SemGroup Reports Second Quarter 2019 Financial Results

8/8/2019
  • Higher Second Quarter Segment Profit Driven by Canadian Volume Growth
  • KAPS Pipeline Announced in May 2019 Now 70% Contracted
  • White Cliffs Crude Pipeline Secures 5-Year Contract for 20,000 Barrels Per Day

TULSA, Okla., Aug. 08, 2019 (GLOBE NEWSWIRE) -- SemGroup® Corporation (NYSE:SEMG) today reported second quarter 2019 net loss of $12.9 million, compared to first quarter net loss of $3.3 million and second quarter 2018 net loss of $2.7 million. Second quarter 2019 net loss was primarily due to non-cash items related to the impairment or sale of certain assets.

Second quarter 2019 Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) was $105.5 million, compared to $103 million in the first quarter of 2019 and $99 million in the second quarter 2018, primarily reflecting contributions from the company's new gas plants in Canada. Adjusted EBITDA is a non-GAAP measure and is reconciled to net income below.

"Second quarter results were in line with expectations," said SemGroup President and Chief Executive Officer Carlin Conner. "Investments over the past year in our U.S. Liquids and Canadian segments drove the increased year-over-year Adjusted EBITDA. This growth highlights the value of strategic projects like the Houston terminal expansion and the Wapiti and Patterson Creek gas plants, which will provide long-term, stable cash flows."

"I'm pleased to see our strategy deliver the intended financial and commercial results," said Conner. "Our well-positioned assets in Canada, the Mid-Continent and Gulf Coast are anchored by contracted cash flows that provide us confidence in our future growth. While our assets are performing, we have additional work to do on our balance sheet and are evaluating alternatives to de-lever while creating shareholder value."

Segment Profit Results
SemGroup management believes segment profit is a valuable measure of the operating and financial performance of the company's operating segments. Segment profit is defined as revenue, less cost of products sold (exclusive of depreciation and amortization) and operating expenses, plus equity earnings and is adjusted to remove unrealized gains and losses on commodity derivatives and to reflect equity earnings on an EBITDA basis. Reconciliations can be found in the tables of this release.

  Three Months Ended   Six Months Ended
  June 30 March 31   June 30
Segment Profit: 2019 2018 2019   2019 2018
U.S. Liquids $ 85,189   $ 80,393   $ 89,511     $ 174,700   $ 148,449  
U.S. Gas 11,040   15,437   12,165     23,205   29,714  
Canada 29,669   21,448   22,693     52,362   43,561  
Corporate/Other (1) (219 ) (172 ) (237 )   (456 ) 10,791  
Total Segment Profit $ 125,679   $ 117,106   $ 124,132     $ 249,811   $ 232,515  

(1) 1Q 2018 reflects earnings from divested businesses

Performance by Segment - Second Quarter 2019 vs. First Quarter 2019

U.S. Liquids

  • Second quarter was impacted by a $3.3 million property tax increase at the Houston terminal and the absence of a one-time $2.7 million insurance recovery recognized in the first quarter.
  • Higher marketing margins more than offset lower White Cliffs volumes related to the NGL line conversion.

U.S. Gas

  • The decrease was primarily due to lower residue and NGL prices.
  • Higher volumes and lower operating cost were offset by lower revenue margins.

Canada

  • Results were driven by full quarter contributions from the Patterson Creek and Wapiti plants, which benefited from strong volume growth.
  2019   2018
Select Operating Statistics 1Q 2Q (1)   1Q 2Q 3Q 4Q
U.S. Liquids              
White Cliffs Pipeline Volumes (mbpd) 147   106     107   135   112   144  
Cushing Terminal Utilization % 100%   90%     98%   97%   94%   98%  
Houston Terminal Utilization % 98%   98%     97%   97%   96%   96%  
U.S. Gas (2)              
Total Oklahoma Average Processing Volumes (mmcf/d) 290   301     293   353   380   355  
Canada (3)              
Total Average Processing Volumes (mmcf/d) 460   590     441   382   434   430  

     (1) White Cliffs Pipeline volumes decline primarily due to one crude line taken out of service for NGL conversion in early May 2019 and the  Cushing terminal excludes storage out of service for inspection and repairs
    (2) U.S. Gas volumes exclude Sherman, Texas due to sale of asset
    (3) Canada volumes include total average processed volumes - K3/Wapiti, KA/West Fox Creek and Patterson Creek facilities


Segment Profit and Adjusted EBITDA:
(in thousands, unaudited)

