Keyera Announces 2023 Second Quarter Results, Increases Marketing Segment Guidance
Press Release
CALGARY, AB, Aug. 10, 2023 – Keyera Corp. (TSX: KEY) (“Keyera”) announced its 2023 second quarter financial results today, the highlights of which are included in this news release. To view Management’s Discussion and Analysis (the “MD&A”) and financial statements, visit either Keyera’s website or its filings on SEDAR+ at www.sedarplus.ca.
“Keyera continues to execute its strategy, delivering yet another strong quarter which was supported by the strength of all three business segments. This consistent performance enables us to return to our long history of sustainable dividend growth,” said Dean Setoguchi, President and CEO. “In addition, KAPS has now fully integrated our value chain, making us more competitive, enhancing our ability to attract volumes and maximizing value for all stakeholders.”
Highlights
- Strong Quarterly Results – Net earnings were $159 million (Q2 2022 – $173 million), adjusted earnings before interest, taxes, depreciation, and amortization1 (“adjusted EBITDA”) were $293 million (Q2 2022 – $316 million), and distributable cash flow1 (“DCF”) was $207 million (Q2 2022 – $209 million). Quarterly results were driven by record contribution from the Liquids Infrastructure segment and third highest ever contribution from the Marketing segment.
- Return to Sustainable Dividend Growth – As announced yesterday, Keyera’s Board approved a 4.2% increase in the quarterly dividend. The 2023 third quarter dividend will be $0.50 per common share and will be payable on September 29, 2023. Dividend growth is supported by growth in stable long-term cash flows from Keyera’s fee-for-service business.
- KAPS Fully In-Service – The natural gas liquids line which is the second of two pipelines within the KAPS pipeline system, is now in service, having shipped its first volumes in June.
- Marketing Segment Guidance Increased – Keyera now expects full year 2023 realized margin1,3 for the Marketing segment to range between $380 million and $410 million4 (previously $330 million to $370 million). The increase takes into account strong year-to-date realized margin1,3 (1H 2023 – $251 million), current hedges in place and assumes current forward commodity pricing for unhedged volumes for the remainder of the year.
- Solid Performance from Fee-For-Service Segments – The Gathering and Processing (“G&P”) segment delivered realized margin1,3 of $84 million (Q2 2022 – $88 million). This contribution reflects a $13 million impact from the Alberta wildfires. The Liquids Infrastructure segment delivered another quarterly record with realized margin1,3 of $119 million (Q2 2022 – $98 million), representing year-over-year growth of 22%. This growth is driven by initial contributions from the KAPS pipeline system, strong incremental demand for storage and the acquisition of an additional 21% working interest in Keyera’s Fort Saskatchewan complex last year.
- Strong Financial Position – The company continues to maintain its strong financial position with net debt to adjusted EBITDA2 at 2.6 times, well within the target range of 2.5 to 3.0 times.
2023 Capital and Cash Tax Guidance
- Keyera reaffirms growth capital expenditures to range between $200 million and $240 million.
- Maintenance capital expenditures are now expected to range between $95 million and $105 million versus the previous range of $75 million to $85 million. About half of the increase is due to the completion of work that was prepaid. The remainder is due to additional maintenance costs at the Pipestone Gas Plant which are expected to be recovered through increased future realized margin.
- Reaffirming cash tax expense is expected to be $nil.
