CALGARY - AltaGas Ltd. ('AltaGas' or the 'Company') (TSX: ALA) today reported third quarter 2020 financial results and provided an update on the Company's operations and outlook, including COVID-19 considerations.
Normalized EBITDA1 increased 23 percent versus the prior-year comparable quarter, reflecting strong execution. When adjusted for other one-time items that we do not normalize for, including asset sales, pension adjustments, and the impact of the Virginia Hearing Examiner's Report2 in the third quarter of 2019, we estimate that AltaGas' run-rate EBITDA would have increased approximately 19 percent year-over-year.
Normalized net income1 was $12 million ($0.04 per share) compared to normalized net loss of $62 million ($0.22 per share) in the third quarter of 2019, demonstrating marked improvements and reiterating AltaGas' focus on improving earnings durability.
Utilities normalized EBITDA increased to $80 million in the third quarter of 2020 from $15 million in the third quarter of 2019 reflecting the impact of 2019 rate cases, continued accelerated pipeline replacement program (ARP) spending and other factors. When adjusted for asset sales, pension adjustments and the one-time impact of the Virginia Hearing Examiners Report, we estimate that Utilities run-rate EBITDA increased more than 40 percent year-over-year.
Ridley Island Propane Export Terminal (RIPET) exported record barrels (42,736 Bbls/d) of Canadian propane to Asia during the quarter underpinned by ongoing growth in throughput volumes in Northeastern B.C. (NEBC). During the quarter, the Canada Energy Regulator also granted AltaGas an additional 25-year license to export up to 46,000 Bbls/d of propane, bringing the aggregate propane export capacity under 25-year export licenses to 92,000 Bbls/d.
The Midstream platform added three notable long-term customers during and subsequent to the quarter, including ConocoPhillips, Canadian Natural Resources (CNRL) and a major global energy company focused on LNG exports. All three are industry-leading operators that have long track records for relentless execution. We look forward to working alongside each operator to achieve their long-term goals in the world class Montney play.
On October 16, 2020, AltaGas announced that it is advancing the Company's global export strategy through an agreement to increase its ownership in Petrogas Energy Corp. (Petrogas) to approximately 74 percent. The transaction is expected to be immediately accretive to normalized net income, FFO1 per share and AltaGas' credit metrics on a run-rate basis.
AltaGas' low-risk, high-growth Utilities and Midstream business continues to show strong resilience and durability through this challenging environment. The Company continues to expect to land within the previously stated 2020 guidance ranges for normalized EBITDA of $1.275 - $1.325 billion and normalized net income of $1.20 - $1.30 per share.
AltaGas is a leading North American energy infrastructure company that connects NGLs and natural gas to domestic and global markets. The Company operates a diversified, low-risk, high-growth Utilities and Midstream business that is focused on delivering resilient and durable value for its stakeholders.
This news release contains forward-looking information (forward-looking statements). Words such as 'may', 'can', 'would', 'could', 'should', 'will', 'intend', 'plan', 'anticipate', 'believe', 'aim', 'seek', 'propose', 'contemplate', 'estimate', 'focus', 'strive', 'forecast', 'expect', 'project', 'target', 'potential', 'objective', 'continue', 'outlook', 'vision', 'opportunity' and similar expressions suggesting future events or future performance, as they relate to the Corporation or any affiliate of the Corporation, are intended to identify forward-looking statements. In particular, this news release contains forward-looking statements with respect to, among other things, business objectives, expected growth, results of operations, performance, business projects and opportunities and financial results. Specifically, such forward-looking statements included in this document include, but are not limited to, statements with respect to the following: planned increase in ownership of Petrogas; expected alignment and consolidation of the Petrogas assets with AltaGas' business; expectation that the Petrogas transaction will be accretive to normalized net income, FFO per share and AltaGas' credit metrics on a run-rate basis; expected normalized EBITDA in the range of $1.275 - $1.325 billion and normalized net income of $1.20 - $1.30 per share; Utilities and Midstream strategies; target of 50,000 Bbls/d to be exported through RIPET by year end 2020; expectation for continued positive volume and margin improvements from the NEBC assets; expected percentage of 2020 normalized EBITDA to be generated from regulated Utilities and investment grade counterparties; focus on integration of Petrogas' business within AltaGas; focus on de-risking AltaGas' business; expectation that the Petrogas transaction will be approximately 10 percent accretive to earnings per share and approximately 15 percent accretive to cash flow per share; factors underpinning normalized EBITDA in 2020; expectation that the Utilities segment will contribute approximately 60 percent of full year 2020 normalized EBITDA; growth opportunities in Utilities segment; expected growth in the Utilities segment of approximately 8 - 10 percent annually in 2020 through to 2024; intention to manage RIPET with a growing portion of the annual capacity underpinned by tolling agreements; estimated exposure to frac spreads; anticipated self-funded 2020 capital plan of approximately $900 million and expected dividend payments and dates of payment. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events and achievements to differ materially from those expressed or implied by such statements. Such statements reflect AltaGas' current expectations, estimates, and projections based on certain material factors and assumptions at the time the statement was made. Material assumptions include: number of ships and export levels from the Ferndale facility, current forward curves, terms of Petrogas' underlying contracts, effective tax rates, the U.S./Canadian dollar exchange rate, the impact of the COVID-19 pandemic, financing initiatives, propane price differentials, degree day variance from normal, pension discount rate, the performance of the businesses underlying each sector, impacts of the hedging program, commodity prices, weather, frac spread, access to capital, timing and receipt of regulatory approvals, planned and unplanned plant outages, timing of in-service dates of new projects and acquisition and divestiture activities, operational expenses, returns on investments, and dividend levels.
