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AltaGas Announces 2024 Guidance and Strategic Priorities, Six Percent Dividend Increase, and releases 2023 ESG Report

Press Release

CALGARY, AB, Dec. 5, 2023– AltaGas Ltd. (“AltaGas” or the “Company”) (TSX: ALA) announces its 2024 guidance and outlook; provides an update on its long-term strategic plan, and releases its 2023 Environment, Social and Governance (ESG) report, including progress toward achieving ESG goals.

HIGHLIGHTS

(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

  • 2024 normalized EPS1 guidance of $2.05$2.25 represents approximately ten percent year-over-year growth using midpoint-to-midpoint guidance figures. Strong year-over-year growth is underpinned by strong business performance in each of the core segments.
  • 2024 normalized EBITDA1 guidance of $1,675 million$1,775 million represents approximately eleven percent year-over-year growth using midpoint-to-midpoint guidance figures. Strong growth in AltaGas’ Midstream and Utilities businesses is expected to more than offset the lost contribution from the Alaska Utilities sale, which was divested in the first quarter of 2023.
  • AltaGas is maintaining a disciplined and equity self-funded capital program of $1.2 Billion in 2024, excluding Asset Retirement Obligations (ARO). The 2024 capital program is more weighted towards low-risk organic growth in the Utilities; however, the program reflects a significant shift relative to prior years with Utilities 2024 capital accounting for approximately 58 percent of the annual capital budget and Midstream accounting for approximately 36 percent. Higher annual Midstream capital reflects the strong outlook for the Midstream business and strong growth opportunities, including the Pipestone II project.
  • AltaGas is increasing returns of capital to shareholders through a six percent increase to its anticipated common share dividend of $1.19 per share for 2024. The Company remains committed to delivering regular, sustainable, and annual dividend increases while maintaining a prudent dividend payout target range of 50 – 60% of earnings, which balances the need to return capital to shareholders and fund the Company’s significant organic growth program within an equity self-funding model.
  • The Midstream segment is positioned to deliver strong year-over-year organic growth in 2024 and beyond. This growth is underpinned by the Pipestone acquisition, continued facility optimization, and growth initiatives across the value chain.
  • AltaGas and its joint-venture partner, Royal Vopak, have commenced site clearing work at the Ridley Island Energy Export Facility (“REEF”), representing another important step in the project’s development. Site clearing activities including logging, clearing, and drainage will help determine the project’s readiness prior to reaching a Final Investment Decision (“FID”).
  • Earnings growth within the Utilities segment will be underpinned by operational excellence, stronger earned ROEs, contribution from recent rate cases, and ongoing rate base growth from the Company’s Accelerated Pipeline Replacement programs (“ARPs”).
  • AltaGas remains committed to reducing financial leverage to move towards its 4.5x Net Debt1 to normalized EBITDA1. Monetization of the Mountain Valley Pipeline (“MVP”) is the most immediate path to moving towards this goal, which will be evaluated in 2024 as the pipeline moves toward completion. AltaGas also expects a stronger period of financial flexibility to evaluate the optionality associated with its strong investment capacity, which could be used for leverage reduction, post the Pipestone II and REEF projects coming online, assuming REEF reaches a positive FID in the first half of 2024.
  • AltaGas released its 2023 ESG Report, which features 2022 performance data and highlights progress made towards its ESG goals in the core areas of emission reductions, safety, and diversity.

1. Non-GAAP measure; see discussion in the advisories of this news release and reconciliation to US GAAP financial measures shown in AltaGas’ Management’s Discussion and Analysis (MD&A) as at and for the period ended September 30, 2023, which is available on www.sedar.com.

CEO MESSAGE

“We look forward to executing on our strategic plan and delivering strong value for AltaGas’ shareholders in 2024” said Vern Yu, AltaGas’ President and Chief Executive Officer. “We are exiting 2023 on a strong footing and expect to achieve financial results for 2023 in the upper half of our guidance ranges.

“AltaGas has a unique set of assets with strong competitive advantages that position the Company to deliver industry-leading earnings and dividend growth. We remain committed to operating with an equity self-funding model and see a clear path to moving towards our 4.5x Net Debt1 to normalized EBITDA1 target. We have a tremendous pipeline of growth projects, but we’ll be disciplined in our capital allocation process to funnel these opportunities to ensure we deliver the best risk-adjusted returns and balance our competing priorities, including long-term leverage reduction.

“Our Utilities have a bright future with natural gas remaining the largest home energy source across all our jurisdictions where, on average, electrical substitution costs are more than three times the cost of natural gas on a delivered basis. We have visible and low-risk growth opportunities through new customer additions, system expansion, and modernization opportunities. AltaGas will continue to act in our customers best interests during this period of higher inflation and interest rates, balancing the critical needs of energy affordability and reliability with rate increases and regional climate goals.

“After a decade of being structurally challenged by a lack of take-away capacity, Canada is set to deliver significant natural gas and NGL production growth in the years ahead, with our Midstream business realizing strong growth opportunities. As liquified natural gas (“LNG”) projects on the Canadian West Coast come online in the next couple of years, we expect numerous customer-backed opportunities to add infrastructure to support these developments. This includes opportunities to connect increasing Canadian liquefied petroleum gases (“LPGs”) and other vital energy products into premiere downstream markets in Asia.

