AltaGas Ltd. (“AltaGas” or the “Company”) reported second quarter 2024 financial results and provided an update on its operations and other corporate developments.
HIGHLIGHTS
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)
Normalized EPS1 was $0.14 in the second quarter of 2024 compared to $0.07 in the second quarter of 2023, while GAAP EPS2 was a $0.14 loss in the second quarter of 2024 compared to $0.47 in the second quarter of 2023. Normalized EPS growth was driven by strong performance across the enterprise.
Normalized EBITDA1 was $295 million in the second quarter of 2024 compared to $239 million in the second quarter of 2023, while loss before income taxes was $46 million in the second quarter of 2024 compared to income before taxes of $182 million in the second quarter of 2023. The quarter included strong year-over-year growth in the Midstream and Utilities businesses, driven by record global export volumes, strong cost management, and the benefit of recent capital investments.
Normalized FFO per share1 was $0.61 in the second quarter of 2024 compared to $0.53 in the second quarter of 2023, while cash from operations per share3 was $1.52 in the second quarter of 2024 compared to $1.32 in the second quarter of 2023.
The Utilities segment reported normalized EBITDA of $122 million in the second quarter of 2024 compared to $102 million in the second quarter of 2023, while income before taxes was $31 million in the second quarter of 2024 compared to $105 million in the second quarter of 2023. The largest drivers of the year-over-year growth in Utilities normalized EBITDA were active cost management, contribution from continued investments in rate base, and strong performance from the Retail business.
The Midstream segment reported normalized EBITDA of $175 million in the second quarter of 2024 compared to $134 million in the second quarter of 2023, while income before taxes was $46 million in the second quarter of 2024 compared to $181 million in the second quarter of 2023. The largest contributors to the year-over-year increase in Midstream normalized EBITDA were record global export volumes, strong fractionation and liquids handling contribution, and the addition of the Pipestone gas processing and storage assets. AltaGas exported a record of 123,285 Bbl/d of liquified petroleum gases (“LPGs”) to Asia in the quarter, a seven percent year-over-year increase.
AltaGas continued to advance key Midstream growth projects in the second quarter. This included AltaGas and Royal Vopak reaching a positive final investment decision (“FID”) on the Ridley Island Energy Export Facility (“REEF”), a large-scale LPG and bulk liquids terminal on Ridley Island, B.C. REEF is a $1.35 billion project slated to come online near 2026 year-end, with an initial export capacity of 55,000 Bbls/d of propane and butane and will have large expansion opportunities. The partnership continues to de-risk the project, having executed fixed price engineering, procurement and construction (“EPC”) contracts for approximately 40 percent of projected costs with an additional 10 percent expected to be awarded in the coming weeks and the remaining balance to be awarded over the project execution plan.
Work continued on the Pipestone II expansion project in the Alberta Montney during and subsequent to quarter-end with the two acid gas injection wells drilled, completed and awaiting tie-in. Work is also currently advancing on the gas gathering system with cooperative weather conditions to date. 92 percent of the Pipestone expansion project costs are now fixed, and we remain on budget and on track for a late 2025 in-service date.
The Mountain Valley pipeline (“MVP”) in the Appalachian Basin was completed and placed into service in June of 2024 with firm service contracts coming into effect July 1, 2024. The 2.0 Bcf/d pipeline is fully subscribed with 20-year contracts with investment grade counterparties. The pipeline is expandable by an additional 500 MMcf/d through additional compression. AltaGas has a ten percent non-operated equity stake in the pipeline and the Company is evaluating a sale of its interest to accelerate AltaGas’ deleveraging strategy.
During the second quarter of 2024, AltaGas executed an agreement to construct and contract an additional time charter for a very large gas carrier (“VLGC”) for a ten-year term with optional extensions. The time charter is expected to be commissioned in late 2026. The agreement represents AltaGas’ fifth time charter with three currently operating and two under construction. This fifth agreement will further reduce and de-risk AltaGas’ shipping costs, with materially all of AltaGas’ expected Baltic freight exposure protected through time charters, financial hedges, and tolled volumes in 2024.
Subsequent to the quarter, AltaGas issued $250 million of senior unsecured medium-term notes with a 5.60 percent coupon, due on March 14, 2054. The net proceeds were used to pay down amounts drawn on the syndicated credit facility, which was incurred when the Company repaid its term loan on June 28, 2024.
Following a strong second quarter, AltaGas is reiterating the Company’s 2024 full year guidance, including normalized EPS1 of $2.05 to $2.25, and normalized EBITDA1 of $1,675 million to $1,775 million.
