Altius Minerals Corporation press release

ALTAGAS ANNOUNCES THIRD QUARTER 2022 RESULTS

2022-10-28

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CALGARY, AB , Oct. 28, 2022 /CNW/ - AltaGas Ltd. ("AltaGas" or the "Company") (TSX: ALA) today reported third quarter 2022 financial results and provided an update on the Company's operations.

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

Normalized EPS 1 of $0.10 and GAAP EPS 2 of $(0.17) in the third quarter of 2022 compared to $0 .01 and $0.09 in the third quarter of 2021, respectively. Normalized FFO per share 1 of $0.60 and GAAP FFO per share 3 of $(1.37) in the third quarter of 2022 compared to $0.59 and $0.75 in the third quarter of 2021, respectively. Normalized EBITDA 1 of $233 million and income before income taxes of $48 million in the third quarter of 2022 compared to $239 million 4 and $89 million in the third quarter of 2021, respectively. Strong Utilities results were offset by a lower contribution from the Midstream segment. The Utilities segment reported normalized EBITDA of $115 million and income before income taxes 5 of $54 million in the third quarter of 2022 compared to $62 million and income before income taxes of $102 million in the third quarter of 2021, respectively. Strong Utilities growth was driven by strong asset optimization activities, strong margins within the Retail Marketing Business and continued capital investments across the network. The Midstream segment reported normalized EBITDA of $108 million and income before income taxes of $71 million in the third quarter of 2022 compared to $181 million and $100 million in the third quarter of 2021, respectively. Strong Global Export volumes of approximately 110,000 Bbls/d of liquified petroleum gases (LPGs) were more than offset by a combination of mainly short-term factors, including lower realized Asian-to-Canadian butane spreads, high commodity price volatility, and higher rail and ocean freight costs. On May 26, 2022 , AltaGas announced an agreement to sell its Alaskan Utilities to TriSummit Utilities Inc. ("TriSummit") for US$800 million (approximately CAD$1.1 billion ). Cash proceeds will be used to fund long-term growth opportunities and continue to strengthen the Company's balance sheet, while concentrating AltaGas' Utilities platform in the high growth Eastern U.S. region. AltaGas continues to progress the work required to gain all State and Federal approvals to close the divestiture and expects the transaction to close during the first quarter of 2023. On July 5, 2022 , AltaGas purchased the remaining 25.97 percent of Petrogas Energy Corp. ("Petrogas") from Idemitsu Canada Corporation ("Idemitsu"), for total cash consideration of $285 million . The acquisition provides AltaGas the ability to further integrate and optimize the west coast LPG export platform and solidifies the Company's position as the leading provider of North American LPGs from the west coast. Subsequent to the quarter-end, AltaGas, along with its partner Whitecap Resources Ltd. ("Whitecap"), were selected by the Government of Alberta to enter into an agreement for continued evaluation work on the Rolling Hills Carbon Sequestration Hub ("Rolling Hills"), northwest of Calgary, AB . On August 17, 2022 , AltaGas closed its offering of $250 million of 7.35 percent Fixed-to-Fixed Rate Subordinated Notes, Series 2, due August 17, 2082 . AltaGas used the net proceeds of the offering to redeem the cumulative redeemable five-year rate reset preferred shares, series C.

| _ | | (1) Non-GAAP measure; see discussion and reconciliation to US GAAP financial measures in the advisories of this news release or in AltaGas' Management's Discussion and Analysis (MD&A) as at and for the period ended September 30, 2022, which is available on www.sedar.com . (2) GAAP EPS is equivalent to Net income applicable to common shares divided by shares outstanding. (3) GAAP FFO per share is equivalent to cash from operations divided by shares outstanding. (4) In the third quarter of 2022, Management changed AltaGas' non-GAAP policy to remove normalization adjustments relating to acquired contingencies. Prior periods have been restated to reflect this change. Please refer to the Non-GAAP Financial Measures section of this MD&A for additional details. (5) The largest drivers behind the reduction in Utilities income (loss) before taxes in Q3 2022 relative to Q3 2021 was mark-to-market on unrealized hedging losses. |

CEO MESSAGE

"The third quarter highlighted our continued operational execution across the platform" said Randy Crawford , President and Chief Executive Officer. "Our Utilities business achieved record EBITDA growth and our Midstream business achieved record export volumes. The quarter exemplified the advantages of our diversified business model despite some inflationary and other pressures that challenged our Midstream business.