“As transporters of energy, we serve a crucial role delivering energy affordably, reliably, and safely, while working towards a lower carbon future. Today, with the release of our 2023 ESG report we’re pleased to highlight the progress we’ve made against our commitments to safety and reliability, emissions reductions, and diversity and inclusion. While it’s clear that we need to reduce our GHG emissions, we need to take a balanced approach, where affordability, reliability, and energy security are part of the mix.”

2024 GUIDANCE

AltaGas expects to achieve normalized EPS1 of $2.05$2.25 and normalized EBITDA1 of $1,675 million$1,775 million in 2024. These guidance figures represent AltaGas’ expectations for continued growth in consolidated performance of the business.

Approximately 55 percent of 2024 normalized EBITDA1 is expected to be generated by the Utilities segment. Utilities normalized EBITDA1 growth is expected to be driven by positive contribution from the Maryland and District of Columbia rate cases, continued rate base growth through ongoing capital investments through various ARPs, new customer meter growth, normal 2024 weather, and ongoing cost management, which is being partially offset by the lost contribution of the Alaskan Utilities which divestiture closed in the first quarter of 2023 and higher operating costs associated with a higher inflationary and cost environment.

Washington Gas currently has active rate case applications in Maryland and the District of Columbia. Within Maryland the requested rates are designed to collect an incremental US$49 million in annual revenue, while the District of Columbia requested rates are designed to collect an incremental US$48 million in annual revenue with rates forecasted to take effect in December 2023 and the second quarter of 2024, respectively. AltaGas has ARPs in place across all three jurisdictions within Washington Gas as well as SEMCO in Michigan. New meter growth is expected to continue across AltaGas’ Utilities jurisdictions at approximately ~1% over a multi-year time horizon.

AltaGas can grow rate base by up to an eight percent CAGR through 2028 through population growth and new meter connects and ongoing modernization investments across the network, which are focused on long-term safety and reliability. The Utilities growth rate in the year ahead will be a function of relative opportunities and calls on capital across the platform as AltaGas focuses on driving the best-balanced outcomes for all stakeholders.

Approximately 45 percent of 2024 normalized EBITDA1 is expected to be generated by the Midstream segment. Strong year-over-year growth in normalized EBITDA1 is driven by the Pipestone and Dimsdale asset acquisition, strong global export volumes and higher margins, higher utilization at the Company’s existing Northeastern B.C. facilities, and the absence of wildfires impacts in Alberta. These positive factors are expected to be partially offset by a lower contribution from Allowance of Funds Used During Construction (“AFUDC”) on the MVP and lower co-generation revenue at Harmattan.

AltaGas operates a fully integrated Midstream platform that connects Western Canadian producers to global markets. From wellhead to tidewater, the Company is focused on providing its customers with safe and reliable service. This includes providing access to global markets for North American LPGs and providing North American producers and aggregators with the best netbacks for their propane and butane, while delivering diversity of supply and affordable lower carbon energy to markets in Asia.

Strong macro fundamentals, commodity prices, and improving natural gas egress out of Western Canada are providing a strong outlook for natural gas and natural gas liquids (“NGL”) production growth in the coming years. This includes LNG terminals coming online mid-decade on the Canadian West Coast, which will bring associated LPGs. AltaGas continues to see increasing demand for LPG exports through the Ridley Island Propane Export Terminal (“RIPET”) and Ferndale LPG export terminal driven by the Company’s structural shipping advantage to serve demand markets in Asia and access to low-cost supply. This structural advantage has magnified recently due to restricted vessel traffic through the Panama Canal, caused by lower water levels, and is driving strong demand for more Canadian LPGs in Asia.

AltaGas continues to focus on de-risking its business commercially through long-term tolling contracts while actively managing remaining commodity price exposure. In 2023, AltaGas made strong progress on this initiative with increased tolling within the Global Exports business and believes there is a clear path to push towards 60 percent or higher tolling over a multi-year time horizon. AltaGas will also continue to actively and systematically hedge remaining merchant export volumes to lock-in the structural margins and cashflows. The Company has hedged approximately 73 percent of AltaGas’ 2024 expected global export volumes through tolling arrangements or financial hedges with the latter including an average Far East Index (“FEI”) to North American financial hedge price of US$15.60/Bbl for non-tolled propane and butane volumes. The Company is also 78 percent hedged on ocean freight costs for expected 2024 export volumes through a combination of time-charters, tolling, and financial hedges.

AltaGas also continues to de-risk the Global Exports supply chain. In October 2023, AltaGas entered a five-year transportation agreement with Canadian National Railway Company, which provides AltaGas, and its customers, cost and service predictability. AltaGas also expects to take delivery of two new very large gas carriers (“VLGCs”) in December 2023 and March 2024. These two seven-year time charters will reduce total shipping costs to Asia by approximately 25 percent compared to normal pricing on a standard VLGC. The vessels’ deployment will also remove pricing volatility and de-risk maritime shipping costs on a long-term basis. Following the delivery of these two vessels AltaGas will have three Time Charters operating in 2024 and a fourth under construction, which is set to be commissioned in the first half of 2026.

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