Mr. Vern Yu reports

ALTAGAS REPORTS FOURTH QUARTER AND FULL YEAR 2023 RESULTS

AltaGas Ltd. has released fourth quarter and full-year 2023 financial results, reaffirmed 2024 financial guidance, and provided an update on its operations and other corporate developments.

Highlights (all financial figures are unaudited):

• Normalized EBITDA (earnings before interest, taxes, depreciation and amortization) was $502-million in the fourth quarter and $1,575-million for the full year of 2023, while income before income taxes was $161-million in the fourth quarter and $912-million for the full year of 2023. Full-year normalized EBITDA was in the upper-half of the company's 2023 guidance range of $1.5-billion to $1.6-billion and included strong performance across the mid-stream platform and continuing enterprise growth.
• Normalized EPS (earnings per share) was 76 cents in the fourth quarter and $1.90 for the full year of 2023, while GAAP (generally accepted accounting principles) EPS was 40 cents in the fourth quarter and $2.27 for the full year of 2023. Full-year normalized EPS was slightly below the midpoint of the company's 2023 EPS guidance range of $1.85 to $2.05, principally due to higher interest costs weighing on strong operating performance across the business.
• Normalized FFO (funds from operations) per share was $1.33 in the fourth quarter and $4 for the full year of 2023 while cash from operations per share was 54 cents in the fourth quarter and $3.98 for the full year of 2023. Normalized FFO per share for the quarter increased slightly year over year due to higher normalized EBITDA, partially offset by non-cash items included in normalized EBITDA, higher normalized current income tax expense and higher interest expense.
• The utilities segment reported normalized EBITDA of $311-million in the fourth quarter of 2023, compared with $294-million in the fourth quarter of 2022, while income before taxes was $207-million in the fourth quarter of 2023, compared with $80-million in the fourth quarter of 2022. The largest drivers of the fourth quarter year-over-year increase were strong contributions from WGL's retail business, lower operating and administrative expenses, continued rate base growth, and the Virginia rate case. These positive factors were partially offset by the company's Alaskan utilities divestiture, lower asset optimization, and warmer weather in Michigan and the District of Columbia (D.C.).
• The mid-stream segment reported normalized EBITDA of $182-million in the fourth quarter of 2023, compared with $163-million in the fourth quarter of 2022, while income before taxes in the segment was $79-million in the fourth quarter of 2023, compared with $113-million in the fourth quarter of 2022. The largest drivers of the fourth quarter year-over-year increase in normalized EBITDA included strong performance from the global export business, allowance for funds used during construction (AFUDC) on the Mountain Valley pipeline project (MVP) and the absence of inventory writedowns.
• The global export business shipped 90,996 barrels per day of liquified petroleum gases (LPGs) in the fourth quarter of 2023 and an average of 106,071 barrels per day during 2023 from the Ridley Island propane export terminal (RIPET) and the Ferndale terminal. Although the fourth quarter is a seasonally low quarter for exports, volumes were below internal expectations this quarter due to delayed ship arrivals at both terminals during December, 2023, which were loaded in the first quarter of 2024. Despite these timing impacts in the fourth quarter, AltaGas continued to demonstrate the multiyear growth trajectory that has been demonstrated since 2019 while connecting the Canadian upstream and Asian downstream markets and driving stronger Canadian industry netbacks.
• On Dec. 22, 2023, AltaGas closed the acquisition of natural gas processing and storage infrastructure assets in the Pipestone area of the Alberta Montney, including Pipestone natural gas processing plant phase I, the Pipestone phase I expansion project (Pipestone phase II), the Dimsdale natural gas storage facility, and ancillary assets from Tidewater Midstream and Infrastructure Ltd. AltaGas also declared a positive final investment decision (FID) on Pipestone phase II, with 100 per cent of the capacity contracted under long-term take-or-pay agreements.
