Keyera Corp. Announces Second Quarter 2011 Results

CALGARY, Aug. 3, 2011 /CNW/ - Keyera Corp. (TSX:KEY)(TSX:KEY.DB.A), announced their second quarter 2011 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 reported a strong second quarter, benefiting from the trend towards liquids-rich gas drilling within the Western Canada Sedimentary Basin.
• Distributable cash flow¹ for the quarter was $35.2 million ($0.50 per share), an increase of 11% on a per-share basis compared to the second quarter last year.  Dividends to shareholders were $33.9 million ($0.48 per share).  Distributable cash flow for the quarter was reduced by scheduled maintenance turnarounds at two of the Company's larger facilities, resulting in a second quarter payout ratio of 96% (66% year-to-date).
• Net earnings for the quarter were $33.1 million ($0.47 per share) compared to $36.3 million ($0.54 per share) for the same period last year. Year-to-date, net earnings totaled $117.8 million ($1.67 per share), compared to $61.0 million ($0.91 per share) in 2010.
• Construction of the Carlos pipeline, a 45-kilometre, 12-inch gathering pipeline, delivering liquids-rich natural gas from the Hoadley Glauconite play to Keyera's Rimbey gas plant, was completed early in the second quarter.
• The pipeline connection between the Enbridge Southern Lights pipeline and Keyera's Edmonton Terminal was completed in the second quarter, providing customers with increased diluent storage and delivery options.
• Keyera's eleventh storage cavern at Fort Saskatchewan went into service in June.
• The commencement dates for the oil sands service agreements with Imperial Oil have been confirmed and Keyera anticipates receiving cash flow under the solvent services agreement on November 1, 2011 and the diluent services agreement on July 1, 2012.
• Keyera has projects underway to enhance liquids recoveries at its Strachan and Minnehik Buck Lake gas plants and is also evaluating similar projects at a number of other facilities.
• Total growth capital investment was $26.9 million during the second quarter and $55.1 million year-to-date. Keyera expects its 2011 growth capital investment, excluding acquisitions, to be between $100 million and $130 million².
  
  

1	See "Non-GAAP Financial Measures" and a reconciliation of distributable cash flow to cash flow from operating activities in Keyera's second quarter 2011 MD&A.
2	See "Capital Expenditures and Acquisitions" in MD&A for further discussion of Keyera's capital investment program.

	Three months ended June 30,			Six months ended June 30,
Summary of Key Measures
(Thousands of Canadian dollars, except where noted)	2011		20105		2011		20105
Net earnings	33,128		36,340		117,819		61,007
Per share ($/share)3 - basic	0.47		0.54		1.67		0.91
Cash flow from operating activities	26,727		3,979		192,223		86,134
Distributable cash flow1	35,177		30,572		100,520		90,175
Per share ($/share) 3	0.50		0.45		1.43		1.34
Dividends declared	33,938		30,650		66,223		60,688
Per share ($/share) 3	0.48		0.45		0.94		0.90
Payout ratio %1	96%		100%		66%		67%
EBITDA4	72,889		60,361		151,268		120,036
Per share3 ($/share) - basic	1.03		0.89		2.15		1.79
Gathering and Processing:
Gross processing throughput (MMcf/d)	1,146		842		1,144		861
Net processing throughput (MMcf/d)	865		724		866		739
NGL Infrastructure:
Gross processing throughput (Mbbl/d)	85		94		85		93
Net processing throughput (Mbbl/d)	30		26		29		27
Marketing:
Inventory value	89,044		90,447		89,044		90,447
Sales volumes (bbl/d)	66,300		59,600		74,800		67,900
Capital expenditures	44,768		55,289		73,937		67,576
Long-term debt					469,392		259,052
Working capital deficit (surplus)2					(85,607)		(58,657)
Net debt					383,785		200,395
Convertible debentures					19,923		51,419
Net debt (including debentures)					403,708		251,814
Common shares outstanding - end of period 3					70,949		68,292
Weighted average number of shares outstanding - basic 3					70,356		67,217
Weighted average number of shares outstanding - diluted 3					71,824		70,829

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 International Financial Reporting Standards and, therefore, may not be comparable to the calculations of similar measures for other companies.
2	Working capital is defined as current assets less current liabilities.
3	For the comparative period, shares and dividends were previously referred to as "units" and "distributions" reflecting Keyera's income trust structure prior to its conversion to a corporation effective January 1, 2011.
4	EBITDA is defined as earnings before interest, taxes, depreciation, amortization, accretion, impairment expenses and any other non-cash items such as gains/losses on the disposal of assets.  EBITDA is not a standard measure under International Financial Reporting Standards, and therefore may not be comparable to the calculations of similar measures for other companies.  See section titled "EBITDA" on page 28 of the MD&A for a reconciliation of EBITDA to its most closely related GAAP measure.
5	Certain comparative amounts in the condensed interim unaudited consolidated financial statements have been restated to conform with the transition to International Financial Reporting Standards effective January 1, 2010.  Refer to note 20 of the condensed interim unaudited consolidated financial statements for further information on the transition to International Financial Reporting Standards.

Message to Shareholders

The second quarter provided strong operational and financial results in both of Keyera's business areas, demonstrating the strength of the integrated approach we take to our business. The Gathering and Processing and Liquids Business Units benefited from the trend towards liquids-rich gas drilling and the increasingly important role NGLs are playing in the North American oil and gas landscape.

