CALGARY, April 26, 2018 –
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)
- Achieved normalized EBITDA1 of $223 million in the first quarter of 2018;
- Achieved normalized funds from operations1 of $169 million in the first quarter of 2018;
- Received regulatory approval from Maryland Public Service Commission (PSC of MD) for the approximately $9 billion transformational pending acquisition of WGL Holdings, Inc. (WGL Acquisition);
- Propane secured for close to 75 percent of Ridley Island Propane Export Terminal (RIPET) export capacity; construction of the facility remains on-time and on-budget for start-up in the first quarter of 2019;
- Signed new long-term take-or-pay agreement with Birchcliff Energy Ltd. (Birchcliff); and
- Awarded a second Resource Adequacy contract at the Ripon facility for October through December 2018.
AltaGas Ltd. (AltaGas) (TSX:ALA) today reported that normalized EBITDA in the first quarter of 2018 was $223 million, compared to $228 million in the same quarter in 2017. Normalized funds from operations were $169 million ($0.96 per share) for the first quarter of 2018, compared to $170 million ($1.01 per share) in the same period of 2017. On a U.S. GAAP basis, net income applicable to common shares for the first quarter of 2018 was $49 million ($0.28 per share) compared to $32 million ($0.19 per share) in the first quarter of 2017. Normalized net income1 was $70 million ($0.40 per share) for the first quarter of 2018, compared to $65 million ($0.39 per share) in the same period of 2017.
“2018 is off to a great start, both from a financial perspective as well as from the advancements made toward closing the WGL Acquisition,” said David Harris, President and Chief Executive Officer of AltaGas. “We have just one approval remaining before we are in a position to close the WGL Acquisition. We are excited about the benefits that our combination with WGL will bring to customers, shareholders and all stakeholders. Together with WGL, AltaGas will have over $20 billion in robust, high quality, low-risk, long-lived assets across all three of our business segments with great scale and diversity.”
Significant progress on WGL Acquisition
On April 4, 2018, the PSC of MD approved the proposed merger of AltaGas and WGL. The 4:1 favourable decision by the PSC of MD followed a comprehensive public process and contained a number of conditions which were in line with the merger commitments offered up by the companies. On April 5, 2018, both AltaGas and WGL accepted the conditions.
The WGL Acquisition is expected to provide strong accretion to earnings per share and normalized funds from operations per share through 2021. Starting with the first full year in 2019, the WGL Acquisition is expected to support visible dividend growth through 2021, while allowing AltaGas to maintain a conservative payout of normalized funds from operations. Dividend growth is expected to be further supported by AltaGas’ portfolio of highly contracted assets. In the first full year 2019, AltaGas expects approximately 85 percent of its EBITDA to come from contracted or regulated assets.
With the WGL Acquisition, AltaGas will have a larger, diversified platform for growth with approximately $4.5billion in secured growth projects and approximately $1.5 billion of additional growth opportunities in advanced stages of development through 2021. Combined, AltaGas will have a significant platform of diversified energy infrastructure assets in all three of its business segments – Gas, Power and Utilities – across North America. AltaGas’ Gas segment will have a premier footprint in two of North America’s most prolific gas plays, the Montneyand Marcellus, and is uniquely positioned to grow energy exports to premium markets including Asia. AltaGas’ Power segment presents significant opportunities to continue to grow its clean energy portfolio of renewables, battery storage and distributed generation, while the Utilities business segment will have a combined rate base of approximately $4.5 billion and close to $3 billion in opportunities over the next several years, through customer additions, accelerated replacement programs and general system betterment capital expenditures.
Together AltaGas and WGL will have over $20 billion in energy infrastructure assets and an enterprise value of over $17 billion. Closing of the WGL Acquisition continues to be on track for mid-2018. Financing to close the WGL Acquisition is fully backstopped with $2.6 billion in proceeds from AltaGas’ bought deal and private placement of subscription receipts which closed in the first quarter of 2017, and a US$3 billion fully committed bridge facility which may be drawn upon for closing and could remain in place for up to 12 to 18 months thereafter.
With all financing in place to close the WGL Acquisition, AltaGas continues to evaluate and advance an asset monetization strategy in a prudent and timely fashion in step with the regulatory process and consistent with AltaGas’ long-term strategic vision. Management expects the repayment of the bridge facility to result from the monetization of over $2 billion from its asset sale processes and from offerings of senior debt and hybrid securities, subject to prevailing market conditions.
“As we enter into the final phase of the WGL Acquisition and gain certainty around regulatory approvals, we will be able to provide more concrete details on our asset monetization processes,” said Mr. Harris. “We are actively in discussions on several fronts, including the potential sale of appropriate minority interest(s) in our Northwest B.C. Hydro Facilities. Ultimately, we expect to deliver a strong financial outcome for AltaGas and meaningful financial returns for our shareholders.”
Ridley Island Propane Export Terminal
AltaGas has significantly advanced its propane supply contracting efforts for RIPET, and now has close to 75 percent of supply secured for the start-up of the facility, with third party arrangements subject to customary conditions. A portion of these volumes are under tolling arrangements and AltaGas expects approximately 40 percent of RIPET’s annual expected capacity to be under tolling arrangements.
