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AltaGas’ Third Quarter Results Saw Strong Performance from the Midstream Business Driven by RIPET and the Advancement of its Energy Export Strategy


Company remains on track to achieve 2019 guidance

CALGARYOct. 30, 2019 /CNW/ – 

HIGHLIGHTS

(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

  • Normalized EBITDA1 was $178 million, compared to $226 million in the prior year, with strong contributions from the Ridley Island Propane Export Terminal (RIPET) ($37 million) being more than offset by EBITDA lost due to asset sales ($93 million) and a one-time adjustment related to the Hearing Examiner’s report in Virginia pertaining primarily to the return of excess deferred taxes ($30 million).
  • Excluding the impact of the Virginia Hearing Examiner’s report and lost EBITDA from asset sales, normalized EBITDA would have increased by approximately $75 million for the quarter as compared to the same quarter last year.
  • Net income applicable to common shares was $22 million ($0.08 per share) in the third quarter compared to a loss of $726 million ($2.78 per share) in the prior year. Normalized net loss1 was $58 million ($0.21 per share) in the third quarter compared to normalized net loss of $17 million ($0.07 per share) in the prior year.
  • Normalized funds from operations (FFO)1 were $67 million, compared to $117 million in the third quarter of 2018. Excluding the impact of the Virginia Hearing Examiner’s report and lost FFO from asset sales, FFO would have increased by approximately $39 million for the quarter as compared to the same quarter last year.
  • The Company exceeded its 2019 asset monetization program target of $1.5 – $2 billion, with $2.2 billion in asset sales announced year-to-date.
  • 2019 outlook remains unchanged with expected normalized EBITDA in the range of $1.2 – $1.3 billion and normalized FFO of $850 – $950 million.
  • The 2019 de-leveraging target of $3 billion remains in line with expectations. At quarter end, net debt1 had been reduced by $2.4 billion year-to-date.
  • The Midstream segment delivered strong results with normalized EBITDA growing by approximately 95 percent to $127 million compared to $65 million in the prior year. The first full quarter of operations at RIPET contributed approximately $37 million of normalized EBITDA. During the quarter RIPET averaged two ships exported per month to Asian markets. Volumes delivered to RIPET averaged approximately 40,000 bbl/d.
  • Subsequent to quarter end, AltaGas’ subsidiary Washington Gas, received an Approved Rate Case Settlement Agreement in Maryland, approving an increase in annual revenues of US$27 million with a return on equity of 9.7 percent. These rates became effective October 15th.

_________________________

1.

Non-GAAP measure; see discussion in the advisories of this news release and reconciliation to US GAAP financial measures shown in AltaGas’ Management’s Discussion and Analysis (MD&A) as at and for the period ended September 30, 2019, which is available on www.sedar.com.

AltaGas Ltd. (AltaGas or the Company) (TSX: ALA) today reported third quarter 2019 financial results which represents the first consolidated quarter-over-quarter results including the acquisition of WGL Holdings, Inc. AltaGas also reaffirmed its 2019 outlook, and provided an update on its business and near-term priorities, which remain on track.

“We continue to execute on all of our operational and financial priorities.  We saw continued strong performance from our core businesses and executed on asset sales at attractive multiples that exceeded the top-end of our guidance range,” said Randy Crawford, President and Chief Executive Officer of AltaGas. “The successful execution of our asset monetization program has significantly improved our financial strength and flexibility, and we are well positioned to enter 2020 with a sharpened focus on execution, as well as driving performance and growth across our core Midstream and Utilities businesses.

“Building upon the momentum we achieved in our Midstream business to-date, we will continue to leverage the structural advantage we have at RIPET to attract and handle more molecules in our integrated footprint. At our Utilities, our focus remains squarely on driving performance to lower our cost structure, and deliver exceptional service. These measures will strengthen relationships with our customers and regulators, and create an environment conducive to future growth,” continued Mr. Crawford.

