Altius Minerals Corporation press release

ALTAGAS REPORTS SECOND QUARTER 2023 RESULTS

2023-07-28

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First Half of 2023 Results in Line with Expectations; Second Quarter Negatively Impacted by Wildfires and Hedge and Ship Timing Impacts; Reiterating 2023 Full-year Guidance

CALGARY, AB , July 28, 2023 /CNW/ - AltaGas Ltd. ("AltaGas" or the "Company") (TSX: ALA) today reported second 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 $0.06 in the second quarter of 2023 compared to $0.14 in the second quarter of 2022, while GAAP EPS 2 was $0.47 in the second quarter of 2023 compared $0.12 in the second quarter of 2022. Results were inclusive of approximately $7 million of wildfire impacts and approximately $12 million of negative hedge and ship timing impacts. These combined factors reduced normalized EPS by an approximately $0.05 in the second quarter of 2023, with the hedge and ship timing normalized EPS impact of approximately $0.03 expected to reverse in the coming quarters. Normalized EBITDA 1 was $239 million in the second quarter of 2023 compared to $276 million in the second quarter of 2022, while income before income taxes was $182 million in the second quarter of 2023 compared to $85 million in the second quarter of 2022. Results were inclusive of the wildfire, hedge, and ship timing impacts previously mentioned, with the approximate $12 million hedge and ship timing impacts expected to reverse in the coming quarters. Normalized FFO per share 1 was $0.53 in the second quarter of 2023 compared to $0.71 in the second quarter of 2022, while Cash from Operations per share 3 was $1.32 in the second quarter of 2023 compared to $1.88 in the second quarter of 2022. The decrease in normalized FFO per share was mainly due to lower normalized EBITDA and higher interest expense, including hybrid debt which replaced previous preferred shares. Results were inclusive of the wildfire, hedge, and ship timing impacts with the combined factors having a $0.07 negative normalized FFO per share impact in the second quarter of 2023, with the hedge and ship timing impacts of approximate $0.04 normalized FFO per share expected to reverse in the coming quarters. The Utilities segment reported normalized EBITDA of $102 million in the second quarter of 2023 compared to $116 million in the second quarter of 2022, while income before taxes was $105 million in the second quarter of 2023 compared to a loss before income taxes of $9 million in the same quarter of 2022. The largest driver of the year-over-year variances was the lack of contribution from the Alaskan Utilities during the second of quarter of 2023, which had contributed $15 million in the second quarter of 2022 and was subsequently divested during the first quarter of 2023. Warmer weather also had a $4 million negative impact in the second quarter of 2023 relative to the second quarter of 2022. The Midstream segment reported normalized EBITDA of $134 million in the second quarter of 2023 compared to $163 million in the second quarter of 2022, while income before taxes in the segment was $181 million in the second quarter of 2023 consistent with income before taxes of $181 million in the second quarter of 2022. Drivers of the year-over-year variances included the previously mentioned wildfires, hedge and ship timing impacts, with the hedge and ship timing impacts expected to reverse in the coming quarters, as well as the lost contribution from the Aitken Creek gas processing facility that was sold in the second quarter 2022, which had an $11 million negative year-over-year variance in the quarter. Effective July 1, 2023 , Vern Yu joined as AltaGas' President and Chief Executive Officer and was appointed to the Board of Directors. Mr. Yu has over three decades of experience