Keyera Corp. Announces Year End 2017 Results

CALGARY, Feb. 15, 2018 /CNW/ – Keyera Corp. (TSX:KEY) (“Keyera”) announced its 2017 year end results today, the highlights of which are included in this news 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 achieved record net earnings of $290 million ($1.53 per share) in 2017 compared to $217 million($1.21 per share) in the prior year, mainly due to higher operating margins.
• The Liquids Infrastructure segment once again generated record results with operating margin of $285 million in 2017 compared to $246 million in 2016. These results were driven by increased demand for our condensate services, the start of our Norlite take-or-pay contracts and incremental fractionation volumes.
• The Gathering and Processing segment recorded operating margin of $275 million (2016 – $290 million). Gross processing throughput steadily increased throughout the year with volumes in the fourth quarter 12% higher than the same period in 2016.
• The Marketing segment’s operating margin was $128 million (2016 – $101 million), while realized margin^1,2was also $128 million (2016 – $137 million). Marketing’s results were primarily affected by a lower contribution from iso-octane sales due to the unscheduled outage at Alberta EnviroFuels (“AEF”) in early 2017.
• Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”)² was $617 million for the year compared to $605 million in 2016.
• Distributable cash flow² was $510 million or $2.70 per share (2016 – $460 million or $2.56 per share), resulting in a payout ratio² of 61% for the year (2016 – 60%).
• Growth capital invested in 2017 (excluding acquisitions) was $658 million, which included the completion of the Norlite pipeline in the second quarter. Construction also progressed on the Base Line Terminal crude oil storage facility where four of the twelve tanks were recently placed into service. Both of these projects are backed by long-term, take-or-pay contracts.
• To support future growth, Keyera announced multiple growth capital projects in 2017 to serve producers that are active in the Montney and Duvernay geological zones in Northern Alberta. Projects include a number of enhancements at Keyera’s Simonette gas plant and construction of the first phase of the Wapiti gas plant complex as well as the North Wapiti Pipeline System.
• Keyera expects to invest growth capital of between $800 million and $900 million in 2018, primarily for approved projects currently underway plus the acquisition of 50% of the South Grand Rapids diluent pipeline.
• In the fourth quarter, Keyera strengthened its financial flexibility with two inaugural investment grade corporate credit ratings from DBRS Limited and S&P Global and a successful common share offering that generated gross proceeds of $494 million.

Message to Shareholders

On behalf of Keyera, I am pleased to share our 2017 financial results. Each of our key financial metrics increased over the prior year with Adjusted EBITDA of $617 million, distributable cash flow of $510 million and net earnings of $290 million. This strong performance was driven by our core fee-for-service businesses and contributions from our capital projects that have come into service over the last few years. With confidence in our business outlook, we increased our dividend by 6% while maintaining a conservative payout ratio.

I am proud of Keyera’s conservative management approach, which has served us well over the last few years. We take a long-term view of our business and continue to enhance our integrated network of assets and look for opportunities to expand our value chain. In 2017, we invested approximately $720 million in growth capital projects and acquisitions that align with our strategy to maximize utilization at our current facilities, increase our presence in the liquids-rich Montney and Duvernay development areas, enhance our condensate network and expand our storage facilities. In 2018, we will continue to execute on our strategy by investing another $800 million to $900 million, including the acquisition of a 50% interest in the South Grand Rapids diluent pipeline. We remain committed to growing shareholder value, balancing risk and return expectations.

Gathering and Processing Business Unit

The Gathering and Processing segment delivered operating margin of $275 million in 2017 with throughput steadily increasing throughout the year. In the fourth quarter, total gross processing throughput averaged 1,526 million cubic feet per day, a 12% increase compared to the same period in 2016. Although natural gas prices in Western Canada were weak in 2017, prices for crude oil and natural gas liquids strengthened in the second half of the year resulting in increased producer drilling activity in liquids-rich areas. For Keyera, this most notably resulted in new well tie-ins and increased utilization at our Simonette gas plant, which achieved record throughput volumes in 2017.

To meet the growing needs of producers in the liquids-rich Montney and Duvernay geological zones in Northern Alberta, we have multiple capital projects underway. At the Simonette gas plant, we are expanding our liquids handling capacity, enhancing our inlet liquids handling capabilities and adding acid gas injection facilities. These projects are expected to enhance producers’ netbacks while providing additional long-term growth opportunities for Keyera. We are also considering an expansion of the processing capacity of the Simonette gas plant and continue to have discussions with existing and new producers in the area to understand their development plans.

