Mr. Vern Yu reports

ALTAGAS ENTERS AGREEMENT TO ACQUIRE PIPESTONE NATURAL GAS PROCESSING PLANTS AND NATURAL GAS STORAGE FACILITY

AltaGas Ltd. has entered into a definitive agreement with Tidewater Midstream and Infrastructure Ltd. to acquire: (1) the Pipestone natural gas processing plant phase 1 and phase 2 expansion project (individually, Pipestone phase 1 and Pipestone phase 2); (2) the adjacent Dimsdale natural gas storage facility; (3) the Pipestone condensate truck-in/truck-out terminal; and (4) the associated gathering pipeline systems required to operate these assets (collectively, the Pipestone assets), for total consideration of $650-million, or approximately 7.2 times estimated run-rate normalized EBITDA (earnings before interest, taxes, depreciation and amortization), inclusive of synergies and the incremental capital that AltaGas will deploy to complete the Pipestone phase 2 development project.

Key investment and financial highlights

The Pipestone transaction strengthens AltaGas's mid-stream value chain through an expanded footprint in the Alberta Montney and provides meaningful long-term liquified petroleum gas (LPG) supply for the company's global exports platform. The transaction is expected to be 5 per cent EPS (earnings per share) accretive in 2025 forward, while being 0.1 times net debt to normalized EBITDA credit accretive in 2025 forward.

Key highlights from the transaction include:

1. Strategic fit:
   • Supports AltaGas's long-term strategy by adding long-life infrastructure assets with meaningful financial accretion.
   • Strategic and complementary assets strengthen AltaGas's footprint in the Alberta Montney with low-risk assets that have long-term growth.
   • Expands the mid-stream customer base with marquee independent producers, which will provide incremental growth opportunities.
   • Improves the scale of mid-stream business with a multiyear growth profile.
   • Provides processing and liquids handling growth that will augment global exports expansion in the coming years.
2. Risk accretion:
   • Reduces mid-stream overall commodity price risk by increasing take-or-pay and fee-for-service revenue profile by 6 per cent.
   • Diversifies AltaGas's customer base with multiple strong independent and investment-grade customers.
   • Derisks global exports by adding meaningful long-term LPG supply, including approximately 3,500 bbl/d (barrels per day) in 2024, approximately 6,500 bbl/d in H2 2025, and the potential for 11,500 bbl/d over the long-term through incremental processing capacity additions beyond Pipestone phase 2.
3. Leverage and balance sheet:
   • Credit accretive financing structure reduces net debt to normalized EBITDA by 0.1 times in 2025-plus.
4. Financial and asset value:
   • Anticipated to deliver 5 per cent EPS accretion in 2025-plus.

Pipestone phase 2

The acquisition is contingent on Tidewater and AltaGas making a positive final investment decision (FID) for the Pipestone phase 2 project. To facilitate reaching FID, AltaGas and Tidewater have entered into an agreement to create a new joint venture (Pipestone joint venture) to advance the final steps required to develop and construct the project. The terms of the Pipestone joint venture will permit the parties to continue to collaborate on the Pipestone phase 2 project, even if the acquisition does not proceed.

The total consideration is $650-million, composed of $325-million in cash and the issuance of approximately 12.5 million AltaGas common shares to Tidewater, which will be priced at $26.07, based on AltaGas's 10-day volume-weighted average price (VWAP) as at Aug. 30, 2023, with the shares to be issued and transferred to Tidewater at the time of closing and subject to typical closing adjustments. AltaGas plans to finance the transaction through a combination of short-term debt from the company's current liquidity and with the issuance of common equity from treasury. The transaction is expected to be 0.1 times leverage accretive in 2025 forward, aligning with AltaGas's continuing leverage reduction targets of moving to 4.5 times net debt to normalized EBITDA over the long term. The transaction is anticipated to be modestly positive to EPS in 2024, and then be 5 per cent accretive in 2025 forward. The transaction is subject to regulatory approvals and customary closing conditions and is expected to close prior to 2023 year-end.

The Pipestone acquisition is risk accretive to AltaGas. Over 90 per cent of the Pipestone assets' normalized EBITDA comes from take-or-pay- or fee-for-service-based contracts. With inclusion of the Pipestone assets, AltaGas's take-or-pay and fee-for-service mid-stream EBITDA mix will increase by an estimated 6 per cent, with a commensurate decrease in commodity/differential exposed EBITDA. The Pipestone assets' customers are composed of a combination of strong independent or investment-grade counterparties, with a weighted average contract term of approximately 8.5 years.

