Mr. Vern Yu reports

ALTAGAS REPORTS STRONG THIRD QUARTER 2023 RESULTS

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

Highlights (all financial figures are unaudited unless otherwise noted):

• Normalized EPS (earnings per share) was 10 cents in the third quarter of 2023 compared with 10 cents in the third quarter of 2022, while GAAP (generally accepted accounting principles) EPS was a loss of 18 cents in the third quarter of 2023 compared with a 17-cent loss in the third quarter of 2022. Normalized EPS was ahead of AltaGas's 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 EBITDA (earnings before interest, taxes, depreciation and amortization) was $252-million in the third quarter of 2023 compared with $233-million in the third quarter of 2022, while loss before income taxes was $51-million in the third quarter of 2023 compared with income before income taxes of $48-million in the same quarter of 2022. Third quarter results included robust performance from the mid-stream segment, while the utilities segment was in line with AltaGas's expectations and reflective of the typical seasonal low for natural gas usage during the shoulder season.
• Normalized FFO (funds from operations) per share was 50 cents in the third quarter of 2023 compared with 60 cents in the third quarter of 2022, while cash from operations per share was one cent in the third quarter of 2023 compared with 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 mid-stream segment reported strong operating results with normalized EBITDA of $185-million in the third quarter of 2023 compared with $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 with 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 with $115-million in the third quarter of 2022, while loss before taxes was $16-million in the third quarter of 2023 compared with 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 AltaGas's 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 Aug. 31, 2023, AltaGas announced that it 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. 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 Oct. 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's growing LPG (liquefied petroleum gases) exports to Asia, which support continuing resource development across Western Canada, and provides energy security to the company's downstream customers in Asia.
• Commissioning on two of AltaGas's new very large gas carriers (VLGC) 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 per cent compared with a standard VLGC. The vessels' deployment will also remove pricing volatility and derisk maritime shipping costs on a long-term basis, and is part of the company's plan to commercially derisk its mid-stream 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 Oct. 20, 2023, Washington Gas executed a definitive agreement with Opal Fuels Inc. 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 $25-million (U.S.). The interconnect infrastructure is anticipated to become part of Washington Gas's rate base and will be eligible to earn a 100 bps (basis point) premium to its allowed ROE (return on equity) 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 United States. The updated aggregate capital cost of the pipeline is $7.2-billion (U.S.), with AltaGas's cash contribution contractually capped at its original $352-million (U.S.) investment for a 10-per-cent 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 4.5-times net-debt-to-normalized-EBITDA target.
• On Aug. 29, 2023, the Commonwealth of Virginia State Corp. Commission (SCC of VA) adopted the hearing examiner's report for the Virginia rate case, approving approximately $41-million (U.S.) of incremental base rates plus approximately $32-million (U.S.) of SAVE surcharges for a total rate increase of approximately $73-million (U.S.).
• Effective Sept. 1, 2023, AltaGas appointed a new independent director, Angela Lekatsas, to AltaGas's 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's audit committee.
• On Oct. 19, 2023, Washington Gas issued $200-million (U.S.) in private placement notes, which includes $150-million (U.S.) at 6.06 per cent maturing on Oct. 14, 2033, and $50-million (U.S.) at 6.43 per cent maturing on Oct. 15, 2053. The proceeds will be used for general corporate purposes.
• On Dec. 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.

Chief executive officer message

"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 mid-stream segment was robust, and reflected record export volumes and the west coast advantage for Canadian LPGs. The company has been actively working on derisking mid-stream while using strong risk management practices for residual commodity exposure. The Canadian upstream industry will deliver robust natural gas and NGL [natural gas liquid] 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 basis.

"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 derisking the balance sheet. This includes significant leverage reduction, a shift in the debt portfolio, with approximately 90 per cent 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 derisk operations, and close our deleveraging journey to reach our 4.5 times 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 Dec. 5, 2023."

Business performance

Mid-stream

The mid-stream segment reported normalized EBITDA of $185-million in the third quarter of 2023 compared with $108-million in the third quarter of 2022. Income before income taxes in the mid-stream segment was $61-million in the third quarter of 2023, compared with $71-million in the same quarter of 2022. Third-quarter 2023 results included strong operations across the platform, including a significant improvement in the profitability of the global exports business due to robust export volumes, strong logistical performance and high Asian-to-North American LPG margins. The quarter also benefited from AFUDC being booked on MVP due to the resumption of construction activities in June of 2023, lower power costs at AltaGas's extraction facilities, and higher crude and NGL marketing margins.

AltaGas exported a record 118,213 bbl/d (barrels per day) of LPGs to Asia during the third quarter of 2023, including 11 full and one partially loaded VLGC at RIPET, and eight full and one partially loaded VLGC at Ferndale. The partially loaded vessels are a function of revenue recognition taking place at the point of ship loading and select loadings taking place over quarter-ends. Higher export volumes were driven by continued improvement in AltaGas's operating and logistical capabilities, strong continuing customer demand in Asia, and higher available LPG supply. AltaGas remains focused on partnering with North American producers, aggregators and Asian downstream customers to increase direct market access through long-term LPG tolling arrangements. The company made continued progress on tolling initiatives during the quarter and believes there is a path to push toward 60 per cent or higher tolling over a multiyear time horizon. AltaGas also continued to actively hedge merchant export volumes to pro-actively lock-in structural margins and derisk cash flows.

