AltaGas Announces Strong Q4 and 2020 Results
AltaGas delivers strong 2020 results with normalized EPS eclipsing guidance range; continues to advance corporate strategy of building a diversified and enduring platform focused on sustainable stakeholder value.
CALGARY, AB, Feb. 26, 2021 – AltaGas Ltd. (“AltaGas” or the “Company”) (TSX: ALA) today reported fourth quarter and full-year 2020 financial results. The Company also reaffirmed its 2021 guidance and provided an update on its operations and outlook.
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)
- Normalized EPS1 of $0.53 in the fourth quarter and $1.42 for the full year in 2020 continued to demonstrate strong execution and the Company’s focus on delivering durable earnings growth. This included 2020 normalized EPS increasing 14% Y/Y and eclipsed AltaGas’ $1.20 – $1.30 guidance range.
- Normalized EBITDA1 was $392 million for the fourth quarter and $1.310 billion for the full-year in 2020 and was in the higher-end of the guidance range of $1.275 billion – $1.325 billion, despite the challenges associated with the COVID-19 pandemic. Results reiterate the resiliency of the platform and relentless focus on execution.
- The Utilities segment showed marked progress in advancing the Company’s operational excellence model, which is centered on better customer outcomes, with full-year 2020 realized ROE at WGL increasing by approximately 150 basis points Y/Y, driven by ongoing capital, regulatory and cost discipline.
- Despite supply chain headwinds realized late in Q3 and early Q4 of 2020, RIPET demonstrated strong execution and achieved the Company’s 50,000 Bbls/d exit rate target. This included RIPET export volumes averaging 50,600 Bbls/d in December 2020 and January 2021. RIPET and Ferndale are both well-positioned to support sturdy corporate earnings growth in 2021.
- AltaGas’ Northeastern B.C. (NEBC) footprint continued to deliver steady increases in throughput as customers continue to grow into contractual agreements at the recently expanded Townsend deep-cut and North Pine fractionation facilities. Excluding the one-time impact of maintenance work at Younger, NEBC throughput volumes were up by 16% Y/Y. Inclusive of the maintenance outage, volumes were up 5% Y/Y in Q4 2020.
- On November 30, 2020, AltaGas completed the issuance of $700 million of senior unsecured medium-term notes. The net proceeds were used to pay down existing indebtedness and fund the redemption of the Series I Preferred Shares and to continue to optimize, stagger, extend and de-risk AltaGas’ capital structure.
- On December 10, 2020, AltaGas announced 2021 guidance and a 4% increase to the common share dividend. The 2021 outlook remains unchanged with expected normalized EBITDA in the range of $1.4 billion – $1.5 billion and normalized EPS of $1.45 – $1.55. This guidance is underpinned by expectations for steady growth in Utilities and Midstream, which is anticipated to drive declining leverage ratios and reduced payout ratios.
- On December 16, 2020, AltaGas closed the acquisition of an additional 37% equity interest in Petrogas and took operational responsibility for the business. Integration is going smoothly with employees being strong cultural fits and the platform is set to provide strong contribution in 2021.
- Subsequent to quarter-end, Moody’s upgraded the Issuer Rating of SEMCO Energy Inc. (SEMCO) to A3 with stable outlook and assigned A1 senior secured rating to SEMCO’s first mortgage bonds.
- On February 2, 2021, AltaGas announced the appointment of Jon-Al Duplantier to AltaGas’ Board of Directors. Jon-Al brings more than 25 years of experience across the energy value chain and a range of disciplines.
Randy Crawford, President and Chief Executive Officer commented, “2020 was another successful year of AltaGas delivering on its near-term priorities and achieving strong financial results that landed in the upper end or exceeded the guidance ranges we set at the beginning of the year depending on the metric of focus, despite the challenges associated with the global COVID-19 pandemic. As we continue to adapt to what we hope is the tail end of the pandemic, we remain focused on the health and safety of our employees, delivering critical energy to our customers, and honoring the social and moral commitment we have with all of our stakeholders.
