AltaGas Ltd. (“AltaGas” or the “Company”) reported third 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 third quarter of 2024 compared to $0.08 in the third quarter of 2023, while GAAP EPS2 was $0.03 in the third quarter of 2024 compared to a loss of $0.18 in the third quarter of 2023. Year-over-year normalized EPS growth was primarily driven by strong Utilities performance.
Normalized EBITDA1 was $294 million in the third quarter of 2024 compared to $252 million in the third quarter of 2023, while income before income taxes was $20 million in the third quarter of 2024 compared to a loss before income taxes of $51 million in the third quarter of 2023. The 17 percent year-over-year growth in normalized EBITDA was principally driven by strong Utilities performance, as outlined below.
Normalized FFO per share1 was $0.35 in the third quarter of 2024 compared to $0.50 in the third quarter of 2023, while cash from operations per share3 was $0.07 in the third quarter of 2024 compared to $0.01 in the third quarter of 2023.
The Utilities segment reported normalized EBITDA of $117 million in the third quarter of 2024 compared to $71 million in the third quarter of 2023, while income before taxes was $24 million in the third quarter of 2024 compared to a loss of $16 million in the third quarter of 2023. Strong year-over-year growth was principally driven by the partial settlement of Washington Gas’ post-retirement benefit pension plan, contributions from rate base and accelerated replacement programs (“ARP”) investment, and enhanced cost controls.
The Midstream segment reported normalized EBITDA of $181 million in the third quarter of 2024 compared to $185 million in the third quarter of 2023, while income before taxes was $123 million in the third quarter of 2024 compared to $61 million in the third quarter of 2023. Despite rail outages due to the Alberta wildfires and national rail strike that drove higher one-time operating costs, AltaGas was able to deliver strong financial performance due to operational execution.
AltaGas exported a record of 128,272 Bbl/d of liquified petroleum gases (“LPGs”) to Asia in the quarter, a nine percent year-over-year increase. Strong export volumes and contributions from the Pipestone assets were offset by lower export margins (including the impact of higher percentage of tolling contracts), higher long-term incentive costs due to AltaGas’ rising share price, and a lower year-over-year contribution from the Mountain Valley Pipeline (“MVP”) as the asset was placed into service with equity earnings below the Allowance for Funds Used During Construction (“AFUDC”) in the third quarter of 2023.
AltaGas continued to advance key Midstream commercial priorities during and subsequent to the quarter, including:
Entering two agreements that have a high-single digit average contract length with a large investment grade international energy company in Northeastern B.C. (“NEBC”) for a total of 100 Mmcf/d of gas processing capacity at the Townsend facility, along with associated liquids handling and fractionation services;
Extending the contract term with a large Canadian investment grade producer at the Pipestone I gas processing facility in the Alberta Montney for an additional five years, including gas processing, liquids handling and marketing services; and
Advancing long-term tolling arrangements across the global exports platform with a number of agreements now in definitive documentation stages. This includes AltaGas having contracts in hand or being in active negotiations for more than 100 percent of first phase capacity for the Ridley Island Energy Export Facility (“REEF”). AltaGas continues to target having 60 percent of its export volumes under long-term tolling agreements by the start of the 2027 NGL year.
The ongoing commercial success reiterates the strategic advantages of AltaGas’ assets across NEBC, the Alberta Montney, and the global exports value chain. The Company continues to look forward to leveraging its assets to connect upstream and downstream customers and markets and drive the best collective outcomes for all stakeholders.
AltaGas remained active from a regulatory perspective during the third quarter, including filing a rate case and proposed accelerated replacement program (“ARP”) extension in the District of Columbia (“D.C.”). The District Strategic Accelerated Facility Enhancement (“District SAFE”) is Washington Gas’ third modernization program in D.C. and is focused on long-term safety and reliability.
AltaGas continued to advance key Midstream growth projects during the third quarter. Strong progress was made on REEF’s in-water piling work for the jetty and the site’s overburden activities, while compression, refrigeration and vessel fabrication work is advancing in controlled operating environments at offsite manufacturing facilities. At Pipestone II, construction is progressing to plan, including completion of the two acid gas injection wells and the majority of the gas gathering system, while compression, processing and fabrication work is progressing at offsite manufacturing facilities. Both midstream growth projects remain on schedule and on budget with 50 percent of REEF and 92 percent of Pipestone II project costs either incurred or under fixed price contracts.