BUSINESS PERFORMANCE

Marking the first full quarter of operations, RIPET contributed $37 million of normalized EBITDA in the third quarter of 2019 and received approximately 40,000 bbl/d for delivery to Asian markets, averaging two ships per month.  Third quarter normalized EBITDA from RIPET benefited from a higher average FEI-Mt. Belvieu hedge rate of US$14 per barrel that included second quarter supply hedges that were rolled forward to the third quarter.  The resulting impact to third quarter normalized EBITDA is a one-time benefit of approximately $5 million. As the cornerstone asset of our Midstream business, RIPET has extended our integrated value chain in northeast British Columbia, attracting additional volumes to our system, providing strong netbacks, as well as advancing future growth across our platform.

“RIPET has been successful in capturing incremental value for Canadian propane in international markets – a win-win for our producers and AltaGas,” said Mr. Crawford. “Our focus now is execution at the terminal to gain scale and efficiencies that will allow us to grow our export capabilities by further increasing capacity.”

The third quarter is seasonally the weakest quarter in the Utilities segment, with the majority of revenue recognized in the first and fourth quarters, and expenses being somewhat linear in nature throughout the year.  The progress we are making in updating rates in our various jurisdictions has minimal effect on earnings in the third quarter as those impacts are driven by higher throughput that occurs in the first and fourth quarters. The Utilities segment in the third quarter was essentially flat as compared to last year excluding the one-time impact related to the Hearing Examiner’s report in Virginia and the impact of the AltaGas Canada Inc. initial public offering.

“We continue to execute on cost reduction initiatives and focused capital investments to improve the customer value proposition by providing lower costs, higher reliability and outstanding customer service,” said Mr. Crawford. “All of our capital projects, including our largest pipeline project, the Marquette Connector at SEMCO, remain on track as we continue to advance our long-term focus on delivering outstanding customer service.”

In the Power segment, AltaGas announced the successful recontracting of the Blythe Facility to Southern California Edison (SCE). Under the Tolling Agreement, SCE has exclusive rights to all capacity, energy, ancillary services, and resource adequacy benefits from August 1, 2020 to December 31, 2023.  California Public Utilities Commission approval is required and is expected to occur in the first half of 2020.

REGULATORY UPDATE

Maryland
On August 30, 2019, a settlement agreement was filed in respect of the Maryland Rate Case and on September 30th, the public utility law judge issued a proposed order to approve an unopposed settlement authorizing Washington Gas Light Co. a US$27 million, or 5 percent, gas distribution rate increase, including an allowed return on equity of 9.7 percent and equity thickness of 53.5 percent. The proposed order became final on October 15, 2019 with rates effective immediately.  The settlement addresses rate relief necessary to recover costs of providing safe, reliable natural gas service and earn the allowed rate of return.

Virginia
In July 2018, a rate case in Virginia was filed seeking a rate increase of US$37.6 million, 10.6 percent return on equity and 53.3 percent equity thickness. Consistent with the regulatory rate case process in Virginia, interim rates were put into effect in January 2019, subject to true-up or refund. On September 16, 2019, a Hearing Examiner’s report was issued in response to the rate case and recommended the Commission approve a US$11.2 million rate base increase associated with the roll-in of SAVE surcharges, a 9.2 percent return on equity and 53.5 percent equity thickness.

As a result of the Virginia Hearing Examiner’s recommendation, in the third quarter of 2019, the Company recorded a one-time reduction in normalized EBITDA of approximately $30 million. The corresponding impact on net income after taxes in the third quarter of 2019 was a reduction of approximately $14 million due to certain offsetting amounts included in deferred income taxes. On October 21, 2019, Washington Gas filed comments on and exceptions to the Hearing Examiner’s report, recommending the State Corporation Commission of Virginia reject certain of the Hearing Examiner’s findings. A final decision is expected late in the fourth quarter of 2019 or early in the first quarter of 2020.

