AltaGas Announces Second Quarter 2019 Results

Press Release

Midstream and Utilities deliver strong results as near-term priorities to enhance asset performance, de-lever and fund organic growth remain on track

CALGARY, Aug. 1, 2019 –

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

• Normalized EBITDA¹ was $203 million, a 22 percent increase over second quarter 2018 normalized EBITDA of $166 million. This increase was driven by contributions from WGL Holdings, Inc. (WGL) and the recently commissioned Ridley Island Propane Export Terminal (RIPET).
• Net income applicable to common shares was $41 million ($0.15 per share) in the second quarter compared to $1 million ($0.01 per share) in the second quarter of 2018. Normalized net loss¹ was $5 million ($0.02 per share) in the second quarter compared to normalized net income of $23 million ($0.13 per share) the second quarter of 2018.
• Normalized funds from operations (FFO)¹ were $120 million, compared to $121 million in the second quarter of 2018.
• AltaGas announced $1.3 billion in asset sales to-date in 2019, positioning the Company to achieve its $1.5 – $2 billion 2019 asset monetization program designed to de-lever the balance sheet and fund organic growth.
• The 2019 de-leveraging strategy remains on plan, with net debt reduced by approximately $2 billion year-to-date, before including the impact of the recently announced asset sale.
• Outlook for 2019 remains on track, with expected normalized EBITDA in the range of $1.2 – $1.3 billion and normalized FFO of $850 – $950 million.
• On May 31, 2019, SEMCO Gas filed a request with the Michigan Public Service Commission (MPSC) seeking authority to increase base rates by approximately US$38 million annually.
• RIPET, Canada’s first marine propane export facility, was completed and placed into service. The facility’s first ship departed the terminal for Asia in late May, with two additional shipments in June.

AltaGas Ltd. (AltaGas or the Company) (TSX: ALA) today reported second quarter 2019 financial results, reaffirmed its outlook for the remainder of 2019, and provided an update on its business and on its near-term priorities, which remain on track.

“The second quarter saw strong results in-line with our expectations and the achievement of significant milestones critical to delivering on our near-term priorities,” said Randy Crawford, President and Chief Executive Officer of AltaGas. “Over the past six months, we have considerably strengthened our financial flexibility with announced asset dispositions of $1.3 billion. We also delivered on RIPET, which is expected to be a strong catalyst for further growth across our Midstream business.

“In the back half of 2019, we will continue to build on this momentum and stay focused on delivering our near-term priorities,” added Mr. Crawford. “I am confident we will enter 2020 in a much stronger position and deliver normalized EBITDA that is at least equal to that of 2019 despite this year’s asset sales program. By applying capital discipline in our core segments, driving efficiencies through business optimization, and capturing increased and timely returns in our Utilities, we are well-positioned to drive future growth and unlock the underlying value of our asset base.”

MIDSTREAM AND UTILITIES PERFORMANCE

In the second quarter of 2019, RIPET was successfully commissioned with volumes steadily increasing to its current 40,000 bbl/d capacity. The facility’s first shipment to Asia departed the terminal in late May, with two additional shipments in June. AltaGas’ volume capacity translates into approximately two ships per month with the possibility of a periodic additional ship.

“RIPET is performing as expected, and we are seeing meaningful contributions from this asset,” said Mr. Crawford. “Our ability to handle the molecule through the entire value chain uniquely positions us to offer our customers a complete solution and, ultimately, higher netbacks for their product. This provides a competitive advantage that we expect will attract additional volumes to our system and further growth across our integrated platform in the future.”

On May 31, 2019, SEMCO Gas filed a request with the MPSC seeking authority to increase base rates by approximately US$38 million annually with a forecasted test year of 2020. The increase in rates requested captures the investment in the Marquette Connector Pipeline, as well as the inflation of operations and maintenance costs from the last rate case in 2010. This case includes the addition of a new Main Replacement Program and the introduction of an Infrastructure Reliability Improvement Program to recover the capital costs associated with the replacement of certain mains, services and other infrastructure. The MPSC has a 10-month statutory requirement to rule in this case and, as a result, is expected to contribute in 2020.