CEO MESSAGE
“We’re pleased with our strong second quarter results, which reflect the strength of operating businesses and the structural tailwinds behind them. Performance in the quarter was modestly ahead of our expectations and positions AltaGas well to deliver on our 2024 guidance” said Vern Yu, President and Chief Executive Officer. “As we look ahead we will continue to execute on our strategic priorities of lowering the business risk profile, executing on our organic growth projects and sustainably growing our earnings and cash flows.
“Midstream performance was strong in the second quarter, including record global export volumes. These volumes highlight the strength of our export business. Performance across the other parts of the Midstream segment were also strong with gas processing volumes up six percent, fractionation and liquids handling volumes up 14 percent, and extraction volumes up 32 percent on a year-over-year basis.
“We continue to focus on de-risking our Midstream operations to generate stable and predictable results. This includes recently finalizing long-term agreements for an additional 18 percent of REEF’s Phase I throughput capacity. We continue to have advanced tolling negotiations with multiple counterparties for more than 100 percent of REEF’s initial capacity. These agreements build on AltaGas’ previously announced success in securing 56 percent of our expected export volumes under tolling agreements, which started in the second quarter of 2024. During the second quarter we also executed an additional agreement to construct a fifth VLGC time charter, which continues to lock in maritime shipping costs and de-risk long-term operations.
“Performance in our Utilities business was in line with our expectations and continued to deliver stable earnings growth for the enterprise, despite warmer-than-normal weather in Michigan and the District of Columbia (“D.C.”). The quarter included the benefit of active cost management through reduced operating and administrative costs, increased revenue from ongoing rate base investments across our network, and strong Retail performance. Our Utilities capital investment during the quarter was focused on meeting the needs of our expanding customer base and supporting long-term safety and reliability needs through our asset modernization programs. Our natural gas Utilities have a bright future as the lowest cost and most reliable form of residential and commercial heating across our jurisdictions.
“We’re excited about AltaGas’ long-term outlook and the value that can be created through continuing to execute on our strategic plan. We remain very positive on the macro fundamentals for natural gas, natural gas liquids (“NGLs”) and the outlook for both our businesses. We continue to make significant progress optimizing and expanding our Midstream business, including filling remaining latent capacity, while constructing the REEF and Pipestone II projects that support our next phase of growth. We also continue to make large investments in our Utilities to meet our customers’ long-term needs and ensure that we are positioned to deliver the critical energy required to keep society moving forward.”
BUSINESS PERFORMANCE
Midstream
The Midstream segment reported normalized EBITDA of $175 million in the second quarter of 2024 compared to $134 million in the second quarter of 2023, while income before income taxes was $46 million in the second quarter of 2024 compared to $181 million in the second quarter of 2023. The largest drivers of the year-over-year increase in Midstream normalized EBITDA included strong performance from the global exports business driven by record volumes, stronger contributions from the fractionation and liquids handling business, the addition of the Pipestone gas processing and storage assets, and the absence of wildfire impacts that were present in the second quarter of 2023. These factors were partially offset by the absence of certain acquisition-related commercial disputes and contingencies that were present in the second quarter of 2023, higher operating and administrative expenses, lower sales of greenhouse gas credits, and lower contribution at the extraction facilities due to higher re-injection of ethane volumes.
AltaGas continues to actively de-risk the Midstream platform with a focus on generating stable and predictable earnings and cash flow. We have recently finalized long-term agreements for an additional 18 percent of REEF’s Phase I throughput capacity and continue to have advanced tolling discussions with multiple counterparties for more than 100 percent of REEF’s initial capacity. A portion of these incremental long-term volumes will be moved through AltaGas’ export platform immediately while others will be delivered as REEF enters service. These agreements build on our previously announced success in securing 56 percent of AltaGas’ expected export volumes under tolling agreements starting in the second quarter of 2024. These announcements are aligned with AltaGas’ long-term target of reaching approximately 60 percent tolling across its global export platform by 2027.
During the second quarter of 2024, AltaGas executed an agreement to construct and contract an additional VLGC time charter for a ten-year term with optional extensions. The time charter is expected to be commissioned during 2026. The agreement represents AltaGas’ fifth time charter with three time charters currently operating and two under construction. This fifth agreement will further reduce and de-risk AltaGas’ maritime shipping costs, with materially all of AltaGas’ expected Baltic freight exposure protected through time charters, financial hedges, and tolled volumes in 2024.