in energy infrastructure, including the Utilities and Midstream sectors, across North America . AltaGas exited the second quarter of 2023 with net debt of $7.7 billion , excluding hybrid notes and preferred shares, compared to net debt of $9.3 billion at 2022 year-end, excluding hybrid notes and preferred shares. On a trailing basis AltaGas' Net Debt 1 to normalized EBITDA was approximately 5.1x at the end of the second quarter of 2023, excluding hybrid notes and preferred shares. AltaGas remains committed to further reducing its financial leverage and achieving its medium-term Net Debt to normalized EBITDA target of below 5.0x and long-term target of approximately 4.5x, excluding hybrid notes and preferred shares. During the second quarter of 2023, Fitch affirmed AltaGas' credit rating at 'BBB'/'F3' with a Stable Outlook and S&P affirmed AltaGas' credit rating at 'BBB-' with a Stable Outlook. AltaGas is pleased with the progress shown on removing the remaining milestones to complete the Mountain Valley Pipeline over the past few months, including receipt of all remaining permits to both finish construction and operate the pipeline. The pathway to completion was reinforced by the July 27, 2023 U.S. Supreme Court's ruling to vacate the stays that were placed on the pipeline by the Fourth Circuit. On April 4, 2023 , AltaGas and Royal Vopak (Vopak) entered a 50/50 joint venture to develop the Ridley Island Energy Export Facility (REEF), a large-scale LPG and bulk liquids terminal and marine infrastructure on Ridley Island . REEF further bolsters AltaGas' industry-leading liquified petroleum gases (LPG) export business, adding additional egress for domestic customers to premium global downstream markets. In April 2023 , AltaGas entered into a seven-year time charter agreement with two one-year optional extensions for a new 86,700 cubic meter dual-fuel Very Large Gas Carrier (VLGC) with delivery expected in the first half of 2026. The agreement further reduces AltaGas' maritime shipping costs by approximately 25 percent relative to normal Baltic freight forward pricing while lowering pricing volatility. On May 15, 2023 , AltaGas closed its offering of $400 million senior unsecured medium-term notes with a coupon rate of 4.638 percent, due on May 15, 2026 . The net proceeds were used to pay down existing indebtedness under AltaGas' credit facility and to refinance the senior unsecured medium-term note that matured in June 2023 . On May 18, 2023 , Washington Gas filed an application for authority to increase rates in Maryland . The requested rates are designated to collect an incremental US$28 million in revenues, net of approximately US$21 million of costs currently collected through its Accelerated Replacement Programs (ARP) modernization program, the Strategic Infrastructure Development Enhancement Plan (STRIDE) surcharge. The Maryland Public Service Commission (PSC of MD) has 210 days to consider the application and a decision is expected around mid-December 2023 . On June 16, 2023 , Washington Gas filed an application with the PSC of MD for the third phase of its ARP modernization program, seeking approval for approximately US$495 million of modernization investments on behalf of our customers over the five-year period from January 1, 2024 to December 31, 2028 . On April 23, 2023 , Washington Gas, State Corporation Commission (SCC) of Virginia Staff and the Office of the Attorney General filed a proposed stipulation for a settlement that includes a revenue increase of US$73 million and return on equity of 9.65 percent. On July 17, 2023 , the Hearing Examiner report was issued recommending the SCC of Virginia approve the proposed stipulation with certain recommendations. Remaining process steps on the rate case are expected to be concluded in the coming months.