FINANCIAL RESULTS

Three Months Ended
September 30

($ millions)

2019

2018

Net income (loss) applicable to common shares

22

(726)

Segmented Normalized EBITDA(1)

Utilities

(8)

32

Midstream

127

65

Power

70

128

Corporate

(11)

1

Normalized EBITDA (1)

178

226

Normalized FFO(1)

67

117

Normalized AFFO(1)

59

121

Normalized UAFFO(1)

(3)

59

(1)

NonGAAP financial measure; see discussion in NonGAAP Financial Measures section at the end of this news release

Normalized EBITDA for the third quarter of 2019 was $178 million, compared to $226 million for the same quarter in 2018. Factors negatively impacting normalized EBITDA included the impact of asset sales and impacts related to a Hearing Examiner’s report on the Virginia rate case. These were partially offset by contributions from RIPET, higher volumes and margins from our retail power business and contributions from Central Penn which was placed into service in October 2018.

Normalized FFO and normalized adjusted FFO (AFFO) were impacted by lower interest expense, partially offset by the same factors impacting normalized EBITDA. In the third quarter of 2019, AltaGas received $3 million of dividend income from the Petrogas Preferred Shares (2018 – $3 million) and $1 million of common share dividends from Petrogas (2018 – $1 million). AFFO was also impacted by lower cash received from non-controlling interests. In the third quarter of 2019, AltaGas paid $17 million of preferred share dividends (2018 – $17 million).

Normalized utility adjusted funds used by operations (UAFFO) for the third quarter of 2019 were $3 million ($0.01 per share), compared to normalized utility adjusted funds from operations of $59 million ($0.23 per share) for the same quarter in 2018. The decrease was due to the same drivers impacting normalized adjusted funds from operations.

Normalized net loss was $58 million ($0.21 per share) for the third quarter of 2019, compared to normalized net loss of $17 million ($0.07 per share) reported for the same quarter in 2018.  Factors negatively impacting normalized net loss included lower income tax recovery and the same previously referenced factors impacting normalized EBITDA, partially offset by lower interest expense and lower depreciation and amortization expense.

Net income applicable to common shares for the third quarter of 2019 was positively impacted by lower provisions on assets, the absence of merger commitment expenses recorded in the third quarter of 2018, gains on the sale of WGL’s distributed generation assets, lower interest expense, and lower depreciation and amortization expense, partially offset by the same previously referenced factors impacting normalized EBITDA, lower income tax recovery, and higher unrealized losses on risk management contracts.

Interest expense for the third quarter of 2019 was $92 million, compared to $112 million for the same quarter in 2018. The decrease was predominantly due to lower average debt balances as a result of proceeds on asset sales.

AltaGas recorded an income tax recovery of $35 million for the third quarter of 2019 compared to a recovery of $221 million in the same quarter of 2018. The decrease in tax recovery was mainly due to tax recoveries booked on asset provisions and transaction costs in the third quarter of 2018, partially offset by a tax recovery on the sale of WGL’s distributed generation assets in the third quarter of 2019. Current tax expense of $9 million was recorded in the third quarter of 2019, of which approximately $3 million related to tax on asset sales.

SUBSEQUENT EVENT

On October 21, 2019, AltaGas Canada Inc. (ACI) announced that the Public Sector Pension Investment Board and the Alberta Teachers’ Retirement Fund Board (together, the “Consortium”) and ACI had concluded a definitive arrangement agreement whereby the Consortium will indirectly acquire all of the issued and outstanding common shares of ACI (the “Common Shares”) in an all-cash transaction for $33.50 per Common Share (the “Arrangement”). The Arrangement will be subject to customary closing conditions including approval by 66 2/3 percent of the Common Shares voted in person or by proxy at a special meeting of holders of Common Shares to be called to approve the Arrangement. In addition to shareholder approval, closing of the Arrangement is also subject to the approval by the Court of Queen’s Bench of Alberta and to certain regulatory approvals, including approval under the Competition Act (Canada), approval from the Alberta Utilities Commission and approval from the British Columbia Utilities Commission. ACI and the Consortium expect to close the Arrangement in the first half of 2020. AltaGas owns 11,025,000 Common Shares or approximately 37 percent of the total number of Common Shares.

