AltaGas Ltd. ('AltaGas' or the 'Company') (TSX: ALA) today reported third quarter 2023 financial results and provided an update on the Company's operations and other corporate developments.
HIGHLIGHTS
Normalized EPS1 was $0.10 in the third quarter of 2023 compared to $0.10 in the third quarter of 2022, while GAAP EPS2 was a $0.18 loss in the third quarter of 2023 compared a $0.17 loss in the third quarter of 2022. Normalized EPS was ahead of AltaGas' expectations and strongly positions the Company to deliver on its 2023 guidance, including current expectations of achieving results in the upper half of the guidance range.
Normalized EBITDA1 was $252 million in the third quarter of 2023 compared to $233 million in the third quarter of 2022, while loss before income taxes was $51 million in the third quarter of 2023 compared to income before income taxes of $48 million in the same quarter of 2022. Third quarter results included robust performance from the Midstream segment while the Utilities segment was in line with AltaGas' expectations and reflective of the typical seasonal low for natural gas usage during the shoulder season.
Normalized FFO per share1 was $0.50 in the third quarter of 2023 compared to $0.60 in the third quarter of 2022, while Cash from Operations per share3 was $0.01 in the third quarter of 2023 compared to cash used by operations of $1.37 per share in the third quarter of 2022. The decrease in normalized FFO per share was principally driven by higher interest expense, including hybrid debt which replaced preferred shares, and lower current normalized income tax recovery in the quarter. The increase in Cash from Operations per share was principally driven by changes in working capital.
The Midstream segment reported strong operating results with normalized EBITDA of $185 million in the third quarter of 2023 compared to $108 million in the third quarter of 2022, while income before taxes in the segment was $61 million in the third quarter of 2023 compared to income before taxes of $71 million in the third quarter of 2022. The largest drivers of the strong year-over-year results were meaningfully stronger performance from global exports business due to solid operational execution, strong volumes and pricing, and benefit of Allowance for Funds Used During Construction ('AFUDC') on the Mountain Valley Pipeline ('MVP') as the project progresses to final completion in early 2024.
The Utilities segment reported normalized EBITDA of $71 million in the third quarter of 2023 compared to $115 million in the third quarter of 2022, while loss before taxes was $16 million in the third quarter of 2023 compared to income before taxes of $54 million in the same quarter of 2022. The largest driver of the year-over-year decrease in financial contribution was the lack of the larger-then-normal asset optimization that was present in last year's results, and is shared with our customers, and the lost contribution of the Alaskan Utilities, which were divested on March 1, 2023, and had contributed $13 million in normalized EBITDA in the third quarter of 2022.
On August 31, 2023, AltaGas announced that it has entered into a definitive agreement to acquire the Pipestone natural gas processing and storage infrastructure assets located in the Alberta Montney for total consideration of $650 million from Tidewater Midstream and Infrastructure Ltd. ('Tidewater'). Subsequent to the announcement, AltaGas has received all material regulatory approvals, including Competition Act approval, and is currently working on other condition precedents to close the transaction, which continues to be anticipated prior to 2023 year-end.
On October 20, 2023, AltaGas entered a five-year transportation agreement with Canadian National Railway Company ('CN'). The agreement provides AltaGas and its customers with cost and service predictability to support AltaGas' growing LPG exports to Asia, which support ongoing resource development across Western Canada, and provides energy security to the Company's downstream customers in Asia.
Commissioning on two of AltaGas' new very large gas carriers ('VLGCs') progressed well over the third quarter of 2023 with the Boreal Pioneer expected to have its maiden voyage in December of 2023 with the Boreal Voyager expected to follow in March of 2024. These two seven-year time charters with optional extensions will reduce total shipping costs to Asia by approximately 25 percent compared to a standard VLGC. The vessels' deployment will also remove pricing volatility and de-risk maritime shipping costs on a long-term basis and is part of the Company's plan to commercially de-risk its Midstream business. In total, AltaGas will have three Time Charters operating in 2024 with a fourth under construction, which is set to be commissioned in the first half of 2026.
On October 20, 2023, Washington Gas executed a definitive agreement with Opal Fuels Inc. ('Opal Fuels') to support a renewable natural gas ('RNG') project at the Prince William County Landfill in Virginia. As part of the agreement, Washington Gas will become an offtake customer for RNG production and purchase key interconnect infrastructure for approximately US$25 million. The interconnect infrastructure is anticipated to become part of Washington Gas' rate base and will be eligible to earn a 100-bps premium to its allowed ROE in the jurisdiction as part of the Virginia Energy Innovation Act, subject to regulatory approval.
AltaGas is pleased with the construction progress on MVP. The pipeline is expected to be placed into service during the first quarter of 2024 and will provide critical energy security to customers in the Eastern U.S. The updated aggregate capital cost of the pipeline is US$7.2 billion with AltaGas' cash contribution contractually capped at its original US$352 million investment for a ten percent equity interest in a non-dilutive ownership stake. As previously disclosed, AltaGas does not consider its equity stake as core and will consider a monetization as part of the Company's plan to reach its 4.5x net debt to normalized EBITDA target.