"Our Utilities delivered strong results in the third quarter with normalized EBITDA increasing by $53 million on a year-over-year basis. The results reflected the benefit of strong asset optimization activities at Washington Gas, solid performance at the Retail Marketing Business, and continued capital investments in infrastructure upgrades across the Utilities network. The Utilities asset optimization activities during the quarter produced considerable positive impacts for both our customers and our Company. The continued result of these efforts are providing much needed financial benefits to our customers by helping to reduce customer bills during a period of higher energy costs.

"Our Midstream business continued to deliver strong operational performance, including exporting approximately 110,000 Bbls/d of combined propane and butane to Asia from our two export terminals on the North American West Coast during the third quarter. These operating results demonstrate AltaGas' ability to deliver on higher export volumes and the Company's ability to continue to connect rising North American LPG production to premium global markets. This strong operational and volume performance was, however impacted by some inflationary and other pressures during the quarter.

"Looking ahead, we remain positive on the overall macro-outlook for the midstream platform, given the improving forward spreads for LPG's and the opportunity to mitigate some logistical inflationary costs, and we continue to focus on advancing our corporate strategy as a leading North American energy infrastructure company by safely connecting customers to reliable and affordable sources of energy, and executing our near-, medium- and long-term strategic priorities".

RESULTS BY SEGMENT

| Normalized EBITDA (1)(2) | Three Months Ended

September 30 | | | ($ millions) | 2022 | 2021 | | Utilities | 115 | 62 | | Midstream | 108 | 181 | | Corporate/Other | 10 | (4) | | Normalized EBITDA 1 | $233 | $239 |

| (1) | Non‑GAAP financial measure; see discussion in Non‑GAAP Financial Measures section of this news release. | | (2) | In the third quarter of 2022, Management has changed the composition of certain of AltaGas' non-GAAP measures such that adjustments for acquired contingencies are no longer included as normalization adjustments. This change was made as a result of Management's assessment that these contingencies are of a recurring and ongoing nature, and as such, the more appropriate methodology is to align the non-GAAP treatment of these costs and recoveries with the GAAP accounting treatment. Prior period calculations of the relevant non-GAAP measures have been restated to reflect this change. |

| Income (Loss) Before Income Taxes | | Three Months Ended

September 30 | | ($ millions) | 2022 | 2021 | | Utilities | 54 | 102 | | Midstream | 71 | 100 | | Corporate/Other | (77) | (113) | | Income Before Income Taxes | $48 | $89 |

BUSINESS PERFORMANCE

Utilities

The Utilities segment reported normalized EBITDA of $115 million in the third quarter of 2022 compared to $62 million in the third quarter of 2021, while income before income taxes was $54 million in the third quarter of 2022 compared to income before income taxes of $102 million in the third quarter of 2021. Strong year-over-year growth in normalized EBITDA was driven by increased asset optimization activities at Washington Gas, strong gas margins in WGL's Retail Marketing business, continued ongoing capital investments that AltaGas has made across the network through Accelerated Replacement Programs (ARPs) and favorable foreign exchange.

AltaGas continued to upgrade critical infrastructure with the deployment of $234 million of invested capital during the third quarter of 2022 that was focused on driving better long-term outcomes for its customers, including $123 million deployed on the Company's various ARPs. The latter of which are focused on improving the safety and reliability of the system, while delivering long-term operating cost and environmental benefits. This level of capital deployment was in line with expectations for the third quarter of 2022 and leaves AltaGas well-positioned to deliver on planned network upgrades with rate base expected to increase by a high single-digit percent year-over-year in 2022.

The Retail business generated $31 million of normalized EBITDA in the third quarter of 2022 compared to $23 million in the third quarter of 2021, which included stronger optimization margins, favourable timing of gas swap impacts, and lower than budgeted gas costs, which was partially offset by higher PJM costs. Some of this strong performance is expected to be reduced in the fourth quarter as a portion of the outperformance is timing related.

Midstream

The Midstream segment reported normalized EBITDA of $108 million in the third quarter of 2022 compared to $181 million in the third quarter of 2021, while income before income taxes was $71 million in the third quarter of 2022 compared to $100 million in the third quarter of 2021. Third quarter 2022 results were reflective of strong liquids volumes across the platform but was more than offset other factors, including lower realized Asian-to-Canadian butane spreads, high commodity price volatility, and higher rail and ocean freight costs (including fuel surcharges). The processing facilities were positively impacted by the recovery of turnaround costs from customers at the Townsend and Gordondale facilities and higher earnings at the extraction facilities driven by higher frac spreads, partially offset by the impact of the lost contribution from the Aitken Creek facility sale. Other factors negatively impacting normalized EBITDA in the Midstream segment in the third quarter of 2022 relative to the third quarter of 2021, included lower crude marketing margins, the absence of a one-time contract termination payout related to a railcar sublease agreement in the third quarter of 2021, and lower NGL marketing margins and volumes, including summer storage injection costs, partially offset by higher hedge gains at the export facilities.

