CALGARY, Feb. 21, 2019 /CNW/ - Keyera Corp. (TSX:KEY) ("Keyera") announced its year end 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 achieved record results in 2018 delivering net earnings of $394 million (2017 – $290 million), adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")1 of $807 million (2017 – $617 million) and distributable cash flow of $638 million or $3.08 per share (2017 – $510 million or $2.70 per share).
- All three business segments had a strong finish to the year. For the fourth quarter of 2018, the Gathering and Processing segment generated operating margin of $74 million, the Liquids Infrastructure segment earned $84 million and the Marketing segment reported $106 million in realized margin1,2.
- In 2018, the Liquids Infrastructure and Marketing segments both generated record results. The Gathering and Processing segment continued to deliver steady results, recording operating margin of $272 million in 2018 (2017 – $275 million).
- The Liquids Infrastructure segment reported operating margin of $324 million (2017 – $285 million). These record 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 $366 million (2017 – $128 million) and realized margin1,2 was $296 million (2017 – $128 million). Marketing's record results were largely due to higher contributions from Keyera's iso-octane, liquids blending and condensate businesses, and its effective risk management strategy.
- To support future growth, Keyera has $2.1 billion in approved projects currently underway, mainly focused on establishing a strong position in the liquids-rich Montney and Duvernay development areas. This capital program begins generating incremental cash flow mid-2019 and is expected to earn an annual return on capital3 of 10% to 15% in 2022, once all projects achieve their annual run rate.
- Keyera continues to maintain a conservative balance sheet with a Net Debt to EBITDA ratio1 of 2.6 times at December 31 and a payout ratio1 of 56% in 2018. With a strong financial position, Keyera expects to fund the remaining portion of its $2.1 billion capital program without issuing common equity, apart from its existing dividend reinvestment plan ("DRIP"). Approximately one-third of the program has been funded to date.
- In 2019, Keyera plans to invest growth capital of between $800 million and $900 million, excluding acquisitions, to advance its capital projects at the Simonette, Wapiti and Pipestone gas plants, and the Wildhorse Terminal.
1 Keyera uses certain "Non-GAAP Measures" such as Adjusted EBITDA, Distributable Cash Flow, Distributable Cash Flow per Share, Payout Ratio and Compound Annual Growth Rate. See section titled "Non-GAAP Financial Measures", "Dividends: Distributable Cash Flow" and "EBITDA" of the MD&A for further details.
2 Realized margin is a "Non-GAAP Measure" and excludes the effect of non-cash gains and losses from commodity-related risk management contracts.
3 Return on Capital is defined as expected operating margin divided by the estimated capital cost for the Simonette projects, the Wapiti and Pipestone gas plants and associated gathering infrastructure, the Wildhorse Terminal, and storage cavern capital projects that are currently under development. See "Non-GAAP Financial Measures" and "Forward-Looking Statements" in the MD&A for further details.
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| Three months ended
December 31,
| Twelve months ended
December 31,
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Summary of Key Measures
(Thousands of Canadian dollars, except where noted)
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2018
|
2017
|
2018
|
2017
|
Net earnings
| 165,052
| 88,052
| 394,224
| 289,920
|
Per share ($/share) – basic
| 0.79
| 0.45
| 1.90
| 1.53
|
Cash flow from operating activities
| 245,632
| 212,609
| 604,329
| 513,697
|
|
|
|
|
|
Distributable cash flow1
| 200,397
| 173,890
| 638,124
| 510,434
|
Per share ($/share)1
| 0.96
| 0.90
| 3.08
| 2.70
|
Dividends declared
| 94,437
| 81,801
| 359,269
| 312,643
|
Per share ($/share)
| 0.45
| 0.42
| 1.73
| 1.65
|
Payout ratio %1
| 47%
| 47%
| 56%
| 61%
|
Adjusted EBITDA2
| 248,278
| 197,399
| 807,363
| 617,015
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Gathering and Processing:
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|
|
|
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Gross processing throughput (MMcf/d)
| 1,551
| 1,526
| 1,537
| 1,464
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Net processing throughput (MMcf/d)
| 1,215
| 1,192
| 1,193
| 1,149
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Liquids Infrastructure:
|
|
|
|
|
Gross processing throughput3 (Mbbl/d)
| 182
| 193
| 176
| 181
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Net processing throughput3 (Mbbl/d)
| 83
| 76
| 80
| 67
|
AEF iso-octane production volumes (Mbbl/d)
| 10
| 15
| 13
| 12
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Marketing:
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|
|
|
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Inventory value
| 235,556
| 147,831
| 235,556
| 147,831
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Sales volumes (Bbl/d)
| 165,700
| 164,900
| 152,300
| 143,000
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|
|
|
|
|
Acquisitions
| 5,609
| —
| 333,204
| 61,122
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Growth capital expenditures
| 228,545
| 189,706
| 935,435
| 657,944
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Maintenance capital expenditures
| 14,419
| 7,119
| 51,882
| 41,048
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Total capital expenditures
| 248,573
| 196,825
| 1,320,521
| 760,114
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|
|
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Weighted average number of shares outstanding – basic and diluted
| 209,585
| 193,552
| 207,397
| 189,002
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| As at December 31,
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|
|
| 2018
| 2017
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Long-term debt
|
|
| 2,117,261
| 1,795,530
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Credit facility
|
|
| 80,000
| —
|
Working capital surplus4
|
|
| (1,247)
| (336,509)
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Net debt
|
|
| 2,196,014
| 1,459,021
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|
|
|
|
|
Common shares outstanding – end of period
|
|
| 210,479
| 204,547
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|
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|
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Notes:
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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.
