Keyera Facilities In FD (KEY.UN)

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Keyera Corp. TSX:KEY formerly Keyera Facilities Income Fund oversees one of Canada's largest midstream oil and gas business (as opposed to downstream and upstream). In addition to the main function of midstream companies (storage/transportation) Keyera extracts valuable natural gas liquids from natural gas at its 18 processing plants (May 2011) which it then markets to customers across North America via pipelines, trucks and terminal points. Products include sulfur, butane and ethane. The company also uses its own 3,400 km long pipeline network to transport crude oil from parts of Alberta and Saskatchewan to storage facilities and other endpoints. Also should be noted is that all raw natural gas must be processed before it can be used by customers, the processing of the gas is mutually beneficial to both the producers and midstream companies because along with economically viable products impurities are removed.

Company Overview

Operations are limited to that of a midstream company which means business relies entirely on producers and refiners. If production in areas serviced by its pipelines falls so does Keyera's operational throughput and capacity utilization. Natural gas storage involves a precise balance between delivery and market demand. Storage tanks and pipelanes (line packing) can both be used to store gas.

As of early 2011 there are 18 gas plants and 3,400 km's of pipeline most of which runs throughout Alberta. The deal for Simonette that also included two thirds of the North Cabin pipeline and half of a comperessor station, was the third natural gas facility it bought into during the year, the others were Edson (21.8%) and Minnehik Buck Lake (36.5%)^[1][2]

Gathering and Processing - oversees 16/18 gas plants in Western Canada that the company owns outright (the other two are minority interests). Piping connections between the facilities ensures that raw gas and other types are directed to the location best suited for processing/transport.

NGL Infrastructure - underground storage (used for propane and butane in the summer, condensate extraction year round), NGL fractionation, pipelines, rail and truck terminals. The company has 4 main energy hubs with Edmonton being the central base.

Marketing - Distributes natural gas liquids to Canadians and Americans which which it sells to clients via short-term contracts. Propane demand is more variable than that of butane and condensate because of its seasonality (storage facilitites which are less used in the summer serve as chief source of supply during the colder months when heating demand rises).

Business and Financials

2011 first quarter

Though assets fell slightly (about 10% from December 2010) and long term was 16.3% higher than the previous quarter (stood at $516.572 million 49% higher than in March 2010) cash flow and net income showed strong gains (101.4% and 206.3% respectively) the result of new assets (edson, simonette plants & new pipelines expanding area access). Pushing debt level higher was capital expenditure, 137.4% higher than the corresponding period in 2010 ($29.17 million vs $12.28 million). Gathering and processing unit increased gross processing throughput by 30% (1143 mmcf/d vs 882 mmcf/d) though net processing throughput increased by only half as much (14.7%; 866 vs 755). NGL Infrastructure unit processed 8.6% (gross) 6.9% (net) less (down to 85 mmcf/d and 27 mmcf/d respectively). Marketing - inventory value fell substantially (31% or $19.4 million down to $43.316 million) due partly to an increase in sales volume (up to 80,800 bbls/d from 76,300 in March 2010). Convertable debentures were only about a third as much ($26.1 million vs $67.4 million).^[3]

2010

Sales at all 3 business segments were robust. Negative pressures: price of natural gas (recovered from $1.96/Mcf in September 2009 but not by much averaging $3.79/Mcf much lower than pre recession). New supplies of gas in the USA also kept prices down; although the low price negatively impacted drilling/production in Canada. The lower than usual activity in Western Canada only slightly affected Keyera's throughput because the part of Alberta Keyera's core facilities gather from showed increased production. Throughput was affected by scheduled plant turnarounds (negatively) and additional plants (positively). Discoveries near the Montney and Wilrich areas are expected to boost throughput in 2011. In 2010 agreed to provide Husky Energy with diluent, transportation and storage services at Fort Sasktachewan (Sunrise Oil Sands Project). Another agreement (long term) was made with Imperial Oil to service the Kearl oil sands project. long term liabilities represented 52.3% of total liabilities while long term debt represented 30.75% ($404.41 million).

In 2010 expenses were higher attributable to maintenance of Caribou and Strachan two plants which had throughput lowered ($10 million decrease in gross income). Higher company operating revenue came from Rimbey's ethane extraction facility and the new additional revenue from Edson (21.8% owned), Minnehik Buck Lake (36.5% owned) and Simonette (100% owned). The new plants boosted throughput by 8.2% (or 74 million cubic feet/day). Revenue was 29.9% higher in 2010 but operating and administrative expenses rose faster (32.5% and 17.23% respectively; operating costs were 99.7% of total); although revenue was up significantly gross income was down slightly because in 2009 NGL cost of sales was unusually low and so the expenses incurred in 2010 appeared to be much higher when in fact they were at normal levels.

