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Home / News and Events / News Releases / 2018 / Keyera Corp. Announces 2018 Third Quarter Results

Keyera Corp. Announces 2018 Third Quarter Results

CALGARY, Nov.6, 2018 /CNW/ -Keyera Corp. (TSX:KEY) ("Keyera") announced its third 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 third quarter of 2018 with adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")1 of $160 million, compared to $138 million reported in the third quarter of the previous year.

  • Distributable cash flow1 was $127 million or $0.61 per share (Q3 2017 – $108 million or $0.57 per share), resulting in a payout ratio of 72%1 for the third quarter and 61%1 year to date.

  • Net earnings for the period were $35 million or $0.17 per share (Q3 2017 – $38 million or $0.20 per share) and included $63 million in impairment expenses.

  • The Gathering and Processing segment recorded operating margin of $64 million (Q3 2017 – $69 million) in the third quarter. Even though processing volumes were comparable to the same period last year, operating margin was lower due to reduced producer activity and higher operating expenses at certain facilities.

  • The Liquids Infrastructure segment reported a record operating margin of $82 million (Q3 2017 – $72 million) for the quarter. These results were driven by increased demand for condensate services and incremental operating margin from new assets, including the Base Line Terminal and the Norlite pipeline.

  • The Marketing segment's operating margin was $70 million (Q3 2017 – loss of $15 million), while realized margin1,2 was $43 million (Q3 2017 – $10 million). The continued strong Marketing results were largely due to higher contributions from iso-octane and Keyera's liquids blending and condensate businesses.

  • During the quarter, Keyera continued to advance its capital projects at the Simonette, Wapiti and Pipestone gas plants, which support liquids-rich Montney and Duvernay production. Once completed, these three plants will provide Keyera with 950 million cubic feet of gross sour gas processing capacity and 90,000 barrels per day of condensate handling capacity.

  • At the Base Line Terminal, five tanks were completed during the quarter and in October the final tank was placed into service. The South Grand Rapids diluent pipeline was also completed to support future demand.

  • Keyera has entered into a 50/50 joint venture agreement with Wolf Midstream to develop a pipeline system that would bring condensate and natural gas liquids from the prolific Montney and Duvernay developments in northwestern Alberta to Fort Saskatchewan. A final investment decision is expected in 2019.

  • Including $328 million of acquisitions completed during the first nine months of the year, Keyera expects to invest between $1.2 billion and $1.3 billion in growth capital in 2018.

  • In 2019, Keyera plans to invest growth capital between $800 million and $900 million, excluding acquisitions. Keyera continues to maintain a strong balance sheet and is well positioned to fund its capital programs.

1

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.

2

Realized margin is a "Non-GAAP Measure" and excludes the effect of non-cash gains and losses from risk management contracts.






Three months ended

September 30,

Nine months ended

September 30,

Summary of Key Measures

(Thousands of Canadian dollars, except where noted)

2018

2017

2018

2017

Net earnings

34,684

38,464

229,172

201,868

Per share ($/share) – basic

0.17

0.20

1.11

1.08

Cash flow from operating activities

69,382

80,698

358,697

301,088






Distributable cash flow1

127,044

108,293

437,727

336,544

Per share($/share)1

0.61

0.57

2.12

1.80

Dividends declared

91,645

79,317

264,832

230,842

Per share($/share)

0.44

0.42

1.28

1.23

Payout ratio %1

72%

73%

61%

69%

Adjusted EBITDA2

159,816

138,177

559,085

419,616

Gathering and Processing:





Gross processing throughput (MMcf/d)

1,478

1,477

1,531

1,444

Net processing throughput (MMcf/d)

1,149

1,147

1,186

1,130

Liquids Infrastructure:





Gross processing throughput3 (Mbbl/d)

183

186

175

175

Net processing throughput3 (Mbbl/d)

79

72

79

63

AEF iso-octane production volumes (Mbbl/d)

14

15

14

12

Marketing:





Inventory value

305,673

170,419

305,673

170,419

Sales volumes (Bbl/d)

147,800

138,500

147,700

135,700






Acquisitions

105,240

3,265

327,595

61,122

Growth capital expenditures

213,797

142,202

706,890

468,238

Maintenance capital expenditures

8,374

16,891

37,463

33,929

Total capital expenditures

327,411

162,358

1,071,948

563,289






Weighted average number of shares outstanding – basic and diluted

208,037

188,650

206,660

187,469








As at September 30,




2018

2017

Long-term debt



2,086,460

1,795,708

Credit facility



40,000

95,000

Working capital deficit (surplus)4



24,164

(21,193)

Net debt



2,150,624

1,869,515






Common shares outstanding – end of period



208,757

189,263


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 continued to generate strong results in the third quarter of 2018, with both adjusted EBITDA and distributable cash flow increasing over the same quarter last year. Overall, our adjusted EBITDA was $160 million, distributable cash flow was $127 million, or $0.61 per share, and net earnings were $35 million for the three months ended September 30, 2018.

Our results reflect the strength of our integrated value chain and contributions from our growth capital program. Since the beginning of the year, we have completed a number of projects including the Base Line Terminal, the Keylink and Hull NGL pipeline systems, liquids enhancements at our Simonette gas plant, and the acquisition of the Oklahoma Liquids Terminal. In 2019, we are planning to invest growth capital of between $800 million and $900 million, primarily focused on projects underway that support our strategies. Projects at the Simonette, Wapiti and Pipestone gas plants will increase our presence in the liquids-rich Montney and Duvernay resource developments, while the Wildhorse crude oil storage and blending terminal in Cushing, Oklahoma supports our U.S. strategy. Keyera has a history of disciplined capital allocation, which we believe will continue to generate cash flow growth and long-term shareholder value.