RIPET is expected to be the first propane export facility off the west coast of Canada. The site is near Prince Rupert, British Columbia, has a locational advantage given very short shipping distances to markets in Asia, notably a 10-day shipping time compared to 25 days from the U.S. Gulf Coast. The brownfield site also benefits from excellent railway access and ample deep water access to the Pacific Ocean. AltaGas’ arrangements with Ridley Terminals Inc. (RTI) give AltaGas access to extensive land and water rights and a world class marine jetty, which allows for the efficient loading of Very Large Gas Carriers that can access key global markets. Propane from British Columbia and Alberta will be transported to the facility using 50-60 rail cars per day through the existing CN rail network. RIPET is expected to ship 1.2 million tonnes of propane per annum (which is equivalent to approximately 40,000 Bbls/d of export capacity).
“We are pleased with the progress being made on RIPET and producers are starting to see the benefits of having access to a new premium market for their propane,” said Mr. Harris. “We are uniquely positioned to offer energy exports to producers and are excited about the potential future growth of this business.”
New long-term take-or-pay agreement with Birchcliff
On April 3, 2018, Birchcliff and AltaGas announced a definitive agreement effective January 1, 2018 for a long-term natural gas processing arrangement at AltaGas’ deep-cut sour gas processing facility located in Gordondale, Alberta, replacing the parties’ existing Gordondale processing arrangement. Under the new processing arrangement, Birchcliff is being provided with up to 120 MMcf/d of natural gas processing on a firm-service basis, and Birchcliff’s take-or-pay obligation is 100 MMcf/d. The term of the processing arrangement is for at least 15 years, subject to extension in accordance with the terms of the arrangement.
The new arrangement allows AltaGas to maximize the long-term value and returns from the Gordondale Facility as it fills the existing capacity and significantly enhances the potential to flow third-party volumes through the facility and to grow those volumes. This will allow AltaGas to optimize the facility and bring the operating capacity up to 150 MMcf/d. The long-term commitment from Birchcliff, potential for third-party volumes and the strategic proximity of this asset to the liquids-rich Montney fairway further supports AltaGas’ plans for future expansion of the Gordondale Facility. In addition, AltaGas will benefit from growing propane volumes which will be dedicated to RIPET as part of the commercial arrangements.
First quarter 2018 results
Normalized EBITDA in the quarter was $223 million compared to $228 million for the same quarter of 2017. Normalized EBITDA from the Gas segment increased compared to the first quarter of 2017, benefitting from the higher realized frac spread and frac exposed volumes, as well as contributions from the Townsend 2A and North Pine facilities which entered into commercial operations in the fourth quarter of 2017. Gains in the Gas segment were partially offset by the sale of the EDS and JFP transmission pipelines in March of 2017, as well as lower natural gas storage margins and lower equity earnings from Petrogas Energy Corp. (Petrogas). Normalized EBITDA results in AltaGas’ Utilities segment were also strong; however, they were impacted slightly due to the U.S. tax reform effect at SEMCO, as well as due to unfavourable foreign exchange rates. In Power, normalized EBITDA decreased approximately $9 million, primarily as a result of planned outages at the Blythe and Craven facilities, lower renewable generation from both the Northwest Hydro Facilities and the Bear Mountain wind facility, and due to unfavourable foreign exchange rates.
Normalized funds from operations for the first quarter of 2018 were $169 million ($0.96 per share), compared to $170 million ($1.01 per share) for the same quarter in 2017, reflecting the same drivers as normalized EBITDA, partially offset by lower current income tax expense. In the first quarter of 2018, AltaGas received $3 million of dividends from the Petrogas Preferred Shares (2017 – $3 million) and $1 million of common share dividends from Petrogas (2017 – $1 million).
AltaGas recorded income tax expense of $18 million for the first quarter of 2018 compared to $21 million in the same quarter of 2017. The decrease was mainly due to the recently enacted change in U.S. Federal tax rate from 35 percent to 21 percent.
Net income applicable to common shares for the first quarter of 2018 was $49 million ($0.28 per share), compared to $32 million ($0.19 per share) for the same quarter in 2017. The increase was mainly due to lower transaction costs incurred on the pending WGL Acquisition, and lower interest and income tax expense, partially offset by the same previously referenced factors resulting in the decrease in normalized EBITDA, higher losses on investments, higher preferred share dividends, and higher depreciation and amortization expense.
Normalized net income was $70 million ($0.40 per share) for the first quarter of 2018, compared to $65 million($0.39 per share) reported for the same quarter in 2017. The increase was mainly due to lower interest and income tax expense, partially offset by the same previously referenced factors resulting in the decrease in normalized EBITDA, higher preferred share dividends, and higher depreciation and amortization expense. Normalizing items in the first quarter of 2018 included after‑tax amounts related to losses on investments, transaction costs on acquisitions, financing costs associated with the bridge facility for the pending WGL Acquisition, unrealized gains on risk management contracts, and gain on sale of certain non-core gas assets. In the first quarter of 2017, normalizing items included after-tax amounts related to transaction costs on acquisitions, unrealized gains on risk management contracts, loss on sale of assets, and amortization of financing costs associated with the bridge facility.