GUIDANCE AND FUNDING

AltaGas’ previously announced balanced funding plan is designed to de-lever the balance sheet, maintain an investment grade credit rating, fund the 2019 capital program of approximately $1.3 – $1.36 billion, and optimize per share cash flow and earnings growth. The increase in expected net invested capital compared to the estimated $1.3 billion previously disclosed is primarily due to the timing of the closing of certain asset sales.  During the third quarter AltaGas announced the sale of the Central Penn Pipeline bringing announced or completed asset sales to approximately $2.2 billion, exceeding the target range of $1.5 – $2 billion. Proceeds will be used to reduce net debt which has decreased to approximately $7.7 billion as at September 30, 2019, down from $10.1 billion as at December 31, 2018. Including the proceeds from the Central Penn asset sale which is expected to close in the fourth quarter, AltaGas is confident it will achieve its $3 billion net debt reduction target by year-end.

AltaGas reiterates its outlook for 2019, with anticipated normalized EBITDA in the range of $1.2 – $1.3 billion and normalized FFO of $850 – $950 million.

While 2019 growth was underpinned by a full-year of earnings from WGL, as well as Midstream projects coming into service during the year, notably RIPET and the Nig Creek Gas Plant, 2020 growth will be driven by the completion of near-term projects. The Townsend 2B Facility is expected to come online in the first quarter of 2020, adding incremental natural gas liquids to its northeast British Columbia system, as well as the expansion of the North Pine Fractionation Facility.

AltaGas continues to focus on growing commercial contracts across its Midstream business and RIPET. The optimization of existing rail infrastructure will be key to gaining scale and efficiencies as the Company grows and diversifies its customer base. With growing Canadian natural gas supply and the fading U.S. import market, AltaGas has a distinct opportunity to leverage its ‘first mover advantage’ and attract more volumes to its system, ultimately, driving growth across its integrated platform.

AltaGas will continue to focus on prudent deployment of capital, with an emphasis on business optimization to support its goal of operational excellence and deliver strong performance through 2020 and beyond.

MONTHLY COMMON SHARE DIVIDEND AND QUARTERLY PREFERRED SHARE DIVIDENDS

  • The Board of Directors approved a dividend of $0.08 per common share. The dividend will be paid on December 16, 2019, to common shareholders of record on November 25, 2019. The ex‑dividend date is November 22, 2019. This dividend is an eligible dividend for Canadian income tax purposes;
  • The Board of Directors approved a dividend of $0.21125 per share for the period commencing September 30, 2019 and ending December 30, 2019, on AltaGas’ outstanding Series A Preferred Shares. The dividend will be paid on December 31, 2019 to shareholders of record on December 13, 2019. The ex‑dividend date is December 12, 2019;
  • The Board of Directors approved a dividend of $0.27083 per share for the period commencing September 30, 2019 and ending December 30, 2019, on AltaGas’ outstanding Series B Preferred Shares. The dividend will be paid on December 31, 2019 to shareholders of record on December 13, 2019. The ex‑dividend date is December 12, 2019;
  • The Board of Directors approved a dividend of US$0.330625 per share for the period commencing September 30, 2019 and ending December 30, 2019, on AltaGas’ outstanding Series C Preferred Shares. The dividend will be paid on December 31, 2019 to shareholders of record on December 13, 2019. The ex‑dividend date is December 12, 2019;
  • The Board of Directors approved a dividend of $0.337063 per share for the period commencing September 30, 2019, and ending December 30, 2019, on AltaGas’ outstanding Series E Preferred Shares. The dividend will be paid on December 31, 2019 to shareholders of record on December 13, 2019. The ex‑dividend date is December 12, 2019;
  • The Board of Directors approved a dividend of $0.265125 per share for the period commencing September 30, 2019, and ending December 30, 2019, on AltaGas’ outstanding Series G Preferred Shares. The dividend will be paid on December 31, 2019 to shareholders of record on December 13, 2019. The ex-dividend date is December 12, 2019;
  • The Board of Directors approved a dividend of $0.29604 per share for the period commencing September 30, 2019, and ending December 30, 2019, on AltaGas’ outstanding Series H Preferred Shares. The dividend will be paid on December 31, 2019 to shareholders of record on December 13, 2019. The ex-dividend date is December 12, 2019;
  • The Board of Directors approved a dividend of $0.328125 per share for the period commencing September 30, 2019, and ending December 30, 2019, on AltaGas’ outstanding Series I Preferred Shares. The dividend will be paid on December 31, 2019 to shareholders of record on December 13, 2019. The ex‑dividend date is December 12, 2019; and,
  • The Board of Directors approved a dividend of $0.3125 per share for the period commencing September 30, 2019, and ending December 30, 2019, on AltaGas’ outstanding Series K Preferred Shares. The dividend will be paid on December 31, 2019 to shareholders of record on December 13, 2019. The ex-dividend date is December 12, 2019.