NGL Infrastructure - Overall gross income was 7.3% higher in 2010 caused by increased storage and condensate demand counteracted by lower revenue from the Bonnie Glen pipeline because of fewer companies requiring its services. A new pipeline connection (construction in progress) with Enbridge's Southern Lights line will greatly expand Keyera's reach giving it new potential gathering areas.

Acquisitions

Since its establishment in 1998 Keyera has made a number of key acquisitions. Until 2004 the company was known as KeySpan Facilities Income Fund which then changed to Keyera Income fund until 2011 when it converted to a corporation; at the time it indirectly owned KeySpan Canada.

December 2, 2004 - Raised $C 151 million through a public offering of almost 11 million shares. The money was used to buy out Keyspan Corp. interest in KeySpan Energy Canada Partnership. ^[6]

Keyspan previously increased its interest in Keyspan Energy Canada Partnership in April 1, 2004 when it raised $C196.8 million on the Toronto Stock Exchange by issuing 15.617 million shares.^[7]

December 15, 2004 - Closed a $17.1 million deal with Border Midstream Services, Ltd. (Northern Border Partners LP) for 36% of the 129 KM Gregg Lake-Obed sour gas pipeline originating near Hinton, Alberta. That year the pipeline handled 125 mmscf per day of throughput and had cash flow of $3.3 million.^[8]

July 4, 2006 - Acquires three US propane terminals (accessable by rail and trucks) from Texon for US$12 million; the deal includes propane inventory and a storage contract. The terminals are in Vancouver, Washington, Albuquerque, New Mexico and Lordstown, Ohio. The terminal are advanced in that they involve automated loading systems.^[9]

March 14, 2008 - Acquired a key condensate facility/distribution terminal near Fort Saskatchewan for $32 million. The plant (Alberta Diluent Terminal) will store and supply condensate oilsands diluent used by oil companies to processes bitumen. The acquisition increased Keyera's condensate import capacity in the region to 60,000 barrels per day.^[10]

November 10, 2010: Initiated the purchase of the Simonette gas plant (80mmcf/d) in Alberta in a deal that included 2/3's of a pipeline, 50% of a compressor station, the 37 km long Findley pipeline and 30.4% of the 72 km long Lynx pipeline. Until the deal for the Simonette gas plant closed December 14th, Keyera owned 37.5% of the plant an interest it purchased on October 29, 2010. The deals for the Lynx and Findley pipelines won't be finalized until mid 2011.^[11][2] Reasons for the Simonette acquisition include geologically attractive land in the capture area as well as the opportunity to also acquire pipelines in the area.^[12]

December 14, 2010 - Completed the purchase of the Simonette NGL processing plant near Edson, Alberta. The first investment in Simonette came October 29, 2010 when it purchased 37.5% for $47.5 million. The takeover happened when it acquired the remaining 62.5% on November 10, 2010 for $82 million. The licensed capacity of Simonette at the time was 150 mmcf/d.^[13]

Processing throughput capacity rates (natural gas)

Units: mmcf/d : million metric cubic feet per day Data from Keyera's 2010 Annual Report as reported on February 17, 2011.^[14]

References

1. ↑ Doneybrook Energy Inc: Resthaven-Simonette Montney Operations Update Biston Farmout (2011-03-14).
2. ↑ ^{2.0 2.1} Keyera Announces Closing of Simonette Midstream Assets (2010-12-14).
3. ↑ ^{3.0 3.1} Keyera Corp 2011 First Quarter Report (2011-05-10).
4. ↑
5. ↑ ^{5.0 5.1} Keyera 2007 Financial Report page 28 (2008).
6. ↑ KeySpan Facilities Income Fund Completes Public Offering of Units (2004-12-02).
7. ↑ KeySpan Facilities Income Fund Completes Public Offering of Units. (2004-04-01).
8. ↑ KeySpan Facilities Income Fund Acquires 36% Interest in Gregg Lake - Obed Pipeline
9. ↑ Keyera Acquires Three U.S. Propane Terminals (2006-07-04).
10. ↑ Keyera acquires diluent terminal to boost oilsands operations (2008-03-14).
11. ↑ Keyera Invests $82 Million to Acquire Remaining Ownership in Simonette Area Midstream Assets (2010-11-12).
12. ↑ Keyera 2010 Annual Report (2011).
13. ↑ Keyera Invests $82 million to Acquire Remaining Ownership of Simonette (2010-11-10).
14. ↑ ^{14.0 14.1} Keyera Corp. Annual Report page 18 (2011-02-17).