AltaGas expects the WGL Acquisition to close in mid-2018. As a combined entity, AltaGas expects normalized EBITDA to increase by approximately 25 to 30 percent and normalized funds from operations to increase by approximately 15 to 20 percent.
The WGL Acquisition is expected to drive growth in all three business segments. The combined Utilities segment is expected to have the largest contribution to EBITDA, followed by the Gas segment. Specifically for Utilities, the combined segment is expected to have an overall rate base of approximately $5 billion and is expected to grow through planned capital investments in 2018. The WGL Acquisition will also increase the number of utility customers by approximately 1.2 million. The Gas segment is expected to benefit from the addition of WGL’s pipeline investments in the prolific Marcellus/Utica gas resource regions as well as a gas supply agreement associated with the Cove Point LNG Terminal which recently began exporting LNG. WGL’s investment in the Stonewall Gas Gathering System is currently in-service and WGL expects the Central Penn and Mountain Valley pipelines to be operational by the end of 2018. The Gas segment will also benefit from a full year of contributions from AltaGas’ Townsend 2A Facility and the first train of the North Pine Facility. Finally, the Power segment is expected to benefit from the addition of WGL’s distributed generation assets to its portfolio.
The overall forecasted normalized EBITDA and funds from operations for the combined business include assumptions around the timing of closing of the WGL Acquisition, the U.S./Canadian dollar exchange rate, the impact of certain contemplated asset monetizations and other financing initiatives as part of the WGL financing plan, and the impact of U.S. tax reform. Any variance from AltaGas’ current assumptions could impact the forecasted increase to normalized EBITDA and funds from operations.
On a standalone basis, excluding the WGL Acquisition and potential asset monetizations, AltaGas expects a moderate increase to both normalized EBITDA and funds from operations in 2018 compared to 2017 related to its base business, mainly as a result of growth in the Gas segment. The moderate increase to normalized EBITDA and funds from operations for AltaGas’ standalone base business is primarily due to full year contributions from Townsend 2A and the first train of the North Pine Facility, higher realized frac spread mainly due to higher hedged prices, higher expected earnings from the Northwest Hydro Facilities due to contractual price increases and continued efficiency improvements, and colder weather and rate base and customer growth at certain of the Utilities. These increases may be partially offset by the impact of a weaker U.S. dollar on reported results of the U.S. assets, the impact of planned turnarounds at the Harmattan and JEEP facilities, and the expiry of the Power Purchase Agreement (PPA) at the Ripon facility in the second quarter of 2018. U.S. tax reform is expected to be immaterially negative to normalized EBITDA and funds from operations for AltaGas’ U.S. businesses while, on a net income basis, the impact of U.S. tax reform is expected to be immaterially positive. This 2018 outlook does not include any potential upside associated with new developments in either the Gas or Power segments.
AltaGas estimates an average of approximately 10,500 Bbls/d will be exposed to frac spreads prior to hedging activities. For 2018, AltaGas has frac hedges in place for approximately 7,500 Bbls/d at an average price of approximately $33/Bbl excluding basis differentials.
Growth Capital and Project Updates
Based on projects currently under review, development or construction, AltaGas expects net capital expenditures in the range of $500 to $600 million (excluding WGL) for 2018. AltaGas’ Gas segment will account for approximately 50 to 55 percent of the total capital expenditures, while AltaGas’ Utilities segment will account for approximately 30 to 35 percent and the Power segment will account for the remainder. Gas and Power maintenance capital is expected to be approximately $25 to $35 million of the total capital expenditures in 2018. The majority of AltaGas’ capital expenditures is focused on the continued construction at RIPET, maintaining and growing rate base at its existing utilities, pre-construction design, engineering, and right-of-way procurement for the Marquette Connector Pipeline (MCP), and growth capital associated with the tie-in of incremental third party gas volumes. The Corporation continues to focus on enhancing productivity and streamlining businesses, including the disposition of smaller non‑core assets.
AltaGas’ 2018 committed capital program is expected to be funded through internally‑generated cash flow and the Premium DividendTM, Dividend Reinvestment and Optional Cash Purchase Plan (DRIP).
Following the close of the WGL Acquisition (expected close date in mid-2018), the consolidated 2018 capital program on a combined basis, including capital for WGL, is expected to be in the range of approximately $1.0 to $1.3 billion. Close to half of this total will be allocated to the Gas segment, with the majority of the remaining expected capital for the Utilities segment, followed by the Power segment. AltaGas expects that the largest portion of WGL’s 2018 capital program subsequent to close will be allocated to investments in the Central Penn and Mountain Valley gas pipeline developments in the Marcellus region. Capital allocated to WGL’s utilities business will represent most of the remaining 2018 capital subsequent to close, with spending consistent with recent levels.
Read More: https://www.altagas.ca/newsroom/news-releases/altagas-ltd-reports-first-quarter-2018-results