Maintenance Schedule
|
Upcoming Planned Turnarounds and Outages |
||
|
Rimbey Gas Plant turnaround |
3 weeks |
Completed Q2 |
|
Keyera Fort Saskatchewan Fractionation Unit 2 outage |
1 week |
Completed Q2 |
|
Keyera Fort Saskatchewan Fractionation Unit 1 turnaround |
2 weeks |
Q3/23 |
|
Pipestone Gas Plant turnaround |
2 weeks |
Q3/23 |
|
Wapiti Gas Plant outage |
10 days |
Q4/23 |
|
Summary of Key Measures |
Three months ended June 30, |
Six months ended June 30, |
||
|
(Thousands of Canadian dollars, except where noted) |
2023 |
2022 |
2023 |
2022 |
|
Net earnings |
158,939 |
173,006 |
296,728 |
286,800 |
|
Per share ($/share) – basic |
0.69 |
0.78 |
1.29 |
1.30 |
|
Cash flow from operating activities |
235,836 |
198,763 |
547,325 |
655,815 |
|
Funds from operations1 |
251,840 |
246,290 |
499,146 |
443,863 |
|
Distributable cash flow1 |
207,357 |
208,553 |
434,724 |
387,011 |
|
Per share ($/share)1 |
0.90 |
0.94 |
1.90 |
1.75 |
|
Dividends declared |
109,993 |
106,091 |
219,987 |
212,182 |
|
Per share ($/share) |
0.48 |
0.48 |
0.96 |
0.96 |
|
Payout ratio %1 |
53 % |
51 % |
51 % |
55 % |
|
Adjusted EBITDA1 |
292,812 |
315,931 |
584,970 |
573,134 |
|
Operating margin |
370,813 |
358,262 |
703,249 |
631,188 |
|
Realized margin1,3 |
337,727 |
347,900 |
673,181 |
631,768 |
|
Gathering and Processing |
||||
|
Operating margin |
87,207 |
88,686 |
186,629 |
165,255 |
|
Realized margin1,3 |
84,430 |
88,182 |
184,736 |
164,869 |
|
Gross processing throughput5 (MMcf/d) |
1,456 |
1,529 |
1,574 |
1,521 |
|
Net processing throughput5 (MMcf/d) |
1,244 |
1,300 |
1,345 |
1,305 |
|
Liquids Infrastructure |
||||
|
Operating margin |
117,305 |
99,472 |
234,711 |
204,344 |
|
Realized margin1,3 |
119,228 |
97,825 |
237,893 |
202,745 |
|
Gross processing throughput6 (Mbbl/d) |
173 |
180 |
183 |
183 |
|
Net processing throughput6 (Mbbl/d) |
94 |
80 |
96 |
85 |
|
AEF iso-octane production volumes (Mbbl/d) |
14 |
15 |
14 |
14 |
|
Marketing |
||||
|
Operating margin |
166,371 |
170,196 |
282,013 |
262,445 |
|
Realized margin1,3 |
134,139 |
161,985 |
250,656 |
265,010 |
|
Inventory value |
182,547 |
330,517 |
182,547 |
330,517 |
|
Sales volumes (Bbl/d) |
161,300 |
164,600 |
183,600 |
179,600 |
|
Acquisitions |
— |
— |
366,537 |
— |
|
Growth capital expenditures |
52,349 |
182,455 |
133,081 |
426,024 |
|
Maintenance capital expenditures |
32,783 |
26,906 |
41,035 |
34,142 |
|
Total capital expenditures |
85,132 |
209,361 |
540,653 |
460,166 |
|
Weighted average number of shares outstanding – basic and diluted |
229,153 |
221,023 |
229,153 |
221,023 |
|
As at June 30, |
2023 |
2022 |
||
|
Long-term debt7 |
3,427,515 |
3,600,315 |
||
|
Credit facility |
440,000 |
— |
||
|
Working capital surplus (current assets less current liabilities) |
(116,283) |
(132,054) |
||
|
Net debt |
3,751,232 |
3,468,261 |
||
|
Common shares outstanding – end of period |
229,153 |
221,023 |
||
CEO’s Message to Shareholders
Our strategy continues to deliver. Keyera has strategically positioned its assets to benefit from volume growth in key areas of the Western Canada basin. Over the last five years, we have invested significantly to create a G&P footprint in the growing Montney and Duvernay fairway and integrate these assets to our core liquids infrastructure in Edmonton and Fort Saskatchewan via KAPS. These investments continue to deliver volume and cash flow growth. We’ve seen continued strong growth in our Gathering and Processing volumes and the Liquids Infrastructure segment delivered over 20% realized margin growth this quarter compared to the same period a year ago, setting a new realized margin record for the segment.
Returning to dividend growth. We are pleased to return to Keyera’s long history of sustainable dividend growth with the Board approval of a 4.2% increase in the quarterly dividend. Dividend growth is supported by the continued growth of Keyera’s fee-for-service business.
KAPS is fully in-service. KAPS integrates our value chain, makes us more competitive and enhances our ability to attract new volumes. Our platform offers customers a much-needed competitive alternative from wellhead to end market.
Cash flow inflection point and capital allocation priorities. The major strategic growth investments of the last five years are now complete and are contributing to cash flow growth. Going forward, our annual growth capital program is expected to be lower, which means we will have more discretionary cash flow. Our capital allocation priorities are unchanged. They are first to ensure financial strength, and then to balance between increasing shareholder returns and disciplined capital investment. In keeping with these priorities, our debt leverage metrics are firmly within our targeted range, and we’ve now increased the dividend.