Performance across the balance of the mid-stream platform was strong and in line with AltaGas's expectations. Although gas processing volumes were down modestly year-over-year during the third quarter of 2023, due to the turnaround at the Edmonton ethane extraction plant (EEEP) and lower processing volumes at the Harmattan co-stream, due to a pipeline tie-in, volumes have since recovered and continue to reflect the improved industry activity levels and strong macro fundamentals. Volumes across the balance of the platform were strong and included 9-per-cent year-over-year growth in the Montney during the third quarter with a strong resumption of development activity. Fractionation volumes were up 12 per cent year-over-year during the third quarter of 2023, including strong increases across Harmattan, Younger and North Pine. AltaGas's realized frac spread averaged $23.75/bbl, after transportation costs, as most of AltaGas's frac exposed volumes were hedged at approximately $27.33 (U.S.)/bbl in the third quarter of 2023, prior to transportation costs.

AltaGas is well hedged for the remainder of 2023 with 87 per cent of AltaGas's fourth quarter 2023 expected global export volumes tolled or financially hedged, with merchant volumes hedged at an average Far East Index (FEI) to North American financial hedge price of approximately $18.13 (U.S.)/bbl. The company has also have been actively hedging its 2024 exposure, with 76 per cent of AltaGas's Q1 2024 expected global export volumes tolled or financially hedged, with merchant volumes hedged at an average FEI to North American financial hedge price of approximately $17.17 (U.S.)/bbl. AltaGas is also more than 50 per cent tolled or financially hedged for second and third quarter of 2024 expected global export volumes. In addition, approximately 77 per cent of the company's Q4 2023 expected frac exposed volumes are hedged at approximately $26.83 (U.S.)/bbl, prior to transportation costs. AltaGas continues to actively manage risk across the mid-stream platform through commercial constructs, and a systematic hedging program that covers key revenue and operating costs.

On Oct. 20, 2023, AltaGas entered a five-year transportation agreement with CN. The agreement provides AltaGas and its customers with cost and service predictability to support AltaGas's growing LPG exports to Asia, which support continuing resource development across Western Canada, and provides energy security to the company's downstream customers in Asia.

Utilities

Normalized EBITDA in the utilities segment was $71-million in the third quarter of 2023, compared with $115-million in the same quarter of 2022, with a loss before income taxes of $16-million in the third quarter of 2023 compared with income before income taxes of $54-million in the same quarter of 2022. The largest driver of the year-over-year decrease in utilities financial performance was the larger-than-normal Q3 2022 asset optimization contribution at Washington Gas, which is shared with customers, and the lost contribution of the Alaskan utilities, which were divested in March of 2023, and had contributed $13-million of normalized EBITDA in the third quarter of 2022. Other factors impacting Q3 results on a year-over-year basis included higher operating and administrative expenses during the third quarter of 2023, and modestly lower contribution from the WGL retail energy business. These factors were partially offset by contributions from continuing asset investments across the network through various accelerated replacement programs (ARP) and a favourable foreign exchange rate.

AltaGas continued to upgrade critical infrastructure and make continuing investments on behalf of its customers during the third quarter of 2023 with the deployment of $204-million of invested capital, including $130-million deployed across the company's various ARP 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. The modernization investments should also bring long-term operating cost benefits to the company's customers. AltaGas will continue to make these critical 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 cost management across the utilities platform, managing capital investments, and driving the best outcomes for its customers and stakeholders.

On Aug. 29, 2023, the SCC of VA adopted the hearing examiner's report for the Virginia rate case, approving approximately $41-million (U.S.) of incremental base rates plus approximately $32-million (U.S.) of SAVE surcharges, for a total rate increase of approximately $73-million (U.S.) and ROE of 9.65 per cent.

On Oct. 20, 2023, Washington Gas executed a definitive agreement with Opal Fuels to support an 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 volumes and purchase key interconnect infrastructure for approximately $25-million (U.S.), which is anticipated to become part of the Washington Gas's 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.

On Oct. 25, 2023, Washington Gas received a proposed system modernization extension in Maryland which will run through to 2028. The public law judge has recommended that the commission approve approximately $330-million (U.S.) of capital to modernize the company's system and improve safety and reliability. This builds on the company's ARP program in Virginia that was recently extended to the end of 2027.

Washington Gas's District of Columbia (D.C.) and Maryland rate cases remain continuing, and the company expects a decision prior to 2023 year-end in Maryland and during the first quarter of 2024 in D.C.

