Keyera Corp. Announces First Quarter 2012 Results

CALGARY, May 8, 2012 /CNW/ - Keyera Corp. (TSX:KEY)(TSX:KEY.DB.A), announced their 2012 first quarter results today, the highlights of which are included in this press 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's fee-for-service businesses delivered exceptional results in the first quarter.
• The Gathering and Processing business posted the second highest operating margin¹ in its history, up 9% from the first quarter of 2011 to $39.0 million, despite a challenging natural gas environment.
• NGL Infrastructure set a new record in the first quarter with operating margin¹ of $26.0 million, 59% higher than the same period last year.
• The strong fee-for-service results were offset by losses in propane marketing, which reduced Marketing operating margin to $12.7 million in the first quarter, 68% lower than in the first quarter of 2011.
• Earnings before interest, taxes, depreciation and amortization^1,2 ("EBITDA") were $74.6 million in the first quarter, 5% lower than the $78.4 million posted in the same quarter last year, due to losses in Keyera's propane marketing business.
• Net earnings for the first quarter were $33.9 million ($0.46 per share), compared to $84.7 million ($1.21 per share) in the same quarter last year, primarily due to a large deferred income tax recovery in 2011.
• Distributable cash flow^1,2 for the first quarter was $47.2 million ($0.64 per share). Dividends to shareholders were $37.4 million ($0.51 per share), resulting in a payout ratio of 79% for the quarter.
• In January, Keyera completed the acquisition of Alberta EnviroFuels, an iso-octane producing facility in Edmonton, Alberta.
• In the first quarter, Keyera announced two joint venture initiatives with Enbridge to solicit interest from oil sands producers to develop a rail and truck terminal near Cheecham, Alberta and a long haul diluent pipeline into the Athabasca oil sands area.
• Keyera has now completed the majority of the construction associated with the Fort Saskatchewan Condensate System positioning it to be ready for the July 2012 service date under the diluent services agreement with Imperial Oil.
• Keyera strengthened its balance sheet and enhanced financial liquidity with the completion of a $202 million equity issue in the first quarter and the announcement in April of a $200 million private debt placement.
• Total capital investment was $272.4 million in the first quarter, including $23.7 million related to growth capital projects and $247.1 million related to acquisitions. Keyera expects its 2012 growth capital investment, excluding acquisitions, to be between $125 and $175 million³.

1	See also "Non-GAAP Financial Measures" on page 31 of Keyera's first quarter 2012 MD&A.
2	See pages 27 and 28 of Keyera's first quarter 2012 MD&A MD&A for a reconciliation of distributable cash flow to cash flow from operating activities and EBITDA to net earnings.
3	See "Capital Expenditures and Acquisitions" on page 25 of Keyera's first quarter 2012 MD&A MD&A for further discussion of Keyera's capital investment program.

Three months ended March 31, Summary of Key Measures (Thousands of Canadian dollars, except where noted)     2012 2011 Net earnings     33,870 84,691   Per share ($/share) - basic     0.46 1.21 Cash flow from operating activities     105,413 165,496           Distributable cash flow1     47,189 65,343   Per share ($/share)     0.64 0.93 Dividends declared     37,421 32,285   Per share ($/share)     0.51            0.46   Payout ratio %1     79% 49% EBITDA2     74,631 78,379 Gathering and Processing:         Gross processing throughput (MMcf/d)     1,227 1,143 Net processing throughput (MMcf/d)     966 866 NGL Infrastructure:         Gross processing throughput (Mbbl/d)     107 85 Net processing throughput (Mbbl/d)     39 27 Marketing:         Inventory value     164,010 43,316 Sales volumes (bbl/d)     99,000 80,800           Acquisitions (including business combination)     247,079 1,043 Growth capital expenditures     23,653 27,109 Maintenance capital expenditures     1,671 1,017 Total capital expenditures     272,403 29,169       As at March 31,       2012 2011 Long-term debt     475,310 470,572 Credit facilities     235,000 46,000 Working capital surplus3     (178,382) (58,626) Net debt     531,928 457,946 Convertible debentures     14,219 26,107 Net debt (including debentures)     546,147 484,053           Common shares outstanding - end of period     76,620 70,354 Weighted average number of shares outstanding - basic     73,276 70,102 Weighted average number of shares outstanding - diluted     74,069 71,732

 

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.
2	EBITDA is defined as earnings (including unrealized gains/losses from financial contracts relating to the Marketing and NGL Infrastructure business) before interest, taxes, depreciation, amortization, accretion, impairment expenses and any other non-cash items such as gains/losses on the disposal of property, plant and equipment.  EBITDA is not a standard measure under GAAP.  See section titled "EBITDA" on page 27 of Keyera's first quarter 2012 MD&A for a reconciliation of EBITDA to its most closely related GAAP measure.
3	Working capital is defined as current assets less current liabilities.

