CALGARY, Aug. 9, 2016 /CNW/ - Keyera Corp. (TSX:KEY)
("Keyera") announced their 2016 second quarter results today, the highlights of which are included in this news release. The
entire 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 steady results in the second quarter of 2016, with adjusted earnings before interest, taxes, depreciation
and amortization ("Adjusted EBITDA")1,2 of $157 million, consistent with the
$157 million reported in the second quarter of 2015.
- Net earnings for the period were $60 million ($0.34 per share)
compared to $16 million ($0.09 per share) in the same quarter of
2015, primarily due to a net foreign currency non-cash gain and lower current income taxes.
- The Gathering and Processing Business Unit generated a strong operating margin3 of $70
million in the second quarter of 2016 (Q2 2015 - $56 million) mainly due to new and expanded
facilities that came on stream in 2015.
- The Liquids Infrastructure segment reported operating margin3 of $59 million for the
quarter (Q2 2015 - $55 million) as returns on recent capital investments, along with strong demand
for oil sands services generated incremental cash flows.
- The Marketing segment's operating margin3 was $25 million, including $21 million of unrealized losses, in the second quarter of 2016 (Q2 2015 - $53
million, including $6 million of unrealized losses) mainly due to compressed iso-octane
margins from high gasoline production and inventory levels in the United States.
- Distributable cash flow1,2 was $138 million ($0.78 per
share) for the quarter compared to $92 million ($0.54 per
share3) in the second quarter of 2015, an increase of 49%, primarily as a result of incremental cash flow from
operations and timing of maintenance capital. Keyera's payout ratio was 49% for the quarter and 52% year to date.
- Keyera is increasing its dividend by 6%, from $0.125 per share per month to $0.1325 per share per month, or $1.59 per share annually. The dividend increase
is effective with the August dividend payable September 15, 2016.
- Given favorable capital market conditions, Keyera strengthened its financial flexibility by successfully raising
approximately $345 million in an equity offering, issuing $60 million
of long-term notes pursuant to an uncommitted private shelf agreement and entering into a $300
million private placement of 10-year and 12-year notes.
- Keyera continues to invest in growth capital projects to support the long-term infrastructure needs of the industry and
generate incremental cash flow. During the quarter, the 35,000 barrel per day fractionation expansion at Keyera's Fort Saskatchewan ("KFS") complex was completed on time and under budget with commercial operations
beginning in late May. Construction progressed on the additional cavern storage at KFS, the Norlite and South Grand Rapids diluent pipeline projects, and the Base Line Terminal above ground storage project.
- In May Keyera entered into midstream agreements for the potential construction of a natural gas gathering and processing
complex to serve Montney production in the Wapiti area, and recently acquired an additional 35%
ownership interest in the fully-utilized Alder Flats Gas Plant.
- Total growth capital investment4 was $141 million in the second quarter of 2016,
excluding acquisitions, and Keyera remains on track to make growth capital investments4 of approximately $600 million in 2016.
1
|
See "Non-GAAP
Financial Measures" on page 41 of the MD&A.
|
2
|
See pages 36
and 37 of the MD&A for a reconciliation of distributable cash flow to cash flow from operating activities and
Adjusted EBITDA to net earnings.
|
3
|
See Note 13 to
the accompanying financial statements.
|
4
|
See "Capital
Expenditures and Acquisitions" on page 34 of the MD&A for further discussion of Keyera's capital investment
program.
