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Home / News and Events / News Releases / 2017 / Keyera Corp. Announces Third Quarter 2017 Results

Keyera Corp. Announces Third Quarter 2017 Results

CALGARY, Nov. 7, 2017 /CNW/ - Keyera Corp. (TSX:KEY) ("Keyera") announced its third 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

  • In the third quarter of 2017, Keyera delivered net earnings of $38 million ($0.20 per share) compared to $52 million ($0.28 per share) reported in the third quarter of 2016.
  • The Gathering and Processing segment recorded steady operating margin of $69 million (Q3 2016 – $72 million) in the third quarter. Quarterly gross processing throughput volumes were strong at 1,477 million cubic feet per day, higher than both the same period last year and the second quarter of 2017.
  • The Liquids Infrastructure segment reported record operating margin of $72 million (Q3 2016 – $63 million) for the quarter as demand for our condensate services continued to increase, the remaining Norlite take-or-pay contracts came into effect and incremental fractionation volumes were processed.
  • The Marketing segment's operating margin was a loss of $15 million while realized margin1,2 was $10 million (Q3 2016 – $33 million). Marketing's results were affected by the seasonality of propane and by the timing of settling risk management contracts associated primarily with propane inventory at September 30, 2017. A significantly higher operating margin is expected over the next two quarters as the inventory is sold.
  • Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")2 was $138 million, compared to $148 million reported in the third quarter of the previous year.
  • Distributable cash flow2 was $108 million or $0.57 per share (Q3 2016 – $101 million or $0.55 per share), resulting in a payout ratio of 73%2 for the third quarter of 2017 and 69%2 year to date.
  • Keyera continues to advance several growth initiatives to support Montney and Duvernay production. During the quarter, Keyera entered into a 20-year midstream agreement with Chevron Canada Limited to fractionate and handle natural gas liquids from their Kaybob Duvernay operations. Keyera also continues to work with producers on a range of business development opportunities at its Simonette and Wapiti gas plants.
  • In September, Keyera closed a private placement of 10-year senior unsecured notes totaling $400 million with a group of institutional investors. The notes bear interest at 3.68% and mature on September 20, 2027.
  • Recently, DBRS Limited assigned Keyera an Issuer Rating of "BBB" with a "Stable" trend and S&P Global assigned Keyera a Long-term Corporate Credit Rating of "BBB/Stable".
  • For 2017, Keyera expects to invest between $700 million and $750 million of growth capital, updated to exclude the acquisition cost of Keyera's 50% interest in the South Grand Rapids diluent pipeline, which is now expected to be completed by mid-2018.
  • In 2018, Keyera expects to invest between $700 million and $800 million primarily based on growth projects currently underway, including the acquisition of the South Grand Rapids diluent pipeline.

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 sections titled "Non-GAAP Financial Measures", "Dividends: Distributable Cash Flow" and "EBITDA" of the MD&A for further details.





Three months ended

September 30,

Nine months ended
September 30,

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

2017

2016

2017

2016

Net earnings

38,464

52,420

201,868

182,230


Per share ($/share) – basic

0.20

0.28

1.08

1.02

Cash flow from operating activities

80,698

137,145

301,088

372,703






Distributable cash flow1

108,293

101,451

336,544

355,577


Per share ($/share)1

0.57

0.55

1.80

2.00

Dividends declared

79,317

71,819

230,842

203,921


Per share ($/share)

0.42

0.39

1.23

1.14


Payout ratio %1

73%

71%

69%

57%

Adjusted EBITDA2

138,177

148,424

419,616

451,592

Gathering and Processing:





Gross processing throughput (MMcf/d)

1,477

1,367

1,444

1,454

Net processing throughput (MMcf/d)

1,147

1,073

1,130

1,125

Liquids Infrastructure:





Gross processing throughput3 (Mbbl/d)

186

150

175

144

Net processing throughput3 (Mbbl/d)

72

56

63

53

AEF iso-octane production volumes (Mbbl/d)

15

10

12

11

Marketing:





Inventory value

170,419

120,918

170,419

120,918

Sales volumes (Bbl/d)

138,500

117,000

135,700

127,500






Acquisitions

3,265

130,300

61,122

182,342

Growth capital expenditures

142,202

130,429

468,238

382,485

Maintenance capital expenditures

16,891

28,188

33,929

36,234

Total capital expenditures

162,358

288,917

563,289

601,061


Three months ended

September 30,

As at September 30,


2017

2016

2017

2016

Long-term debt

1,795,708

1,185,568

Credit facility

95,000

365,000

Working capital surplus4

(21,193)

(7,734)

Net debt



1,869,515

1,542,834






Weighted average number of shares outstanding – basic

188,650

183,962

187,469

177,865

Weighted average number of shares outstanding – diluted

188,650

183,962

187,469

177,865

Common shares outstanding – end of period



189,263

184,520

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 steady financial results in the third quarter of 2017 despite challenging industry conditions. Overall, our Adjusted EBITDA was $138 million, Distributable Cash Flow was $108 million and Net Earnings was $38 million for the three months ended September 30, 2017. Our Gathering and Processing Business Unit and Liquids Infrastructure segment both generated increased cash flow over the previous quarter. The Gathering and Processing segment results were supported by higher throughput volumes while the Liquids Infrastructure segment reported record results for the fifth consecutive quarter as we continue to grow our asset base and service offerings. As expected, Marketing's results were affected by the seasonality of our propane sales. However, significantly higher margins are expected over the next two quarters as the inventory is sold into the North American market.