• AltaGas continued to advance key activities on the Ridley Island energy export facility (REEF) during and subsequent to the fourth quarter of 2023. This included commencing site clearing work, including logging, clearing and drainage work that will further solidify the project's readiness to reaching FID, which is expected during the second quarter of 2024.
• In December, 2023, AltaGas commissioned the first of two new very large gas carriers (VLGCs) -- the Boreal Pioneer, which made its maiden voyage from Ferndale to Asia in early January, 2024. The second VLGC, the Boreal Voyager, was commissioned in February, 2024. These two seven-year time charters with optional extensions will reduce and derisk shipping costs with materially all of AltaGas's expected Baltic freight exposure protected through time charters, financial hedges and tolled volumes in 2024.
• 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.) and continue to advance long-term climate goals.
• On Dec. 14, 2023, the Public Service Commission of Maryland approved a $10-million (U.S.) rate increase with a 9.5-per-cent return on equity and 52-per-cent equity thickness. The new rates became effective immediately.
• On Dec. 22, 2023, the Public Service Commission of the District of Columbia approved an increase of approximately $20-million (U.S.) in revenues, net of approximately $5-million (U.S.) of costs collected through the Projectpipes surcharge. This included a 9.65-per-cent return on equity and 52-per-cent equity thickness. The new rates went into effect Jan. 19, 2024.
• On March 1, 2023, AltaGas closed the divestiture of its Alaskan utilities for $800-million (U.S.) (approximately $1.1-billion), prior to closing adjustments. Sale proceeds were used to reduce debt while providing AltaGas with the financial flexibility to advance its strong growth opportunities across the mid-stream and utilities platforms over the coming years.
• On Dec. 5, 2023, AltaGas's board of directors approved a 6-per-cent increase to its annual common share dividends to $1.19 per common share annually (29.75 cents per common share quarterly). This change will be effective for the dividend that will be paid on March 29, 2024, with long-term dividends expected to continue to compound by 5 per cent to 7 per cent per annum in the years ahead, subject to annual board approval.
• On Dec. 5, 2023, AltaGas released its 2023 ESG (environmental, social and governance) report, highlighting 2022 data for key topics and outlining progress toward the company's sustainability goals within the areas of climate, diversity and inclusion and safety.
• AltaGas is pleased with the construction progress on MVP. The pipeline is now 99 per cent complete and expected to be placed into service in the second quarter of 2024 and will provide critical energy security to customers in the Eastern United States. As previously disclosed, AltaGas does not consider its equity stake in MVP as core and will consider value-maximizing opportunities as part of the company's plan to reach its 4.5 times net debt to normalized EBITDA target once the pipeline is fully operational.
• AltaGas had a series of financing during and subsequent to the fourth quarter, including:
  • On Oct. 19, 2023, Washington Gas issued $200-million (U.S.) in private placement notes, which includes $150-million (U.S.) of notes with a 6.06-per-cent interest rate, maturing on Oct. 14, 2033, and $50-million (U.S.) of notes at a 6.43-per-cent interest rate, maturing on Oct. 15, 2053.
  • On Nov. 10, 2023, AltaGas issued $200-million of hybrid 8.90 per cent fixed-to-fixed-rate subordinated notes, Series 3, due Nov. 10, 2083. On Dec. 31, 2023, AltaGas used the proceeds of the hybrid issuance to redeem all of its issued and outstanding Series E preferred shares for $25 per Series E share, together with all accrued and unpaid dividends.
  • On Jan. 8, 2024, AltaGas issued $400-million of senior unsecured medium-term notes with a 4.67-per-cent coupon. The net proceeds were used to pay down existing indebtedness under AltaGas's credit facilities (part of which was incurred to finance the debt portion of the Pipestone acquisition), to finance working capital, and for general corporate purposes.
• AltaGas is reiterating the company's 2024 full-year guidance, including normalized EBITDA of $1,675-million to $1,775-million and normalized EPS of $2.05 to $2.25.

