Keyera Corp. Announces Second Quarter 2016 Results

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 flow^1,2 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 ($/share) – basic	0.34	0.09	0.74	0.43
Cash flow from operating activities		57,867	126,434	235,558	403,997
Distributable cash flow^1		137,677	92,305	254,126	232,099
	Per share ($/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 EBITDA^2		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 Infrastructure^4:
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) deficit^3				(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 14^th and 15^th caverns, which we expect to be in service in 2017 and we recently completed drilling the well for the 16^th 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.

For further information about Keyera, please visit our website at www.keyera.com or contact: Lavonne Zdunich, Director, Investor Relations, or Nick Kuzyk, Manager, Investor Relations, Email: [email protected]; Telephone: [phone] / Toll Free: 888.699.4853