On August 29, 2023, the Commonwealth of Virginia State Corporation Commission ('SCC of VA') adopted the Hearing Examiner's report for the Virginia rate case, approving approximately US$41 million of incremental base rates plus approximately US$32 million of SAVE surcharges for a total rate increase of approximately US$73 million.
Effective September 1, 2023, AltaGas appointed a new independent Director, Angela Lekatsas, to AltaGas' Board of Directors. Ms. Lekatsas has over two decades of broad industry and corporate finance experience and will also serve as a member of AltaGas' Audit Committee.
On October 19, 2023, Washington Gas issued US$200 million in private placement notes, which includes US$150 million at 6.06 percent maturing on October 14, 2033, and US$50 million at 6.43 percent maturing on October 15, 2053. The proceeds will be used for general corporate purposes.
On December 5, 2023, AltaGas will be hosting its 2023 Investor Day, where management will provide an update on the Company's corporate strategy and outlook, share its near- and- long-term corporate priorities, and provide 2024 financial guidance.
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, 2023, which is available on www.sedarplus.ca. (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.
'We are pleased with the third quarter operating and financial results and where we sit on a year-to-date basis' said Vern Yu, President and Chief Executive Officer of AltaGas. 'This performance strongly positions the company to deliver on our 2023 guidance, including our current expectation to deliver results in the upper half of our guidance range, and continue to drive value creation for our stakeholders.
'Performance in the Midstream segment was robust and reflected record export volumes and the west coast advantage for Canadian LPGs. The Company has been actively working on de-risking Midstream while using strong risk management practices for residual commodity exposure. The Canadian upstream industry will deliver robust natural gas and NGL production growth in the coming years and we believe that AltaGas is positioned to provide the best value for LPG customers in North America and Asia.
'The Utilities segment performed relatively in line with our expectations and was reflective of the typical seasonal low for natural gas usage during the shoulder season. Our Utilities have a bright future with natural gas remaining the largest home energy source across all our jurisdictions where, on average, electrical substitution costs are more than three times the cost of natural gas on a delivered basis1.
'In the years ahead, we will be acutely focused on balancing the critical needs of energy affordability and reliability with regional climate goals. Subsequent to quarter-end, we were pleased to sign an agreement to support a major RNG project at the Prince William County Landfill in Virginia. Through this agreement Washington Gas will become an offtake customer and purchase key interconnect infrastructure that will transport RNG through our network and lower the carbon-intensity of our energy supply.
'AltaGas has made tremendous progress on restructuring the platform over the past four years, including streamlining operations, refocusing the business, and de-risking the balance sheet. This includes significant leverage reduction, a shift in the debt portfolio with approximately 90 percent of the Company's debt being fixed under a properly staggered maturity ladder, and having built in optionality for additional debt repayments. These moves have strongly positioned AltaGas for the current operating environment and protected the Company from the material increases in interest rates over the past 18 months.
'We will continue this focus in the coming period as we look to complete our portfolio optimization, drive improved return on invested capital from our existing asset base, commercially and financially de-risk operations, and close our deleveraging journey to reach our 4.5x net debt to EBITDA target. AltaGas has a robust investment proposition that is supported by strong macro fundamentals and has a strong growth trajectory. We look forward to closing out a strong year in the fourth quarter and discussing the road ahead with our stakeholders at our Investor Day on December 5, 2023.'
ABOUT ALTAGAS
AltaGas is a leading North American infrastructure company that connects customers and markets to affordable and reliable sources of energy. The Company operates a diversified, lower-risk, high-growth Utilities and Midstream business that is focused on delivering resilient and durable value for its stakeholders.