AltaGas' forward-looking statements are subject to certain risks and uncertainties which could cause results or events to differ from current expectations, including, without limitation: regulatory approval of the Petrogas transaction; achievement of conditions to closing the Petrogas transaction; the risks and impact of COVID-19; civil unrest and political uncertainty; health and safety risks; operating risks; infrastructure risks; service interruptions; regulatory risks; litigation risk; decommissioning, abandonment and reclamation costs; climate and carbon tax risks; reputation risk; weather data; Indigenous land and rights claims; crown duty to consult with Indigenous peoples; changes in laws; capital market and liquidity risks; general economic conditions; internal credit risk; foreign exchange risk; debt financing, refinancing, and debt service risk; interest rates; cyber security, information, and control systems; technical systems and processes incidents; dependence on certain partners; growth strategy risk; construction and development; RIPET rail and marine transport; impact of competition in AltaGas' Midstream and Power businesses; commitments associated with regulatory approvals for the acquisition of WGL; counterparty credit risk; composition risk; collateral; regulatory agreements; non-controlling interests in investments; delays in U.S. federal government budget appropriations; consumption risk; market risk; market value of common shares and other securities; variability of dividends; potential sales of additional shares; volume throughput; natural gas supply risk; risk management costs and limitations; underinsured and uninsured losses; Cook Inlet gas supply; securities class action suits and derivative suits; electricity and resource adequacy prices; cost of providing retirement plan benefits; labor relations; key personnel; failure of service providers; compliance with Section 404(a) of Sarbanes- Oxley Act; integration of WGL and the other factors discussed under the heading 'Risk Factors' in the Corporation's Annual Information Form for the year ended December 31, 2019 (AIF) and set out in AltaGas' other continuous disclosure documents.
Many factors could cause AltaGas' or any particular business segment's actual results, performance or achievements to vary from those described in this press release, including, without limitation, those listed above and the assumptions upon which they are based proving incorrect. These factors should not be construed as exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this news release as intended, planned, anticipated, believed, sought, proposed, estimated, forecasted, expected, projected or targeted and such forward-looking statements included in this news release, should not be unduly relied upon. The impact of any one assumption, risk, uncertainty, or other factor on a particular forward-looking statement cannot be determined with certainty because they are interdependent and AltaGas' future decisions and actions will depend on management's assessment of all information at the relevant time. Such statements speak only as of the date of this news release. AltaGas does not intend, and does not assume any obligation, to update these forward-looking statements except as required by law. The forward-looking statements contained in this news release are expressly qualified by these cautionary statements.
Financial outlook information contained in this news release about prospective financial performance, financial position, or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on AltaGas management's (Management) assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this news release should not be used for purposes other than for which it is disclosed herein.
This news release contains references to certain financial measures that do not have a standardized meaning prescribed by US GAAP and may not be comparable to similar measures presented by other entities. The non-GAAP measures and their reconciliation to US GAAP financial measures are shown in AltaGas' Management's Discussion and Analysis (MD&A) as at and for the period ended September 30, 2020. These non-GAAP measures provide additional information that management believes is meaningful regarding AltaGas' operational performance, liquidity and capacity to fund dividends, capital expenditures, and other investing activities. Readers are cautioned that these non-GAAP measures should not be construed as alternatives to other measures of financial performance calculated in accordance with US GAAP.
EBITDA is a measure of AltaGas' operating profitability prior to how business activities are financed, assets are amortized, or earnings are taxed. EBITDA is calculated from the Consolidated Statements of Income (Loss) using net income (loss) adjusted for pre-tax depreciation and amortization, interest expense, and income tax expense (recovery). Normalized EBITDA includes additional adjustments for transaction costs related to acquisitions and dispositions, merger commitment recoveries due to a change in timing related to certain WGL merger commitments, unrealized losses (gains) on risk management contracts, non-controlling interest of certain investments to which HLBV accounting is applied, losses (gains) on investments, gains on sale of assets, restructuring costs, dilution loss on equity investment, COVID-19 related costs, provisions on assets, provisions on investments accounted for by the equity method, distributed generation asset related investment tax credits, foreign exchange gains, and accretion expenses related to asset retirement obligations. COVID-19 related costs normalized in the first nine months of 2020 were primarily comprised of credit losses that were incremental and directly attributable to the COVID-19 pandemic and charges incurred to support remote work arrangements. AltaGas presents normalized EBITDA as a supplemental measure. Normalized EBITDA is used by Management to enhance the understanding of AltaGas' earnings over periods. The metric is frequently used by analysts and investors in the evaluation of entities within the industry as it excludes items that can vary substantially between entities depending on the accounting policies chosen, the book value of assets, and the capital structure.
Normalized net income (loss) represents net income (loss) applicable to common shares adjusted for the after-tax impact of transaction costs related to acquisitions and dispositions, merger commitment recoveries due to a change in timing related to certain WGL merger commitments, unrealized losses (gains) on risk management contracts, losses (gains) on investments, gains on sale of assets, provisions on assets, provisions on investments accounted for by the equity method, restructuring costs, dilution loss on equity investment, COVID-19 related costs, and statutory tax rate change. Normalized net income (loss) is used by Management to enhance the comparability of AltaGas' earnings, as it reflects the underlying performance of AltaGas' business activities. Normalized net income applicable to common shares is calculated as normalized net income divided by the average number of shares outstanding during the period.
Funds from operations are calculated from the Consolidated Statements of Cash Flows and are defined as cash from (used by) operations before net changes in operating assets and liabilities and expenditures incurred to settle asset retirement obligations. Normalized funds from operations is calculated based on cash from (used by) operations and adjusted for changes in operating assets and liabilities in the period and non-operating related expenses (net of current taxes) such as transaction and financing costs related to acquisitions and dispositions, merger commitments, COVID-19 related costs, and restructuring costs.