FINANCIAL RESULTS

 

In the second quarter of 2019, normalized EBITDA was positively impacted by contributions from WGL, approximately two months of contributions from RIPET, higher realized frac spreads, and higher equity earnings from our indirect interest in Petrogas Energy Corp. (Petrogas). These were partially offset by the impact of asset sales and the initial public offering (IPO) of AltaGas Canada Inc. (ACI).

The Utilities segment reported normalized EBITDA was higher year-over-year, mainly due to contributions from WGL’s utility assets of $41 million, the favourable impact of the stronger U.S. dollar, and lower operating expenses. The increase was partially offset by the impact of the ACI IPO in 2018 and warmer weather in Alaska.

The Midstream segment reported normalized EBITDA was higher year-over-year, mainly due to contributions from WGL Midstream assets of $21 million, contributions from RIPET and higher realized frac spreads, partially offset by the sale of certain non-core facilities in the first quarter of 2019.

During the second quarter of 2019, AltaGas recorded equity earnings of $11 million from Petrogas, compared to $1 million in the same quarter of 2018, mainly due to expanded activity levels in Petrogas’ core business units.

The Power segment reported normalized EBITDA was lower, primarily as a result of the impact of the sale of the Northwest Hydro facilities in January, the sale of the San Joaquin facilities in November 2018, the impact of the ACI IPO, and the extended planned spring outage at the Blythe Facility, which were partially offset by contributions from WGL’s power assets of $15 million.

Normalized FFO and normalized adjusted FFO (AFFO) were impacted by higher interest expense, partially offset by the same factors impacting normalized EBITDA. In the second quarter of 2019, AltaGas received $3 million of dividend income from the Petrogas Preferred Shares (2018 – $3 million) and $2 million of common share dividends from Petrogas (2018 – $1 million). AFFO was also positively impacted by higher cash received from non-controlling interests. In the second quarter of 2019, AltaGas paid $17 million of preferred share dividends (2018 – $16 million).

Normalized utility adjusted FFO (UAFFO) for the second quarter of 2019 was $34 million ($0.12 per share), compared to $73 million ($0.41 per share) for the same quarter in 2018. The decrease was due to higher utilities depreciation and the same drivers as normalized AFFO. Depreciation and amortization expense for the second quarter of 2019 was $107 million, compared to $73 million for the same quarter in 2018, mainly due to the acquisition of WGL, partially offset by the impact of asset sales.

Normalized net income decreased, mainly due to higher interest expense and higher depreciation and amortization expense, partially offset by the same previously referenced factors impacting normalized EBITDA.

Net income applicable to common shares for the second quarter of 2019 was impacted by higher EBITDA, primarily due to the same previously referenced factors impacting normalized EBITDA, gains on sale of assets, and lower income tax expense, partially offset by higher unrealized losses on risk management contracts, higher interest expense, and higher depreciation and amortization expense.

Interest expense for the second quarter of 2019 was $83 million, compared to $43 million for the same period in 2018. The increase was predominantly due to the interest on the debt assumed in the WGL acquisition, as well as higher average debt balances.

AltaGas recorded an income tax recovery of $33 million for the second quarter of 2019, compared to income tax expense of $2 million in the same quarter of 2018. The increase in tax recovery was mainly due to tax rate adjustments related to the Alberta Job Creation Tax Cut, as well as the inclusion of tax at WGL.

GUIDANCE AND FUNDING

AltaGas’ previously announced balanced funding plan is designed to de-lever the balance sheet, fund the 2019 capital program of approximately $1.3 billion, and optimize per share cash flow and earnings growth. During the second quarter of 2019, AltaGas completed the sale of WGL Midstream’s interest in Stonewall Gas Gathering System on May 31, 2019, for total gross proceeds of approximately $379 million (US$280 million). Proceeds from the asset sale were used to reduce net debt to approximately $8.1 billion as at June 30, 2019, down from $10.1 billion as at December 31, 2018.

