Keyera Corp. (TSX:KEY) ("Keyera") announced its first quarter 2017 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.
Message to Shareholders
Keyera recorded strong financial results in the first quarter of 2017, even with an unscheduled outage at AEF and a slow-moving industry recovery. All three of Keyera's business segments delivered solid financial results, generating Adjusted EBITDA of $148 million compared to $145 million reported in the first quarter of 2016. Net earnings were $96 million, $26 million higher than in the same period of 2016, and distributable cash flow was $121 million, slightly higher than the same period of 2016. Our strong quarterly operating results were driven by contributions from our growth projects, acquisitions completed over the past year and increasing demand for our oil sands services. We continue to position ourselves for future growth with a number of projects nearing completion, new initiatives underway and a strong balance sheet to pursue business development opportunities.
Gathering and Processing Business Unit
Operating margin for the first three months of 2017 was $66 million, or $2 million lower than the same period in 2016, even though net processing throughput volumes were 7% lower. With the modest recovery in commodity prices year over year, we are seeing increases in drilling activity in areas rich in natural gas liquids around our Simonette, West Pembina and Brazeau River gas plants. In the first quarter of the year, overall gross processing throughput volumes were 1,411 million cubic feet per day, 4% higher than the prior quarter.
To meet growing customer demand in the liquids-rich Montney development, we initiated a project during the quarter to expand the liquids handling capabilities at our Simonette gas plant. The project is intended to maximize producer netbacks by increasing liquids recoveries at the facility and provide long-term growth opportunities for Keyera in one of the most exciting developments in the Western Canada Sedimentary Basin.
The project is estimated to cost approximately $100 million and is anticipated to be operational by mid-2018, assuming construction proceeds as planned. Upon completion of this project, the condensate handling capacity at the Simonette gas plant is expected to be approximately 27,000 barrels per day.
During the quarter, we continued to advance the first phase of the Wapiti gas gathering and processing project to maintain the schedule for an expected startup date in mid-2019. The site has been cleared, major equipment packages have been ordered and Keyera continues to negotiate with other Wapiti area Montney producers to commit additional volumes, all while working towards an official sanctioning decision with our primary customer.
Liquids Business Unit – Liquids Infrastructure Segment
The Liquids Infrastructure segment once again posted record quarterly financial results. Operating margin was $65 million in the first quarter, an increase of 5% over the same period in 2016. These results were largely due to higher demand associated with Keyera's condensate network, including transportation and storage revenue from long-term, fee-for-service arrangements with oil sands producers.
Demand for Keyera's diluent handling services has been strong and we continue to invest in our industry-leading network to accommodate contracted growth and provide oil sands customers with a comprehensive and reliable suite of services. I am pleased to report that our three major oil-related projects are nearing completion and costs are trending lower than originally budgeted. The Norlite diluent pipeline, a joint venture with Enbridge, is fully constructed and will begin line-fill activities this month. The South Grand Rapids diluent pipeline and associated pump station, a joint venture with TransCanada PipeLines and Brion Energy, is expected to be completed late in the year. And the first set of crude oil storage tanks at the Base Line Terminal, a joint venture with Kinder Morgan, are on schedule to be commissioned in early 2018.
To provide Keyera with further growth opportunities and enhance our integrated service offering, we began development of the Keylink NGL gathering pipeline system, which will connect eight Keyera gas plants and provide producers with a safe, reliable and economically improved alternative to transporting NGL mix volumes by truck. This system will comprise over 240 kilometres of newly constructed and existing pipelines and will transport NGL mix primarily to the Rimbey gas plant where we can provide onsite fractionation into specification products. Assuming progress continues on schedule, we expect to have the Keylink pipeline system operational in the second quarter of 2018 at an estimated cost of $147 million.
In the first quarter, we also acquired 1,290 acres of undeveloped land in the Industrial Heartland area near Fort Saskatchewan. Located adjacent to our Josephburg rail terminal, this large parcel of land is expected to provide Keyera with a wide range of future growth opportunities, including the possible development of underground storage caverns. We continue to expand our underground storage at Keyera Fort Saskatchewan and in April our 14th cavern became operational, increasing our gross storage capacity to approximately 13 million barrels.
Liquids Business Unit – Marketing
The Marketing segment recorded solid first quarter financial results with an operating margin of $68 million, an increase of $24 million from the first quarter of 2016 despite an unscheduled outage at AEF. Excluding the effect of unrealized gains from risk management contracts, Marketing's realized margin was $33 million or $4 million lower than the first quarter of 2016. The lower realized margin in 2017 was primarily due to lower iso-octane sales volumes as a result of the unscheduled outage at AEF. AEF returned to normal utilization rates in April.
Looking ahead, I am confident in Keyera's business plan and growth prospects. Over the next eight months we expect to commission our three major joint venture projects, followed by the Simonette gas plant expansion and the Keylink NGL gathering pipeline system. Across Keyera, we are working with our customers to capitalize on long-term business development opportunities. As producer netbacks continue to strengthen, we expect to participate in the growing willingness of customers to invest in new resource development projects.
We remain focused on executing our successful business strategy and are committed to delivering long-term shareholder value growth. I am pleased to announce a dividend increase of approximately 6% to $0.14 per share per month, beginning with our dividend payable on June 15, 2017. This represents Keyera's sixteenth dividend increase since going public in 2003.
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.
SOURCE: Keyera Corp.
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