Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AltaGas Ltd (ATGFF, Financial) delivered normalized EBITDA of $295 million in Q2, up 23% year over year.
- Normalized EPS doubled to $0.14 per share compared to Q2 2023.
- Record export volumes in the midstream segment, with more than 123,000 barrels a day.
- Strong performance in the utilities segment, delivering stable earnings growth despite warmer weather.
- Steady progress on major projects like Reef and Pipestone Two, with positive FID and on-schedule construction.
Negative Points
- Impact of warmer than normal weather in DC and Michigan on utilities segment performance.
- Rail disruptions due to forest fires affecting midstream operations in July.
- Ongoing regulatory challenges, such as the dismissal of the Pipes Three filing in DC.
- Potential risks associated with executing two large projects concurrently (Reef and Pipestone Two).
- Uncertainty surrounding the legal dispute between Trigon and PRPA, which could impact future export plans.
Q & A Highlights
Q: Can you walk us through where you expect to finish 2024 from a tolling perspective and the growth you target for the midstream segment overall through the long term?
A: We are about 56% tolled for the entire 2024 NGL year, which ends on March 31st of next year. Our long-term goal is to be around 60% tolled. We expect good growth over the next couple of years in the midstream business, with significant growth when Pipestone Two and Reef come into service. Overall, we anticipate the business to grow at 5% to 7% per year.
Q: How are you prioritizing ROE cap reductions in the utilities segment, and which jurisdictions are most likely to reduce the ROE gap?
A: System-wide within the WGL network, we have about a 140 basis point shortfall to the allowed returns. We have taken aggressive actions to reduce costs, which should achieve about a 50 to 60 basis point increase in ROEs. This will move our gap to below 100 basis points. We plan to file a DC rate case soon and are evaluating the timing of other rate cases.
Q: Can you comment on where you're at with customers for securing commercial support for a Phase Three expansion at Pipestone and the potential for expanding storage capacity at the Davidstow facility?
A: Pipestone Two construction is on track for end of 2025. We are in active discussions with customers for a potential Pipestone Three expansion, focusing on gas and gas disposal. Regarding Davidstow, there is significant interest in storage due to LNG Canada starting up, and we are in discussions about potential expansion.
Q: Can you discuss the opportunities for exporting other products from Reef, such as ammonia, given the potential for new hydrogen production?
A: Our facility will be fully capable of exporting ammonia. The bigger issues are upstream, such as sufficient ammonia production in Western Canada and the railroads' ability to move ammonia by train. Should these issues be resolved, our facility will be ready to export ammonia.
Q: Can you help us understand the path forward in Washington on the advanced replacement plan after the setback in June?
A: We filed our Pipes Three filing in December 2022. The commission dismissed it due to the age of the data but asked us to refile a three-year program. We have until the end of September to file, and we expect an order early in 2025, providing continuity between the current Pipes Two extension and the new DC SAFE program.
Q: How do you balance improving the balance sheet versus the correct timing to optimize potential asset sales, particularly for Blythe and MVP?
A: We see a constructive backdrop in California for Blythe, so the retention value is higher for us currently. For MVP, we are actively moving forward to monetize it now that it is operational, and we are in active discussions.
Q: Can you comment on the midstream hedge program and the volume expectations for the global export business?
A: Our volume expectations remain the same for the year relative to our guidance. We have seen some volumes shift into the first part of the year, and we may procure some volumes on a spec basis for merchant volumes. The changes in percentages are small from Q1 to Q2.
Q: How do you view the impact of the Burberry River First Nation and BC government agreements on the Company's growth plans, specifically the North Pine expansion?
A: We have existing agreements with the Blueberry River First Nation, and our projects are outside the scope of the current lawsuit. We are progressing with the North Pine expansion within the existing footprint and are working through stakeholder and regulatory issues.
Q: Can you address the potential impact of a rail strike and the rapid turnaround at Ferndale?
A: We are preparing for a potential rail strike by ensuring adequate storage levels and having contingency plans in place. The rapid turnaround at Ferndale was part of our budget and is regular maintenance. We are being cautious to ensure we can execute the work within the scheduled time period.
Q: Can you provide an update on the Trigon dispute and its potential impact on Reef?
A: Trigon's dispute is with PRPA regarding land and port authority decisions. PRPA is defending rigorously, and we plan to appeal the decision. We believe our facility will not be impacted significantly as we have the right to export liquids, and Trigon has the right to export dry bulk.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
