Image1

PRINT  Text Size: S M L  Share

Home / News and Events / News Releases / 2017 / Keyera Corp. Announces Year End 2016 Results

Keyera Corp. Announces Year End 2016 Results

CALGARY, Feb. 14, 2017 /CNW/ -Keyera Corp. (TSX:KEY) ("Keyera") announced its 2016 year end 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 2016 with net earnings of $217 million ($1.21 per share) compared to $202 million ($1.19 per share) reported in 2015.
  • Both facility operating segments reported record results for the year as recent capital investments are generating incremental cash flow. The Gathering and Processing segment recorded an operating margin of $290 million in the year (2015 – $259 million) while the Liquids Infrastructure segment reported an operating margin of $246 million (2015 – $220 million).
  • The Marketing segment's operating margin was $101 million (2015 – $244 million) primarily due to a lower contribution from iso-octane sales, as a result of the scheduled turnaround at Alberta EnviroFuels ("AEF") and lower iso-octane margins.
  • Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")1 was $605 million compared to $705 million in 2015. Distributable cash flow1 was $460 million ($2.56 per share) in 2016 compared to $482 million ($2.84 per share) recorded in 2015. The prior year's financial results included a non-recurring gain of approximately $40 million on risk management contracts.
  • To support future growth, Keyera recently purchased 1,290 acres of undeveloped land in the Industrial Heartland area near Fort Saskatchewan, providing the company with significant growth optionality.
  • Keyera today announced plans to construct a new NGL gathering pipeline system ("Keylink") that will provide producers in west central Alberta with a pipeline alternative for transporting NGLs from a number of Keyera gas plants. The estimated $147 million2 Keylink system is targeted to be operational by mid-2018.
  • Keyera also announced a project to expand the liquids handling capacity at the Simonette gas plant to meet customers' growing needs. The project is estimated to cost $100 million2 and to be operational by mid-2018, based on the proposed construction schedule.
  • Growth capital invested in 2016, excluding acquisitions, was $502 million2 and included the NGL fractionation expansion at Keyera's Fort Saskatchewan facility that was completed in the second quarter. During the year, construction also progressed on three major Liquids Infrastructure joint-venture projects: the Norlite diluent pipeline, the South Grand Rapids diluent pipeline, and the Base Line Terminal crude oil storage facility. These projects are expected to begin generating cash flow over the next 6 to 12 months.
  • Acquisitions in 2016 included an additional 35% ownership interest in the Alder Flats gas plant and gathering lines, as well as the Wapiti gas plant site, acid gas injection well and associated third-party engineering work. Keyera completed its detailed cost estimate for the Wapiti project and is in discussions with the primary customer regarding sanctioning phase one.
  • In 2017, Keyera expects to invest growth capital of between $600 million and $700 million2, mainly to complete its three major Liquids Infrastructure projects including acquiring the South Grand Rapids pipeline, expand the liquids handling capacity at the Simonette gas plant and advance work on the Keylink pipeline.

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

December 31,

Twelve months ended
December 31,

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


2016

2015

2016

2015

Net earnings


34,621

20,215

216,851

201,920


Per share ($/share) – basic


0.19

0.12

1.21

1.19

Cash flow from operating activities


40,223

126,444

412,926

648,155







Distributable cash flow1


104,006

123,176

459,583

482,118


Per share ($/share)1


0.56

0.72

2.56

2.84

Dividends declared


73,657

64,259

277,578

240,685


Per share ($/share)


0.40

0.38

1.54

1.42


Payout ratio %1


71%

52%

60%

50%

Adjusted EBITDA2


153,535

175,249

605,127

704,640

Gathering and Processing:






Gross processing throughput (MMcf/d)


1,362

1,541

1,431

1,498

Net processing throughput (MMcf/d)


1,088

1,174

1,123

1,155

Liquids Infrastructure3:






Gross processing throughput (Mbbl/d)