“We are pleased with the resilience and durability that our business continues to display. This is a reflection of the significant progress that we have made in executing our long-term strategy and building a diversified platform that is well positioned to perform in the evolving energy market. As we continue to move towards a more decarbonized ecosystem, we believe natural gas will play a critical part as the transition fuel of the future. In addition, our ability to deliver lower carbon emitting fuels to Asia through our Midstream platform creates potential for us to help lower global carbon emissions. Our combined Liquified Petroleum Gas (LPG) export capacity at RIPET and Ferndale has the potential to reduce the equivalent of ~500,000 average Asian citizens’ total carbon footprints per year when compared to using more carbon-intensive fuels, like thermal coal. We are also undergoing engineering work on various emission reduction opportunities across our Midstream network with a focus on steadily reducing AltaGas’ emission intensity over time. Our Utilities distribution network is comprised of critical infrastructure that enables us to deliver low carbon natural gas today and provides a foundation for the delivery of carbon-free solutions in the years ahead, including renewable natural gas (RNG) and hydrogen. It is for this reason that we place a strong emphasis on our accelerated pipeline replacement program (ARP) spending within WGL as it replaces aging infrastructure and reduces methane emissions through leak remediation. First and foremost, it improves the safety and reliable delivery of cleaner and affordable energy that is critical to keep society moving forward, while preserving optionality for delivery of carbon free fuels in the future. We have a demonstrated track record of delivering on this initiative through other parts of AltaGas, including our SEMCO operations in Michigan, where we have reduced emissions by 50% since 2010 and we continue to advance these environmental stewardship initiatives across the AltaGas platform.
“Our Utilities business, which is centered around the customer and driving improved customer outcomes, continues to demonstrate the strong and resilient performance we expect. We continue to have confidence in delivering on our 8% forecasted CAGR in rate base through 2025, which is in the upper-quartile for our North American peer group. We are also continuing to create customer and stakeholder benefits from cost reductions and improvements in our operational excellence model. In 2020, we were able to close the ROE gap by approximately 150 bps and we expect to achieve the remaining approximate 150 bps in ROE improvement over the course of 2021. We intend to achieve this through the continuation of the capital, regulatory and cost discipline that we have been focused on delivering over the past two years. There is simply no greater way to create value for our stakeholders than improving the returns on capital that has already been deployed. The Maryland rate case is expected to make a positive impact late in the first quarter and the D.C. rate case settlement will have a positive impact at the start of the second quarter with both reflecting our current plan and operating costs. Going forward we will continue to focus on strategic projects, such as ARPs, which ensures a timely recovery of capital and improved customer outcomes, while judiciously managing our costs. In 2020, we reduced incoming leak rates by more than 15% year-over-year, which continues to cut our environmental footprint. We continue to realize one to two percent organic customer growth per year across our Utilities platform and we look forward to serving our growing customer base in the years ahead.
“AltaGas has a long history of operating with social purpose and delivering strong environmental stewardship. RIPET is a great example of this and we are particularly excited about taking operational responsibility of the Ferndale export terminal. Petrogas employees have been a phenomenal cultural fit within AltaGas. We have been busy embracing the best practices of the combined organization, along with our partner Idemitsu, and we remain on track to realize the $30 million in run-rate cost savings and logistics optimization opportunities that we originally identified. We are recognizing the benefits from the integration. After a rocky start to the fourth quarter due to third-party logistical issues, we exited 2020 and started 2021 strong, shipping five cargoes to Asian markets in December, followed by four in January and we are on track to ship another five in February.
“Looking ahead, we are steadfast in our goal to reduce leverage to below 5.0x Net Debt to normalized EBITDA over the medium-term as our credit ratings and de-risking plans remain a top priority. We will continue to execute our strategy and take advantage of our distinctive Utilities and Midstream businesses that are well-positioned to deliver strong and highly visible growth. In the year ahead, we remain acutely focused on: 1) optimizing returns through previously deployed capital; 2) growing our Midstream segment through the investments we have made in Northeastern B.C. and our global exports platform; and 3) making disciplined investments in our Utilities platform that provide steady returns while having positive customer and environmental impacts. It is through this approach that we are building a diversified, low-risk, high-growth energy infrastructure business that is focused on delivering resilient and durable value for our shareholders that should compound in the years ahead.”