CONSOLIDATED FINANCIAL REVIEW

Three Months Ended
September 30

Nine Months Ended
September 30

($ millions)

2019

2018

2019

2018

Revenue

888

1,041

3,960

2,530

Normalized EBITDA (1)

178

226

847

615

Net income (loss) applicable to common shares

22

(726)

872

(676)

Normalized net income (loss) (1)

(58)

(17)

138

76

Total assets

20,687

22,958

20,687

22,958

Total long-term liabilities

9,358

11,319

9,358

11,319

Net additions (dispositions) of property, plant and equipment

(501)

367

(1,330)

556

Dividends declared (2)

66

162

199

357

Cash from (used by) operations

(30)

(355)

600

(18)

Normalized funds from operations (1)

67

117

564

407

Normalized adjusted funds from operations (1)

59

121

529

374

Normalized utility adjusted funds from (used by) operations (1)

(3)

59

333

271

Three Months Ended
September 30

Nine Months Ended
September 30

($ per share, except shares outstanding)

2019

2018

2019

2018

Net income (loss) per common share – basic

0.08

(2.78)

3.16

(3.28)

Net income (loss) per common share – diluted

0.08

(2.78)

3.15

(3.28)

Normalized net income (loss) – basic (1)

(0.21)

(0.07)

0.50

0.37

Normalized net income (loss) – diluted (1)

(0.21)

(0.07)

0.50

0.37

Dividends declared (2)

0.24

0.55

0.72

1.64

Cash from (used by) operations

(0.11)

(1.36)

2.17

(0.09)

Normalized funds from operations (1)

0.24

0.45

2.04

1.98

Normalized adjusted funds from operations (1)

0.21

0.46

1.92

1.82

Normalized utility adjusted funds from (used by) operations (1)

(0.01)

0.23

1.21

1.32

Shares outstanding – basic (millions)

During the period (3)

277

261

276

206

End of period

278

269

278

269

(1)

NonGAAP financial measure; see discussion in Non-GAAP Financial Measures section of this news release.

(2)

Dividends declared per common share per month: $0.1825 beginning on November 27, 2017, and $0.08 beginning on December 27, 2018.

(3)

Weighted average.

CONFERENCE CALL AND WEBCAST DETAILS

AltaGas will hold a conference call today at 8:00 a.m. MT (10:00 a.m. ET) to discuss 2019 third quarter results, provide an update on the business and other corporate developments.

Members of the investment community and other interested parties may dial 1-647-427-7450 or toll-free at 1-888-231-8191. Please note that the conference call will also be webcast. To listen, please go to http://www.altagas.ca/invest/events-and-presentations. The webcast will be archived for one year.

Shortly after the conclusion of the call, a replay will be available commencing at 12:00 p.m. MT (2:00 p.m. ET) on October 30, 2019 by dialing 403-451-9481 or toll-free 1-855-859-2056. The passcode is 6373893. The replay will expire at 9:59 p.m. MT (11:59 p.m. ET) on November 6, 2019.

AltaGas’ unaudited condensed interim Consolidated Financial Statements and accompanying notes for the third quarter ended September 30, 2019, as well as its related Management’s Discussion and Analysis, are now available online at www.altagas.ca. All documents will be filed with the Canadian securities regulatory authorities and will be posted under AltaGas’ SEDAR profile at www.sedar.com.

About AltaGas

AltaGas is a leading North American energy infrastructure company with a focus on regulated Utilities, Midstream and Power. AltaGas creates value by growing and optimizing its energy infrastructure, including a focus on clean energy sources. For more information visit: www.altagas.ca.



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