Subsequent to the end of the second quarter of 2019, AltaGas announced the sale of its U.S. distributed generation portfolio for approximately $940 million (US$720 million). Proceeds from the asset sale will be used to fund growth and reduce debt to help AltaGas achieve its year-end target of $3 billion in net debt reduction. To-date in 2019, AltaGas has announced or completed approximately $1.3 billion in asset sales, positioning the Company well to achieve the $1.5 – $2 billion asset sales program targeted for 2019.

AltaGas reaffirms its outlook for 2019, with anticipated normalized EBITDA in the range of $1.2 – $1.3 billion and normalized FFO of $850 – $950 million. Year-over-year growth is underpinned by a full-year of earnings from WGL, as well as Midstream projects coming into service including RIPET. Additionally, the Townsend 2B Facility and Nig Creek Gas Plant are expected to come online in the first quarter of 2020 and in the fourth quarter of 2019, respectively. These projects are expected to attract additional natural gas liquids to AltaGas’ integrated system, increase utilization of AltaGas’ existing liquids pipelines, underpin the expansion of the North Pine Fractionation Facility, and provide additional propane supply to RIPET.

In the Utilities segment, the Marquette Connector Pipeline is expected to be in service in the fourth quarter of 2019. While it is not a driver of EBITDA growth in 2019, this project will improve system reliability and supply, and allow for the connection of new customers to existing facilities. This investment is aligned with the timing of SEMCO Gas’ rate case and is expected to start generating timely returns and recovery of capital in 2020.

The 2019 investment plan remains unchanged and includes prudent capital allocation of approximately $1.3 billion to projects with strong risk-adjusted returns, near-term contributions to normalized FFO per share and normalized earnings per share (EPS), and secure commercial underpinnings.

MONTHLY COMMON SHARE DIVIDEND AND QUARTERLY PREFERRED SHARE DIVIDENDS

• The Board of Directors approved a dividend of $0.08 per common share. The dividend will be paid on September 16, 2019 to common shareholders of record on August 26, 2019. The ex‑dividend date is August 23, 2019. This dividend is an eligible dividend for Canadian income tax purposes.
• The Board of Directors approved a dividend of $0.21125 per share for the period commencing June 30, 2019 and ending September 29, 2019 on AltaGas’ outstanding Series A Preferred Shares. The dividend will be paid on September 30, 2019 to shareholders of record on September 16, 2019. The ex‑dividend date is September 13, 2019.
• The Board of Directors approved a dividend of $0.273921 per share for the period commencing June 30, 2019 and ending September 29, 2019 on AltaGas’ outstanding Series B Preferred Shares. The dividend will be paid on September 30, 2019 to shareholders of record on September 16, 2019. The ex‑dividend date is September 13, 2019.
• The Board of Directors approved a dividend of US$0.330625 per share for the period commencing June 30, 2019 and ending September 29, 2019 on AltaGas’ outstanding Series C Preferred Shares. The dividend will be paid on September 30, 2019 to shareholders of record on September 16, 2019. The ex‑dividend date is September 13, 2019.
• The Board of Directors approved a dividend of $0.337063 per share for the period commencing June 30, 2019 and ending September 29, 2019 on AltaGas’ outstanding Series E Preferred Shares. The dividend will be paid on September 30, 2019 to shareholders of record on September 16, 2019. The ex‑dividend date is September 13, 2019.
• The Board of Directors approved a dividend of $0.296875 per share for the period commencing June 30, 2019 and ending September 29, 2019 on AltaGas’ outstanding Series G Preferred Shares. The dividend will be paid on September 30, 2019 to shareholders of record on September 16, 2019. The ex-dividend date is September 13, 2019.
• The Board of Directors approved a dividend of $0.328125 per share for the period commencing June 30, 2019, and ending September 29, 2019 on AltaGas’ outstanding Series I Preferred Shares. The dividend will be paid on September 30, 2019 to shareholders of record on September 16, 2019. The ex‑dividend date is September 13, 2019.
• The Board of Directors approved a dividend of $0.3125 per share for the period commencing June 30, 2019 and ending September 29, 2019 on AltaGas’ outstanding Series K Preferred Shares. The dividend will be paid on September 30, 2019 to shareholders of record on September 16, 2019. The ex-dividend date is September 13, 2019.

CONSOLIDATED FINANCIAL REVIEW

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