|
|
|
|
|
Three months ended
June 30,
|
Six months ended
June 30,
|
Summary of Key Measures
(Thousands of Canadian dollars, except where noted)
|
2016
|
2015
|
2016
|
2015
|
Net
earnings
|
59,679
|
15,587
|
129,810
|
72,167
|
|
Per
share ($/share) – basic
|
0.34
|
0.09
|
0.74
|
0.43
|
Cash
flow from operating activities
|
57,867
|
126,434
|
235,558
|
403,997
|
|
|
|
|
|
Distributable cash
flow1
|
137,677
|
92,305
|
254,126
|
232,099
|
|
Per
share ($/share)
|
0.78
|
0.54
|
1.45
|
1.37
|
Dividends declared
|
67,440
|
58,479
|
132,102
|
114,248
|
|
Per
share ($/share)
|
0.38
|
0.35
|
0.75
|
0.68
|
|
Payout ratio %1
|
49%
|
63%
|
52%
|
49%
|
Adjusted
EBITDA2
|
157,130
|
156,923
|
302,192
|
341,430
|
Gathering and
Processing:
|
|
|
|
|
Gross
processing throughput (MMcf/d)
|
1,425
|
1,436
|
1,500
|
1,486
|
Net
processing throughput (MMcf/d)
|
1,089
|
1,098
|
1,150
|
1,162
|
Liquids
Infrastructure4:
|
|
|
|
|
Gross
fractionation throughput (Mbbl/d)
|
137
|
127
|
141
|
128
|
Net
fractionation throughput (Mbbl/d)
|
53
|
40
|
52
|
38
|
AEF
iso-octane production volumes (Mbbl/d)
|
13
|
13
|
12
|
13
|
Marketing:
|
|
|
|
|
Inventory value
|
81,165
|
97,456
|
81,165
|
97,456
|
Sales
volumes (Bbl/d)
|
117,900
|
101,300
|
132,700
|
110,300
|
|
|
|
|
|
Acquisitions
|
19,882
|
13,592
|
52,042
|
16,407
|
Growth capital
expenditures
|
141,210
|
168,605
|
252,056
|
378,534
|
Maintenance capital
expenditures
|
1,899
|
38,754
|
8,046
|
43,059
|
Total capital
expenditures
|
162,991
|
220,951
|
312,144
|
438,000
|
|
|
|
As
at June 30,
|
|
|
|
2016
|
2015
|
Long-term debt
|
|
|
1,180,593
|
1,097,950
|
Credit facilities
|
|
|
230,000
|
230,000
|
Working capital (surplus)
deficit3
|
|
|
(61,854)
|
155,299
|
Net debt
|
|
|
1,348,739
|
1,483,249
|
|
Three months ended
June 30,
|
|
|
|
2016
|
2015
|
|
|
|
|
|
|
|
Common shares outstanding – end of
period
|
|
|
183,381
|
169,747
|
Weighted average number of shares
outstanding – basic
|
177,309
|
169,411
|
174,783
|
169,164
|
Weighted average number of shares
outstanding – diluted
|
177,309
|
169,411
|
174,783
|
169,164
|
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
|
Working capital
is defined as current assets less current liabilities.
|
4
|
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.
|
Message to Shareholders
As one of the largest midstream businesses in Canada, Keyera has a track record of delivering
consistent returns and creating value for shareholders, even during downturns in the oil and gas industry. In the second quarter of
2016, I am pleased to report that Keyera delivered a solid quarter with an Adjusted EBITDA of $157
million, Distributable Cash Flow of $138 million and Net Earnings of $60 million. Both Adjusted EBITDA and Distributable Cash Flow increased from the prior quarter and the second
quarter of 2015. This level of financial performance is a testament to Keyera's disciplined strategy, portfolio of integrated
assets, prudent capital investments and dedicated team of employees who are driven to strengthen the business even in challenging
times.
As we take a long-term view of this business, we continue to invest in a number of growth capital projects and look for new
opportunities that will support the long-term infrastructure needs of the industry and generate incremental cash flow. During the
quarter, we completed the fractionation expansion at KFS, continued the expansion of our cavern storage capacity at KFS, and
progressed the construction of our major capital projects. We also signed midstream agreements for the potential construction of a
natural gas gathering and processing complex to serve Montney production in the Wapiti area and
recently acquired an additional 35% ownership interest in the Alder Flats Gas Plant. All of these capital investments are backed by
long-term customer agreements.
Gathering and Processing Business Unit
The Gathering and Processing Business Unit reported strong results in the second quarter of 2016, generating an operating margin
of $70 million as compared to $56 million in the same period of 2015.
The year-over-year quarterly increase was mainly due to incremental operating margin from new and expanded facilities that came on
stream in 2015. While quarterly average net throughput volumes were similar to the second quarter of 2015, take-or-pay arrangements
at certain facilities and ethane sales associated with Keyera's investment in the Rimbey turbo
expander improved margins. I am also pleased to report that our cost saving initiatives continue to yield significant results,
reducing costs for our producer customers.