AltaGas exported 123,285 Bbls/d of LPGs to Asia in the second quarter of 2024, including 12 VLGCs at RIPET, and 8 VLGCs at Ferndale. This represented a seven percent year-over-year increase from the second quarter of 2023 and was underpinned by strong execution at both terminals, increased LPG supply in Western Canada, and robust demand in Asia.
Over the longer-term, AltaGas continues to see growing demand for LPG exports driven by the Company’s structural shipping advantage to Asia and access to low-cost Canadian supply. This structural advantage was amplified in recent quarters due to the restricted vessel traffic through the Panama Canal, which has resulted in additional demand for reliable and ratably-sourced Canadian LPGs. This highlights the mutual benefits of a growing Canadian-Pacific energy partnership and the critical role Canada can play in providing long-term energy security.
Late in the second quarter, MVP was completed and placed into service with firm service contracts effective July 1, 2024. The interstate natural gas pipeline spans more than 300 miles from Northwestern West Virginia to Southern Virginia, where it connects into Transco Pipeline system. MVP has 2.0 Bcf/d of capacity, which is fully subscribed with 20-year contracts with investment grade counterparties. The pipeline is expandable by an additional 500 MMcf/d through incremental low-cost compression. As previously disclosed, AltaGas has a 10 percent non-operated equity stake in the pipeline and the Company is evaluating a sale of its interest to accelerate AltaGas’ deleveraging strategy.
In line with the Company’s de-risking focus, AltaGas’ Midstream operations are well-hedged for 2024 with approximately 87 percent of the remaining 2024 expected global export volumes tolled or financially hedged. Merchant volumes are hedged at an average Far East Index (“FEI”) to North American financial hedge price of approximately US$16.96/Bbl. Tolling volumes are in line with historical tolls. Approximately 86 percent of the Company’s 2024 expected frac exposed volumes are hedged at approximately US$25.64/Bbl, prior to transportation costs.
Utilities
The Utilities segment reported normalized EBITDA of $122 million in the second quarter of 2024 compared to $102 million in the second quarter of 2023, while income before income taxes was $31 million in the second quarter of 2024 compared to $105 million in the second quarter of 2023. The largest drivers of the year-over-year growth in Utilities normalized EBITDA included active cost management, contribution from continued investments in rate base on behalf of our customers, strong performance from the Retail business, and the positive impact of the D.C. rate case. These factors were partially offset by the impact of the Maryland and Virginia rate cases, decreased asset optimization activities at Washington Gas, and warmer weather in Michigan, where AltaGas does not have weather normalization.
During the second quarter of 2024, AltaGas took several active steps focused on ensuring the Company’s long-term operating costs are aligned with existing rate structures and allowed operations and maintenance costs in each jurisdiction. These cost efficiencies will also provide additional room to continue to make ongoing rate base investments to expand and modernize the network while managing customer bills. Looking ahead, AltaGas will continue to manage costs for the long-term benefit of our customers while maintaining the same regulatory and capital discipline.
AltaGas continued to make investments across its Utilities assets to improve the safety and reliability of the system on behalf of customers during the second quarter of 2024. This included investing $178 million across the Utilities network, with approximately $92 million through the Company’s various asset modernization programs. These investments continue to be directed towards improving the safety and reliability of the system and connecting customers to the critical energy they require to carry out everyday life. These investments should also reduce leak rates and bring long-term operating cost benefits to our customers. AltaGas will continue to make these critical investments, while balancing the need for ongoing customer affordability, which is particularly important during the current economic environment of higher interest rates and affordability challenges.
During the quarter, SEMCO Energy submitted its Main Replacement Program (“MRP”) and Infrastructure Reliability Improvement Program (“IRIP”) amendment application, seeking approval from the Michigan Public Service Commission (“MPSC”) to extend these modernization programs for approximately US$46 million and US$68 million, respectively, for the period 2025 to 2027. This will allow AltaGas to make critical long-term investments in Michigan to reinforce our network and deliver safe and reliable operations.
Corporate/Other
In the Corporate/Other segment, normalized EBITDA was a loss of $2 million in the second quarter of 2024 compared to normalized EBITDA of $3 million in the same quarter of 2023, while loss before income taxes was $123 million in the second quarter of 2024 compared to a loss of $104 million in the second quarter of 2023. After some extended downtime in the first quarter, the Blythe Power Plant operated at full capacity in the second quarter of 2024 and is expected to remain operating at capacity for the remainder of the year.
CONSOLIDATED FINANCIAL RESULTS
Normalized EBITDA for the second quarter of 2024 was $295 million compared to $239 million for the same quarter in 2023. The largest factors contributing to the year-over-year increase are described in the Business Performance sections above.