Message to Shareholders

Strong operational results provided a successful start to the year for Keyera. Activity continued in the liquids-rich part of the Western Canada Sedimentary Basin, where the majority of Keyera's gas processing facilities are located, as NGLs remained the driving force behind natural gas drilling. This activity benefited both our Gathering and Processing and Liquids Business Units, as throughput volumes increased at our facilities in both business segments.

During the first quarter, EBITDA was $74.6 million, a decrease of 5% from the same quarter last year. Keyera's fee-for-service businesses delivered very strong results, offset by losses associated with our propane marketing business. For the quarter, distributable cash flow was $47.2 million ($0.64 per share). Dividends to shareholders totaled $37.4 million ($0.51 per share), resulting in a payout ratio of 79%.

First quarter Gathering and Processing operating margin was $39 million, an increase of 9% over the same period in 2011, and the second highest results in Keyera's history. High levels of producer activity around several of Keyera's major gas plants contributed to additional throughput over the quarter, which more than offset the lower throughput at some of our other facilities.

Operating margin from NGL Infrastructure was $26 million, a new record for Keyera and an increase of 59% compared to the first quarter last year. The increase was primarily due to increased demand from oil sands producers for rail and storage services at our Edmonton and Fort Saskatchewan facilities, growing fractionation demand due to higher NGL production in the province and the acquisition of the Alberta EnviroFuels facility in mid-January.

NGL Marketing generated operating margin of $12.7 million, a decrease of 68% compared to same quarter last year. Strong results from butane, condensate, iso-octane and crude oil midstream were offset by physical and financial losses in our propane business. The propane markets in North America continued to be negatively affected in the quarter by a lack of cold weather, weak demand and pricing, and growing supply.

Operationally, our Gathering and Processing Business Unit had a successful quarter with steady throughput at most facilities and increasing volumes at four of our plants: Rimbey, Strachan, Simonette and Minnehik Buck Lake. We continue to benefit around these plants from the focus on liquids-rich gas drilling despite the challenging natural gas price environment. At Rimbey, throughput increased 34% from the beginning of 2011, averaging more than 300 million cubic feet per day in March 2012, as producers in the Hoadley area continue to deliver liquids-rich Glauconite gas to the plant for processing. At Simonette, throughput increased 83% over the same period, averaging approximately 90 million cubic feet per day in March.

More than ever, producers are relying on the value of their liquids to support cash flow due to the low natural gas price environment. Keyera's gas plants are located on the west side of the Western Canada Sedimentary Basin, where many of the most promising liquids-rich zones are under development. The Glauconite, Cardium, Montney and Duvernay zones are all currently under active development and much of the gas production from them falls within the capture area of a number of Keyera's plants, including Rimbey, Strachan, Simonette, Caribou and Minnehik Buck Lake. Because of this focus on liquids-rich production, we are continuing to pursue projects to enhance liquids recoveries at our facilities and expand gathering pipeline networks in liquids-rich areas to deliver new volumes to our gas plants.

Refurbishment of the turbo-expander at Minnehik Buck Lake was completed during the quarter, enhancing liquids recoveries at the plant, and work continues on the replacement turbo-expander for Strachan. A lean oil project at Brazeau River was completed during the quarter, allowing us to significantly improve propane and butane recoveries from the gas stream. A similar project has been proposed for our Pembina North gas plant. At Rimbey we are seeking producer interest for an expansion of the Carlos pipeline and construction of a new pipeline west of the plant to capture gas from the emerging Duvernay gas development. And at both our Rimbey and Simonette gas plants, we are seeking support from producers to underpin plant expansions and the construction of deep-cut facilities.  However, with the challenges faced by producers as a result of low gas prices, these projects will not proceed unless suitable contractual commitments are received.