The Utilities segment continued to deliver strong and stable results in the fourth quarter, which was underpinned by: 1) higher base rates associated with recent regulatory cases; 2) increased revenue from continued ARP spending; 3) improved returns underpinned by judicious cost management; and 4) strong contributions from WGL’s Retail Energy Marketing business. Strong operating performance in the Utilities segment were however largely offset on a year-over-year basis from a combination of the $5 million rate settlement on the Virginia’s Hearing Examiners report that benefited fourth quarter 2019 results and wasn’t present in fourth quarter of 2020, unseasonably warmer weather in D.C. and Michigan, where WGL does not have weather normalization mechanisms, the absence of contribution from AltaGas Canada Inc., and modest impacts on usage and other costs associated with COVID-19.
AltaGas continues to make strong progress towards earning its allowed returns within the WGL platform through ongoing capital, regulatory and cost discipline. Specific to cost management, incoming leak rates decreased by more than 15% Y/Y in 2020 while capital spending was heavily weighted towards ARP programs, which do not face regulatory lag and bring strong customer and environmental benefits. On December 8, 2020 AltaGas filed a settlement agreement with the District of Columbia Public Service Commission in the D.C. rate case and new rates will take effect April 1, 2021. In Maryland, a decision for the rate case filed on August 8, 2020 is expected late in the first quarter. These two cases will update our rates to accurately reflect our current plan and operating costs and will leave the AltaGas Utilities platform as being very current from a regulatory perspective.
In the Midstream segment, RIPET exported approximately 37,800 Bbls/d of Canadian propane to Asia during the fourth quarter, which was spread across six full and one partially loaded ship in the quarter. The partially loaded ship was a function of the loading of one vessel being split between the third and fourth quarters of 2020 and revenue being recognized at the time of entry onto the vessel. In total there were 27 shipments of Western Canadian propane exported to Asia through RIPET in 2020, which equaled approximately 1.2 million metric tons or 15 million Bbls. RIPET’s operations during the early part of the fourth quarter of 2020 were impacted by the same third-party logistical constraints that were present late in the third quarter of 2020 and resulted in softer performance than would have otherwise been the case due to both lower export volumes and elevated one-time costs associated with the third-party supply chain outages in the early part of the quarter. RIPET operations were strong in the latter part of the fourth quarter with three ships being exported in December. AltaGas also achieved the Company’s 50,000 Bbls/d RIPET exit target with the terminal averaging approximately 50,600 Bbls/d of propane exports over December 2020 and January 2021. RIPET is well-positioned to demonstrate strong performance in 2021 by meeting the robust end market demand in Asia, while continuing to have a positive environmental impact through carbon reduction by displacing more carbon intensive fuels in the region. RIPET and Petrogas contributed $38 million of Normalized EBITDA in Q4 2020, including Petrogas realizing equity earnings for more than 80% of the quarter and only consolidating earnings following the close of the acquisition on December 15, 2020.
AltaGas’ Gas Processing and Fractionation volumes were strong and showed sequential momentum in the fourth quarter of 2020 compared to the third quarter of 2020 and fourth quarter of 2019, as customers ramped up production in the Montney and grew into their respective take-or-pay arrangements at Townsend and North Pine in NEBC. Excluding the one-time impact of maintenance work at Younger, NEBC throughput volumes were up by 16% Y/Y. Inclusive of the maintenance outage, volumes were up 5% Y/Y in Q4 2020. Market conditions continue to strengthen for the Company’s Midstream and energy export business as rising demand in Asia drove strong calls on LPG demand and resulted in upward mobility in the Far East LPG spot prices near the end of the fourth quarter of 2020. In addition, given the large issues around LPG supply into Asia due to congestion in the Panama Canal in late 2020 and early 2021, the structural shipping advantages of RIPET and Ferndale were strongly demonstrated in recent months with AltaGas and Petrogas consistently delivering LPG shipments into Asia in 10-11 days versus upwards of 40 days being realized from the Gulf Coast. Given the strength in the market for pricing in late Q4 2020 and early Q1 2021, AltaGas took the opportunity to de-risk its pricing exposure on merchant volumes and, as of February 25, 2021, has approximately 70% of RIPET’s 2021 expected export volumes collectively hedged, including one-third contracted through long-term tolling arrangements and the balance de-risked through FEI to Mont Belvieu financial hedges that average approximately US$10.25/Bbl in 2021. Ferndale is also heavily hedged for the first quarter of 2021, with a tolling program and smaller financial hedges in the balance of the year. The breakdown of AltaGas’ hedges at RIPET and across the Company’s fractionation platform are shown below on a quarterly basis.