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“Keyera continues to deliver on its strategy. This quarter we did so by progressing KAPS towards startup, while continuing to fill available capacity at our existing assets. Our strong quarterly performance was led by record Gathering & Processing margins” said Dean Setoguchi, President and CEO, “Our integrated assets are well positioned to benefit from the basin’s ongoing volume growth.”
Highlights
- Strong Quarterly Results – Net earnings were $123 million or $0.56 per share (Q3 2021 – $70 million or $0.32 per share), adjusted earnings before interest, taxes, depreciation, and amortization (“adjusted EBITDA”1) was $247 million (Q3 2021 – $214 million) and distributable cash flow1 (“DCF”) was $162 million or $0.73 per share (Q3 2021 – $149 million or $0.68 per share).
- KAPS 90% Complete – As of the end of October, KAPS is 90% complete with $850 million (net to Keyera) spent to date. Project costs are expected to increase by $100 million, net to Keyera, with the details discussed below. The project is anticipated to be operational at the end of the first quarter of 2023 and will increase take-or-pay cash flows.
- Filling Available Capacity – The Gathering and Processing (“G&P”) segment delivered record realized margin1,3 of $89 million (Q3 2021 – $76 million) with volumes increasing by 9% year-over-year. Record throughput at the Wapiti gas plant, and higher volumes at Pipestone and across the Southern region assets contributed to this result. With further capacity available at its gas plants, the company expects continued volume growth through 2022 and into 2023.
- Marketing Guidance Reaffirmed – The company continues to anticipate record Marketing realized margin1 of between $380–$410 million for 2022. This result includes a successful six-week planned turnaround at the Alberta EnviroFuels facility (“AEF”), completed in the fourth quarter.
- Strong Financial Position – As of the end of September, all outstanding debt obligations were at fixed interest rates with no material debt refinancing until 2025. Net debt to adjusted EBITDA2, currently at 2.4 times, is below the bottom end of the target range of 2.5 to 3.0 times. The company expects to exit 2022 within the target range.
- Managing Long-Term Risk – In the third quarter the company published its latest ESG Report, detailing progress towards its ESG commitments that includes achieving a 12% reduction in emissions intensity since 2019 and tracking well towards its 25% by 2025 target.
KAPS Project Update
- As of the end of October, the project is 90% complete with $850 million (net to Keyera) spent to date. The project is anticipated to be operational at the end of the first quarter of 2023 and the latest cost estimate is $1.0 billion net to Keyera, up from the previous estimate of $900 million.
- This cost increase is attributable to lost productivity and higher costs primarily due to weather. Both the required labor and the access matting needed to preserve go-forward productivity, were affected by cost inflation.
- The remaining $150 million, net to Keyera, carries a contingency of about 25% to address remaining project risk including weather. This can be segmented as:
- $100 million related to construction activities which are scheduled to be complete by the end of 2022; and
- $50 million related to commissioning, startup, right-of-way cleanup and close out activities to be mostly completed in 2023.
Pipestone Relicensing
- In the third quarter, the company added 20 MMcf/d of capacity at its Pipestone gas plant by relicensing the facility to 220 MMcf/d. The additional capacity was available at the end of the third quarter.
- The company continues to progress opportunities to further expand capacity.
2022 Guidance Update
- Realized margin1 for the Marketing segment of between $380 million and $410 million remains unchanged.
- Growth capital spending is now expected to be between $770 million and $800 million, above the previous range of $680 million to $720 million, excluding capitalized interest. The increase is primarily driven by the increased cost for the KAPS project.
- Maintenance capital guidance range of $100 million to $120 million remains unchanged.
- Cash tax guidance range of $55 million to $65 million remains unchanged.
2023 Guidance
As outlined at the March 2022 Investor Day, following the completion of major growth capital related to the KAPS project, the plan for 2023 focuses on balancing more modest growth spending with increasing balance sheet strength and returning cash to shareholders.
- Growth capital expenditures are expected to range between $140 million and $180 million excluding capitalized interest. This includes approximately $50 million related to the completion of the KAPS project and $45 million to $55 million related to a Pipestone expansion project that is progressing but is currently unsanctioned.