AltaGas exported a robust 110,453 Bbls/d of cleaner burning LPGs to Asia in the third quarter of 2022, which was spread across 19 full and one partially loaded Very Large Gas Carriers (VLGCs). This included an average of 63,367 Bbls/d of propane exported at RIPET and an average of 47,086 Bbls/d of combined butane and propane exported at Ferndale. Given the strong year-to-date export volumes, AltaGas now expects to export slightly more than 100,000 Bbls/d in 2022 compared to previous expectations of approximately 97,000 Bbls/d.

AltaGas continues to advance its strategy to grow and optimize its Global Export operations at the RIPET and Ferndale export terminals. The Company continues to work with its partners to improve efficiencies and control costs, including optimizing rail schedules and debottlenecking capacity constraints. This is expected to reduce transport times, usage and rail costs, as well as provide greater operational flexibility. AltaGas is also expecting the delivery of two dual-fuel VLGCs in late 2023 and early 2024 that are expected to reduce total shipping costs to Asia by approximately 25 percent compared to a standard VLGC. The new vessel deployments are also expected to reduce pricing volatility for AltaGas and its customers on a longer-term basis.

Strong underlying fundamentals and commodity prices continue to underpin AltaGas' Midstream business, with realized frac spreads up over 120 percent year-over-year, offset by slightly lower volumes due to the Aitken Creek facility sale. AltaGas' realized frac spread averaged $27.78 /Bbl, after transportation costs, with most of AltaGas' frac exposed volumes financially hedged during the quarter. AltaGas is well hedged for the fourth quarter of 2022 with approximately 74 percent of expected frac exposed volumes hedged at approximately $37.85 /Bbl, prior to transportation costs. In addition, approximately 57 percent of AltaGas' fourth quarter of 2022 expected global export volumes are either tolled or financially hedged with an average FEI to North American financial hedge price of US$11.91 /Bbl for non-tolled propane and butane volumes.

Q4 2022 Midstream Hedge Program

| | | | Q4 2022 | | | Global Exports volumes hedged (%) (1) | | | 57 | | | Average propane/butane FEI to North America Average hedge (US$/Bbl) (2) | | | 11.91 | | | Fractionation volume hedged (%) (3) | | | 74 | | | Frac spread hedge rate - (CAD$/Bbl) (3) | | | 37.85 | | | | | | | |

| (1) | Approximate expected volumes hedged, includes contracted tolling volumes and financial hedges; based on the assumption of average exports of 98 MBbls/d for Q4/22 and slightly more than 100 MBbl/d for the 2022 full-year average. | | (2) | Approximate average for the period. Does not include physical differential to FSK for C3 volumes. Butane is hedged as a percentage of WTI. | | (3) | Approximate average for the period. |

Corporate/Other

The Corporate/Other segment reported normalized EBITDA of $10 million in the third quarter of 2022 compared to a $4 million loss in the same quarter of 2021, while loss before income taxes was $77 million in the third quarter of 2022 compared to a loss of $113 million in the third quarter of 2021. The $14 million year-over-year increase in normalized EBITDA was driven by a decrease in corporate expenses, primarily related to higher employee incentive plan costs in the third quarter of 2021 due to AltaGas' rising share price in 2021.

PETROGAS ACQUISITION FROM IDEMITSU

During the third quarter of 2022, AltaGas acquired the remaining 25.97% equity ownership of Petrogas from Idemitsu for total cash consideration of $285 million and the Company now owns 100% of Petrogas. The transaction was principally funded with recycled capital from the recent sale of AltaGas' non-operated interest in the Aitken Creek gas processing facility, as well as modest draws of short-term debt from the Company's existing credit facilities. AltaGas plans to later repay the modest draws on its credit facilities through the strong free cash flow growth from the asset base. Idemitsu continues to represent an important partnership for AltaGas as a Global Exports offtake customer through the Astomos Energy Joint Venture. AltaGas and Idemitsu will also continue to evaluate future opportunities and collaborate on prospective energy transition projects as both organizations pursue various lower-carbon initiatives over the long-term.