Loss before income taxes was $46 million for the second quarter of 2024 compared to income before income taxes of $182 million for the same quarter in 2023. The decrease was mainly due to unrealized losses on risk management contracts compared to unrealized gains in the second quarter of 2023, higher interest expense, the absence of favourable working capital adjustments related to the Alaska Utilities Disposition in the second quarter of 2023, higher transition and restructuring costs, and higher depreciation and amortization expense, partially offset by the same previously referenced factors impacting normalized EBITDA. Please refer to the “Three Months Ended June 30” section of the Q2 2024 management’s discussion and analysis (“MD&A”) for further details on the variance in income before income taxes and net income applicable to common shareholders.
Normalized net income was $41 million or $0.14 per share for the second quarter of 2024, compared to $20 million or $0.07 per share reported for the same quarter of 2023.
Normalized FFO was $180 million or $0.61 per share for the second quarter of 2024, compared to $150 million or $0.53 per share for the same quarter in 2023. The increase was mainly due to the same previously referenced factors impacting normalized EBITDA and the impact of non-cash items included in normalized EBITDA, partially offset by higher interest expense and higher normalized current income tax expense.
Depreciation and amortization expense was $117 million for the second quarter of 2024, compared to $112 million for the same quarter in 2023. The increase was mainly due to depreciation expense on the Pipestone assets and the impact of new assets placed in-service.
Interest expense for the second quarter of 2024 was $111 million, compared to $93 million for the same quarter in 2023. The increase was mainly due to higher average interest rates, higher average debt balances, and incremental hybrid interest costs due to the issuance of additional hybrid notes in the third quarter of 2023 which replaced preferred shares, and a higher average Canadian/U.S. dollar exchange rate, partially offset by higher capitalized interest. Interest expense recorded on the subordinated hybrid notes in the second quarter of 2024 was $13 million compared to $8 million in the second quarter of 2023.
Income tax recovery was $12 million for the second quarter of 2024, compared to an income tax expense of $38 million for the same quarter of 2023. The decrease in income tax expense was mainly due to lower income before income taxes.
FORWARD FOCUS, GUIDANCE AND FUNDING
AltaGas continues to execute on its long-term strategy of building a diversified platform that operates long-life energy infrastructure assets that connect customers and markets and are positioned to provide resilient and growing value for the Company’s stakeholders.
AltaGas expects to achieve its previously disclosed 2024 guidance, including:
2024 normalized EPS guidance of $2.05 – $2.25, compared to normalized EPS of $1.90 and GAAP EPS of $2.27 in 2023; and
2024 normalized EBITDA guidance of $1,675 million – $1,775 million, compared to normalized EBITDA of $1,575 million and income before taxes of $912 million in 2023.
AltaGas is focused on delivering resilient and growing normalized EPS and FFO per share while targeting lower leverage ratios. This strategy is designed to support steady dividend growth and provide the opportunity for ongoing capital appreciation for long-term shareholders.
AltaGas is maintaining a disciplined, self-funded capital program of approximately $1.3 billion, excluding asset retirement obligations (“ARO”). The Company is allocating approximately 54 percent of AltaGas’ consolidated 2024 capital to its Utilities business, approximately 42 percent to the Midstream business and the balance to the Corporate/Other segment.
The Company expects to maintain an equity self-funding model in 2024, for the fifth consecutive year, and will fund capital requirements through a combination of internally generated cash flows and investment capacity associated with rising EBITDA levels. Asset sales will be considered on an opportunistic basis, with any potential proceeds to be used to reduce outstanding debt and continue to increase the financial flexibility of AltaGas.
CONFERENCE CALL AND WEBCAST
AltaGas will hold a conference call today, August 1, 2024, at 8:00 a.m. MT (10:00 a.m. ET) to discuss second quarter of 2024 results and other corporate developments.
Date:
Thursday, August 1, 2024
Time:
8:00 a.m. MT (10:00 a.m. ET)
Webcast:
https://app.webinar.net/lgkqJE3AQyR
Dial-in (Audio only):
1-416-764-8659 or toll free at 1-888-664-6392
Shortly after the conclusion of the call a replay will be available on the Company’s website or by dialing 416-764-8677 or toll free 1-888-390-0541. Passcode 686116#.
AltaGas’ Consolidated Financial Statements and accompanying notes for the second quarter of 2024, as well as its related MD&A, are now available online at www.altagas.ca. All documents will be filed with the Canadian securities regulatory authorities and will be posted under AltaGas’ SEDAR+ profile at www.sedarplus.ca.