During the quarter, gross throughput volumes averaged 1,425 million cubic feet per day, a 10% decrease compared to the first
quarter of 2016. The decrease was primarily the result of curtailed volumes imposed by TransCanada Pipelines Limited
("TransCanada") on its sales gas pipelines, natural declines from existing wells and shut-in production due to the low commodity
price environment. TransCanada's restrictions were largely due to the wildfires in Fort McMurray
as well as their ongoing maintenance program, which they have indicated will continue into the third quarter.
Although volumes declined, Keyera is encouraged by the modest recovery in commodity prices compared to the first quarter of
2016. Assuming the recovery continues, there are some indications that drilling activity could increase, particularly in geological
zones that are rich in natural gas liquids. Keyera's gathering and processing facilities are strategically located in some of the
most attractive areas in the Western Canada Sedimentary Basin, where producers' economics continue to be commercially
competitive.
Liquids Business Unit − Liquids Infrastructure Segment
For the three months ended June 30, 2016, the Liquids Infrastructure segment delivered a solid
quarter with an operating margin of $59 million as compared to $55
million for the same period last year. We expect this segment to continue delivering strong results, as our new capital
investments create incremental cash flow. During the quarter, we completed the 35,000 barrel per day fractionation expansion at KFS
on time, under budget and with no lost-time incidents thanks to the excellent work, careful coordination and safe execution by our
project team. A significant portion of the additional capacity is supported by long-term agreements, which supports growth in
fractionation operating margin during the second half of the year.
Other capital projects are progressing favourably as well. Our three major initiatives–the Norlite diluent pipeline joint
venture with Enbridge, the South Grand Rapids diluent pipeline joint venture project with
TransCanada PipeLines and Brion Energy, and the Base Line Tank Terminal crude oil storage joint venture with Kinder Morgan–are all
on schedule with costs trending lower than budget. We continue to expand our underground storage caverns at KFS. During the quarter
we continued washing the 14th and 15th caverns, which we expect to be in service in 2017 and we recently
completed drilling the well for the 16th cavern.
Over the past several years, Keyera has developed significant infrastructure in the Edmonton/Fort Saskatchewan energy hub to provide value added and reliable
services to our customers. During the wildfires that affected Fort McMurray and surrounding areas,
oil sands production was significantly reduced. Keyera was able to demonstrate the value of our underground storage capacity in
Fort Saskatchewan, storing large volumes of diluent for customers until operations resumed. Keyera
was fortunate to sustain no damage at the South Cheecham Rail and Truck Terminal and we remain committed to assisting the residents
of the affected areas.
Liquids Business Unit − Marketing Segment
The Marketing segment's operating margin was $25 million in the second quarter of the year,
including $21 million of unrealized losses on risk management contracts. This compares to
$53 million in the same period in 2015, which included $6 million of
similar unrealized losses. AEF operated at approximately 97% of its capacity during the second quarter, however, iso-octane margins
have been weaker than in 2015 due to higher gasoline inventories in the U.S. market. In June, U.S. gasoline production was the
second highest on record, which has put downward pressure on gasoline prices, resulting in lower margins from the sale of
iso-octane compared to a year ago. This trend is expected to continue into the second half of this year. As well, iso-octane sales
volumes will be lower in the second half of 2016 as the AEF facility is taken off-line for approximately six weeks beginning in
early September for its scheduled maintenance turnaround.
Outlook
While the oil and gas industry continues to experience low commodity prices and activity levels, Keyera remains confident in its
competitive position. We continue to optimize and strengthen our integrated portfolio of assets with cost control measures,
expansions and acquisitions which contribute to our overall financial performance. Investors have recently shown strong confidence
in Keyera, supporting our $345 million public equity offering, our $60
million private long-term debt placement and our recently announced $300 million private
long-term note offering scheduled to close in October. With these transactions, Keyera is in an excellent position to capitalize on
opportunities to deploy capital for infrastructure investments in Canada and the United States. Our team is disciplined and will continue to look for the right opportunities to increase
shareholder value.
We are also pleased to announce a 6% dividend increase to $0.1325 per share per month, beginning
with our dividend payable on September 15, 2016. This represents Keyera's fifteenth consecutive
dividend increase since going public in 2003 and shows our commitment to providing shareholders with stable long-term dividend
growth over time.
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. I am confident in the Keyera team and optimistic about the opportunities that are
being pursued to strengthen Keyera's future.
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 10, 2016, 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; 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.
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. 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.