Chief executive officer message

"We are pleased with the results delivered during 2023," said Vern Yu, president and chief executive officer of AltaGas. "The performance demonstrates the strength of our platform and the actions we have taken to drive long-term value.

"Fourth quarter mid-stream performance was strong with normalized EBITDA up 12 per cent year over year, despite delays on two LPG export vessels that had loadings pushed into the first quarter of 2024. Canadian upstream development remains strong as the industry prepares for improved egress and the arrival of LNG Canada. This was reflected in AltaGas realizing higher year-over-year throughput volumes across our gas processing, fractionation and liquids handling businesses during the fourth quarter as we fill latent capacity and prepare for potential brownfield expansions to support industry development.

"The recent issues in the Panama Canal reiterated the importance of connecting Canadian LPGs to key Asian downstream markets and the mutual benefits of a growing Canadian-Pacific energy partnership. We estimate that Canadian producers realized an approximate $9.50 (U.S.) per barrel better propane netback through long-term tolling at RIPET during the fourth quarter compared to selling domestically in the U.S.

"Despite warmer weather in Michigan and D.C., the utilities performed relatively in line with our expectations and were aided by strong performance from the retail platform in the fourth quarter. Our Utilities are critical to balancing long-term energy reliability, affordability and climate needs across our jurisdictions and have a bright future as the largest home heating source across each jurisdiction.

"The past year was an active period for AltaGas, including the Pipestone acquisition, solidifying our REEF joint venture, closing the Alaskan utilities sale, advancing key mid-stream commercial derisking initiatives and continuing to steadily grow our utilities. I am excited about the road ahead, continuing to leverage the strong long-term fundamentals for natural gas and natural gas liquids (NGLs) and building on the strong successes of 2023."

Business performance

Mid-stream

The mid-stream segment reported normalized EBITDA of $182-million in the fourth quarter of 2023, compared with $163-million in the fourth quarter in 2022, while income before taxes was $79-million in the fourth quarter of 2023, compared with $113-million in the fourth quarter of 2022. The year-over-year increase in normalized EBITDA in the fourth quarter of 2023 was driven by strong performance from the global exports business, contribution from AFUDC on MVP as the pipeline moves toward completion, strong marketing performance and lower operating expenses across a number of businesses. These factors were partially offset by lower frac spreads and volumes at the extraction facilities, lower power revenue at Harmattan due to power prices, and the absence of the certain acquisition-related commercial disputes and contingencies present in the fourth quarter of 2022.

Fourth quarter 2023 results included a year-over-year improvement in the profitability of the global exports business due to stronger Asian to North American LPG prices during the quarter. This was partially offset by lower merchant volumes as AltaGas was successful at increasing long-term tolling, merchant volumes being highly hedged in the quarter and lower-than-expected overall export volumes. AltaGas exported 90,996 barrels per day of LPGs to Asia during the fourth quarter of 2023, including 10 VLGCs at RIPET and five VLGCs at Ferndale. Although global export volumes traditionally realize lower volumes in the fourth quarter due to a lack of LPG supply coming from Washington refineries at Ferndale and weather-related impacts on logistics, volumes were lower than expected due to one delayed ship arrival at RIPET and one delayed ship at Ferndale due to a rail outage.

Over the longer term, AltaGas continues to see growing demand for LPG exports driven by its structural shipping advantage to Asia and access to low-cost Canadian supply. This structural advantage has amplified recently due to the restricted vessel traffic through the Panama Canal, which is driving additional demand for reliable and ratably sourced Canadian LPGs and highlights the mutual benefits of a growing Canadian-Pacific energy partnership. AltaGas estimates that Canadian producers realized an approximate $9.50 (U.S.) per barrel better propane netback through long-term tolling at RIPET during the fourth quarter of 2023 compared with selling domestically in the United States at Conway.

Performance across the balance of the mid-stream platform was strong and in line with the company's expectations during the fourth quarter. This included strong year-over-year volume increases at Townsend and Harmattan and 9 per cent year-over-year growth across AltaGas's Montney footprint during the quarter. This demonstrates the strong resumption of development activity in the basin and the Montney being at the centre of the long-term basin development plans. Fractionation volumes were up 4 per cent year over year during the fourth quarter of 2023, due to higher volumes at Harmattan, Younger and North Pine. AltaGas's realized frac spread averaged $23.13 per barrel, after transportation costs, as most of AltaGas's frac-exposed volumes were hedged in the fourth quarter of 2023.

AltaGas is well hedged for 2024 with 90 per cent of full-year 2024 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 $17.88 per barrel. This includes AltaGas entering the year with approximately 40 per cent of global exports tolled, with the expectation of being 50 per cent tolled or higher by the end of 2024. Based on AltaGas's signed deals and existing customer conversations, the company expects to achieve or exceed this level of tolling. Approximately 80 per cent of the company's 2024 expected frac exposed volumes are hedged at approximately $27.04 (U.S.) per barrel, 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.

In December, 2023, AltaGas commissioned the first of two VLGCs -- the Boreal Pioneer, which made its maiden voyage from Ferndale to Asia in early January, 2024. The second VLGC, the Boreal Voyager, was commissioned in February, 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. These two seven-year time charters, combined with financial hedges and tolled volumes, have principally eliminated AltaGas's expected Baltic freight exposure in 2024.