152

137

147

133

Net processing throughput (Mbbl/d)


50

41

53

41

AEF iso-octane production volumes (Mbbl/d)


9

13

11

13

Marketing:






Inventory value


107,876

76,989

107,876

76,989

Sales volumes (Bbl/d)


134,600

118,300

129,300

110,500







Acquisitions


8,033

6,949

190,375

24,644

Growth capital expenditures


119,018

129,089

501,503

641,427

Maintenance capital expenditures


29,305

6,103

65,539

64,831

Total capital expenditures


156,356

142,141

757,417

730,902





As at December 31,





2016

2015

Long-term debt




1,437,413

1,156,486

Credit facilities




235,000

370,000

Working capital (surplus) deficit 4




(46,322)

73,622

Net debt




1,626,091

1,600,108



Three months ended

December 31,




2016

2015









Common shares outstanding – end of period




185,683

171,702

Weighted average number of shares outstanding – basic


185,116

171,199

179,688

169,936

Weighted average number of shares outstanding – diluted


185,116

171,199

179,688

169,936







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

More than two years after the energy industry entered the current economic downturn, Keyera's assets continue to generate strong returns. Our Gathering and Processing and Liquids Infrastructure segments once again delivered record results in 2016 as our recent capital investments, along with increasing demand for our oil sands services, generated incremental cash flow. The Marketing segment's results were affected by the scheduled turnaround at our Alberta EnviroFuels facility and iso-octane margins narrowing during the year after very strong margins in 2015. Adjusted EBITDA was $605 million, while distributable cash flow was $460 million and net earnings were $217 million.

I am pleased with Keyera's performance during this time. We continue to strengthen our competitive advantages and position the company for growth. We have successfully reduced our operating costs, strengthened our balance sheet and continued to focus on operational excellence. During the year, we invested almost $700 million in growth capital projects and acquisitions. In 2017, we expect to invest another $600 million to $700 million in growth capital, excluding acquisitions. We are confident in our business and remain committed to growing shareholder returns. In 2016, we increased our dividend per share by 6%.

Gathering and Processing Business Unit

The Gathering and Processing segment delivered record financial results in 2016, despite the low commodity price environment and corresponding low producer drilling activity in Alberta. Operating margin of $290 million was 12%higher than in 2015. This increase was primarily the result of a full year of incremental cash flow associated with capital projects completed in the prior year, as well as the additional 35% ownership interest in the Alder Flats gas plant and gathering pipelines acquired mid-year.

Gross processing throughput volumes for the year averaged 1,431 million cubic feet per day, down 4% from the 1,498 million cubic feet per day processed in 2015 due to low drilling activity and curtailments on TransCanada PipeLines' sales gas system. In the fourth quarter of 2016, gross throughput volumes averaged 1,362 million cubic feet per day, consistent with the 1,367 million cubic feet per day processed in the third quarter. We are encouraged by the recovery in commodity prices compared to the first half of 2016. There are indications that drilling activity has increased, particularly in geological zones rich in NGLs, such as the Spirit River (near the Alder Flats gas plant) and the Montney (near our Simonette gas plant).

To support future growth, in 2016 we entered into agreements with the Canadian subsidiary of a large creditworthy multi-national producer for the proposed construction of a natural gas gathering and processing complex in the Wapiti area of Alberta. In the fourth quarter, we received regulatory approvals for the acid gas injection well and completed front-end engineering and design work. The current cost estimate for the project is approximately $625 million, which includes up to 300 million cubic feet per day of sour gas processing capacity and 25,000 barrels per day of field condensate capacity. We are continuing to work closely with our customer towards sanctioning of phase one, which would consist of 150 million cubic feet per day of processing capacity, the associated gathering system and an acid gas injection well, for an estimated cost of $470 million. This investment would be underpinned by a long-term contract consisting of a combination of an area dedication and minimum volume commitments. We are also negotiating with other producers with Montney-based development plans in the area.

