Keyera Corp. announced its 2023 first quarter financial results today, the highlights of which are included in this news release. To view the Management's Discussion and Analysis (the "MD&A") and financial statements, visit either Keyera's website or Keyera's filings on SEDAR at www.sedar.com.
"Keyera had a very strong start to the year, delivering record results in our fee-for-service business segments and reaching a major milestone with the first barrels shipped on our KAPS pipeline system," said Dean Setoguchi, President and CEO. "Our proven business model has delivered reliable returns through all commodity cycles. With KAPS in service, we are a stronger and more competitive company, focused on leveraging the strength of our integrated value chain to maximize value for all stakeholders."
First Quarter Highlights
Strong Quarterly Results Net earnings were $138 million (Q1 2022 $114 million), adjusted earnings before interest, taxes, depreciation, and amortization1 ("adjusted EBITDA") were $292 million for the quarter (Q1 2022 $257 million), and distributable cash flow1 ("DCF") was $227 million (Q1 2022 $178 million). The year-over-year increases were driven by record quarterly contributions from the Gathering and Processing ("G&P") and Liquids Infrastructure segments.
KAPS In Service and Within Latest Cost Estimate KAPS construction is complete, and costs are within the latest cost estimate of $1.0 billion net to Keyera. The condensate line is now in service with the first volumes shipped in April. Linefill activities are underway on the natural gas liquids line which is expected to be in service in June.
Record Fee-For-Service Contributions The Gathering and Processing segment delivered record quarterly realized margin1,3 of $100 million (Q1 2022 $77 million), driven by record volumes. This includes approximately $3 million related to the recovery of maintenance turnaround costs. The Liquids Infrastructure segment delivered record quarterly realized margin1,3 of $119 million (Q1 2022 $105 million) driven by contributions from newly acquired incremental capacity at the Keyera Fort Saskatchewan complex ("KFS") combined with strong asset utilization.
Marketing Guidance Increased 2023 realized margin1,3 for the Marketing segment is now expected to range between $330 million and $370 million4 (previously $250 million to $280 million). The increase is due to lower butane feedstock costs and the continued strength of iso-octane premiums, which benefit the company's iso-octane business.
Strong Financial Position The company continues to maintain its strong financial position with net debt to adjusted EBITDA2 at 2.6 times, well within the target range of 2.5 to 3.0 times.
Capital Allocation Priorities The company's capital allocation priorities remain unchanged. They are, to first ensure the financial strength of the business, and then to balance increasing returns to shareholders with disciplined capital investment.
New KAPS Partner Keyera is pleased to welcome Stonepeak as its new 50 percent partner in KAPS following the closing of their acquisition in April. Keyera and Stonepeak look forward to working closely together to deliver a much-needed competitive liquids transportation alternative for Montney and Duvernay producers.
Reaffirming 2023 Capital and Cash Tax Guidance
Growth capital expenditures to range between $200 million and $240 million.
Maintenance capital expenditures to range between $75 million and $85 million.
Cash tax expense is expected to be $nil.
Keyera Responds to Alberta Wildfires
Keyera has been responding to wildfires across Central and Northern Alberta. The company's first priority is the safety of its people, the surrounding communities and emergency responders.
As a precaution, the company proceeded with the safe and orderly shut-in of six gas plants between Thursday, May 4 and Friday, May 5. These are the Brazeau River, Pembina North, Zeta Creek, Cynthia, Nordegg and Wapiti gas plants. All Keyera employees and their families in the affected areas are safe and accounted for.
At this time, the company does not believe the outages will have a material financial impact. Keyera is prepared to restart operations as soon as conditions allow. At the Wapiti plant, regulatory approval has been received to restart.
Keyera continues to support the efforts of emergency responders and thanks them for their efforts as they manage these events.
CEO's Message to Shareholders
Strategy continues to deliver with strong first quarter. Keyera had an excellent start to the year. Our Gathering and Processing segment delivered record results driven by record volumes. Our G&P customers continue to be in a very strong financial position, allowing for continued volume growth while improving cash flow stability for the segment. Our Liquids Infrastructure segment delivered record results, benefiting from strong asset utilization and margin contribution from the newly acquired additional interest in KFS. The Marketing segment had another strong quarter, contributing to Keyera ending the quarter in a strong financial position with net debt to adjusted EBITDA at 2.6 times, well within our target range of 2.5 to 3.0 times.
KAPS is onstream, making us more competitive. We are pleased to announce that KAPS construction is complete, the condensate line is in service, and costs are within our latest estimate of $1.0 billion, net to Keyera. In April, we successfully shipped our first volumes of condensate on KAPS, and we expect the natural gas liquids line to be in service and flowing in June. This highly strategic project offers a much-needed competitive alternative for liquids transportation for Montney and Duvernay producers, on a new pipeline. KAPS is the link that completes our value chain, fully integrating our business from wellhead to end market.
High fractionation demand and available capacity provides advantage. Our acquisition of additional fractionation capacity at our core KFS complex positions us to benefit from high demand for fractionation services. With available fractionation capacity and KAPS in service we can attract volumes by offering customers a complete suite of services including gas processing, liquids transportation, fractionation, storage, and product marketing, to ensure their products reach the highest value markets. By providing an alternate end-to-end solution for customers, we ensure our services remain in high demand for the long-term. As a result, we are better equipped to maximize value from new and existing assets, driving higher overall returns for our shareholders.
Reaching a cash flow inflection point. In the last five years we have invested significantly to strengthen our integrated value chain and establish a competitive footprint in the Montney. This strategic spend is now behind us. Projects like Wapiti, Pipestone, KAPS and our recent KFS acquisition support our annual adjusted EBITDA growth rate of 6% to 7% from our fee-for-service business8 from 2022 to 2025, and support growth beyond this timeframe. Our capital allocation priorities remain unchanged. They are, to first ensure the financial strength of the business, and then to balance increasing returns to shareholders with disciplined capital investment.
Marketing strength provides optionality with $330 million to $370 million expected in 2023. Over the past five years, the Marketing segment has delivered, on average, more than $340 million per year, totaling $1.7 billion. This physical business generates margins by leveraging our integrated assets to purchase, upgrade, transport, and sell natural gas liquids products throughout North America. The cash flow generated from this segment is reinvested in our fee-for-service infrastructure businesses, supporting further growth in stable and reliable cash flows.
Proven track record and strategy for long-term value creation. Our basin continues to grow and set new records for both natural gas and crude oil production. LNG Canada and the Trans Mountain Expansion pipeline, will unlock further growth. With KAPS in service, we enter our next chapter as an essential infrastructure service provider with an integral role in enabling basin growth.
On behalf of Keyera's board of directors and management team I want to thank our employees, customers, shareholders, Indigenous peoples, and other stakeholders for their continued support.