Asset valuation

AltaGas is valuing the current operating assets, including Pipestone phase 1 and the Dimsdale facility, at $525-million, with the Pipestone phase 2 expansion project being valued at $125-million, inclusive of existing long-lead-time capital assets that are currently owned by Tidewater, as well as regulatory approvals and other intangible assets. The valuation on the operating assets implies approximately 8.5 times expected 2024 normalized EBITDA and approximately seven times long-term run-rate normalized EBITDA, inclusive of the operational and other synergies associated with Pipestone phase 2 coming on stream in 2025.

The valuation on the Pipestone phase 2, inclusive of the $125-million value attributed to the assets as part of the purchase price and the remaining $355-million to $365-million of construction costs for the project, implies approximately 7.5 times expected long-term run-rate normalized EBITDA, inclusive of synergies.

Chief executive officer message

"We are excited that the Pipestone transaction will strengthen our mid-stream value chain," said Vern Yu, AltaGas's president and CEO. "The acquisition is consistent with AltaGas's long-term strategy and provides us the opportunity to support industry-leading producers' growth plans in one of Canada's most prolific resource plays. The assets will deliver highly contracted take-or-pay and fee-for-service revenue that will also bring meaningful long-term LPG supply for AltaGas's global exports platform. The acquisition should also deliver stable and growing earnings and cash flows, which will deliver strong long-term value creation for our stakeholders, while reducing risk and providing long-term credit accretion. We look forward to working with all key stakeholders to advance the final steps required to develop and construct the Pipestone 2 expansion project and support continued resource development in Western Canada.

"The Dimsdale facility is a strategic natural gas storage asset that connects to the NGTL and Alliance pipeline systems, and will provide Pipestone customers with egress certainty, and the ability to manage pipeline maintenance and service disruptions in the years ahead. The Dimsdale facility will also be one of only three facilities that will be able to serve the balancing needs of the Montney and Canadian LNG demand pulls mid-decade, and will be the only integrated processing and storage facility in the Montney. The facility has current working storage capacity of 15 Bcf [billion cubic feet] with the ability to more than quadruple effective capacity to 69 Bcf on attractive incremental capital investments."

Assets and operations

The Pipestone assets are principally composed of the following assets:

• Pipestone phase 1: The Pipestone phase 1 facility is a modern sour deep-cut natural gas plant with 110 MMcf/d (million cubic feet per day) of processing capacity and 20,000 bbl/d of liquids handling capacity located in the heart of the Alberta Montney. The facility is currently 100 per cent contracted with approximately 85 per cent of the volumes coming from long-term take-or-pay contracts with credit-worthy customers. The facility includes 67 kilometres of natural gas gathering pipelines that are tied into key production regions, and provides strategic egress connections to the NGTL and the Alliance pipeline systems. The facility also includes the Pipestone condensate truck-in/truck-out terminal for liquids handling and value maximization.
• Pipestone condensate terminal: Truck-in/truck-out terminal used to maximize value of Pipestone liquids.
• Pipestone phase 2: Pipestone phase 2 is a fully permitted, shovel-ready expansion project that will provide an additional 100 MMcf/d of sour deep-cut natural gas processing capacity and an additional 20,000 bbl/d of liquids handling capabilities. Post FID, the project is expected to be fully committed under firm take-or-pay and fee-for-service agreements. Pipestone phase 2 is expected to reduce operating costs and enhance run-time efficiencies for the broader Pipestone complex.
• Dimsdale gas storage: Premier operational natural gas storage facility located east of the Pipestone 1 and 2 facilities. Current working gas capacity of 15 Bcf, which can be increased more than four-fold to 69 Bcf. Connected to Alliance and NGTL pipeline systems, the storage facility provides Pipestone customers with egress certainty and will be one of only three facilities able to serve the balancing needs of the Montney and Canadian LNG demand pulls mid-decade, and will be the only integrated processing and storage facility in the Montney. The facility is located upstream of the James River bottleneck points.

Investor presentation

Concurrent with this news release, AltaGas has published a presentation on the transaction, which can be found on-line.

Advisers

RBC Capital Markets is acting as financial adviser and Burnet Duckworth & Palmer LLP is acting as legal adviser to AltaGas on the transaction.

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.