The Petrogas acquisition, along with the planned divestiture of AltaGas' Alaska Utilities that was announced in late May, is representative of the Company's opportunistic capital recycling strategy to achieve corporate objectives and create long-term value for all stakeholders, as has been demonstrated over the past three years. The underlying earnings profile of the Petrogas assets is well-aligned with this objective and should deliver strong long-term value to AltaGas' shareholders.

ROLLING HILLS CARBON SEQUESTRATION HUB APPLICATION

Subsequent to the third quarter of 2022, AltaGas and Whitecap were selected by the Government of Alberta to enter into an agreement for continued evaluation work on the Rolling Hills Carbon Sequestration Hub, northwest of Calgary, AB . The Rolling Hills Hub is a prospective open-access project that would be strategically located near AltaGas' Harmattan Gas Plant and is surrounded by Whitecap's extensive production and geological leadership in Central Alberta . The project is designed to include CO 2 injection wells, carbon storage in underground reservoirs, and various intra-hub pipelines. The agreement will permit AltaGas and Whitecap to commence a technical evaluation in the area. If successful, the parties could be awarded long-term leasing rights with the Government of Alberta for the project with a potential in-service date of 2026.

The Rolling Hills Hub is one of several projects that were selected through a competitive request for full project proposals (RFPP) process with the Government of Alberta . The Rolling Hills Hub, and other proposed hubs, have the potential to reduce carbon emissions in Alberta and continues the Canadian energy industry's long-standing global leadership for environmental stewardship. These hubs are also a continuation of the ongoing partnership between the Canadian energy industry and the Government of Alberta .

CONSOLIDATED FINANCIAL RESULTS

| | Three Months Ended

September 30 | | | | | ($ millions) | 2022 | 2021 | | | | Normalized EBITDA (1)(2) | $ 233 | $ 239 | | | | Add (deduct): | | | | | | Depreciation and amortization | (106) | (111) | | | | Interest expense | (85) | (69) | | | | Normalized income tax expense | (6) | (17) | | | | Preferred share dividends | (10) | (13) | | | | Other (2) | 1 | (28) | | | | Normalized net income (1)(2) | $ 27 | $ 1 | | | | | | | | | | Net income (loss) applicable to common shares | $ (48) | $ 25 | | | | Normalized funds from operations (1)(2) | $ 170 | $ 165 | | | | | | | | | | ($ per share except shares outstanding) | | | | | | Shares outstanding - basic (millions) | | | | | | During the period (3) | 281 | 280 | | | | End of period | 282 | 280 | | | | | | | | | | Normalized net income - basic (1)(2) | 0.10 | 0.01 | | | | Normalized net income - diluted (1)(2) | 0.10 | 0.01 | | | | | | | | | | Net income (loss) per common share - basic | (0.17) | 0.09 | | | | Net income (loss) per common share - diluted | (0.17) | 0.09 | | | | | | | | |

| (1) | Non-GAAP financial measure; see discussion in Non-GAAP Financial Measures section at the end of this news release. | | (2) | In the third quarter of 2022, Management changed AltaGas' non-GAAP policy to remove normalization adjustments relating to acquired contingencies. Prior periods have been restated to reflect this change. Please refer to the Non-GAAP Financial Measures section of this news release for additional details. | | (3) | "Other" includes accretion expense, net income applicable to non-controlling interests, foreign exchange gains, and NCI portion of non-GAAP adjustments. The portion of non-GAAP adjustments applicable to non-controlling interests are excluded in the computation of normalized net income to ensure consistency of normalizations applied to controlling and non-controlling interests. These amounts are included in the "net income applicable to non-controlling interests" line item on the Consolidated Statements of Income. | | (4) | Weighted average. |

Normalized EBITDA for the third quarter of 2022 was $233 million , compared to $239 million for the same quarter in 2021. The largest factors leading to the variance are described in the Business Performance sections above.

For the third quarter of 2022, the average Canadian/U.S. dollar exchange rate increased to 1.31 from an average of 1.26 in the same period of 2021, resulting in a $5 million increase to normalized EBITDA.

Income before income taxes was $48 million for the third quarter of 2022, compared to $89 million for the same quarter in 2021. Net loss applicable to common shares was $48 million or $0.17 per share for the third quarter of 2022, compared to net income applicable to common shares of $25 million or $0.09 per share for the same quarter in 2021. Please refer to the Three Months Ended September 30 Section of the MD&A for further details on the variance in income (loss) before income taxes and net income applicable to common shareholders.