Mr. Vern Yu reports

ALTAGAS REPORTS SECOND QUARTER 2023 RESULTS

AltaGas Ltd. has released second quarter 2023 financial results and provided an update on the company's operations and other corporate developments.

Highlights:

• Normalized EPS (earnings per share) was six cents in the second quarter of 2023, compared with 14 cents in the second quarter of 2022, while GAAP (generally accepted account principles) EPS was 47 cents in the second quarter of 2023, compared with 12 cents 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 approximately five cents in the second quarter of 2023, with the hedge and ship timing normalized EPS impact of approximately three cents expected to reverse in the coming quarters.
• Normalized EBITDA (earnings before interest, taxes, depreciation and amortization) was $239-million in the second quarter of 2023, compared with $276-million in the second quarter of 2022, while income before income taxes was $182-million in the second quarter of 2023, compared with $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 (funds from operations) per share was 53 cents in the second quarter of 2023, compared with 71 cents in the second quarter of 2022, while cash from operations per share was $1.32 in the second quarter of 2023, compared with $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 seven-cent negative normalized FFO per share impact in the second quarter of 2023, with the hedge and ship timing impacts of approximately four cents 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 with $116-million in the second quarter of 2022, while income before taxes was $105-million in the second quarter of 2023 compared with 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 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 mid-stream segment reported normalized EBITDA of $134-million in the second quarter of 2023, compared with $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's president and chief executive officer, and he was appointed to the board of directors. Mr. Yu has over three decades of experience in energy infrastructure, including the utilities and mid-stream 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 with net debt of $9.3-billion at 2022 year-end, excluding hybrid notes and preferred shares. On a trailing basis, AltaGas's net debt to normalized EBITDA was approximately 5.1 times 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 5.0 times and long-term target of approximately 4.5 times, excluding hybrid notes and preferred shares.
• During the second quarter of 2023, Fitch affirmed AltaGas's credit rating at BBB/F3 with a stable outlook, and S&P affirmed AltaGas's 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 the receipt of all remaining permits to both finish construction and operate the pipeline. The pathway to completion was reinforced by the July 27, 2023, United States 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 entered a 50/50 joint venture to develop the Ridley Island energy export facility (REEF), a large-scale liquified petroleum gases and bulk liquids (LPG) terminal and marine infrastructure on Ridley Island. REEF further bolsters AltaGas's industry-leading liquified petroleum gases 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-metre dual-fuel very large gas carrier (VLGC), with delivery expected in the first half of 2026. The agreement further reduces AltaGas's maritime shipping costs by approximately 25 per cent 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 per cent, due on May 15, 2026. The net proceeds were used to pay down existing indebtedness under AltaGas's 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 $28-million (U.S.) in revenues, net of approximately $21-million (U.S.) 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 $495-million (U.S.) of modernization investments on behalf of AltaGas customers over the five-year period from Jan. 1, 2024, to Dec. 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 $73-million (U.S.) and return on equity of 9.65 per cent. 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.

Vern Yu, chief executive officer, commented: "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 cash flows, improving our risk profile through low-risk commercial frameworks and ongoing balance sheet deleveraging. AltaGas has a visible multiyear 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 mid-stream platform.

"The long-term fundamentals for AltaGas's 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 on-line. 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 mid-stream operations due to the devastating wildfires across Alberta and B.C. [British Columbia], 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 to $2.05 and normalized EBITDA of $1.5-billion to $1.6-billion."

Business performance

Utilities

The utilities segment reported normalized EBITDA of $102-million in the second quarter of 2023, compared with $116-million in the same quarter of 2022. Income before income taxes was $105-million in the second quarter of 2023, compared with 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 continuing asset investments on behalf of AltaGas customers across the network through various ARP modernization programs, interim rates being in place in Virginia as part of the rate case, and favourable 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 a modestly lower contribution from the retail energy business.

