is a non-GAAP financial measure that is utilized in this presentation; however, is not included in the MD&A.

Fee-for-service realized margin is used to assess the financial performance of Keyera's ongoing operations in its G&P and Liquids Infrastructure segments without the effect of unrealized gains and losses on commodity-related risk management contracts related to future periods. The following is a reconciliation of fee-for-service realized margin to the most directly comparable GAAP measure, operating margin for the G&P and Liquids Infrastructure segments.

Fee-for-Service Realized Margin	Three months ended  September 30,			Nine months ended  September 30,		Twelve months ended   December 31,
(Thousands of Canadian dollars)		2024	2023	2024	2023	2023
Operating margin – G&P		99,114	90,950	304,766	277,579		392,430
Unrealized loss on risk   management contracts		38	2,861	649	968		2,100
Realized margin – G&P		99,152	93,811	305,415	278,547		394,530
Operating margin – Liquids Infrastructure		135,677	123,623	402,726	358,334		486,467
Unrealized (gain) loss on risk   management contracts		(303)	4,428	2,288	7,610		9,647
Realized margin – Liquids Infrastructure		135,374	128,051	405,014	365,944		496,114
Realized margin – Fee-for-Service		234,526	221,862	710,429	644,491		890,644

Compound Annual Growth Rate (CAGR) for Fee-Based Adjusted EBITDA
(will replace CAGR for Adjusted EBITDA holding Marketing constant)

CAGR is calculated as follows:

1

Number of Years

CAGR

=

End of the period*

-1

Beginning of the period*

*Fee-Based adjusted EBITDA

CAGR for fee-based adjusted EBITDA is intended to provide information on a forward-looking basis (initiating a 7-8% fee-based adjusted EBITDA CAGR target from 2024 to 2027). This calculation utilizes beginning and end of period fee-based adjusted EBITDA, which includes the following components and assumptions: (i) forecasted fee-for-service realized margin (realized margin for the G&P and Liquids Infrastructure segments), and (ii) adjustments for total forecasted general and administrative, and long-term incentive plan expenses.

Since fee-based adjusted EBITDA utilizes fee-for-service realized margin, the most directly comparable GAAP measure is operating margin for the G&P and Liquids Infrastructure segments, which has been provided above. The following includes the equivalent historical measure for fee-based adjusted EBITDA, which is the non-GAAP measure component of the related forward-looking CAGR calculation.

Fee-Based Adjusted EBITDA
For the Twelve Months Ended December 31, (Thousands of Canadian dollars)		2023		2022	2021		2020
Operating margin – G&P		392,430		347,900	323,131		260,251
Unrealized loss (gain) on risk management contracts		2,100		(1,128)	(388)		—
Realized margin – G&P		394,530		346,772	322,743		260,251
Operating margin – Liquids Infrastructure		486,467		413,879	409,371		399,624
Unrealized loss (gain) on risk management contracts		9,647		(7,967)	(184)		(477)
Realized margin – Liquids Infrastructure		496,114		405,912	409,187		399,147
Realized margin – Fee-for-Service		890,644		752,684	731,930		659,398
Less:      General and administrative expenses		(106,494)		(82,843)	(80,697)		(97,795)
Long-term incentive plan (expense)/recovery		(50,909)		(33,284)	(27,029)		1,122
Fee-based adjusted EBITDA		733,241		636,557	624,204		562,725

1	For a reconciliation of realized margin for the G&P and Liquids Infrastructure segments to the most directly comparable GAAP measure, operating margin for these same segments, refer above.

This measure will replace CAGR for adjusted EBITDA holding Marketing constant. In addition to the components of CAGR for fee-based adjusted EBITDA, CAGR for adjusted EBITDA holding Marketing constant included realized margin for the Marketing segment, which was held at a value within the expected base realized margin (between $310 million and $350 million). Keyera expects to reach the upper end of its CAGR target for adjusted EBITDA holding Marketing constant of 6-7% over the 2022 to 2025 timeframe.

By adjusting the composition of the measure to exclude the Marketing segment entirely, Keyera believes the revised fee-based adjusted EBITDA CAGR calculation improves clarity and enhances peer comparability.

Forward-Looking Information

To provide readers with information regarding Keyera, including its assessment of future plans, operations and financial performance, certain statements contained herein contain forward-looking information within the meaning of applicable Canadian securities legislation (collectively, "forward-looking information"). Forward-looking information relate to future events and/or Keyera's future performance. Forward-looking information are predictions only; actual events or results may differ materially. Use of words such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "plan", "intend", "believe", and similar expressions (including negatives thereof), is intended to identify forward-looking information.

All statements other than statements of historical fact contained herein are forward-looking information, including, without limitation, statements regarding operating and financial results and capital and other expenditures of Keyera (including those forming part of expected 2024 year-end results and the 2025 and future years' guidance); the development and timing of future growth projects, including the debottleneck of KFS Frac II, KAPS Zone 4, KFS Frac III, and returns from such projects; financial and capital targets and priorities;  Keyera's vision, business strategy and plans of management; anticipated growth and proposed activities; future opportunities, expected capacities associated with capital projects; expected sources of and demand for energy and associated capacity expansion opportunities; estimated utilization rates;  Keyera's plans for allocating capital, including with respect to growth capital investment, dividend growth and share repurchases under its normal course issuer bid; attaining emissions reduction targets; and expected commodity prices and production levels.

Forward-looking information reflect management's current beliefs and assumptions with respect to such things as outlook for general economic trends, industry forecasts and/or trends, commodity prices, capital markets, and government, regulatory and/or legal environment and potential impacts thereof. In some instances, forward-looking information may be attributed to third party sources. Management believes its assumptions and analysis are reasonable and that expectations reflected in forward-looking information contained herein are also reasonable. However, Keyera cannot assure readers these expectations will prove to be correct, and differences could be material.

All forward-looking information 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 information. The principal risks, uncertainties, and other factors affecting Keyera and its business are contained in Keyera's 2023 Year-End Report and in Keyera's Annual Information Form, each dated February 29, 2024, each filed on SEDAR+ at www.sedarplus.ca 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 of and/or prices of materials and/or 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; legislation and regulations and regulatory and other approvals, conditions or delays (including possible intervention by third parties); Keyera's ability to secure adequate land rights and water supply; and macro socio-economic trends. As a result, expected timing, costs and benefits associated with these projects may differ materially from descriptions contained herein. Further, some of the projects discussed herein are subject to securing sufficient producer/customer interest and may not proceed, or proceed as expected, 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.

In addition to factors referenced above, Keyera's expectations with respect to future returns associated with certain growth capital projects not yet sanctioned are based on a number of assumptions, estimates and projections developed based on past experience and anticipated trends, including but not limited to: sanction of such projects; capital cost estimates assuming no material unforeseen costs; timing for completion of growth capital projects; customer performance of contractual obligations; reliability of production profiles; commodity prices, margins and volumes; tax and interest and exchange rates; availability of capital at attractive prices; and no changes in legislative, regulatory or approval requirements, including no delay in securing any outstanding regulatory approvals.

All forward-looking information contained herein are expressly qualified by this cautionary statement. Readers are cautioned they should not unduly rely on this forward-looking information and that information contained in such forward-looking information may not be appropriate for other purposes. Further, readers are cautioned that the forward-looking information contained herein is made as of the date hereof. Unless required by law, Keyera does not intend and does not assume any obligation to update any forward-looking information. All forward-looking information contained in this news release is 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.sedarplus.ca.

SOURCE Keyera Corp.