Keyera Corp. Announces Year End 2014 Results

Source Press Release
Company Keyera Corp. 
Tags Financial & Operating Data
Date February 11, 2015

Keyera Corp. (TSX:KEY) announced their 2014 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

  • Net earnings were a record $230 million ($2.80 per share) in 2014, 56% higher than the $147 million ($1.87 per share) reported in 2013. Results were primarily driven by higher plant throughput, higher margins and strong performance from the sale of iso-octane.
  • Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") 1, 2 of $530 million in 2014 was also a record, 40% higher than the $379 million posted in 2013.
  • Distributable cash flow1, 2 was $389 million ($4.73 per share) in 2014, 35% higher than the $288 million ($3.68 per share) recorded in 2013. Keyera's payout ratio was 53% in 2014 compared to 61% in the prior year.
  • All three business segments contributed strongly to the record financial results. The Gathering and Processing Business Unit generated operating margin3 of $218 million in 2014 (2013 - $157 million); the NGL Infrastructure segment's operating margin3 was $189 million (2013 - $123 million); and operating margin3 in the Marketing segment was $237 million (2013 - $133 million).
  • Keyera is increasing its dividend by 7%, from $0.215 per share per month to $0.23 per share per month, or $2.76 per share annually, beginning with its March dividend payable on April 15, 2015 to shareholders of record on March 23, 2015. The ex-dividend date is March 19, 2015. This will be Keyera's thirteenth increase since going public in 2003.
  • Keyera announced today a two-for-one split of Keyera's outstanding common shares. The record date for the share split will be April 1, 2015.
  • Keyera acquired a 71% ownership interest in the Ricinus gas plant and agreed to participate as an owner in two new gas plants, Alder Flats and Zeta Creek, currently being constructed by producers in west central Alberta. These plants will help satisfy customer demand for additional processing capacity in the area.
  • Several projects, including the Wapiti pipeline system, the Alberta Crude Terminal and the Hull Rail and Truck Terminal, were completed in the third and fourth quarters and are now operational.
  • Subsequent to the quarter, Keyera approved a project for approximately $90 million to construct four 60,000 barrel condensate tanks at its Edmonton Terminal to enhance its diluent logistics business.
  • Work continues on a number of projects that began in 2014. Projects expected to be completed in the first quarter include a plant expansion and a condensate stabilizer at the Simonette gas plant as well as the de-ethanizer at Fort Saskatchewan.
  • Total growth capital investment in 2014 was $956 million, of which $221 million was acquisitions. In 2015, growth capital investment, excluding acquisitions, is expected to be between $700 million and $800 million.4
  • Keyera amended its bank credit facility in the fourth quarter by extending the term to December 2019 and increasing the limit from $750 million to $1 billion, with the potential to increase to $1.35 billion subject to certain conditions.

1 See "Non-GAAP Financial Measures" on page 50 of the MD&A. 
2 See page 41 and 42 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 29 to the accompanying financial statements. 
4 See "Capital Expenditures and Acquisitions" on page 38 of the MD&A for further discussion of Keyera's capital investment program. 

                     
  Three months ended December 31,  Twelve months ended December 31, 
Summary of Key Measures
(Thousands of Canadian dollars, except where noted) 
2014  2013  2014  2013 
Net earnings  29,387  34,396  229,989  146,836 
  Per share ($/share) – basic  0.35  0.44  2.80  1.87 
Cash flow from operating activities  179,759  172,597  460,594  385,094 
         
