Keyera Corp. Announces Third Quarter 2014 Results

CALGARY, Nov. 4, 2014 /CNW/ - Keyera Corp. (TSX:KEY) announced 2014 third quarter results today, the highlights of which are included in this news release. The entire earnings 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

• Net earnings were $82.4 million ($0.98 per share) in the third quarter of 2014, $41.6 million ($0.46 per share) higher than the $40.8 million ($0.52 per share) in the third quarter of 2013.
• Adjusted earnings before interest, taxes, depreciation and amortization^1,2 ("Adjusted EBITDA") were a record $151.4 million in the third quarter of 2014, 83% higher than the $82.6 million posted in the same period in 2013.
• Distributable cash flow^1,2 was also a record at $124.4 million ($1.48 per share) in the third quarter of 2014 compared to $50.5 million ($0.64 per share) recorded in the third quarter of 2013.
• Keyera's Gathering and Processing business delivered an operating margin³ of $54.0 million in the third quarter of 2014, compared to $40.7 million in the same quarter of 2013. The NGL Infrastructure segment delivered operating margin³ of $45.8 million, 46% higher than the $31.4 million recorded in the third quarter of 2013. Marketing operating margin³ was $79.9 million, compared to $33.2 million in the third quarter of last year.
• Keyera has entered into an agreement to provide solvent handling services at its South Cheecham Rail and Truck Terminal. Assuming all conditions of the agreement are met and subject to timely receipt of regulatory approvals, Keyera will undertake enhancements to its rail infrastructure and construct additional storage tanks at the terminal, with startup anticipated in 2017.
• Construction of the two pipelines comprising the Wapiti pipeline system was completed in the third quarter. The 12-inch sour gas gathering pipeline was brought into service in late September and immediately began delivering raw gas to the Simonette gas plant for processing. The 6-inch condensate pipeline is expected to be brought on line once the condensate stabilizer at the plant is completed.
• The rail loading facilities at the Alberta Crude Terminal were commissioned in September and Keyera began loading crude oil onto customer railcars.
• Keyera's NGL rail and truck terminal in Hull, Texas, began operation in October. The terminal is able to receive and deliver natural gas liquids by pipeline, truck and rail.
• At Keyera's Fort Saskatchewan Fractionation and Storage complex, construction of the de-ethanizer facility is nearing completion, and engineering design and site preparation are underway for the fractionation expansion. As well, underground storage development is continuing. The 13th cavern is expected to be in service by mid-2015. Washing of the 14th cavern is currently underway, and drilling of the well bore for the 15th cavern is expected to begin soon.
• Total growth capital investment was $166.2 million in the third quarter of 2014 and $521.8 million year-to-date. Keyera expects that its growth capital investment, excluding acquisitions, for each of 2014 and 2015 will be between $700 million and $800 million.⁴

¹ See "Non-GAAP Financial Measures" on page 40 of the MD&A.
² See pages 36 and 37 of the MD&A for a reconciliation of distributable cash flow to cash flow from operating activities and Adjusted EBITDA to net earnings.
³ See note 13 to the accompanying financial statements.
⁴ See "Capital Expenditures and Acquisitions" on page 32 of the MD&A for further discussion of Keyera's capital investment program. 