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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.
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Message to Shareholders
Keyera delivered outstanding financial results in 2018 with each of our key financial metrics achieving record results. Net earnings grew 36% to $394 million, Adjusted EBITDA increased 31% to $807 million, while distributable cash flow rose 25% to $638 million, representing a 14% increase on a per share basis. All three business units had an impressive year. Our Liquids Infrastructure and Marketing segments both generated record financial results while the Gathering and Processing gross throughput volumes remained strong, increasing 5% over the prior year. With confidence in our business outlook, we maintained our dividend track record and increased our dividend by 7% in mid-2018.
During the year, Keyera achieved a number of operational milestones as well. With strong demand for our services, we handled record volumes at our Fort Saskatchewan fractionation facility, our Simonette gas plant and through our condensate system. In addition, we carried out the largest capital program in our history, investing approximately $1.3 billion in growth capital projects and acquisitions. Even with this increased activity, Keyera's employees remained dedicated to safety, achieving zero-lost time incidents for the year.
Keyera remains committed to generating long-term shareholder value with disciplined capital allocation. Since we became a corporation on January 1, 2011, we have invested over $5 billion and delivered a compound annual growth rate of approximately 9% for distributable cash flow per share. We currently have a $2.1 billion capital program underway that is expected to earn an annual return on capital of 10% to 15% in 2022, once all projects achieve their annual run rate.
Recognizing the dynamic environment that we operate in, Keyera has maintained a strong financial position and is well positioned to fund this capital program. To date, we have funded approximately one-third of this capital program while maintaining a Net Debt to EBITDA covenant ratio of 2.6 times, which is significantly below our debt covenant limit. With respect to funding the remaining portion of this capital program, we do not plan on issuing common equity, apart from the existing DRIP program, and are comfortable operating at a Net Debt to EBITDA covenant ratio above 3.0 times.
In 2019, we plan on investing between $800 million and $900 million to advance the $2.1 billion capital program currently underway. We expect the first major project, phase one of the Wapiti gas plant, to be generating incremental cash flow by mid-year. This begins the next phase of step changes in Keyera's growth as we expect to complete all the projects included in the capital program within the next 24 to 30 months.
Gathering and Processing Business Unit
The Gathering and Processing business unit generated operating margin of $272 million in 2018 compared to $275 million last year. Although natural gas prices continue to be challenged, our results were stable as producers remained active in liquids-rich areas of Alberta. For Keyera, this was most notable at our Simonette gas plant in northwestern Alberta, which processed record volumes in 2018.
Keyera's next phase of new cash flow growth will be driven by our expansion at the Simonette gas plant and our new Wapiti and Pipestone gas plants. These three gas plants support some of the most attractive geological developments in the Western Canada Sedimentary Basin, where producer economics are driven by the value of condensate. In 2019, we expect to complete the first phase of the Wapiti gas plant, including 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 increase our condensate handling capacity to 52,000 barrels per day.
In mid-2020, we expect to complete the second phase of the Wapiti gas plant, followed by the first phase of the Pipestone gas plant in 2021. When all of these projects are completed, Keyera will have a strong position in the liquids-rich area of northwestern Alberta, underpinned by long-term agreements with producers that add to our fee-for-service cash flows.
Liquids Business Unit – Liquids Infrastructure Segment
The Liquids Infrastructure segment generated a record operating margin of $324 million in 2018, which represents a 14% increase over the prior year. This was primarily due to incremental margin from our capital investments, such as the Norlite diluent pipeline and the Base Line Terminal, and increasing demand for many of our liquids infrastructure assets and services.
To continue to meet the needs of our customers, we completed the Keylink NGL gathering pipeline system and the South Grand Rapids diluent pipelines during the year. These pipelines provide additional connectivity between our facilities and improve the flexibility and reliability of our integrated network of assets. We continue to expand our underground storage capacity, with the next two new caverns expected to be in service in 2020 and 2021.
As producers continue to focus on liquids-rich Montney and Duvernay developments in northwestern Alberta, we continue to work with producers in the area on a competitive egress solution. The proposed Key Access Pipeline System ("KAPS") would transport natural gas liquids and condensate from the area to Alberta's NGL and condensate hub in Fort Saskatchewan. A final investment decision is expected in the first half of 2019, subject to obtaining sufficient customer support. If this project is approved, Keyera would be well positioned to fund its 50% ownership, as substantially all of the spending is expected in 2020 and 2021 when our existing capital program is concluding. Assuming our capital projects underway are completed according to schedule, we expect KAPS would be funded without issuing common equity, apart from the existing DRIP program.