Distributable cash flow1  102,356  74,975  388,961  288,063 
  Per share ($/share)  1.22  0.95  4.73  3.68 
Dividends declared  54,353  47,297  207,228  177,132 
  Per share ($/share)  0.65  0.60  2.52  2.26 
  Payout ratio %1  53%  63%  53%  61% 
Adjusted EBITDA2  127,879  99,474  530,051  379,324 
Gathering and Processing:         
Gross processing throughput (MMcf/d)  1,562  1,283  1,420  1,272 
Net processing throughput (MMcf/d)  1,292  1,051  1,177  1,030 
NGL Infrastructure:         
Gross processing throughput (Mbbl/d)  114  112  116  112 
Net processing throughput (Mbbl/d)  34  34  32  34 
Marketing:         
Inventory value  124,292  175,658  124,292  175,658 
Sales volumes (Bbl/d)  112,100  117,200  94,800  99,800 
         
Acquisitions  92,849  4,790  221,388  31,878 
Growth capital expenditures  213,019  107,687  734,812  299,849 
Maintenance capital expenditures  3,516  8,587  51,983  39,663 
Total capital expenditures  309,384  121,064  1,008,183  371,390 
      As at December 31, 
      2014  2013 
Long-term debt      1,152,133  1,077,140 
Credit facilities      90,000  — 
Working capital surplus3      (80,726)  (306,817) 
Net debt      1,161,407  770,323 
         
Common shares outstanding – end of period      84,339  79,187 
Weighted average number of shares outstanding – basic      82,183  78,316 
Weighted average number of shares outstanding – diluted      82,183  78,728 

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 page 41 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 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. 

Message to Shareholders

Keyera had a successful year in 2014, delivering record financial results, completing a number of strategic growth initiatives and announcing several acquisitions to complement existing operations. More than ever, our customers benefited from the integrated services of Keyera's three business segments, delivering increasing amounts of natural gas to Keyera's processing plants and securing additional capacity in the facilities in our Liquids Business Unit. Our success in 2014 is a direct result of strategically located facilities, integrated business segments and a focus on customer service.

For the second consecutive year, all three of Keyera's business segments generated record results. Our key financial and operating metrics were impressive, reporting a year-over-year increase of 35% in distributable cash flow and a 40% increase in Adjusted EBITDA.

Gathering and Processing Business Unit
The Gathering and Processing Business Unit reported operating margin of $218 million, 39% higher than 2013, primarily due to increased plant throughput. Net throughput in the fourth quarter was 1.3 billion cubic feet per day, 23% higher than the same period in 2013. Demand for our services continues, as producers remain focused on liquids-rich gas drilling, from zones such as the Mannville, Glauconite, and Montney horizons.

With all the liquids-rich gas drilling that has occurred in west central Alberta, infrastructure in many areas is at or nearing capacity. In response to the resulting demand for additional gathering and processing capacity, Keyera successfully advanced a number of projects in 2014. In the Rimbey area, we completed modifications to the Carlos pipeline system and construction of the Wilson Creek pipeline system. The turbo expander project at the Rimbey gas plant is progressing well and we anticipate the unit will be operational by mid-2015. At Simonette, construction of the Wapiti pipeline system was completed in the third quarter. A plant expansion to add 100 million cubic feet per day of processing capacity and the construction of a 10,000 barrel per day condensate stabilizer are expected to start up in the first quarter of 2015.

In the fourth quarter, we began construction of the Twin Rivers pipeline system that will deliver gas to our Brazeau River and West Pembina gas plants. We also agreed to participate as an owner in two new gas plants currently being constructed by producers (Alder Flats and Zeta Creek). All of these projects are expected to be operational later in 2015, assuming construction schedules are met. 

In addition to these plants, Keyera acquired the Cynthia gas plant and associated oil and gas reserves in the second quarter of 2014 and,  at the end of the year, we acquired an ownership interest in the Ricinus gas plant. This plant is located about 22 kilometres to the south of our Strachan gas plant and we are currently working with producers to evaluate the construction of a pipeline between these plants which would provide producers with access to incremental processing capacity and add operational flexibility.

Liquids Business Unit - NGL Infrastructure Segment
Our Liquids Business Unit also delivered record operating results in 2014, reporting operating margin of $189 million, a 54% increase over 2013. Liquids-rich gas drilling and oil sands production, continued to be driving forces behind growth in the services our NGL infrastructure network provides.