MVP in the Appalachian Basin moved into full commercial operations in the quarter with 20-year firm service contracts with investment grade counterparties coming into effect July 1, 2024. The 2.0 Bcf/d pipeline is fully subscribed and is expandable by an additional 475 MMcf/d through low cost compression with extension into North Carolina through the Southgate project. AltaGas’ 10 percent, non-operated equity stake in the pipeline remains non-core and is a divestiture candidate for the coming period.
AltaGas had two financings in the third quarter of 2024, including:
On July 9, 2024, 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.
On September 23, 2024, AltaGas issued US$900 million of 7.20 percent Fixed-to-Fixed Rate Junior Subordinated Hybrid Notes, due 2054 (the “Hybrid Notes”).
The Hybrid Notes are callable at the first reset date of October 15, 2034. AltaGas also executed a cross-currency swap arrangement to convert the underlying proceeds and interest costs into Canadian dollars, resulting in an effective annual interest rate of 6.90 percent over the initial ten year period of the notes. AltaGas intends to use the net proceeds of the Hybrid Notes to reduce the Company’s outstanding senior notes and bank debt, and will receive 50 percent equity treatment for credit rating metrics.
On September 30, 2024, AltaGas announced the conversion of the Cumulative Redeemable Floating Rate Preferred Shares, Series H (the “Series H Shares”) into Cumulative Redeemable Five-Year Rate Reset Preferred Shares, Series G (the “Series G Shares”) on a one for one basis and the subsequent cancellation and de-listing of the Series H Shares from the Toronto Stock Exchange (“TSX”).
On October 1, 2024, Washington Gas executed a note purchase agreement to issue US$200 million in private placement notes. US$100 million of these notes were issued on October 1, 2024 at 5.40 percent with a maturity date of October 1, 2054 and the remaining US$100 million will be issued on April 1, 2025 at 4.84 percent with a maturity date of April 1, 2035. The proceeds will be used for general corporate purposes.
Following a strong third quarter, AltaGas anticipates delivering fiscal 2024 results that will include normalized EBITDA1 in the upper end of the guidance range of $1,675 million to $1,775 million while normalized EPS1 is expected to be around the midpoint of the guidance range of $2.05 to $2.25.
CEO MESSAGE
“We’re pleased with our strong third quarter results, which reflect the strength of our assets, strong demand for natural gas and NGLs and the continued execution of our strategic priorities,” said Vern Yu, President and Chief Executive Officer. “Following the strong performance in the first nine months of the year, we are well positioned to deliver on our 2024 guidance and expect to produce normalized EBITDA towards the upper end of our guidance range while normalized EPS is expected to be closer to the midpoint of the guidance range.”
“Performance in our Utilities business was ahead of our expectations and continues to deliver strong earnings, despite warmer-than-normal weather in Michigan and D.C. Strong year-over-year growth was driven by the partial settlement of Washington Gas’ post-retirement benefit pension plan, continued capital investments across the network, and active cost management. We remain active advancing our regulatory priorities and ensuring rates are current and reflective of current capital investments and operating costs.
“Midstream performance was in line with our expectations, despite the rail interruptions due to the Alberta wildfires and the national rail strikes. The quarter included record global export volumes and double digit year-over-year growth in gas processing, fractionation and liquids handling, and extraction volumes. We continued to advance key Midstream commercial priorities, including a two new long-term agreements for gas processing, liquids handling and fractionation services at the Townsend facility, and extending the contract term for a marquee Canadian investment grade customer for an additional five years at Pipestone I. We also continued to advance long-term tolling arrangements across the global exports platform and expect to exceed previously committed tolling targets and will likely need to shift certain tolling volumes to the second phase of REEF.
“The fundamentals of our businesses are robust. Our gas utilities continue to realize strong growth from new customer additions, asset modernization investments, and system expansion. These robust demand trends are being augmented from the rapid rise in energy draws from data center growth in our service territory, which is providing AltaGas with incremental rate base growth opportunities in Northern Virginia and reinforcing the need for even more natural gas over the long-term.
“The outlook for our Midstream business is equally strong. Canadian natural gas supply will increase significantly through 2030 due to Canadian LNG exports and rising local demand. This will deliver strong associated natural gas liquids (“NGLs”) supply that will need to be exported to global markets. Asia will continue to be the best market for Canadian LPGs where demand is expected to grow 45 percent through 2040.
“As we look ahead, we continue to expect the strategic importance of our assets to grow as they serve to link increasing energy supply to high demand centers, enabling AltaGas to deliver continued value for our customers.”