Corporate/other

The corporate/other segment realized a $4-million normalized EBITDA loss in for the third quarter of 2023, compared with income of $10-million in the same quarter of 2022. Loss before income taxes in the corporate/other segment was $96-million in the third quarter of 2023, compared with a loss of $77-million in the same quarter of 2022. The decrease in normalized EBITDA was mainly due to a lower contribution from Blythe, higher expenses related to employee incentive plans due to the increase in AltaGas's share price during the third quarter of 2023, as well as higher operating and administrative expenses.

Pipestone asset acquisition

On Aug. 31, 2023, AltaGas entered into a definitive agreement with Tidewater to acquire: (1) the Pipestone natural gas processing plant phase 1 and phase 2 expansion project; (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, for total consideration of $650-million. This equated to approximately 7.2 times estimated run-rate normalized EBITDA, inclusive of synergies and the incremental capital that AltaGas will deploy to complete the Pipestone phase 2 development project.

The Pipestone transaction strengthens AltaGas's mid-stream value chain through an expanded footprint in the Alberta Montney and provides meaningful long-term LPG supply for its global exports platform. The transaction is expected to be 5-per-cent EPS accretive in 2025 forward, while being 0.1-times-net-debt-to-normalized-EBITDA credit accretive in 2025 forward. The acquisition is contingent on Tidewater and AltaGas making a positive final investment decision on the Pipestone phase 2 project.

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.

AltaGas 2023 investor day

AltaGas will host a 2023 investor day, where the company will provide an update on its corporate strategy and outlook, share its near- and- long-term priorities, and provide 2024 financial guidance. To register, go to AltaGas's events and presentations web page.

Date:  Tuesday, Dec. 5, 2023

Time:  9 a.m. ET to 12 p.m. ET

Registration:  register on-line

Normalized EBITDA for the third quarter of 2023 was $252-million, compared with $233-million for the same quarter in 2022. There were several positive and negative contributors underpinning the year-over-year variance. The largest factors leading to the variance are described in the business performance sections above.

For the third quarter of 2023, the average Canadian/United States dollar exchange rate increased to 1.34 from an average of 1.31 in the same period of 2022, resulting in an increase in normalized EBITDA of approximately $4-million.

Loss before income taxes for the third quarter of 2023 was $51-million, compared with income before income taxes of $48-million for the same quarter in 2022. Net loss applicable to common shares for the third quarter of 2023 was $50-million (18 cents per share), compared with $48-million (17 cents per share) for the same quarter in 2022.

Normalized net income was $28-million (10 cents per share) for the third quarter of 2023, compared with $27-million (10 cents per share) for the same quarter of 2022. The slight increase was mainly due to the same factors impacting normalized EBITDA and lower preferred share dividends, partially offset by higher interest expense, higher normalized income tax expense and higher depreciation expense.

Normalized funds from operations for the third quarter of 2023 were $142-million (50 cents per share), compared with $170-million (60 cents per share) for the same quarter in 2022. The decrease was mainly due to lower net income after taxes, after adjusting for non-cash items, higher interest expense and lower normalized current income tax recovery, partially offset by the same factors impacting normalized EBITDA.

Interest expense for the third quarter of 2023 was $95-million, compared with $85-million for the same quarter in 2022. The increase was driven by higher average interest rates, a higher average Canadian/U.S. dollar exchange rate and $2-million of incremental hybrid interest costs due to hybrid notes replacing preferred shares, which was partially offset by lower average debt balances. For the three months ended Sept. 30, 2023, AltaGas recorded total interest expense of $9-million on the subordinated hybrid notes.

AltaGas recorded an income tax recovery of $12-million for the third quarter of 2023, compared with income tax expense of $7-million for the same quarter of 2022. The decrease in income tax expense was mainly due to lower income before income taxes. Current tax recovery of $7-million was recorded in the third quarter of 2023, compared with current tax recovery of $13-million recorded in the same quarter of 2022. The decrease in current tax recovery was mainly due to the composition of loss 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 third quarter results, AltaGas expects to achieve the upper half of guidance ranges that were previously disclosed in December, 2022, including:

• 2023 normalized EPS guidance of $1.85 to $2.05, compared with 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 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. 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 $1-billion in 2023, excluding asset retirement obligations. The capital spend includes approximately $90-million of capital investments that were approved in 2022 to rollover 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 approved the schedule of dividends as shown in the associated table.

Conference call and webcast details

AltaGas will hold a conference call today, Nov. 3, at 9 a.m. MT (11 a.m. ET) to discuss Q3 2023 results and other corporate developments.

Date:  Friday, Nov. 3, 2023

Time:  9 a.m. MT (11 a.m. ET)

Webcast:  access on-line

Dial-in (audio only):  1-646-307-1591 or toll-free at 1-800-599-5188

Shortly after the conclusion of the call, a replay will be available on the company's website, or by dialling 647-362-9199 or toll-free 1-800-770-2030, conference ID 9053242 followed by the pound key.

AltaGas's consolidated financial statements and accompanying notes for the third quarter 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.