| _ | | 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 June 30, 2023, which is available on www.sedar.com . (2) GAAP EPS is equivalent to Net income applicable to common shares divided by shares outstanding. (3) Cash from Operations per share is equivalent to cash from operations divided by shares outstanding. |

CEO MESSAGE

"I'm excited to have joined AltaGas. I've already had the opportunity to immerse myself into the business, visit offices and operations, and connect with employees, customers, partners, and shareholders. My enthusiasm towards the opportunity has only grown since starting, and I'm excited to leverage the Company's exceptional assets in the months and years ahead.

"I came to AltaGas because I saw an opportunity to create a resilient and growing infrastructure platform with a robust investment proposition. The Company is positioned to deliver industry-leading dividend growth through stable and increasing cashflows, improving our risk-profile through low-risk commercial frameworks, and ongoing balance sheet de-leveraging. AltaGas has a visible multi-year growth profile through large modernization programs and ongoing customer additions at the Utilities as well as continued global export volume growth and value chain investment opportunities across the Midstream platform.

"The long-term fundamentals for AltaGas' business are robust. The Canadian upstream industry will deliver robust growth in natural gas and associated natural gas liquids (NGLs) production in the coming years, as feedstock for LNG Canada is brought online. These growing NGL volumes are best suited to be delivered to key Asian demand markets, with AltaGas and our customers positioned to benefit from the structural west coast pricing advantage relative to other LPG supply sources in the U.S. Gulf Coast or Arabian Gulf. Our Utilities have a bright future with natural gas remaining the largest home energy source across our jurisdictions and electrical substitution costs being more than three times the cost of natural gas on a delivered basis. In the years ahead, we will be acutely focused on balancing the critical needs of energy affordability and reliability with regional and national climate goals.

"You can expect AltaGas to continue its commitment towards strong community partnerships and engagement with Indigenous right holders and stakeholders in the coming years. These values align with my own principles, and I believe are the foundation for long-term sustainability. As we complete a quarter that included impacts to our Canadian Midstream operations due to the devastating wildfires across Alberta and B.C., our thoughts are with the people and communities affected by these ongoing tragic events. I want to thank our dedicated employees who were involved in the wildfire relief and helped the recovery efforts across the communities where we live and serve. Their actions are a direct reflection of the organization's culture and resolve to come together in times like these.

"Despite the negative wildfire and hedge timing impacts present in the second quarter of 2023, our first half of 2023 results are in line with our expectations, and we are reiterating our 2023 full-year guidance, including normalized EPS of $1.85 - $2.05 and normalized EBITDA of $1.5 billion - $1.6 billion ."

RESULTS BY SEGMENT

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

June 30 | | | ($ millions) | 2023 | 2022 | | Utilities | 102 | 116 | | Midstream | 134 | 163 | | Sub-total: Operating Segments | 236 | 279 | | Corporate/Other | 3 | (3) | | | $ 239 | $ 276 |

| (1) | Non‑GAAP financial measure; see discussion in _Non ‑ GAAP Financial Measures _section of this new 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. |

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

June 30 | | ($ millions) | 2023 | 2022 | | Utilities | 105 | (9) | | Midstream | 181 | 181 | | Sub-total: Operating Segments | 286 | 172 | | Corporate/Other | (104) | (87) | | | $ 182 | $ 85 |

BUSINESS PERFORMANCE

Utilities

The Utilities segment reported normalized EBITDA of $102 million in the second quarter of 2023, compared to $116 million in the same quarter of 2022. Income before income taxes was $105 million in the second quarter of 2023, compared to a loss before income taxes of $9 million in the same quarter of 2022. The largest driver of the year-over-year variances in normalized EBITDA was the lack of contribution from the Alaskan Utilities during the second quarter of 2023, which had contributed $15 million in the second quarter of 2022 and was subsequently divested during the first quarter of 2023.

Positive factors impacting second quarter results on a year-over-year basis in 2023 included contribution from ongoing asset investments on behalf of our customers across the network through various ARP modernization programs, interim rates being in place in Virginia as part of the rate case, and favorable foreign exchange rates. These positive factors were offset by higher operating and administrative expenses, warmer weather in Michigan and the District of Columbia , which had a $4 million negative year-over-year variance in the quarter, and modestly lower contribution from the Retail energy business.

AltaGas continued to upgrade critical infrastructure and make ongoing investments on behalf of its customers during the second quarter of 2023 with the deployment of $198 million of invested capital 1 , including $125 million deployed on the Company's various 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. These investments should also bring long-term operating cost benefits to our customers. AltaGas will continue to make these critical modernization 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 judicious cost management across the Utilities platform and driving the best outcomes for its customers and stakeholders.

On April 23, 2023 , Washington Gas, SCC of Virginia (VA) Staff and the Office of the Attorney General filed a proposed stipulation for a settlement that includes a revenue increase of US$73 million and return on equity of 9.65 percent. The proposed stipulation is pending the Commission review. The evidentiary hearing was held on May 2, 2023 , and letters in lieu of briefs were filed on June 9, 2023 . On July 17, 2023 , the Hearing Examiner report was issued and recommended the SCC of Virginia approve the proposed stipulation with certain recommendations. Remaining process steps on the rate case are expected to be concluded in the coming months.

