Stock Ideas - ALTAGAS REPORTS STRONG THIRD QUARTER 2023 RESULTS

ALTAGAS REPORTS STRONG THIRD QUARTER 2023 RESULTS

Canada Newswire

Nov 3, 2023 6:00 AM EDT

Continued Execution of AltaGas' Strategic Plan Strongly Positions the Company to Deliver on 2023 Guidance and Drive Shareholder Value Creation

CALGARY, AB , Nov. 3, 2023 /CNW/ - AltaGas Ltd. ("AltaGas" or the "Company") (TSX: ALA) today reported third quarter 2023 financial results and provided an update on the Company's operations and other corporate developments.

HIGHLIGHTS

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

• Normalized EPS ¹ was $0.10 in the third quarter of 2023 compared to $0.10 in the third quarter of 2022, while GAAP EPS ² was a $0.18 loss in the third quarter of 2023 compared a $0.17 loss in the third quarter of 2022. Normalized EPS was ahead of AltaGas' expectations and strongly positions the Company to deliver on its 2023 guidance, including current expectations of achieving results in the upper half of the guidance range.
• Normalized EBITDA ¹ was $252 million in the third quarter of 2023 compared to $233 million in the third quarter of 2022, while loss before income taxes was $51 million in the third quarter of 2023 compared to income before income taxes of $48 million in the same quarter of 2022. Third quarter results included robust performance from the Midstream segment while the Utilities segment was in line with AltaGas' expectations and reflective of the typical seasonal low for natural gas usage during the shoulder season.
• Normalized FFO per share ¹ was $0.50 in the third quarter of 2023 compared to $0.60 in the third quarter of 2022, while Cash from Operations per share ³ was $0.01 in the third quarter of 2023 compared to cash used by operations of $1.37 per share in the third quarter of 2022. The decrease in normalized FFO per share was principally driven by higher interest expense, including hybrid debt which replaced preferred shares, and lower current normalized income tax recovery in the quarter. The increase in Cash from Operations per share was principally driven by changes in working capital.
• The Midstream segment reported strong operating results with normalized EBITDA of $185 million in the third quarter of 2023 compared to $108 million in the third quarter of 2022, while income before taxes in the segment was $61 million in the third quarter of 2023 compared to income before taxes of $71 million in the third quarter of 2022. The largest drivers of the strong year-over-year results were meaningfully stronger performance from global exports business due to solid operational execution, strong volumes and pricing, and benefit of Allowance for Funds Used During Construction ("AFUDC") on the Mountain Valley Pipeline ("MVP") as the project progresses to final completion in early 2024.
• The Utilities segment reported normalized EBITDA of $71 million in the third quarter of 2023 compared to $115 million in the third quarter of 2022, while loss before taxes was $16 million in the third quarter of 2023 compared to income before taxes of $54 million in the same quarter of 2022. The largest driver of the year-over-year decrease in financial contribution was the lack of the larger-then-normal asset optimization that was present in last year's results, and is shared with our customers, and the lost contribution of the Alaskan Utilities, which were divested on March 1, 2023 , and had contributed $13 million in normalized EBITDA in the third quarter of 2022.
• On August 31, 2023 , AltaGas announced that it has entered into a definitive agreement to acquire the Pipestone natural gas processing and storage infrastructure assets located in the Alberta Montney for total consideration of $650 million from Tidewater Midstream and Infrastructure Ltd. ("Tidewater"). Subsequent to the announcement, AltaGas has received all material regulatory approvals, including Competition Act approval, and is currently working on other condition precedents to close the transaction, which continues to be anticipated prior to 2023 year-end.
• On October 20, 2023 , AltaGas entered a five-year transportation agreement with Canadian National Railway Company ("CN"). The agreement provides AltaGas and its customers with cost and service predictability to support AltaGas' growing LPG exports to Asia , which support ongoing resource development across Western Canada , and provides energy security to the Company's downstream customers in Asia .
• Commissioning on two of AltaGas' new very large gas carriers ("VLGCs") progressed well over the third quarter of 2023 with the Boreal Pioneer expected to have its maiden voyage in December of 2023 with the Boreal Voyager expected to follow in March of 2024. These two seven-year time charters with optional extensions will reduce total shipping costs to Asia by approximately 25 percent compared to a standard VLGC. The vessels' deployment will also remove pricing volatility and de-risk maritime shipping costs on a long-term basis and is part of the Company's plan to commercially de-risk its Midstream business. In total, AltaGas will have three Time Charters operating in 2024 with a fourth under construction, which is set to be commissioned in the first half of 2026.
• On October 20, 2023 , Washington Gas executed a definitive agreement with Opal Fuels Inc. ("Opal Fuels") to support a renewable natural gas ("RNG") project at the Prince William County Landfill in Virginia . As part of the agreement, Washington Gas will become an offtake customer for RNG production and purchase key interconnect infrastructure for approximately US$25 million . The interconnect infrastructure is anticipated to become part of Washington Gas' rate base and will be eligible to earn a 100-bps premium to its allowed ROE in the jurisdiction as part of the Virginia Energy Innovation Act, subject to regulatory approval.
• AltaGas is pleased with the construction progress on MVP. The pipeline is expected to be placed into service during the first quarter of 2024 and will provide critical energy security to customers in the Eastern U.S. The updated aggregate capital cost of the pipeline is US$7.2 billion with AltaGas' cash contribution contractually capped at its original US$352 million investment for a ten percent equity interest in a non-dilutive ownership stake. As previously disclosed, AltaGas does not consider its equity stake as core and will consider a monetization as part of the Company's plan to reach its 4.5x net debt to normalized EBITDA target.
• On August 29, 2023 , the Commonwealth of Virginia State Corporation Commission ("SCC of VA") adopted the Hearing Examiner's report for the Virginia rate case, approving approximately US$41 million of incremental base rates plus approximately US$32 million of SAVE surcharges for a total rate increase of approximately US$73 million .
• Effective September 1, 2023 , AltaGas appointed a new independent Director, Angela Lekatsas , to AltaGas' Board of Directors. Ms. Lekatsas has over two decades of broad industry and corporate finance experience and will also serve as a member of AltaGas' Audit Committee.
• On October 19, 2023 , Washington Gas issued US$200 million in private placement notes, which includes US$150 million at 6.06 percent maturing on October 14, 2033 , and US$50 million at 6.43 percent maturing on October 15, 2053 . The proceeds will be used for general corporate purposes.
• On December 5, 2023 , AltaGas will be hosting its 2023 Investor Day, where management will provide an update on the Company's corporate strategy and outlook, share its near- and- long-term corporate priorities, and provide 2024 financial guidance.
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CEO MESSAGE