Utilities

Normalized EBITDA in the utilities segment was $311-million in the fourth quarter of 2023, compared with $294-million in the same quarter in 2022, while income before taxes was $207-million in the fourth quarter of 2023, compared with $80-million in the fourth quarter of 2022. The quarter included strong performance from WGL's retail marketing business, customer growth, higher revenue from rate base additions from continuing investments in accelerated replacement programs (ARPs), the impact of Washington Gas's Virginia rate case, and lower operating and administrative expenses. These factors were partially offset by the lost contribution of the Alaskan utilities, which were divested in March, 2023, and had contributed $25-million of normalized EBITDA in the fourth quarter of 2022, larger-than-normal asset optimization contribution at Washington Gas in the fourth quarter of 2022, and warmer weather in Michigan and D.C. during the fourth quarter of 2023, which do not have weather normalization or decoupled rate structures. Other positive factors impacting year-over-year normalized EBITDA included foreign exchange hedge gains and lower operating and administrative expenses.

AltaGas continues to make investment across its utilities network to improve the safety and reliability of the system on behalf of its customers. During the fourth quarter of 2023, AltaGas invested $192-million across the utilities network, including $130-million across the company's various modernization programs. These investments continue to be directed toward improving the safety and reliability of the system and connecting customers to the critical energy they require to carry out everyday life. These investments should also reduce leak rates and bring long-term operating cost benefits to the company's customers. AltaGas will continue to make these critical investments while balancing the need for continuing customer affordability, which is particularly important during the current economic environment of higher interest rates and inflation. 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.

During the quarter, Washington Gas had three major regulatory updates. The first was a proposed ARP modernization extension in Maryland, which will run through to 2028. The public law judge has recommended that the Public Service Commission of Maryland approve approximately $330-million (U.S.) of capital to modernize the company's system and improve safety and reliability. This builds on AltaGas's ARP program in Virginia, which was recently extended to the end of 2027. The second was the Public Service Commission of Maryland approving a $10-million (U.S.) rate increase for Washington Gas in Maryland with a 9.5-per-cent return on equity and 52-per-cent equity thickness, with the new rates becoming effective immediately. Lastly, the Public Service Commission of the District of Columbia approved an increase of approximately $20-million (U.S.) in revenues for Washington Gas in D.C., net of approximately $5-million (U.S.) of costs collected through the Projectpipes surcharge with the new rates effective Jan. 19, 2024.

Corporate/other

Normalized EBITDA in the corporate/other segment was $9-million for the fourth quarter of 2023, compared with a loss of $3-million in the same quarter of 2022. Loss before income taxes in the corporate/other segment was $125-million in the fourth quarter of 2023, compared with $115-million in the same quarter of 2022. The largest drivers for the increase in normalized EBITDA was due to lower expenses related to employee incentive plans and lower corporate operating and administrative expenses.

Pipestone asset acquisition

On Dec. 22, 2023, AltaGas closed the previously announced Pipestone acquisition and declared a positive FID on Pipestone phase II. The assets acquired through the Pipestone acquisition included: (1) Pipestone phase I and Pipestone phase II; (2) the adjacent Dimsdale natural gas storage facility; (3) the Pipestone condensate truck-in/truck-out terminal; and (4) the associated gathering pipeline systems from Tidewater.

The Pipestone phase II expansion project was 100 per cent contracted under long-term take-or-pay agreements during the fourth quarter of 2023 with a combination of marquee independents and investment-grade producers. All Pipestone phase II customers who were existing Pipestone phase I customers also agreed to multiyear contract extensions, further improving the long-term commercial profile of the Pipestone assets.

With inclusion of these new agreements, the Pipestone acquisition is constructive to AltaGas's risk profile with the company's take-or-pay and fee-for-service mid-stream EBITDA mix set to increase by an estimated 6 per cent with a commensurate decrease in commodity exposed EBITDA, once Pipestone phase II comes on line. In aggregate, more than 90 per cent of the Pipestone assets' normalized EBITDA is expected to come from take-or-pay or fee-for-service-based contracts.

The Pipestone assets have been integrated and AltaGas has welcomed its new employees that joined the company as part of the transaction. AltaGas is now focused on leveraging the long-term growth opportunities and delivering on the returns that can be generated with the Pipestone assets now part of AltaGas's value chain. The company is pleased with the transition of operatorship and progress realized to date.

Consolidated financial results

Normalized EBITDA for the fourth quarter of 2023 was $502-million, compared with $454-million for the same quarter in 2022. The largest contributors impacting the year-over-year increase are described in the business performance sections herein.