We continue to focus on delivering cost-effective and value-added services to enhance customer economics, while maximizing throughput and efficiencies at our facilities. During the year, we reduced our operating costs by 13% compared to 2015. To meet our customers' growing needs at the Simonette gas plant, we are proceeding with a project to expand the liquids handling capacity. This 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 operational capacity at the Simonette gas plant is expected to be approximately 27,000 barrels per day.

Liquids Business Unit - Liquids Infrastructure Segment

The Liquids Infrastructure segment generated record results in 2016, reporting an operating margin of $246 million, a 12% increase over the $220 million reported in the prior year. The robust performance was supported by a full year of contributions from projects completed in 2015, along with the completion of the 35,000 barrel per day fractionation expansion at Keyera Fort Saskatchewan in late May and growing volumes flowing through Keyera's condensate network.

Significant progress was made on Keyera's three major joint-venture projects in 2016, with their total cost trending lower than budget. The Norlite diluent pipeline project with Enbridge is on track to be operational this summer, followed by the South Grand Rapids diluent pipeline project with TransCanada PipeLines and Brion Energy late in 2017. The Base Line Terminal crude oil storage project with Kinder Morgan is expected to have its first set of tanks ready for commercial use in early 2018. These projects are expected to begin generating cash flow over the next 6 to 12 months.

In 2016, we continued to focus on developing strategic projects that are expected to provide Keyera with further growth opportunities and enhance our integrated service offering. To add to this growth profile, we are announcing plans to construct a new NGL gathering pipeline system, called "Keylink". The Keylink pipeline will connect several Keyera gas plants, including the Brazeau River, West Pembina, and Minnehik Buck Lake, to the Rimbey gas plant where we can provide onsite fractionation. The Rimbey gas plant is pipeline connected to our Edmonton rail terminal and Fort Saskatchewan fractionation and storage complex. We believe Keylink will provide producers with a safe, reliable and economically improved alternative to trucking NGL volumes in the region. We are pleased with the progress we have made with our engineering work, as well as our regulatory and construction plans. Assuming progress continues on schedule, our goal is to have the Keylink pipeline system operational in the second quarter of 2018 at an estimated cost of $147 million.

We recently completed the acquisition of 1,290 acres of undeveloped land adjacent to our Josephburg rail terminal in Alberta's Industrial Heartland near Fort Saskatchewan. Strategically located in western Canada's liquids hub, this land is expected to provide Keyera with a wide range of business opportunities for future growth.

Liquids Business Unit - Marketing Segment

The Marketing segment continued to contribute to Keyera's integrated value chain during the year, generating operating margin of $101 million compared to $244 million in 2015. Results were lower than the prior year due to a reduced contribution from iso-octane, as a result of the eight week scheduled turnaround at AEF and lower iso-octane margins. After a very strong year in 2015, iso-octane margins have returned close to the levels realized in 2014.

Keyera's Marketing group also manages the sale of propane, butane and condensate. All products contributed positively to the segment's results in 2016, with propane earning strong margins late in the fourth quarter mainly due to colder than expected winter weather.

Outlook

While it remains a challenging time for the industry, our disciplined approach to executing our strategy has served our shareholders well. We continue to improve and expand our integrated network of assets and look for opportunities to enhance our value chain. The proposed Wapiti gas gathering and processing complex, the new Keylink NGL gathering pipeline system, the liquids handling expansion at the Simonette gas plant and our recent land acquisition in the Industrial Heartland all represent exciting growth opportunities. Our strong balance sheet, access to capital and conservative payout ratio allow us to pursue these and other opportunities to enhance shareholder returns. In addition, we will continue to work with the industry to provide midstream solutions that are efficient and cost-effective to help support the overall competitiveness of the Western Canada Sedimentary Basin in the global market.

I am confident that Keyera is well positioned for the future and 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: ir@keyera.com; Telephone: 403.205.7670 / Toll Free: 888.699.4853