Disciplined capital investment. Our 2022 to 2025 target of 6-7% annual adjusted EBITDA growth from our fee-for-service business is on track, mostly driven by previously invested capital. This includes the continued filling of available capacity in our G&P segment, the acquisition of an additional 21% interest in KFS, the expansion of the Pipestone Gas Plant and the ramp-up of KAPS.
Inventory of future investment opportunities. Our future growth investments will focus on projects that leverage and enhance our existing core asset position in Western Canada. These opportunities include a capital efficient de-bottleneck of existing fractionation capacity, a new fractionation expansion and the potential for a KAPS Zone 4 expansion. Any decision to proceed on incremental investments will need to be underpinned by long-term contracts and strong returns.
Strong outlook for future growth. Canada’s energy resources are essential in meeting the world’s growing energy demand. Our basin continues to grow and set new records for both natural gas and crude oil production. LNG Canada and the Trans Mountain Expansion pipeline are expected to unlock further growth. As an essential infrastructure service provider, Keyera will continue to play an integral role in enabling basin growth.
On behalf of Keyera’s board of directors and management team I want to thank our teams, customers, shareholders, Indigenous rights holders, neighboring communities, and other stakeholders for their continued support.
Dean Setoguchi
President and CEO
Keyera Corp.
Notes:
1.Keyera uses certain non-Generally Accepted Accounting Principles (“GAAP”) and other financial measures such as EBITDA, adjusted EBITDA, funds from operations, distributable cash flow, distributable cash flow per share, payout ratio, realized margin and return on invested capital. Since these measures are not a standard measure under GAAP, they may not be comparable to similar measures reported by other entities. Where applicable, refer to the section of this news release titled “Non-GAAP and Other Financial Measures” for a reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP measure.
2.Ratio is calculated in accordance with the covenant test calculations related to the company’s credit facility and senior note agreements and excludes hybrid notes.
3.Realized margin is not a standard measure under GAAP and excludes the effect of unrealized gains and losses from commodity-related risk management contracts. For the three and six months ended June 30, 2023, $33 million and $30 million of non-cash gains associated with the commodity-related contracts have been excluded in the calculation of realized margin (Marketing – unrealized gains of $32 million and $31 million, Gathering and Processing – unrealized gains of $3 million and $2 million, and Liquids Infrastructure – unrealized losses of $2 million and $3 million). See the section of this news release titled “Non-GAAP and Other Financial Measures”.
4.For the assumptions associated with the realized margin guidance for the Marketing segment, refer to the section titled “Segmented Results of Operations: Marketing” of Management’s Discussion and Analysis.
5.Includes gas volumes and the conversion of liquids volumes handled through the processing facilities to a gas volume equivalent. Net processing throughput refers to Keyera’s share of raw gas processed at its processing facilities.
6.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.
7.Long-term debt includes the total value of Keyera’s hybrid notes which receive 50% equity treatment by Keyera’s rating agencies. The hybrid notes are also excluded from Keyera’s covenant test calculations related to the company’s credit facility and senior note agreements.
Second Quarter 2023 Results Conference Call and Webcast
Keyera will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the financial results for the second quarter of 2023 at 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) on Thursday, August 10, 2023. Callers may participate by dialing 888-664-6392 or 416-764-8659. A recording of the conference call will be available for replay until 10:00 PM Mountain Time on August 23, 2023 (12:00 AM Eastern Time on August 24, 2023), by dialing 888-390-0541 or 416-764-8677 and entering passcode 520970.
To join the conference call without operator assistance, you may register and enter your phone number here to receive an instant automated call back. This link will be active on Thursday, August 10, 2023, at 7:00 AM Mountain Time (9:00 AM Eastern Time).
A live webcast of the conference call can be accessed here or through 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.
Additional Information
For more information about Keyera Corp., please visit our website at www.keyera.com or contact:
Dan Cuthbertson, Director, Investor Relations
Calvin Locke, Manager, Investor Relations
Rahul Pandey, Senior Advisor, Investor Relations
Email: ir@keyera.com
Telephone: 403.205.7670
Toll free: 888.699.4853
For media inquiries, please contact:
Kirsten Bell, Director, Stakeholder Communications
Email: media@keyera.com
Telephone: 587.496.8092
ILR4