During the year, we began construction of the first phase of the Wapiti gas plant, near Grande Prairie, Alberta, and  announced the North Wapiti Pipeline System that will extend the plant’s capture area north of the Wapiti River. Phase one of the Wapiti gas plant includes 150 million cubic feet per day of sour gas processing capacity and is backed by long-term agreements with Paramount Resources Ltd. The North Wapiti Pipeline System is underpinned by a long-term, take-or-pay agreement with privately-owned Pipestone Oil Corp. Both projects are expected to be in-service in 2019.

The approved projects at our Simonette and Wapiti gas plants total approximately $800 million and enhance our midstream service offering in one of the most exciting development areas in the Western Canada Sedimentary Basin.

Liquids Business Unit – Liquids Infrastructure Segment

The Liquids Infrastructure segment continued to generate record results, reporting operating margin of $285 million in 2017, a 16% increase over the $246 million reported in the prior year. These results were driven by increased demand for our condensate services, the startup of the Norlite pipeline and its associated take-or-pay contracts, as well as incremental fractionation volumes.

Keyera operates an industry-leading condensate system in Western Canada and we continue to enhance this network. In 2017, the Norlite pipeline was completed along with a connection to our existing infrastructure in Fort Saskatchewan, providing customers with access to multiple sources of diluent supply. We completed four condensate storage tanks at Keyera’s Edmonton Terminal to enhance our operational ability to deliver diluent to the oil sands in a reliable and efficient manner. We also added two new receipt points allowing our network to receive diluent from the North West Sturgeon Refinery and Pembina Pipeline’s Canadian Diluent Hub. In 2018, we expect to complete the South Grand Rapids pipeline that will add additional capacity between Edmonton and Fort Saskatchewan to meet producers’ growing diluent needs.

In Alberta, demand for condensate has continued to grow as new oil sands projects and phased expansions of existing projects are completed. In the fourth quarter of 2017, we signed new long-term take-or-pay agreements with two oil sands customers to provide condensate storage services as of January 1, 2018. We also recently added two new shippers on both the Norlite pipeline and Keyera’s Fort Saskatchewan Condensate System. These long-term, take-or-pay contracts utilize existing capacity and are expected to begin generating incremental cash flow by mid-2018.

Also adding to this segment’s growth in 2018 will be the Base Line Terminal and Keylink NGL gathering system. The Base Line Terminal is an above ground crude oil storage facility developed with Kinder Morganunder a 50/50 joint venture arrangement. The first four tanks are now in service and the remaining eight tanks are expected to be phased into service throughout 2018. This new business provides Keyera with stable fee-for-service cash flows fully underpinned by take-or-pay agreements of up to 10 years in length. The Keylink NGL gathering system will allow us to deliver NGL mix from several Keyera facilities by pipeline to our Rimbeygas plant, or potentially Fort Saskatchewan, for fractionation. Upon completion, Keylink will provide producers with a safe, reliable and economically improved alternative to trucking NGL volumes across the region. Assuming construction schedules are maintained, Keylink is expected to be operational in the second quarter of 2018.

We continue to look for the right opportunities to expand our Liquids Infrastructure business. In 2017, we acquired 1,290 acres of undeveloped land strategically located in Alberta’s Industrial Heartland, continued to develop our underground storage capacity, and entered into a 20-year NGL handling agreement with Chevron Canada Limited to support their Kaybob Duvernay development. Assets and service agreements like these provide Keyera with a diverse and strong foundation for future growth.

Liquids Business Unit – Marketing Segment

The Marketing segment continued to contribute to Keyera’s integrated value chain in 2017, generating a realized margin of $128 million compared to $137 million in 2016. Results were lower than the prior year primarily due to a reduced iso-octane contribution, as a result of a nine-week unscheduled outage at AEF early in the year and higher average butane feedstock prices relative to the prior year. Since completing the necessary repairs at AEF, the facility has been operating very well.

As anticipated, propane generated strong margins in the fourth quarter, consistent with our strategy of utilizing our storage and transportation assets to take advantage of seasonal demand and pricing.

Outlook

We have been encouraged by producer activity in the Western Canada Sedimentary Basin over the past year and Keyera is well positioned for growth. Our gathering and processing assets are strategically located to support the development of Spirit River, Montney and Duvernay resources, some of the most economic liquids-rich geological zones in North America. And we are investing in new infrastructure at Simonette and Wapiti in a safe, cost-effective manner, supporting producer netbacks and respecting community and landowner interests. As oil sands production continues to increase, our extensive and reliable system provides producers with an effective way to source, store and transport their condensate. Recognizing the anticipated infrastructure demands and the dynamic environment in which we operate, we continue to maintain a strong balance sheet. This financial flexibility allows us to carry out our growth capital program while maintaining the ability to pursue opportunities as they arise.

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.

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.