		Three months ended September 30,		Nine months ended September 30,
Summary of Key Measures (Thousands of Canadian dollars, except where noted)		2014	2013	2014	2013
Net earnings		82,439	40,822	200,602	112,440
	Per share ($/share) - basic	0.98	0.52	2.46	1.44
Cash flow from operating activities		54,667	26,584	280,835	212,497
Distributable cash flow1		124,370	50,544	286,605	213,088
	Per share ($/share)	1.48	0.64	3.52	2.73
Dividends declared		54,226	45,529	152,875	129,835
	Per share ($/share)	0.65	0.58	1.88	1.66
	Payout ratio %1	44%	90%	53%	61%
Adjusted EBITDA2		151,382	82,589	402,172	279,850
Gathering and Processing:
Gross processing throughput (MMcf/d)		1,404	1,274	1,368	1,268
Net processing throughput (MMcf/d)		1,189	1,040	1,134	1,023
NGL Infrastructure:
Gross processing throughput (Mbbl/d)		109	108	116	112
Net processing throughput (Mbbl/d)		27	30	31	34
Marketing:
Inventory value		272,414	253,004	272,414	253,004
Sales volumes (Bbl/d)		84,700	82,500	88,900	94,000
Acquisitions		8,596	80	128,539	27,088
Growth capital expenditures		166,174	93,065	521,793	192,162
Maintenance capital expenditures		5,584	19,571	48,467	31,076
Total capital expenditures		180,354	112,716	698,799	250,326
				As at September 30,
				2014	2013
Long-term debt				1,134,382	630,361
Credit facilities				—	290,000
Working capital surplus3				(191,571)	(239,350)
Net debt				942,811	681,011
Common shares outstanding - end of period				84,135	78,591
Weighted average number of shares outstanding - basic				81,491	78,160
Weighted average number of shares outstanding - diluted				81,491	78,611

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 GAAP. See page 36 of the MD&A 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 the section of the MD&A titled "EBITDA" for a reconciliation of Adjusted EBITDA to its most closely related GAAP measure.
³ Working capital is defined as current assets less current liabilities.

Message to Shareholders

All three of Keyera's business segments continued to perform very well, contributing to record financial results in the third quarter. Our customers continue to see the benefits of Keyera's integrated business, which has resulted in continued growth in demand for our services. This demand, combined with contribution from growth capital investments, resulted in increased throughput at many of our facilities. Keyera delivered Adjusted EBITDA in the third quarter of $151.4 million, the highest in Keyera's history and 83% higher than the same period last year.

Our Gathering and Processing business reported an operating margin of $54.0 million, 33% higher than the third quarter of 2013. Several Keyera facilities are operating at or near capacity to accommodate the liquids-rich natural gas being produced from several key geological horizons, including the Mannville, Spirit River, Cardium, Glauconite and Montney zones. To keep up with the increased demand for processing, we are working on a number of infrastructure solutions to expand and optimize our operations, relieve processing constraints, add operational flexibility and provide enhanced service levels for our customers.

In the Deep Basin, the 90-kilometre, 12-inch gas gathering pipeline, which is part of the newly-built Wapiti pipeline system, was commissioned in September, delivering raw gas into the Simonette gas plant for processing. The 6-inch condensate pipeline, also part of the Wapiti pipeline system, is expected to be brought on line once the condensate stabilizer at the plant is completed. The 100 million cubic feet per day expansion of the Simonette gas plant is well underway, with completion expected in early 2015. The plant was taken off line for 10 days in September to complete tie-ins related to the expansion project and conduct sulphur plant maintenance.

As part of the development of Keyera's Twin Rivers pipeline system, construction of a 45-kilometre, 12-inch diameter pipeline to deliver liquids-rich gas to the Brazeau River and West Pembina gas plants is expected to begin in the fourth quarter, with completion targeted for the second quarter of 2015. With a shortage of pipeline capacity in this region, there is strong producer interest in this project, and we continue to receive additional requests for capacity on the Twin Rivers system.

At the Rimbey gas plant, installation of the 400 million cubic feet per day turbo expander is progressing. We completed a planned 10-day outage in September to complete tie-ins of the new equipment and anticipate that the unit will be operational by mid-2015. When complete, the new turbo expander will increase recoveries of ethane and other NGLs from the raw gas stream.

Our NGL Infrastructure Business Unit reported an operating margin of $45.8 million, 46% higher than the same quarter in 2013. Throughput at the Keyera Fort Saskatchewan facility ("KFS") was lower in the third quarter because of lower volumes of NGL mix from the Strachan gas plant due to operational challenges and high summer temperatures that reduced the efficiency of the fractionator. Despite this, fractionation demand in Alberta remains high, as industry production of liquids-rich natural gas continues to increase.

The 30,000 barrel per day de-ethanizer at KFS is nearing completion with construction expected to be completed by year-end. Once commissioned, the de-ethanizer will allow delivery of an ethane-rich stream of NGLs (known as C2+ mix) to KFS for fractionation into its specification components.