Contact:
Jon Morrison
Email: Jon.Morrison@altagas.ca
Adam McKnight
Director, Investor Relations
Email: Adam.McKnight@altagas.ca
FORWARD-LOOKING INFORMATION
This news release contains forward-looking information (forward-looking statements). Words such as 'may', 'can', 'would', 'could', 'should', 'likely', 'will', 'intend', 'plan', 'anticipate', 'believe', 'aim', 'seek', 'future', 'commit', 'propose', 'contemplate', 'estimate', 'focus', 'strive', 'forecast', 'expect', 'project', 'potential', 'target', 'guarantee', 'potential', 'objective', 'continue', 'outlook', 'guidance', 'growth', 'long-term', '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: the Company's ability to deliver on its 2023 guidance and the expectation that its results will be in the upper half of the guidance range; the expected project costs, progress and completion of the MVP project and the timing thereof; anticipated benefits of the MVP project for customers; the Company considering a monetization of its equity stake in the MVP project as part of its plan to reach its net debt to normalized EBITDA target; the anticipated benefits of the transaction with Tidewater and the expected closing date thereof; the expectation that AltaGas will deploy incremental capital to complete the Pipestone Phase II development project; the expectation that the Pipestone transaction will be EPS accretive, net debt to normalized EBITDA credit accretive and the timing thereof; the expectation that Tidewater and AltaGas will make a positive final investment decision on the Pipestone Phase II project; anticipated benefits of the five-year transportation agreement with CN for AltaGas, its customers, resource development in Western Canada and customers in Asia; expected timing of the maiden voyages for each of the Boreal Pioneer and the Boreal Voyager; anticipated benefits of AltaGas' two new VLGCs including reduction in shipping costs to Asia, removing pricing volatility and de-risking maritime shipping costs on a long-term basis; the impact of the Company's two new VLGCs on its plan to commercially de-risk its Midstream business; the expectation that AltaGas will have three Time Charters operating in 2024; anticipated construction of a fourth time charter and the timing thereof; the expectation that Washington Gas will become an offtake customer for RNG production, that it will purchase key interconnect infrastructure and the expected cost thereof in connection with the agreement entered into with Opal Fuels; anticipated benefits of the agreement Washington Gas entered into with Opal Fuels including the interconnect infrastructure becoming part of its rate base, the expected premium to Washington Gas' allowed ROE, subject to regulatory approvals, and the expectation that transportation of RNG through the network will lower the carbon-intensity of energy supply; the expected use of proceeds from Washington Gas' US$200 million private placement; topics to be discussed at AltaGas' 2023 Investor Day and the timing thereof; AltaGas' continued commitment to driving value creation for its stakeholders and de-risking the Midstream business; the belief that Canada's upstream industry will deliver robust natural gas and NGL production growth and the expected impacts therefrom; AltaGas' ability to provide the best value for LPG customers in North America and Asia; the Company's focus on energy affordability and reliability with regional climate goals; AltaGas' ability to execute its strategic priorities; the Company's focus on portfolio optimization, improving return on invested capital, commercially and financially de-risking operations and deleveraging to reach AltaGas' net debt to EBITDA target; the growth trajectory of AltaGas' investment proposition; AltaGas' ability to increase direct market access through long-term LPG tolling agreements, the progress of its tolling initiatives and the belief that AltaGas can increase tolling; expectations for AltaGas' active hedging program and expected outcomes therefrom; AltaGas' continued commitment to upgrading critical infrastructure and making ongoing investments through the Company's ARP modernization programs and the anticipated benefits therefrom; the Company's focus on cost management across the Utilities platform, managing capital investments and best outcomes for its customers and stakeholders; the expectation that the extension for Washington Gas' proposed modernization extension in Maryland will run through to 2028; anticipated timing, results and impacts of applications, hearings, and decisions of rate cases before Utilities regulators; AltaGas' ability to execute its long-term corporate strategy; AltaGas' focus on growing normalized EPS and FFO while targeting lower leverage ratios; the expectation that AltaGas' long-term strategy will support steady dividend growth and ongoing capital appreciation for its long-term shareholders; AltaGas' long-term objectives for managing capital and expected self-funded capital program of $930 million in 2023 including rollover of $90 million capital investments from 2022, excluding asset retirement obligations.
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: anticipated timing of asset sale and acquisition closings, effective tax rates, financing initiatives, degree day variance from normal, pension discount rate, the performance of the businesses underlying each sector, impacts of the hedging program, expected commodity supply, demand and pricing, volumes and rates, exchange rates, inflation, interest rates, credit ratings, regulatory approvals and policies, future operating and capital costs, capacity expectations, weather, frac spread, access to capital, planned and unplanned plant outages, timing of in-service dates of new projects and acquisition and divestiture activities, 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: risks related to conflict in Eastern Europe; health and safety risks; operating risks; infrastructure; natural gas supply risks; volume throughput; service interruptions; transportation of petroleum products; market risk; inflation; general economic conditions; cyber security, information, and control systems; climate-related risks; environmental regulation risks; regulatory risks; litigation; changes in law; Indigenous and treaty rights; dependence on certain partners; political uncertainty and civil unrest; decommissioning, abandonment and reclamation costs; reputation risk; weather data; capital market and liquidity risks; interest rates; internal credit risk; foreign exchange risk; debt financing, refinancing, and debt service risk; counterparty and supplier risk; technical systems and processes incidents; growth strategy risk; construction and development; underinsured and uninsured losses; impact of competition in AltaGas' businesses; counterparty credit risk; composition risk; collateral; rep agreements; market value of common shares and other securities; variability of dividends; potential sales of additional shares; labor relations; key personnel; risk management costs and limitations; cost of providing retirement plan benefits; failure of service providers; risks related to pandemics, epidemics or disease outbreaks and the other factors discussed under the heading 'Risk Factors' in the Corporation's Annual Information Form for the year ended December 31, 2022 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 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.
Additional information relating to AltaGas, including its quarterly and annual MD&A and Consolidated Financial Statements, Annual Information Form, and press releases are available through AltaGas' website at www.altagas.ca or through SEDAR+ at www.sedarplus.ca.
ALTAGAS LTD. 