"We are pleased with the third quarter operating and financial results and where we sit on a year-to-date basis" said Vern Yu , President and Chief Executive Officer of AltaGas. "This performance strongly positions the company to deliver on our 2023 guidance, including our current expectation to deliver results in the upper half of our guidance range, and continue to drive value creation for our stakeholders.

"Performance in the Midstream segment was robust and reflected record export volumes and the west coast advantage for Canadian LPGs. The Company has been actively working on de-risking Midstream while using strong risk management practices for residual commodity exposure. The Canadian upstream industry will deliver robust natural gas and NGL production growth in the coming years and we believe that AltaGas is positioned to provide the best value for LPG customers in North America and Asia .

"The Utilities segment performed relatively in line with our expectations and was reflective of the typical seasonal low for natural gas usage during the shoulder season. 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 ¹ .

"In the years ahead, we will be acutely focused on balancing the critical needs of energy affordability and reliability with regional climate goals. Subsequent to quarter-end, we were pleased to sign an agreement to support a major RNG project at the Prince William County Landfill in Virginia . Through this agreement Washington Gas will become an offtake customer and purchase key interconnect infrastructure that will transport RNG through our network and lower the carbon-intensity of our energy supply.

"AltaGas has made tremendous progress on restructuring the platform over the past four years, including streamlining operations, refocusing the business, and de-risking the balance sheet. This includes significant leverage reduction, a shift in the debt portfolio with approximately 90 percent of the Company's debt being fixed under a properly staggered maturity ladder, and having built in optionality for additional debt repayments. These moves have strongly positioned AltaGas for the current operating environment and protected the Company from the material increases in interest rates over the past 18 months.

"We will continue this focus in the coming period as we look to complete our portfolio optimization, drive improved return on invested capital from our existing asset base, commercially and financially de-risk operations, and close our deleveraging journey to reach our 4.5x net debt to EBITDA target. AltaGas has a robust investment proposition that is supported by strong macro fundamentals and has a strong growth trajectory. We look forward to closing out a strong year in the fourth quarter and discussing the road ahead with our stakeholders at our Investor Day on December 5, 2023 ."