- Maintenance capital expenditures are expected to range between $75 million and $85 million and includes approximately $40 million related to turnarounds at the Rimbey and Pipestone gas plants. Substantially all of the costs related to the maintenance turnaround at the Pipestone gas plant will be recovered in 2023.
- Cash tax expense is expected to range between $10 million and $25 million.
- 2023 planned turnarounds and outages:
|
Asset |
Duration |
Timing |
|
Wapiti Gas Plant outage |
10 days |
Q2 2023 |
|
Rimbey Gas Plant turnaround |
3 weeks |
Q2 2023 |
|
Keyera Fort Saskatchewan Fractionation Unit 2 outage |
1 week |
Q2 2023 |
|
Keyera Fort Saskatchewan Fractionation Unit 1 turnaround |
2 weeks |
Q3 2023 |
|
Pipestone Gas Plant turnaround |
2 weeks |
Q3 2023 |
|
__________________________ |
|
|
1 |
Keyera uses certain non-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 standard measures under GAAP, they may not be comparable to similar measures reported by other entities. For a reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP measure, refer to the section of this news release titled “Non-GAAP and Other Financial Measures”. 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. |
|
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 $43 million in non-cash gains from commodity-related risk management contracts. See the section of this news release titled “Non-GAAP and Other Financial Measures”. |
|
Summary of Key Measures |
Three months ended September 30, |
Nine months ended September 30, |
||
|
(Thousands of Canadian dollars, except where noted) |
2022 |
2021 |
2022 |
2021 |
|
Net earnings |
123,389 |
69,800 |
410,189 |
234,220 |
|
Per share ($/share) – basic |
0.56 |
0.32 |
1.86 |
1.06 |
|
Cash flow from operating activities |
135,104 |
106,376 |
790,919 |
486,876 |
|
Funds from operations1 |
218,135 |
168,762 |
661,998 |
531,173 |
|
Distributable cash flow1 |
162,340 |
149,252 |
549,351 |
461,943 |
|
Per share ($/share)1 |
0.73 |
0.68 |
2.49 |
2.09 |
|
Dividends declared |
106,091 |
106,091 |
318,273 |
318,273 |
|
Per share ($/share) |
0.48 |
0.48 |
1.44 |
1.44 |
|
Payout ratio %1 |
65 % |
71 % |
58 % |
69 % |
|
Adjusted EBITDA2 |
246,849 |
213,578 |
819,983 |
662,109 |
|
Gathering and Processing |
||||
|
Gross processing throughput3 (MMcf/d) |
1,604 |
1,471 |
1,549 |
1,441 |
|
Net processing throughput3 (MMcf/d) |
1,378 |
1,246 |
1,330 |
1,219 |
|
Liquids Infrastructure |
||||
|
Gross processing throughput4 (Mbbl/d) |
167 |
110 |
178 |
136 |
|
Net processing throughput4 (Mbbl/d) |
79 |
69 |
83 |
77 |
|
AEF iso-octane production volumes (Mbbl/d) |
11 |
14 |
13 |
14 |
|
Marketing |
||||
|
Inventory value |
379,102 |
334,857 |
379,102 |
334,857 |
|
Sales volumes (Bbl/d) |
158,800 |
149,500 |
172,600 |
156,000 |
|
Acquisitions |
— |
— |
— |
11,165 |
|
Growth capital expenditures |
193,879 |
136,290 |
619,903 |
264,467 |
|
Maintenance capital expenditures |
34,374 |
8,060 |
68,516 |
33,882 |
|
Total capital expenditures |
228,253 |
144,350 |
688,419 |
309,514 |
|
Weighted average number of shares outstanding – basic and diluted |
221,023 |
221,023 |
221,023 |
221,023 |
|
As at September 30, |
||||
|
2022 |
2021 |
|||
|
Long-term debt5 |
3,628,360 |
3,288,697 |
||
|
Credit facility |
30,000 |
70,000 |
||
|
Working capital surplus6 |
(48,665) |
(147,058) |
||
|
Net debt |
3,609,695 |
3,211,639 |
||
|
Common shares outstanding – end of period |
221,023 |
221,023 |
||
|
Notes: |
|
|
1 |
Funds from operations, distributable cash flow, distributable cash flow per share and payout ratio are not standard measures under Generally Accepted Accounting Principles (“GAAP”) and therefore, may not be comparable to similar measures reported by other entities. For additional details regarding the composition of these measures, how management utilizes them, and for a reconciliation of funds from operations and distributable cash flow to the most directly comparable GAAP measure, cash flow from operating activities, refer to the section of this news release titled “Non-GAAP and Other Financial Measures”. |
|
2 |
Adjusted EBITDA is not a standard measure under GAAP and therefore, may not be comparable to similar measures reported by other entities. For additional details regarding the composition of this measure, how management utilizes it, and for a reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net earnings, refer to the section of this news release titled “Non-GAAP and Other Financial Measures”. |
|
3 |
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. |
|
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. |
|
5 |
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. |
|
6 |
Working capital is defined as current assets less current liabilities. |
CEO’s Message to Shareholders
Keyera delivered strong results, hitting key operational milestones, and delivering strong margins in the third quarter. We are well positioned to continue earning strong returns for shareholders by executing our strategy and supplying the energy the world needs. And we’re positioning ourselves to participate profitably, in the energy transition.