AltaGas continued to upgrade critical infrastructure and make continuing investments on behalf of its customers during the second quarter of 2023 with the deployment of $198-million of invested capital, including $125-million deployed on the company's various modernization programs. These investments continue to be directed toward 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 AltaGas customers. AltaGas will continue to make these critical modernization investments on behalf of its customers in the years ahead, while balancing the need for continuing 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 staff and the Office of the Attorney General filed a proposed stipulation for a settlement that includes a revenue increase of $73-million (U.S.) and return on equity of 9.65 per cent. 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 $28-million (U.S.) in revenues, net of approximately $21-million (U.S.) 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 $495-million (U.S.) of modernization investments over the five-year period on behalf of AltaGas customers from Jan. 1, 2024, to Dec. 31, 2028. These applications are focused on providing Washington with the capacity to make continuing 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.

Mid-stream

The mid-stream segment reported normalized EBITDA of $134-million in the second quarter of 2023, compared with $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 mid-stream 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's 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 pro-actively lock in structural margins and derisk cash flows for merchant exports. AltaGas exported 115,589 barrels per day 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 continuing customer demand in Asia and higher available LPG supply.

Gas-processing volumes in the second quarter of 2023 increased 12 per cent 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 a 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 barrels per day (33 per cent) compared with 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's realized frac spread averaged $23.87 per barrel, after transportation costs, as most of AltaGas's frac-exposed volumes were hedged at approximately $26.83 per barrel in the second quarter of 2023, prior to transportation costs. AltaGas is well hedged for 2023, with approximately 85 per cent of its remaining 2023 expected frac exposed volumes hedged at approximately $27 (U.S.) per barrel, prior to transportation costs. In addition, approximately 77 per cent of AltaGas's 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 $15.32 (U.S.) per barrel for non-tolled propane and butane volumes.

Corporate/other

The corporate/other segment reported normalized EBITDA for the second quarter of 2023 was $3-million, compared with a loss of $3-million in the same quarter of 2022. Loss before income taxes in the corporate/other segment was $104-million in the second quarter of 2023, compared with a loss of $87-million in the same quarter of 2022. The year-over-year increase in normalized EBITDA was mainly due to lower expenses related to employee incentive plans.

Mountain Valley pipeline approval

On June 3, 2023, the U.S. Fiscal Responsibility Act (FRA) was signed into law, which included legislation that approved and authorized all permits necessary to complete construction of MVP as well as commence and continue operations after completion. The legislation also changed the court of jurisdiction to review agency actions on approvals necessary for MVP construction and continuing operations. On June 8, 2023, the West Virginia Department of Environmental Protection reissued a Section 401 water quality certification that was previously vacated by the U.S. Fourth Circuit Court of Appeals. On June 23, 2023, the U.S. Army Corps of Engineers issued a 404 individual water permit, authorizing all remaining open-cut water body crossings. On June 28, 2023, FERC approved MVP's request to move forward with all remaining construction activities.

On July 10, 2023, and July 11, 2023, the U.S. Fourth Circuit Court of Appeals issued two stays halting the construction of the pipeline while it considers the arguments of petitions, which are scheduled for July 27, 2023.

Given the passing of FRA legislation, MVP does not view the U.S. Fourth Circuit Court of Appeals as having jurisdiction to issue these orders. On July 14, 2023, MVP filed a petition for emergency relief to the Supreme Court of the United States. On July 27, 2023, SCOTUS vacated the stays that were issued by the U.S. Court of Appeals for the Fourth Circuit, clearing the way to complete construction.

AltaGas has always believed in the fundamentals of MVP and the benefit of transporting Marcellus/Utica gas by pipeline to the U.S. East Coast utilities and consumers. The pipeline's initial two-billion-cubic-feet-per-day capacity is fully subscribed, and it is further expandable by up to an additional 500 million cubic feet per day, including firm and interruptible service. As of June 30, 2023, approximately 94 per cent of the project is complete, which includes construction of all original interconnects and compressor stations. AltaGas's exposure is contractually capped to the original estimated contributions of approximately $352-million (U.S.). The total project costs are expected to be $6.6-billion (U.S.); however, AltaGas's 10-per-cent interest has a capital cost cap, which was met in 2019.

Normalized EBITDA for the second quarter of 2023 was $239-million, compared with $276-million for the same quarter in 2022.

For the second quarter of 2023, the average Canadian-dollar/U.S.-dollar exchange rate increased to 1.34 from an average of 1.28 in the same period of 2022.