Gathering and Processing Business Unit

In the Gathering and Processing business unit, operating margin for the third quarter of 2018 was $64 million, $5 million below the $69 million reported in the same period of 2017. Reduced producer activity in certain areas combined with higher operating costs lowered our operating margin at some facilities.

Overall, our gross processing throughput volumes were relatively stable compared to the previous quarter and the third quarter of last year as producers remain active in areas rich in natural gas liquids. Throughput volumes at our Simonette gas plant increased 19% compared to the same period last year, even with a scheduled outage for seven days.

To meet the growing needs of producers in the liquids-rich Montney regions of northwestern Alberta, Keyera is planning to complete approximately $1.9 billion in capital projects over the next three years and have 950 million cubic feet per day of sour gas processing capacity and 90,000 barrels per day of condensate handling facilities. In 2019, we expect to complete the first phase of the Wapiti gas plant, the North Wapiti Pipeline System and the expansion at the Simonette gas plant. These projects will double our existing gas processing capacity in the area from 300 million cubic feet per day to 600 million cubic feet per day, and provide 52,000 barrels per day of condensate handling facilities. In 2020 and 2021, we expect to add another 350 million cubic feet per day of gas processing capacity and 24,000 barrels per day of condensate handling facilities with the completion of the second phase of the Wapiti gas plant and the first phase of the Pipestone gas plant. These three plants support some of the most attractive geological developments in the Western Canada Sedimentary Basin, where producer economics are driven by the strong value of condensate. We continue to work with producers in the area for additional volume commitments to fill uncontracted capacity and support a potential second phase of the Pipestone gas plant.

Liquids Business Unit – Liquids Infrastructure Segment

The Liquids Infrastructure segment generated a record operating margin of $82 million in the third quarter of 2018, which represents a 15% increase over the same period in the prior year. This was primarily due to incremental margin from the startup of the Norlite diluent pipeline in mid-2017 and the Base Line Terminal earlier this year. During the quarter, five tanks were completed at the Base Line Terminal and in October the final tank was placed into service. The Terminal provides 4.8 million barrels of crude oil storage capacity and can be expanded for total storage of up to 6.6 million barrels.

During the quarter, we had strong demand for many of our liquids infrastructure assets and services. Our fractionators at Fort Saskatchewan operated near capacity, utilization of our storage caverns was very high and we handled record volumes through our condensate system. To position Keyera for future growth we are pleased to have completed the South Grand Rapids diluent pipeline. This new pipeline provides additional capacity, flexibility and reliability between Edmonton and Fort Saskatchewan for our oil sands customers and positions Keyera for future growth. We continue to expand our underground storage capacity and expect two new caverns to be available in 2020 and 2021.

As producers continue to focus on liquids-rich Montney and Duvernay developments in northwestern Alberta, we recognize the industry's need for a competitive natural gas liquids transportation solution from the area to Fort Saskatchewan, Alberta's NGL hub. In the fourth quarter of 2018, we entered into a 50/50 joint venture agreement with Wolf Midstream to develop the Key Access Pipeline System ("KAPS"), a proposed liquids gathering system that would include a pipeline dedicated to transporting natural gas liquids and a second pipeline dedicated to condensate service. We continue to work with producers in the area on this egress solution and expect a final investment decision in 2019, subject to obtaining sufficient customer support and final cost estimates.

Liquids Business Unit – Marketing Segment

The Marketing segment continued to report impressive quarterly results with an operating margin of $70 million in the quarter compared to a loss of $15 million in the same quarter of 2017. Excluding the effect of unrealized gains and losses from risk management contracts, the realized margin was $43 million compared to $10 million in the third quarter of last year.

During the quarter, our marketing business continued to benefit from a higher contribution from iso-octane sales, as well as new contributions from our Oklahoma Liquids Terminal that we acquired in June. Our condensate business was also a strong contributor to the quarter as we moved more volumes through our condensate system to meet the growing needs of oil sands producers.

Our AEF facility has operated very well in 2018 and continues to maintain high utilization rates. To help ensure continued reliability and high utilization of the facility, we recently shut down AEF for preventative maintenance. The outage is not expected to have a material financial impact as demand for iso-octane is typically lower in the fourth quarter. We expect AEF to resume full operations by mid-November.

Outlook

Keyera continues to serve our customers' needs while adhering to our disciplined strategy. I am pleased with the performance of our base business, the execution of our capital programs and the long-term fee-for-service cash flows these projects will generate. Although natural gas prices continue to be challenged, producers remain active in liquids-rich plays such as the Cardium, Viking, Spirit River, Montney and Duvernay. Keyera is well positioned for the future given our existing integrated network of assets and our development plans at our Simonette, Wapiti and Pipestone gas plants. With increased production from liquids-rich areas in Alberta, demand for our fractionation, storage and condensate assets is very strong and we are transporting more volumes than ever before to end user markets. While we continue to increase our capacity to support demand, we are also pursuing opportunities that expand our service offering, such as the proposed KAPS natural gas liquids and condensate gathering pipeline system. Keyera's strong balance sheet, distributable cash flow and DRIP programs allow us to be well positioned to fund our current capital programs. Our team looks forward to a strong finish in 2018 and continued operational excellence and project execution in 2019.

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 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 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 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; pipeline product specification changes; 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; 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 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 Calvin Locke, Manager, Investor Relations, Email: ir@keyera.com; Telephone: 403.205.7670 / Toll Free: 888.699.4853