Solid operational performance contributed to strong financial results. At Wapiti, volumes increased by 35 percent from last quarter to a record average throughput of 184 MMcf/d. This led to the Gathering & Processing segment delivering its best-ever quarterly realized margin. At Alberta EnviroFuels, we completed a successful six-week planned turnaround.
KAPS is now 90 percent complete and is anticipated to be operational at the end of the first quarter of 2023. Today, we provided a detailed cost update and outlined our path to completion. We’ve had a range of challenges, largely related to weather, which introduced additional costs. Looking ahead, we’re focused on completing the project on time and adding new customer contracts. With KAPS in service, Keyera can provide Montney producers a complete, and much-needed, competitive alternative for gas processing and liquids transportation, fractionation, storage, distribution and marketing. Our fully integrated value chain allows us to better compete for volumes and provides more opportunity to earn returns at each step of the way.
KAPS provides a platform for future growth opportunities. These opportunities include a potential fractionation expansion in Fort Saskatchewan, and KAPS Zone 4, which would extend our reach to the BC border to collect volumes from northeast BC Montney producers. We will remain financially disciplined in making any final investment decisions and will ensure these projects meet our return criteria and have strong contractual underpinnings.
Longer-term, Keyera is positioned to play a meaningful role in the energy transition. We continue to reduce our emissions and have already achieved nearly half of our 2025 emissions intensity reduction target of 25 percent. In August, we announced that we are working with Canadian National Railway to evaluate a clean energy terminal as part of our collaborative Low Carbon Hub strategy in the Alberta Industrial Heartland. In another example of progress towards decarbonization, we have recently been awarded pore space for a potential sequestration hub north of Grande Prairie.
We continue to execute our strategy and deliver on the commitments we made at our Investor Day in March. These include:
- Managing long-term business risk by demonstrating ESG leadership;
- Filling available capacity and improving reliability to improve returns and increase the competitiveness of our business;
- Growing our stable contracted cash flows through KAPS;
- Maintaining a strong balance sheet; and lastly
- Providing a differentiated platform for future growth by enhancing and extending our value chain.
Looking further ahead, energy security, energy demand growth and energy transition are all catalysts for long-term natural gas and natural gas liquids demand, supporting a strong future for Keyera and our basin.
On behalf of Keyera’s board of directors and management team, I thank our employees, customers, shareholders, Indigenous peoples and other stakeholders for their continued support.
Dean Setoguchi
President and Chief Executive Officer
Keyera Corp.
Third Quarter 2022 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 third quarter of 2022 at 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) on Wednesday, November 9, 2022. Callers may participate by dialing 888-664-6392 or 416-764-8659. A recording of the call will be available for replay until 10:00 p.m. Mountain Time (12:00 a.m. Eastern Time) on November 23, 2022 by dialing 888-390-0541 or 416-764-8677 and entering pass code 603915.
Internet users can listen to the call live on Keyera’s website at 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, Corporate Development & Investor Relations
Calvin Locke, Manager, Investor Relations
Rahul Pandey, Senior Advisor, Investor Relations
Email: [email protected] Telephone: 403.205.7670
Toll free: 888.699.4853
For media inquiries, please contact:
Kirsten Bell, Director, Stakeholder Communications
Terry Cunha, Advisor, Media Relations
Email: [email protected]
Telephone: 587.496.8092
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