BUSINESS PERFORMANCE
Midstream
The Midstream segment reported normalized EBITDA of $181 million in the third quarter of 2024 compared to $185 million in the third quarter of 2023, while income before income taxes was $123 million in the third quarter of 2024 compared to $61 million in the third quarter of 2023. These results were strong and in line with our expectations, despite the rail interruptions in Canada due to the Alberta wildfires and national rail strikes, which caused business interruptions and higher one-time operating costs. The quarter included record global export volumes and strong performance across the balance of the value chain, including double digit year-over-year growth in gas processing, fractionation and liquids handling, and extraction volumes.
AltaGas exported 128,272 Bbls/d of LPGs to Asia in the third quarter of 2024, including 11 Very Large Gas Carriers (“VLGCs”) at RIPET, and 10 VLGCs at Ferndale. This represented a nine percent increase from the third quarter of 2023, which was principally driven by Ferndale volumes increasing by 22 percent and offsetting the majority of rail interruptions which largely impacted RIPET. This strong operating performance, despite these interruptions, reiterates the value of having multiple export terminals to overcome short-term impacts.
Despite extremely low Canadian natural gas prices during the third quarter of 2024, AltaGas did not experience any decline in throughput volumes due to production shut-ins. Year-over-year performance included a 10 percent increase in gas processing volumes, 12 percent increase in fractionation and liquids handling volumes, and 29 percent increase in extraction volumes. Volume growth was heavily weighted to AltaGas’ Montney footprint, a trend we expect will continue in the years ahead. The strong fractionation volume growth was seen at North Pine, Harmattan and Younger. At North Pine, AltaGas completed optimization work that should allow the facility to consistently operate near 25,000 Bbls/d and meet our NEBC customers’ desire for increased fractionation capacity.
MVP moved into full commercial operations in the quarter with 20-year firm service contracts with investment grade counterparties coming into effect July 1, 2024. The 2.0 Bcf/d pipeline is fully subscribed and is expandable by an additional 475 MMcf/d through low cost compression with extension into North Carolina through the Southgate project. MVP’s financial contribution was modestly lower on a year-over-year basis in the third quarter of 2024, due to the larger AFUDC booked in the third quarter of 2023 versus the equity earnings that AltaGas is now recording with the pipeline in service.
AltaGas continued to advance key Midstream growth projects during the third quarter. Strong progress was made on REEF’s in-water piling work for the jetty and the site’s overburden activities, while compression, refrigeration and vessel fabrication work is advancing in controlled operating environments at offsite manufacturing facilities. At Pipestone II, construction is progressing to plan, including completion of the two acid gas injection wells and the majority of the gas gathering system, while compression, processing and fabrication work is progressing at offsite manufacturing facilities. Both midstream growth projects remain on schedule and on budget with 50 percent of REEF and 92 percent of Pipestone II project costs either incurred or under fixed price contracts.
Consistent 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 US$18.06/Bbl. Tolling volumes are in line with historical tolls. Approximately 80 percent of the Company’s 2024 expected frac exposed volumes are hedged at US$24.54/Bbl, prior to transportation costs.
In line with AltaGas’ traditional risk management activities, the Company expects to be actively locking in margins and further reducing commodity exposure over the fourth quarter of 2024 and first quarter of 2025 as we move into the 2025 NGL season, which runs from April 1, 2025 to March 31, 2026.
Utilities
Utilities reported normalized EBITDA of $117 million in the third quarter of 2024 compared to $71 million in the third quarter of 2023, while income before income taxes was $24 million in the third quarter of 2024 compared to a loss of $16 million in the third quarter of 2023. Strong year-over-year growth was principally driven by the partial settlement of Washington Gas’ post-retirement benefit pension plan, which was a de-risking activity that should reduce volatility of pension income in the years ahead, as well as contributions from continued capital investments focused on safety and reliability of the network, and active cost management. These positive factors were partially offset by the negative impact of the Maryland rate case, decreased asset optimization activities at Washington Gas and lower contributions from Retail due to the outsized performance present in the same quarter last year.
During the third quarter of 2024, AltaGas continued efforts on ensuring long-term operating costs are aligned with existing rate structures and allowed costs in each jurisdiction. These cost efficiencies will provide additional room for AltaGas to continue to make ongoing rate base investments to expand and modernize the network while minimizing the increase to customer bills. The Company will continue to prioritize cost management for the long-term benefit of our customers while maintaining regulatory and capital discipline.
AltaGas continued to actively invest across its Utilities assets during the third quarter of 2024 with $187 million of capital deployed across the Company’s Utilities networks. This included investing nearly $100 million in the quarter through the Company’s various asset modernization programs and an additional $70 million for system betterment. 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. AltaGas remains committed to making these investments, while balancing the need for ongoing customer affordability.