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BUSINESS PERFORMANCE

Midstream

The Midstream segment reported normalized EBITDA of $185 million in the third quarter of 2023 compared to $108 million in the third quarter of 2022. Income before income taxes in the Midstream segment was $61 million in the third quarter of 2023, compared to $71 million in the same quarter of 2022. Third quarter 2023 results included strong operations across the platform, including a significant improvement in the profitability of the global exports business due to robust export volumes, strong logistical performance, and high Asian-to-North American LPG margins. The quarter also benefitted from AFUDC being booked on MVP due to the resumption of construction activities in June of 2023, lower power costs at AltaGas' extraction facilities, and higher crude and NGL marketing margins.

AltaGas exported a record 118,213 Bbls/d of LPGs to Asia during the third quarter of 2023, including eleven full and one partially loaded VLGC at RIPET, and eight full and one partially loaded VLGC at Ferndale. The partially loaded vessels are a function of revenue recognition taking place at the point of ship loading and select loadings taking place over quarter ends. Higher export volumes were driven by continued improvement in AltaGas' operating and logistical capabilities, strong ongoing customer demand in Asia , and higher available LPG supply. AltaGas remains focused on partnering with North American producers, aggregators, and Asian downstream customers to increase direct market access through long-term LPG tolling arrangements. The Company made continued progress on tolling initiatives during the quarter and believes there is a path to push towards 60 percent or higher tolling over a multi-year time horizon. AltaGas also continued to actively hedge merchant export volumes to proactively lock-in structural margins and de-risk cashflows.

Performance across the balance of the Midstream platform was strong and in line with AltaGas' expectations. Although gas processing volumes were down modestly year-over-year during the third quarter of 2023 due to the turnaround at the Edmonton Ethane Extraction Plant ("EEEP") and lower processing volumes at the Harmattan Co-stream due to a pipeline tie-in, volumes have since recovered and continue to reflect the improved industry activity levels and strong macro fundamentals. Volumes across the balance of the platform were strong and included nine percent year-over-year growth in the Montney during the third quarter with a strong resumption of development activity. Fractionation volumes were up 12 percent year-over-year during the third quarter of 2023, including strong increases across Harmattan, Younger, and North Pine . AltaGas' realized frac spread averaged $23.75 /Bbl, after transportation costs, as most of AltaGas' frac exposed volumes were hedged at approximately US$27.33 /Bbl in the third quarter of 2023, prior to transportation costs.

AltaGas is well hedged for the remainder of 2023 with 87 percent of AltaGas' fourth quarter 2023 expected global export volumes tolled or financially hedged with merchant volumes hedged at an average Far East Index (FEI) to North American financial hedge price of approximately US$18.13 /Bbl. The Company has also have been actively hedging its 2024 exposure, with 76 percent of AltaGas' first quarter 2024 expected global export volumes tolled or financially hedged with merchant volumes hedged at an average FEI to North American financial hedge price of approximately US$17.17 /Bbl. AltaGas is also more than 50 percent tolled or financially hedged for second and third quarter of 2024 expected global export volumes. In addition, approximately 77 percent of the Company's fourth quarter 2023 expected frac exposed volumes are hedged at approximately US$26.83 /Bbl, prior to transportation costs. AltaGas continues to actively manage risk across the Midstream platform through commercial constructs and a systematic hedging program that covers key revenue and operating costs.

On October 20, 2023 , AltaGas entered a five-year transportation agreement with CN. The agreement provides AltaGas and its customers with cost and service predictability to support AltaGas' growing LPG exports to Asia , which support ongoing resource development across Western Canada , and provides energy security to the Company's downstream customers in Asia .

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Utilities

Normalized EBITDA in the Utilities segment was $71 million in the third quarter of 2023, compared to $115 million in the same quarter of 2022 with a loss before income taxes of $16 million in the third quarter of 2023 compared to income before income taxes of $54 million in the same quarter of 2022. The largest driver of the year-over-year decrease in Utilities financial performance was the larger-than-normal third quarter 2022 asset optimization contribution at Washington Gas, which is shared with customers, and the lost contribution of the Alaskan Utilities, which were divested in March of 2023, and had contributed $13 million of normalized EBITDA in the third quarter of 2022. Other factors impacting third quarter results on a year-over-year basis included higher operating and administrative expenses during the third quarter of 2023 and modestly lower contribution from the WGL Retail Energy business. These factors were partially offset by contributions from ongoing asset investments across the network through various Accelerated Replacement Programs ("ARPs") and a favorable foreign exchange rate.