To accommodate growing producer demand for NGL storage, several projects are currently underway at KFS. Washing of the 13^th cavern on site is continuing, with commissioning expected in mid 2015. Development of the 14^th cavern is also underway and the fourth brine pond is expected to be in service later this year. We are proceeding with the development of our 15^th cavern and expect to begin drilling soon.

In October, Keyera entered into an agreement to provide solvent handling services at its South Cheecham Rail and Truck Terminal. Assuming all conditions of the agreement are met and subject to timely receipt of regulatory approvals, Keyera will undertake enhancements to its rail infrastructure and construct additional storage tanks at the terminal, with startup anticipated in 2017.

In October, we celebrated the opening of the Alberta Crude Terminal ("ACT"), a 50/50 joint venture facility with Kinder Morgan. Situated adjacent to our Alberta Diluent Terminal, ACT began loading crude oil into customer rail cars in September, and full commissioning of the site was completed in October.

The Hull rail and truck terminal also celebrated its opening in October. Located near Mont Belvieu, Texas, the terminal currently handles the receipt and delivery of butane and iso-butane and is expected to handle propane shortly.

Work is progressing at the Josephburg rail terminal located east of KFS and site preparation is nearing completion. When operational in 2015, the Josephburg terminal will provide an essential transportation outlet for the delivery of propane to markets across North America.

In August, the Kinder Morgan Cochin pipeline began delivering condensate from the U.S. to Alberta for use as diluent in the oil sands. Our Fort Saskatchewan complex is the only receipt point for condensate delivered into Alberta on this pipeline. With its integrated condensate system, Keyera works with the Cochin shippers to facilitate movement of the product either into storage or on to its final destination.

The Marketing segment reported an operating margin of $79.9 million, compared to $33.2 million in the third quarter of last year. A big factor in these results was the performance of Alberta EnviroFuels, which saw increased iso-octane sales this quarter, including record volumes shipped by rail in September. We continue to be pleased with our success in developing new markets for iso-octane across North America. We are currently working on an iso-octane truck-loading facility at Alberta EnviroFuels to further enhance our delivery options and improve access to local markets.

Continued producer activity targeting liquids-rich gas and oil sands development is providing us with a significant number of new business opportunities. We approach these opportunities with a view to selecting projects that allow us to leverage our existing infrastructure and generate incremental cash flow across all segments of our business. In 2014, we expect to invest between $700 million and $800 million on growth capital projects, excluding acquisitions. In 2015, a significant portion of our capital investment will be directed towards completing the projects already underway. We also have a number of new projects in various stages of evaluation. Excluding acquisitions, we anticipate our 2015 growth capital investment will also total between $700 million and $800 million. As always, we remain focused on successful and safe project execution.

In October, we announced changes to our executive team and Board of Directors that will come into effect on January 1, 2015. With these changes, which have evolved through Keyera's succession planning process, I am looking forward to transitioning into my new role as Executive Chair. While my duties will be changing, my new responsibilities will keep me involved with Keyera on a daily basis. I look forward to continuing to help shape Keyera's direction into the future, and having worked alongside David Smith for the past 16 years, I am confident in his ability to lead Keyera as he assumes his new role as President and Chief Executive Officer.

On behalf of Keyera's directors and management team, thank you for your continued support.

Jim V. Bertram

Chief Executive Officer
Keyera Corp.

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 news release 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; 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 13, 2014, filed on SEDAR 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; quality of cost estimating; decision processes and approvals by joint venture partners; changes in project scope at the time of project sanctioning; regulatory approvals; 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. Alberta's move toward a single regulator has affected approval processing times for projects that are subject to regulatory approval. The new regulatory requirements implemented with the transition to the AER, and possible future changes as integration of the regulatory bodies continues, create uncertainty for project timing, requirements and compliance. Regulatory applications are also subject to intervention by interested parties which could result in delays.

All forward looking statements contained in this news release and accompanying documents are 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.sedar.com.

 

SOURCE Keyera Corp.