In our NGL Infrastructure business, increasing liquids production in western Canada has led to increased fractionation throughput and higher NGL storage levels in the first quarter. In addition, demand for condensate from oil sands producers for use as diluent drove increased storage activity at Fort Saskatchewan and higher rail traffic at our Alberta Diluent Terminal ("ADT"). In March, ADT handled over 1,000 rail car deliveries, or approximately 23,000 barrels per day. Considerable capacity remains at ADT to handle additional deliveries as future diluent demand grows.

The first quarter was our first reporting period for the Alberta EnviroFuels facility, which was acquired on January 19, 2012. We are excited about opportunities to expand iso-octane markets in California, along with local markets in Western Canada. With the NGL contract year beginning April 1, we have negotiated terms for a large portion of butane feedstock for the facility at favourable pricing. We have also entered into hedges for a portion of the sales volumes associated with the facility.

A number of projects are underway in the Edmonton/Fort Saskatchewan area. Major work on our Fort Saskatchewan Condensate System was completed in the first quarter, including the pipeline connection to the Polaris pipeline and transfer pumps at the Edmonton Terminal. All remaining work is expected to be completed in the second quarter in time for the July 1 in-service date for our diluent services agreement with Imperial for the Kearl oil sands project. Cash flow from this agreement will ramp up with the start-up of Kearl, which is currently expected later in 2012. Development of the twelfth storage cavern at our Fort Saskatchewan facility continues and drilling of another new storage cavern (our thirteenth) is expected to commence in the third quarter. To support this additional storage capacity, we plan to begin construction of a new brine pond this summer. The pond is expected to cost $18 million and is expected to be operational towards the end of 2013. New storage injection pumps are also being installed.

Keyera is continuing to pursue new business initiatives that utilize the significant diluent infrastructure we have developed in the Edmonton/Fort Saskatchewan NGL hub in order to enhance our service offering for oil sands producers. Earlier this year, Keyera announced that we are working with Enbridge to secure support from producers for two potential joint ventures.  The first potential project is the development of the South Cheecham Rail and Truck Terminal, which would enable the delivery of diluent or solvents via railcar to oil sands sites.  The second potential project is the Norlite pipeline which would ship diluent from Fort Saskatchewan to the Athabasca oil sands region. So far, the response from oil sands producers has been positive.

In our Marketing business, strong first quarter results from condensate, butane, iso-octane and crude oil midstream were partially offset by losses in propane. The continuation of unusually warm winter weather throughout the quarter contributed to ongoing low North American demand and put downward pressure on propane demand and prices. With the new contract year for the Marketing business beginning on April 1, 2012, we have taken a number of steps to try to mitigate the likelihood of similar size losses going forward. While we expect the propane market to remain weak this year, we are acquiring propane at significantly lower prices compared to most of 2011, and we have adjusted our hedging strategy to better protect the value of our inventory.

Recently we have taken steps to maintain the strength of our balance sheet and financial liquidity and to support the growth of our business. In March, we completed a $202 million equity offering which was used to repay the short-term debt incurred to finance the acquisition of Alberta EnviroFuels. In April, we secured commitments for $200 million of medium and long-term debt through a private placement which is scheduled to close in June. Proceeds from the debt placement will be used to reduce our short-term bank debt and support our long-term growth strategy. These initiatives will enable us to use our financial strength to acquire assets, should they come available, and fund the numerous growth capital opportunities we see before us.

Looking forward to the remainder of the year, we continue to carefully select growth projects with long-term potential. Our inventory of potential projects is extensive and we see a tremendous amount of opportunity to continue to build our infrastructure and asset base. We are targeting growth capital investments for 2012 in the range of $125 and $175 million. However, we will continue to be prudent in our approach and pursue projects that are responsive to the needs of producers and our other customers.

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 document contains 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 document may also contain forward looking statements attributed to third party sources.  Management believes that its assumptions and analysis in this document 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 document, Keyera's First Quarter Results MD&A and in Keyera's Annual Information Form dated February 16, 2012 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 approvals and expected in service dates; regulatory approvals; and macro socio-economic trends.  As a result, expected timing, costs and benefits associated with these projects may differ materially from the descriptions in this document. Further, some of the projects discussed in this document are subject to securing sufficient producer/customer interest and may not proceed if sufficient commitments are not obtained.

Readers are cautioned that they should not unduly rely on the forward looking statements in this document.  Further, readers are cautioned that the forward looking statements in this document speak only as of the date of this document.

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 document 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.