As producers continue to look for new sources of liquids-rich gas, Keyera is well positioned within the Western Canada Sedimentary Basin to provide essential services to our customers. We provide integrated gathering, processing, and NGL logistics infrastructure, along with strategic access to the NGL hub in the Edmonton/Fort Saskatchewan area. This hub has become increasingly important as oil sands development and production ramps up, resulting in strong demand for NGLs and associated services.

For the second quarter, distributable cash flow was $35.2 million ($0.50 per share), an increase of 11% on a per-share basis compared to the second quarter in 2010. Dividends to shareholders totaled $33.9 million ($0.48 per share), an increase of 7% higher than the same period last year. Capital expenditures related to two scheduled maintenance turnarounds completed during the second quarter reduced distributable cash flow by $17 million, resulting in a payout ratio of 96% for the quarter. Year-to-date, our payout ratio was 66%.

Second quarter Gathering and Processing operating margin was $38.6 million, an 8% increase over the same period in 2010. The impact of drilling in liquids-rich areas was evident with a 9% increase in throughput during the quarter at three of our larger gas plants: Strachan, Rimbey and Simonette. We remain encouraged by the increase in land sale and drilling activity surrounding our facilities, particularly in the deep basin and west central parts of Alberta.

Operating margin from NGL Infrastructure was $16.1 million, an increase of 7% compared to the second quarter last year. Demand for diluent handling and related services was strong throughout the quarter. As a result, activity increased at Keyera's ADT rail offloading facility, and at the storage and truck offloading facilities at Fort Saskatchewan.

Our Marketing group generated operating margin of $28.3 million, an increase of $12 million compared to the second quarter in 2010. Butane and condensate were in high demand in the Alberta market, providing strong sales volumes and attractive pricing. We benefited from the integrated capabilities of our NGL facilities to meet our customer's condensate needs.

The Carlos pipeline began service during the quarter, delivering production from the liquids-rich Hoadley Glauconite formation to our Rimbey gas plant.  The pipeline extends into an area where in recent land sales producers have acquired some of the most expensive deep-rights licenses in Alberta. Given the new well licenses and drilling that are occurring to the south west, it appears that the development is expanding in that direction.

Given the focus on liquids-rich drilling, we are looking at several different ways to improve liquids recoveries at our gas plants. Among other processes, we are evaluating the installation of turbo-expanders at a number of our facilities. Turbo-expanders facilitate the removal of higher quantities of liquids from the raw gas stream, enhancing value for both ourselves and producers. Some examples include:  evaluating the addition of "deep cut" extraction at our Simonette gas plant, driven by expressions of interest received from producers in the area; improving liquids recoveries at the Brazeau River gas plant; commissioning a feasibility study to extract more ethane at the Rimbey gas plant; and refurbishing or replacing existing turbo-expanders at the Minnehik Buck Lake and Strachan gas plants.

In the second quarter, scheduled maintenance turnarounds at our Brazeau River and Rimbey gas plants were successfully completed on time and on budget. These turnarounds typically occur every four years. Keeping our facilities in peak condition has many benefits, including higher levels of reliability for our customers. Rimbey is a prime example of a well maintained facility.  Celebrating its fiftieth anniversary this summer, Rimbey continues to operate efficiently and should be able to process gas for a long time to come.  It is no easy task to dismantle and  systematically reassemble a major gas plant, and we thank our employees for their hard work and expertise.

Maintenance turnarounds at the Minnehik Buck Lake and Bigoray gas plants are scheduled for the third quarter this year.

In Keyera's Liquids Business Unit, several projects were completed during the quarter. At our Fort Saskatchewan facility, the eleventh storage cavern commenced service, adding an incremental 700,000 barrels of liquids storage to the site. Work is progressing as expected on the twelfth cavern, which we anticipate putting into service in 2013. Also at Fort Saskatchewan, the annual maintenance turnaround of our fractionator in May was completed on budget and on schedule.

Work on the Fort Saskatchewan Condensate System continued during the quarter as construction on the 20-inch, 21-kilometre pipeline between our Fort Saskatchewan facility and the Polaris diluent pipeline commenced. This pipeline will allow us to provide transportation services to Imperial's Kearl oil sands project and to Husky for their Sunrise oil sands project.

In July, Imperial Oil confirmed commencement dates for our two oil sands related agreements.  Keyera has made significant progress in construction of additional infrastructure required to support both agreements.  Assuming all facilities are completed on time, we anticipate receiving cash flow from the solvent services agreement on November 1, 2011, and the larger diluent services agreement on July 1, 2012.

The connector pipeline from Enbridge's Southern Lights pipeline to our Edmonton Terminal was completed in April, providing additional flexibility in condensate storage and delivery options for our customers. This has strengthened our position in this key energy hub and allows for continued growth as oil sands development continues and the demand for condensate grows. Volumes of condensate handled through our ADT facility in Edmonton increased in the second quarter.  ADT provides oil sands producers with a viable and economic alternative to pipelines for the transportation of diluent by providing flexibility in sourcing and a competitive cost structure.

Keyera remains committed to balancing steady value growth projects with the ability to provide income to our shareholders via monthly dividends. Our goal continues to be to grow the business and deliver long-term sustainable performance.

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 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 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 and actions taken by counterparties to agreements; activities of other facility owners; 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 unitholders, and in particular any differential effects relating to unitholder's country of residence; and other factors, many of which are beyond the control of Keyera, some of which are discussed in this document and in Keyera's Annual Information Form dated February 17, 2011, all of which are available on Sedar at www.sedar.com and 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.

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 and Keyera does not undertake any obligation to publicly update or to revise any of the forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable laws.

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.