On May 18, 2023 , Washington Gas filed an application for authority to increase rates in Maryland . The requested rates are designated to collect an incremental US$28 million in revenues, net of approximately US$21 million of costs currently collected through the STRIDE modernization surcharge. The PSC of MD has 210 days to consider the application and a decision is expected around mid-December 2023 . On June 16, 2023 , Washington Gas also filed an application with the PSC of MD for the third phase of its STRIDE modernization program, seeking approval for approximately US$495 million of modernization investments over the five-year period on behalf of our customers from January 1, 2024 , to December 31, 2028 . These applications are focused on providing Washington with the capacity to make ongoing modernization investments across Maryland , with timely rate recovery mechanisms, and continue to provide the vital energy required to carry out everyday life in the jurisdiction.

Midstream

The Midstream segment reported normalized EBITDA of $134 million in the second quarter of 2023 compared to $163 million in the same quarter of 2022. Income before income taxes was $181 million in the second quarter of 2023, consistent with the $181 million in the same quarter of 2022. One-time items impacting year-over-year results included the Canadian wildfires with the North Pine fractionation facility declaring force majeure for 12.5 days plus other one-time costs associated with the wildfires that aggregated to an approximate $7 million impact across the platform, and the lost contribution from the Aitken Creek gas processing facility, which had an $11 million negative year-over-year variance in the second quarter of 2023.

Second quarter 2023 results included strong operations and year-over-year volume growth across the Midstream segment that was more than offset by the impact of wildfires, lower marketing profits, a lower contribution from a favourable resolution of certain contingencies that was present in the second quarter of 2022, lower realized butane margins in the global export business and the continued impact from previous decisions around not hedging butane inventories as have been discussed during the past three quarters, the lost contribution from the Aitken Creek gas processing facility that was sold in the second quarter of 2022, and lower realized pricing on fractionation volumes. Other positive factors impacting normalized EBITDA included the benefit of the Allowance for Funds Used During Construction (AFUDC) at MVP as a result of the resumption of construction activities in June 2023 , higher power revenue at Harmattan primarily due to stronger power prices and the facility selling excess power not needed for operations to the Alberta grid, and the sale of greenhouse gas credits at the processing facilities due to AltaGas' net credit position.

AltaGas remains focused on partnering with Western Canadian producers and aggregators to increase direct global market access through long-term tolling arrangements that can drive the best collective outcomes for all parties, while also having an active hedging program to proactively lock in structural margins and de-risk cashflows for merchant exports. AltaGas exported 115,589 Bbls/d of LPGs to Asia during the second quarter of 2023, including 11 full and one partially loaded VLGC at RIPET, and eight VLGCs loaded at Ferndale . Higher export volumes were driven by continued improvement in AltaGas and its partner's operating and logistical capabilities, strong ongoing customer demand in Asia , and higher available LPG supply.

Gas processing volumes in the second quarter of 2023 increased 12 percent year-over-year and were in line with the Company's expectations. The increase was primarily due to higher producer volumes at the Townsend facility, higher volumes at the Harmattan raw gas and co-stream facilities, and strong contribution from the Younger facility due to higher seasonal demand, partially offset by the impact of the Aitken Creek sale in the second quarter of 2022.

Fractionation volumes for the second quarter of 2023 increased by 9,420 Bbls/d (33%) compared to the same quarter of 2022. Higher fractionation volumes were a result of higher North Pine volumes and utilization, higher Harmattan trucked-in NGL mix and raw gas volumes, and higher volumes and utilization at the Younger facility.

AltaGas' realized frac spread averaged $23.87 /Bbl, after transportation costs, as most of AltaGas' frac exposed volumes were hedged at approximately $26.83 /Bbl in the second quarter of 2023, prior to transportation costs. AltaGas is well hedged for 2023 with approximately 85 percent of its remaining 2023 expected frac exposed volumes hedged at approximately US$27 /Bbl, prior to transportation costs. In addition, approximately 77 percent of AltaGas' remaining 2023 expected global export volumes are either tolled or financially hedged with an average Far East Index (FEI) to North American financial hedge price of approximately US$15.32 /Bbl for non-tolled propane and butane volumes.