During the quarter, Washington Gas filed a rate case application to the Public Service Commission (“PSC”) of D.C., seeking a US$46 million increase to base rates, including the transfer of US$12 million from the PROJECTpipes 2 rate rider. Included in the filing was a proposed weather normalization adjustment that seeks to remove fluctuations in weather-related usage. Washington Gas also submitted its District SAFE ARP application, which aims to invest US$215 million over three years beginning May 2025. A final order for the ARP program is anticipated to align with the expiry of PROJECTpipes 2, which would allow for uninterrupted pipeline modernization work to ensure the ongoing safety of our customers while ensuring the timely recovery of capital.
Corporate/Other
In the Corporate/Other segment, normalized EBITDA was a loss of $4 million in the third quarter of 2024, consistent with the same quarter of 2023, while loss before income taxes was $127 million in the third quarter of 2024 compared to a loss of $96 million in the third quarter of 2023. Normalized EBITDA in the quarter was impacted by higher year-over-year contributions from Blythe, offset by higher expenses related to employee incentive plans, primarily as a result of the increasing share price in the third quarter of 2024.
Normalized EBITDA for the third quarter of 2024 was $294 million compared to $252 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.
Income before income taxes was $20 million for the third quarter of 2024 compared to loss before income taxes of $51 million for the same quarter in 2023. The decrease in loss was mainly due to lower unrealized losses on risk management contracts, the same previously referenced factors impacting normalized EBITDA, proceeds received from an escrow account related to the 2019 disposition of AltaGas’ investment in Meade Pipeline Co. LLC (“Meade”), which held WGL Midstream’s indirect, non-operating interest in Central Penn pipeline (“Central Penn”), and lower transaction costs related to acquisitions and dispositions, partially offset by higher transition and restructuring costs, higher interest expense, higher depreciation and amortization expense, and lower foreign exchange gains. Please refer to the “Three Months Ended September 30” section of the Q3 2024 management’s discussion and analysis (“MD&A”) for further details on the variance in loss before income taxes and net income applicable to common shareholders.
Normalized net income was $42 million or $0.14 per share for the third quarter of 2024, compared to $23 million or $0.08 per share reported for the same quarter of 2023.
Normalized FFO was $105 million or $0.35 per share for the third quarter of 2024, compared to $142 million or $0.50 per share for the same quarter in 2023. The decrease was mainly due to the impact of non-cash items included in normalized EBITDA, higher normalized current income tax expense, higher interest expense, and foreign exchange losses compared to foreign exchange gains in the third quarter of 2023, partially offset by the same previously referenced factors impacting normalized EBITDA.
Interest expense for the third quarter of 2024 was $110 million, compared to $95 million for the same quarter in 2023. The increase was mainly due to higher average debt balances, incremental hybrid interest costs due to the issuance of additional Hybrid Notes in the third quarter of 2024 as well as the fourth quarter of 2023, higher average interest rates, and a higher average Canadian/U.S. dollar exchange rate, partially offset by higher capitalized interest. Interest expense recorded on the Hybrid Notes in the third quarter of 2024 was $15 million, compared to $9 million in the third quarter of 2023.
Income tax expense was $3 million for the third quarter of 2024, compared to an income tax recovery of $12 million for the same quarter of 2023. The decrease in income tax recovery was mainly due to higher 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.
Following a strong third quarter of 2024, AltaGas is reiterating its previously disclosed 2024 guidance and expects to deliver results in the upper end of the normalized EBITDA range and near the midpoint of the normalized EPS range, as follows:
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 normalized 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 2024 capital program of approximately $1.3 billion, excluding asset retirement obligations (“ARO”). The Company is allocating approximately 53 percent of AltaGas’ consolidated 2024 capital to its Utilities business, approximately 43 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, October 31, 2024, at 9:00 a.m. MT (11:00 a.m. ET) to discuss third quarter of 2024 results and other corporate developments.
Date: Thursday, October 31, 2024
Time: 9:00 a.m. MT (11:00 a.m. ET)
Webcast: https://app.webinar.net/5lXWpwZbZJM
Dial-in (Audio only): +1 437-900-0527 or toll free at +1 888-510-2154
Shortly after the conclusion of the call a replay will be available on the Company’s website or by dialing +1 289 819 1450 or toll free +1 888 660 6345. Passcode 13027 #.
AltaGas’ Consolidated Financial Statements and accompanying notes for the third 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.