Income before income taxes for the second quarter of 2023 was $182-million, compared with $85-million for the same quarter in 2022. Net income applicable to common shares for the second quarter of 2023 was $133-million (47 cents per share), compared with $35-million (12 cents per share) for the same quarter in 2022.

Normalized net income was $16-million (six cents per share) for the second quarter of 2023, compared with $40-million (14 cents per share) for the same quarter of 2022. The decrease was mainly due to the same previously referenced factors impacting normalized EBITDA, higher interest expense, higher depreciation expense and lower foreign exchange gains, partially offset by lower net income applicable to non-controlling interests, lower normalized income tax expense and lower preferred share dividends.

Normalized funds from operations for the second quarter of 2023 was $150-million (53 cents per share), compared with $200-million (71 cents per share) for the same quarter in 2022. The decrease was mainly due to the same factors impacting normalized EBITDA and higher interest expense.

Depreciation and amortization expense for the second quarter of 2023 was $112-million, compared with $108-million for the same quarter in 2022. The slight increase was mainly due to new assets placed in service, partially offset by the impact of the Alaska utilities disposition.

Interest expense for the second quarter of 2023 was $93-million, compared with $76-million for the same quarter in 2022. The increase was mainly due to $4-million of interest relating to the subordinated hybrid notes issued in August, 2022, higher average interest rates, higher average debt balances and a higher average Canadian-dollar/U.S.-dollar exchange rate.

Income tax expense was $38-million for the second quarter of 2023, compared with income tax expense of $17-million for the same quarter of 2022. The increase was mainly due to higher income before income taxes. Current tax recovery of $14-million was recorded in the second quarter of 2023, compared with a current tax recovery of $2-million recorded in the same quarter of 2022. The increase in current tax recovery was mainly due to the composition of income before income taxes.

Forward focus, guidance and financing

AltaGas continues to focus on executing on its long-term corporate 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 the second-quarter results, AltaGas expects to achieve guidance ranges that were previously disclosed in December, 2022, including:

• 2023 normalized EPS guidance of $1.85 to $2.05 per share, compared with actual normalized EPS of $1.89 and GAAP EPS of $1.42 in 2022;
• 2023 normalized EBITDA guidance of $1.5-billion to $1.6-billion, compared with actual normalized EBITDA of $1.54-billion and income before taxes of $716-million in 2022.

AltaGas continues to focus on delivering resilient and growing normalized EPS and FFO per share while targeting lowering leverage ratios. This strategy should support steady dividend growth and provide the opportunity for continuing capital appreciation for its long-term shareholders. This includes AltaGas having announced plans to deliver regular, sustainable and annual dividend increases that compound in the years ahead with an anticipated 5-to-7-per-cent compounded annual growth rate through 2026. Annual dividend increases will be a function of financial performance and determined by the board on an annual basis.

AltaGas is maintaining a disciplined, self-financed capital program of approximately $930-million in 2023, excluding asset retirement obligations. The company also expects approximately $90-million of capital investments that were approved in 2022 to roll over and be deployed in 2023. The 2023 capital program includes continued strong investments in the utilities and mid-stream businesses that are focused on ensuring long-term safety and reliability of the asset base and position AltaGas to meet its customers' long-term needs and drive the best collective outcomes for all stakeholders.

Quarterly common share dividend and preferred share dividends

The board of directors has approved the schedule of dividends outlined in an attached table.

Conference call and webcast details

AltaGas will hold a conference call today at 9 a.m. MT (11 a.m. ET) to discuss second quarter 2023 results and other corporate developments.

Date:  Friday, July 28, 2023

Time:  9 a.m. MT (11 a.m. ET)

Dial-in (audio only):  1-416-764-8659 or 1-888-664-6392 (toll-free)

Webcast:  visit the company's website

Shortly after the conclusion of the call, a replay will be available on the company's website, or by dialling 416-764-8677 or 1-888-390-0541 (toll-free) and entering passcode 454646 followed by the pound key.

AltaGas's consolidated financial statements and accompanying notes for the second quarter of 2023, as well as its related management's discussion and analysis, are now available on-line at the company's website. All documents will be filed with the Canadian securities regulatory authorities and will be posted under AltaGas's SEDAR profile.

About AltaGas Ltd.

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 mid-stream business that is focused on delivering resilient and durable value for its stakeholders.

We seek Safe Harbor.