With a long-term view of the business, we continue to strengthen our foundation and pursue the right opportunities to increase shareholder value. We entered into a long-term midstream agreement with Chevron Canada Limited to fractionate and handle natural gas liquids from its Kaybob Duvernay operations. Overall, our team is looking forward to a strong finish to 2017 and we are optimistic about Keyera's future prospects. In 2018, we are planning to invest between $700 million and $800 million of growth capital, primarily focused on projects currently underway such as the Base Line Tank Terminal, the South Grand Rapids diluent pipeline, the Keylink NGL pipeline system, the Wapiti gas plant and the Simonette gas plant liquids handling expansion.

As an indication of Keyera's financial strength, recently DBRS Limited assigned Keyera an Issuer Rating of "BBB" with a "Stable" trend and S&P Global assigned Keyera a Long-term Corporate Credit Rating of "BBB/Stable", both of which are investment grade credit ratings.

Gathering and Processing Business Unit

The Gathering and Processing segment recorded solid financial results for the three months ended September 30, 2017 with operating margin of $69 million, up slightly from the previous quarter. Total gross processing throughput continued to steadily increase in the third quarter averaging 1,477 million cubic feet per day, 2% higher than the second quarter of 2017 and 8% higher than the same period in 2016. A large portion of the increase was attributable to the Simonette gas plant that achieved record average throughput volumes in the third quarter even though the facility was off-line for a 17-day maintenance turnaround in August. The continued growth in volumes at Simonette is a result of strong producer activity in the Montney and Duvernay geological zones, and we continue to work with current and potential new customers at the Simonette and Wapiti gas plants to provide midstream solutions.

Keyera remains committed to working with customers at our gathering and processing facilities to deliver cost-effective and value-added services that enhance their economics. For example, we have decided to modify our Strachan gas plant to increase efficiencies and reduce operating costs of the plant by shutting down our sour gas processing equipment. This project will coincide with Strachan's planned maintenance turnaround scheduled in mid-2018. Other maintenance turnarounds are planned for our Nevis and Brazeau North gas plants in 2018.

Liquids Business Unit – Liquids Infrastructure Segment

For the third quarter of 2017, the Liquids Infrastructure segment posted record financial results once again. Operating margin was $72 million, an increase of $5 million over the previous quarter and $9 million over the same period in 2016. This was primarily due to the growth in demand for Keyera's condensate network, incremental revenue from the startup of the Norlite diluent pipeline and higher fractionation volumes. Utilization at Keyera's Fort Saskatchewan fractionation facility increased 21% since the beginning of the year and our facility operated near capacity in the third quarter of 2017.

The Norlite pipeline became operational in June, further enhancing our industry-leading condensate network. The pipeline is a joint venture with Enbridge and is backed by the owners of the Fort Hills oil sands project. A portion of the take-or-pay fees associated with the Norlite pipeline and Keyera's condensate system commenced May 1st, with the remainder coming into effect on August 1st. As there is still available capacity on the pipeline, discussions are ongoing with additional oil sands producers to increase our long-term volume commitments and provide additional services.

During the quarter, construction advanced on a number of our capital projects. At our Edmonton Terminal, four 60,000 barrel condensate storage tanks were completed and placed into service. These storage tanks provide additional working storage and enhance Keyera's ability to deliver diluent to the oil sands in a reliable and cost effective manner. Construction continued on the Base Line Tank Terminal project, a 50-50 joint venture with Kinder Morgan, and we expect the first set of tanks to be ready for commercial use in early 2018. We also received all regulatory approvals for our Keylink NGL pipeline system that is expected to be operational in mid-2018.

We continue to look for the right opportunities to expand our Liquids Infrastructure assets and service offerings. During the quarter, we entered into a 20-year midstream agreement with Chevron Canada Limited to fractionate and handle up to 50% of their natural gas liquids from their Kaybob Duvernay operations near Fox Creek, Alberta. With Chevron being one of the largest leaseholders in the Duvernay resource, we look forward to working with them in a long-term, mutually beneficial relationship.

Liquids Business Unit – Marketing

For the quarter ended September 30, 2017, the Marketing segment recorded a realized margin of $10 million, excluding the effect of $25 million in unrealized non-cash losses from risk management contracts. While iso-octane contributed a similar margin compared to the same period in 2016, Marketing's results were affected by the seasonality of propane and by the timing of settling risk management contracts associated primarily with physical propane inventory at September 30, 2017. As this inventory is sold, we expect to realize a significantly higher margin over the next two quarters.

Iso-octane production averaged slightly above nameplate capacity for the third quarter. Since completing the necessary repair work earlier this year, our Alberta EnviroFuels facility has been running very well and iso-octane continues to be the largest contributor to our Marketing segment's results.

Outlook

We are pleased with the performance of Keyera's base business and the contribution from the capital projects that we have brought on line over the last couple of years, and we are well positioned for continued growth. We will continue to focus on maximizing utilization at our current facilities, increasing our presence in the liquids-rich gas resource development regions such as the Montney and Duvernay, enhancing our condensate network and services, and expanding our storage facilities. We remain focused on building shareholder value while balancing risk and return expectations.

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.

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