AltaGas continued to upgrade critical infrastructure and make ongoing investments on behalf of its customers during the third quarter of 2023 with the deployment of $204 million of invested capital, including $130 million deployed across the Company's various ARP modernization programs. These investments continue to be directed towards improving the safety and reliability of the system and connecting new customers to the critical energy they require to carry out everyday life. The modernization investments should also bring long-term operating cost benefits to our customers. AltaGas will continue to make these critical investments on behalf of our customers in the years ahead, while balancing the need for ongoing customer affordability. This latter focus is particularly important during the current economic environment of higher interest rates and inflation across the broader economy. AltaGas continues to be acutely focused on cost management across the Utilities platform, managing capital investments, and driving the best outcomes for its customers and stakeholders.

On August 29, 2023 , the SCC of VA adopted the Hearing Examiner's report for the Virginia rate case, approving approximately US$41 million of incremental base rates plus approximately US$32 million of SAVE surcharges for a total rate increase of approximately US$73 million and ROE of 9.65 percent.

On October 20, 2023 , Washington Gas executed a definitive agreement with Opal Fuels to support a RNG project at the Prince William County Landfill in Virginia . As part of the agreement, Washington Gas will become an offtake customer for RNG production volumes and purchase key interconnect infrastructure for approximately US$25 million , which is anticipated to become part of the Washington Gas' rate base and will be eligible to earn a 100-bps premium to its allowed ROE in the jurisdiction as part of the Virginia Energy Innovation Act, subject to regulatory approval.

On October 25, 2023 , Washington Gas received a proposed system modernization extension in Maryland which will run through to 2028. The Public Law Judge has recommended that the commission approve approximately US$330 million of capital to modernize our system and improve safety and reliability. This builds on our ARP program in Virginia that was recently extended to the end of 2027.

Washington Gas' D.C. and Maryland rate cases remain ongoing, and the Company expects a decision prior to 2023 year-end in Maryland and during the first quarter of 2024 in D.C.

Corporate/Other

The Corporate/Other segment realized a $4 million normalized EBITDA loss in for the third quarter of 2023, compared to income of $10 million in the same quarter of 2022.  Loss before income taxes in the Corporate/Other segment was $96 million in the third quarter of 2023, compared to a loss of $77 million in the same quarter of 2022. The decrease in normalized EBITDA was mainly due to a lower contribution from Blythe, higher expenses related to employee incentive plans due to the increase in AltaGas' share price during the third quarter of 2023, as well as higher operating and administrative expenses.

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Corporate/Other

The Corporate/Other segment realized a $4 million normalized EBITDA loss in for the third quarter of 2023, compared to income of $10 million in the same quarter of 2022.  Loss before income taxes in the Corporate/Other segment was $96 million in the third quarter of 2023, compared to a loss of $77 million in the same quarter of 2022. The decrease in normalized EBITDA was mainly due to a lower contribution from Blythe, higher expenses related to employee incentive plans due to the increase in AltaGas' share price during the third quarter of 2023, as well as higher operating and administrative expenses.

Pipestone Asset Acquisition

On August 31, 2023 , AltaGas announced that it has entered into a definitive agreement with Tidewater to acquire: 1) the Pipestone Natural Gas Processing Plant Phase I and Phase II expansion project; 2) the adjacent Dimsdale Natural Gas Storage Facility; 3) the Pipestone condensate truck-in/truck-out terminal; and 4) the associated gathering pipeline systems required to operate these assets for total consideration of $650 million . This equated to approximately 7.2x estimated run-rate normalized EBITDA, inclusive of synergies and the incremental capital that AltaGas will deploy to complete the Pipestone Phase II development project.

The Pipestone transaction strengthens AltaGas' midstream value chain through an expanded footprint in the Alberta Montney and provides meaningful long-term LPG supply for our global exports' platform. The transaction is expected to be five percent EPS accretive in 2025 forward while being 0.1x net debt to normalized EBITDA credit accretive in 2025 forward. The acquisition is contingent on Tidewater and AltaGas making a positive final investment decision on the Pipestone Phase II project.

Subsequent to the announcement AltaGas has received all material regulatory approvals, including Competition Act approval, and is currently working on other condition precedents to close the transaction, which continues to be anticipated prior to 2023 year-end.

AltaGas 2023 Investor Day

AltaGas will host a 2023 Investor Day, where the Company will provide an update on its corporate strategy and outlook, share its near- and- long-term priorities, and provide 2024 financial guidance.  To register select the link below or go to AltaGas' Events and Presentations webpage.

Date: Tuesday, December 5th, 2023

Time: 9:00 a.m. ET – 12:00pm ET

Registration: Click Here to Register

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Source

https://money.tmx.com/quote/ALA/news/5815626682963044/ALTAGAS_REPORTS_STRONG_THIRD_QUARTER_2023_RESULTS