Liquids Business Unit – Marketing Segment
The Marketing segment reported record results with an operating margin of $366 million in 2018 compared to $128 million in the prior year. Excluding the effect of unrealized gains and losses from risk management contracts, the realized margin was $296 million compared to $128 million in 2017. Our iso-octane business delivered impressive results as our AEF facility operated near capacity for the year and demand was strong for the product. Our financial results also benefited from strong contributions from liquids blending and condensate marketing, as well as a continued effective risk management strategy.
Although Keyera's marketing results are subject to some variability, our processing, storage and transportation assets provide a strong foundation for Marketing to deliver cash flow year after year. Over the past five years, the Marketing segment has generated over $1 billion in realized margin, enhancing the returns from our fee-for-service businesses and providing an additional source of funding for our capital projects.
Outlook
Although our industry continues to face a number of challenges, Keyera's foundation is strong and we are well positioned to capitalize on the long-term growth opportunities within the Western Canada Sedimentary Basin. Not only does this basin have some of the best geology in the world, we are leaders in responsible energy development. At Keyera, we understand that energy is part of a broader financial and social system. As many parts of the world begin transitioning to a lower carbon economy, Canadian hydrocarbon fuels will continue to be essential to meet this global energy demand in a safe and affordable manner. We believe with improved market access, Canadian oil and gas can play a critical role on the international stage, and not only help minimize carbon emissions but also improve the quality of life for millions of people around the world.
In the near term, I am also confident in Keyera's position to deliver another year of strong financial performance. Within the next few months, we will kick off the next phase of our cash flow growth as we complete phase one of the Wapiti gas plant. Market fundamentals are also moving in our favor as more natural gas liquids continue to be produced from the Western Canada Sedimentary Basin. For the new contract year beginning in April, these fundamentals support higher fractionation fees, as well as lower butane prices in Alberta that benefit our iso-octane business.
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. Our team is committed to delivering another year of strong financial performance, operational excellence and project execution.
David G. Smith
President & Chief Executive Officer
Keyera Corp.
YEAR END RESULTS CONFERENCE CALL AND WEBCAST
Keyera will hold a conference call and webcast on Friday, February 22, 2019 at 7:00 am Mountain Standard Time (9:00 am Eastern Standard Time) to discuss its quarterly and year end financial results.
Members of the investment community and other interested parties are invited to participate by calling 888-231-8191 or 647-427-7450. A recording of the conference call will be available for replay until 11:59 pm Mountain Standard Time on March 1, 2019 by dialing 855-859-2056 or 416-849-0833 and entering passcode 8183607.
A live webcast of the conference call can be accessed on Keyera's website at http://www.keyera.com/news/events. Shortly after the call, an audio archive will be posted on the website for 90 days.
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.
FORWARD-LOOKING STATEMENTS
In order to provide readers with information regarding Keyera, including its assessment of future plans, operations and financial performance, certain statements contained in this news release are forward-looking. These forward-looking 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, forward-looking statements may be attributed to third party sources. Management believes that its assumptions and analysis are reasonable and that the expectations reflected in the forward-looking statements contained in this news release 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 to fund capital requirements and future growth plans; 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 customers, including the performance of contractual obligations by customers and demand for services aligned with production profiles; oil sands development activity 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 MD&A and in Keyera's Annual Information Form dated February 21, 2019, 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); Keyera's ability to secure adequate land rights and water supply; and macro socio-economic trends. As a result, expected timing, costs and benefits associated with these projects may differ materially from the descriptions contained in this news release. Further, some of the projects discussed 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.
In addition to the factors referenced above, Keyera's expectations with respect to future returns associated with the growth capital projects that have been sanctioned and are in development as of the date hereof are based on a number of assumptions, estimates and projections that have been developed based on past experience and anticipated trends, including but not limited to: capital cost estimates assuming no material unforeseen costs; timing for completion of growth capital projects; customer performance of contractual obligations; reliability of production profiles; commodity prices, margins and volumes; tax and interest rates; availability of capital at attractive prices; and no changes in regulatory or approval requirements, including no delay in securing any outstanding regulatory approvals.
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 are expressly qualified by this cautionary statement. Readers are cautioned that they should not unduly rely on these forward-looking statements and that the information contained in the forward-looking statements may not be appropriate for other purposes. Further, readers are cautioned that the forward-looking statements in this document speak only as of the date hereof. Keyera does not undertake any obligation to update forward- looking statements except as required by securities law.
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.
ADDITIONAL INFORMATION
For further information about Keyera, please visit our website at www.keyera.com or contact:
Lavonne Zdunich, Director, Investor Relations
Email: ir@keyera.com; Telephone: 403.205.7670 / Toll Free: 888.699.4853
SOURCE Keyera Corp.