For the fourth quarter of 2023, the average Canadian-dollar/U.S.-dollar exchange rate increased to 1.362 from an average of 1.358 in the same period of 2022.

Income before income taxes for the fourth quarter of 2023 was $161-million, compared with $78-million for the same quarter in 2022. The increase was mainly due to higher normalized EBITDA, lower unrealized losses on risk management contracts, and the absence of provisions on assets, partially offset by higher foreign exchange losses and costs related to the chief executive officer transition and other restructuring costs incurred in 2023.

Normalized net income was $214-million (76 cents per share) for the fourth quarter of 2023, compared with $189-million (67 cents per share) reported for the same quarter in 2022. The increase was mainly due to higher normalized EBITDA, partially offset by higher foreign exchange losses and higher normalized income tax expense.

Normalized funds from operations for the fourth quarter of 2023 was $376-million ($1.33 per share), compared with $371-million ($1.32 per share) for the same quarter in 2022. The increase was mainly due to higher normalized EBITDA, partially offset by the impact of non-cash items included in normalized EBITDA, higher normalized current income tax expense and higher interest expense.

Depreciation and amortization expense for the fourth quarter of 2023 was $110-million, compared with $112-million for the same quarter in 2022. The decrease was due to the impact of the disposition of the Alaskan utilities, partially offset by new assets placed in service.

Interest expense for the fourth quarter of 2023 was $101-million, compared with $99-million for the same quarter in 2022. The slight increase was due to $3-million of incremental hybrid interest costs compared with the same quarter in 2022 due to hybrid notes replacing preferred shares. Excluding the impact of shifting the financing costs between preferred shares and hybrid notes, interest costs were relatively comparable.

AltaGas recorded income tax expense of $33-million for the fourth quarter of 2023, compared with $12-million in the same quarter in 2022. The increase in income tax expense was mainly due to an increase in income before income taxes in the fourth quarter of 2023 compared with the same quarter in 2022.

Forward focus, guidance and financing

AltaGas continues to execute 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.

AltaGas expects to achieve its previously disclosed 2024 guidance, including:

• 2024 normalized EPS guidance of $2.05 to $2.25, compared with normalized EPS of $1.90 and GAAP EPS of $2.27 in 2023;
• 2024 normalized EBITDA guidance of $1,675-million to $1,775-million, compared with normalized EBITDA of $1,575-million and income before taxes of $912-million in 2023.

AltaGas is focused on delivering resilient and growing normalized EPS and FFO per share while targeting lowering leverage ratios. This strategy is designed to support steady dividend growth and provide the opportunity for continuing capital appreciation for long-term shareholders. In December, the board of directors approved a 6-per-cent increase to the annual common share dividend to $1.19 per share annually for the 2024 calendar year, which equates to a rate of 29.75 cents per common share on a quarterly basis. AltaGas's strategy includes plans to deliver sustainable annual dividend increases that compound in the years ahead.

AltaGas is maintaining a disciplined, self-financed capital program of approximately $1.2-billion, excluding asset retirement obligations (ARO). The company is allocating approximately 58 per cent of AltaGas's consolidated 2024 capital to its utilities business, approximately 36 per cent to the mid-stream business and the balance to the corporate/other segment.

The company expects to maintain an equity self-financing model in 2024, for the fifth consecutive year, and will finance capital requirements through a combination of internally generated cash flows and investment capacity associated with rising EBITDA levels, with no expectation to issue equity. Asset sales will be considered on an opportunistic basis, with any potential proceeds to be used to delever and strengthen the balance sheet and continue to increase financial flexibility of AltaGas.

Quarterly common share dividend and preferred share dividends

The board of directors approved the schedule of dividends as shown in an attached table.

Conference call and webcast details

AltaGas will hold a conference call on March 8, 2024, at 9 a.m. MT (11 a.m. ET) to discuss fourth quarter 2023 results and other corporate developments.

Date:  Friday, March 8, 2024

Time:  9 a.m. MT (11 a.m. ET)

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

Shortly after the conclusion of the call, a replay will be available on the company's website or by dialling 416-764-8677 or toll-free 1-888-390-0541 (passcode: 184752 followed by the number sign).

AltaGas's consolidated financial statements and accompanying notes for the fourth quarter of 2023 as well as its related MD&A (management discussion and analysis) are now available on 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 energy infrastructure business that is focused on delivering stable and growing value for its stakeholders.

We seek Safe Harbor.