AltaGas Ltd. says propane has been secured for close to 75 per cent of Ridley Island Propane Export Terminal (RIPET) export capacity and that construction of the facility remains on-time and on-budget for start-up in the first quarter of 2019.

“We are very excited about our future in northeastern B.C. with our energy exports and our unique offerings for producers. Producers are starting to see the benefits of having access to new premium markets for their propane,” David Harris, president and CEO, told a first quarter conference call this morning.

“RIPET supply contracting efforts have been successful so far in 2018 and we now have close to 75 per cent of the supply we need to COD. A portion of this is under tolling arrangements and we ultimately expect approximately 40 per cent of RIPET’s capacity under tolling arrangements with producers and other suppliers.”

RIPET is expected to be the first propane export facility off the west coast of Canada. The site is near Prince Rupert, B.C., and has a location advantage given very short shipping distances to markets in Asia, notably a 10-day shipping time compared to 25 days from the U.S. Gulf Coast.

Propane from B.C. and Alberta will be transported to the facility using 50-60 rail cars per day through the existing CN rail network. RIPET is expected to ship 1.2 million tonnes of propane per annum (which is equivalent to approximately 40,000 bbls/d of export capacity).

“We are uniquely positioned to offer energy exports to producers and are excited about the potential future growth of this business,” Harris said.

Growth capital and project updates

Based on projects currently under review, development or construction, AltaGas has increased expected net capital expenditures for 2018 in the range of $500 million to $600 million (excluding WGL) from previous guidance of $400 million to $500 million (DOB, Dec. 20, 2017).

The company’s Gas segment will account for approximately 50 to 55 per cent of the total capital expenditures, while the Utilities segment will account for approximately 30 to 35 per cent and the Power segment will account for the remainder.

Gas and Power maintenance capital is expected to be approximately $25 million to $35 million of the total capital expenditures in 2018. The majority of AltaGas’ capital expenditures are focused on the continued construction at RIPET, maintaining and growing rate base at its existing utilities, pre-construction design, engineering, and right-of-way procurement for the Marquette Connector Pipeline (MCP), and growth capital associated with the tie-in of incremental third party gas volumes.

The company continues to focus on enhancing productivity and streamlining businesses, including the disposition of smaller non-core assets.

AltaGas’ 2018 committed capital program is expected to be funded through internally‑generated cash flow and the premium dividend, dividend reinvestment and optional cash purchase plan (DRIP).

Following the close of the WGL Holdings, Inc. acquisition (expected close date in mid-2018), the consolidated 2018 capital program on a combined basis, including capital for WGL, is expected to be in the range of approximately $1 billion to $1.3 billion.

Close to half of this total will be allocated to the Gas segment, with the majority of the remaining expected capital for the Utilities segment, followed by the Power segment. AltaGas expects that the largest portion of WGL’s 2018 capital program subsequent to close will be allocated to investments in the Central Penn and Mountain Valley gas pipeline developments in the Marcellus region.

Capital allocated to WGL’s utilities business will represent most of the remaining 2018 capital subsequent to close, with spending consistent with recent levels.

First quarter highlights

Net income applicable to common shares for the first quarter of 2018 was $49 million compared to $32 million for the same quarter in 2017.

The increase was mainly due to lower transaction costs incurred on the pending WGL acquisition, and lower interest and income tax expense, partially offset by the same previously referenced factors resulting in the decrease in normalized EBITDA, higher losses on investments, higher preferred share dividends, and higher depreciation and amortization expense.

Normalized funds from operations for the first quarter of 2018 were $169 million versus $170 million for the same quarter in 2017. Revenues increased to $878 million from $771 million during the first quarter of 2017.

Significant progress on WGL acquisition

On April 4, 2018, the Maryland Public Service Commission (PSC of MD) approved the proposed merger of AltaGas and WGL. The 4:1 favourable decision by the PSC of MD followed a comprehensive public process and contained a number of conditions which were in line with the merger commitments offered up by the companies. On April 5, both AltaGas and WGL accepted the conditions.

“We have just one approval remaining before we are in a position to close the WGL acquisition. We are excited about the benefits that our combination with WGL will bring to customers, shareholders and all stakeholders,” Harris said.

“Together with WGL, AltaGas will have over $20 billion in robust, high quality, low-risk, long-lived assets across all three of our business segments with great scale and diversity.”

The WGL acquisition is expected to provide strong accretion to earnings per share and normalized funds from operations per share through 2021. Starting with the first full year in 2019, the acquisition is expected to support visible dividend growth through 2021, while allowing AltaGas to maintain a conservative payout of normalized funds from operations.

Dividend growth is expected to be further supported by AltaGas’ portfolio of highly contracted assets. In the first full year 2019, AltaGas expects approximately 85 per cent of its EBITDA to come from contracted or regulated assets.

With the WGL acquisition, AltaGas will have a larger, diversified platform for growth with approximately $4.5 billion in secured growth projects and approximately $1.5 billion of additional growth opportunities in advanced stages of development through 2021.

Together AltaGas and WGL will have over $20 billion in energy infrastructure assets and an enterprise value of over $17 billion. Closing of the WGL acquisition continues to be on track for mid-2018.

Financing to close the WGL acquisition is fully backstopped with $2.6 billion in proceeds from AltaGas’ bought deal and private placement of subscription receipts which closed in the first quarter of 2017, and a US$3 billion fully committed bridge facility that may be drawn upon for closing and could remain in place for up to 12 to 18 months thereafter.

With all financing in place to close the WGL acquisition, AltaGas continues to evaluate and advance an asset monetization strategy in a prudent and timely fashion in step with the regulatory process and consistent with the company’s long-term strategic vision. Management expects the repayment of the bridge facility to result from the monetization of over $2 billion from its asset sale processes and from offerings of senior debt and hybrid securities, subject to prevailing market conditions.

“As we enter into the final phase of the WGL acquisition and gain certainty around regulatory approvals, we will be able to provide more concrete details on our asset monetization processes,” Harris said.

“We are actively in discussions on several fronts, including the potential sale of appropriate minority interest(s) in our northwest B.C. hydro facilities. Ultimately, we expect to deliver a strong financial outcome for AltaGas and meaningful financial returns for our shareholders.”