During the year, Keyera enhanced its NGL infrastructure and improved market access for Western Canadian producers by commissioning two rail and truck terminals. The Alberta Crude Terminal ("ACT"), a joint venture withKinder Morgan, was completed in late September and is able to load up to 40,000 barrels per day of crude oil, with the capacity committed to Irving Oil under a multi-year agreement. The Hull rail and truck terminal, located near Mont Belvieu, Texas, began operating in October and currently handles the receipt and delivery of NGL mix, butane and iso-butane. To allow for essential rail deliveries of propane from Western Canada, Keyera began construction of the Josephburg rail terminal, located east of the Keyera Fort Saskatchewan facility. Construction is well underway and the terminal is expected to be completed later in 2015.

The 30,000 barrel per day de-ethanizer currently under construction at Fort Saskatchewan is expected to be commissioned by the end of the first quarter. Keyera's share of the capacity is contracted under a long-term take-or-pay agreement. In January we completed the drilling of the well bore for our 15th underground storage cavern, and engineering work continues on the fractionation expansion.

We remain focused on expanding our diluent logistics business in the Edmonton/Fort Saskatchewan area and continue to have customers committing to these services. To further enhance this service offering, we are planning to construct four condensate tanks at our Edmonton Terminal for approximately $90 million. These tanks will ensure ourFort Saskatchewan condensate system operates as a reliable, efficient hub for our customers.

To support the demand for merchant storage for crude oil and other products in the Edmonton area, we are working with a third party to evaluate the feasibility of constructing storage tanks on unused land at our Alberta EnviroFuels site.

Liquids Business Unit - Marketing Segment
Our Marketing segment also reported record results in 2014 with operating margin of $237 million, $104 million, or 78%, higher than the prior year. The higher results were primarily due to growth in our iso-octane business resulting from a combination of improved volumes and sales margins. Volumes increased in 2014 as Keyera utilized its rail infrastructure to enhance delivery options and develop new Gulf Coast markets. Marketing's strong results were achieved despite the inclusion of a $59 million inventory write-down in the fourth quarter caused by the significant decline in NGL commodity prices. With our effective risk management strategy, we anticipate our hedges will offset most of the write-down.

Outlook
With the significant drop in the price of crude oil that began in the second half of 2014, along with the recent decline in the price of natural gas, most oil and gas producers have announced reductions to their 2015 capital expenditure programs. As a service provider to the energy sector, Keyera will continue to work with our customers during this challenging time and adjust our plans as appropriate. The full duration and effect of this slowdown will depend on a variety of factors that are difficult to predict. In the near term, we do not expect Keyera's throughput volumes to be materially affected, and our cash flows are largely driven by fee-for-service arrangements. Keyera's business will continue to benefit from the broad diversification of our facilities, services, customers, revenue streams and growth opportunities.

As we look ahead, we remain focused on our strategy of pursuing infrastructure projects and acquisitions that are backed by customer demand and deliver long-term growth and return for investors. We will continue to approach new business opportunities selectively and cautiously. We currently expect our 2015 growth capital expenditures will be between $700 million and $800 million, excluding acquisitions. Our strong balance sheet and access to capital allow us to fund these expenditures prudently, and also provide the flexibility to selectively pursue acquisitions. Beyond 2015, we are still excited about our infrastructure investment opportunities, but the timing of these future projects may be affected by the current slowdown in industry activity.

Given the strength in our business today and our growth prospects into the future, we are pleased to announce a 7% dividend increase, to $0.23 per share per month, beginning with our dividend payable on April 15, 2015. This latest increase continues Keyera's consistent track record for steady growth in our dividend per share and represents an 8% compound annual growth rate in dividends per share since our initial public offering in 2003. We are also pleased to announce a two-for-one split of our outstanding common shares, with the record date for the share split being April 1, 2015.

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