  2019   2018
Segment Profit: 1Q 2Q YTD   1Q 2Q 3Q 4Q FY2018
U.S. Liquids $ 89,511   $ 85,189   $ 174,700     $ 68,056   $ 80,393   $ 75,500   $ 85,474   $ 309,423  
U.S. Gas 12,165   11,040   23,205     14,277   15,437   19,754   17,602   67,070  
Canada 22,693   29,669   52,362     22,113   21,448   20,543   17,226   81,330  
Corporate and other (1) (237 ) (219 ) (456 )   10,963   (172 ) (913 ) (152 ) 9,726  
Total Segment Profit 124,132   125,679   249,811     115,409   117,106   114,884   120,150   467,549  
Less:                  
General and administrative expense 29,547   25,520   55,067     26,477   22,886   21,904   20,301   91,568  
Other income (979 ) (1,347 ) (2,326 )   (950 ) (533 ) (400 ) (497 ) (2,380 )
Plus:                  
M&A related costs 4,635   1,676   6,311     1,156   648   290   1,058   3,152  
Employee severance and relocation 159   73   232     137   211   43   758   1,149  
Non-cash equity compensation 2,632   2,232   4,864     2,196   3,398   2,738   3,190   11,522  
Consolidated Adjusted EBITDA $ 102,990   $ 105,487   $ 208,477     $ 93,371   $ 99,010   $ 96,451   $ 105,352   $ 394,184  

(1) 1Q 2018 reflects earnings from divested businesses

Recent Developments
SemGroup secured a five-year contract on the White Cliffs Crude Pipeline for 20,000 barrels per day and is currently holding an open season due to continued shipper interest.

On August 5, SemGroup announced that its Board of Directors had declared a quarterly cash dividend to common shareholders. A dividend in the amount of $0.4725 per share, or $1.89 per share annualized, will be paid on August 26, 2019 to all common shareholders of record on August 15, 2019. The Board of Directors also declared a dividend to holders of its 7% Series A Cumulative Perpetual Convertible Preferred Stock. The company elected, pursuant to the terms of the convertible preferred shares, to have the aggregate amount of $6.7 million that would have been payable in cash as a dividend added to the liquidation preference of such shares as a payment in kind. The record date for the payment in kind on the shares of convertible preferred stock is August 15, 2019 and the payment date is August 26, 2019.

On May 28, SemGroup entered into an agreement with Suncor Energy to provide crude transportation service from SemGroup's Platteville, Colorado terminal in the DJ Basin to Suncor's Commerce City Pipeline, which feeds into Suncor's local refinery. The project is supported by long-term contracted cash flows. The 16-mile Platteville to Suncor Pipeline is expected to be in service in the third quarter of 2020.

On May 4, SemCAMS Midstream ULC announced the formation of an asset joint venture with Keyera Corp. to construct a natural gas liquids and condensate pipeline system to connect the liquids-rich Montney and Duvernay production areas of northwestern Alberta to the fractionation and condensate hubs in Fort Saskatchewan, Alberta. This pipeline system provides producers additional and alternative transportation solutions to meet growing production and is supported by long-term contracts with significant take-or-pay commitments. The project is now 70 percent contracted with customer commitments.

Guidance Outlook
Based on year-to-date results, SemGroup is maintaining its initial financial guidance provided earlier this year.

SemGroup does not provide guidance for net income, the GAAP financial measure most directly comparable to the non-GAAP financial measure Adjusted EBITDA, because Net Income includes items such as unrealized gains or losses on derivative activities or similar items which, because of their nature, cannot be accurately forecasted. SemGroup does not expect that such amounts would be significant to Adjusted EBITDA as they are largely non-cash items; however, such items may be significant to net income.

Earnings Conference Call
SemGroup will host a conference call at 11 a.m. Eastern, Friday, August 9, 2019. The call can be accessed live over the telephone by dialing 855-239-1101, or for international callers, 412-542-4117. Interested parties may also listen to a simultaneous webcast of the conference call by logging onto SemGroup's Investor Relations website at www.semgroup.com. A replay of the webcast will be available following the call. The second quarter 2019 slide deck will be posted here.

About SemGroup
SemGroup® Corporation (NYSE:SEMG) moves energy across North America through a network of pipelines, processing plants, refinery-connected storage facilities and deep-water marine terminals with import and export capabilities. SemGroup serves as a versatile connection between upstream oil and gas producers and downstream refiners and end users. Key areas of operation and growth include western Canada, the Mid-Continent and the Gulf Coast. SemGroup is committed to safe, environmentally sound operations. Headquartered in Tulsa, Okla., the company has additional offices in Calgary, Alberta; Denver, Colo.; and Houston, Texas.

SemGroup uses its Investor Relations website and social media outlets as channels of distribution of material company information. Such information is routinely posted and accessible on our Investor Relations website at www.semgroup.com, our Twitter account and LinkedIn account.

Non-GAAP Financial Measures
SemGroup’s non-GAAP measures, Adjusted EBITDA, Cash Available for Dividends ("CAFD") and Total Segment Profit, are not GAAP measures and are not intended to be used in lieu of GAAP presentation of their most closely associated GAAP measures, net income (loss) for Adjusted EBITDA and CAFD and operating income for Total Segment Profit.

Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, adjusted for selected items that SemGroup believes impact the comparability of financial results between reporting periods.  In addition to non-cash items, we have selected items for adjustment to EBITDA which management feels decrease the comparability of our results among periods. These items are identified as those which are generally outside of the results of day to day operations of the business. These items are not considered non- recurring, infrequent or unusual, but do erode comparability among periods in which they occur with periods in which they do not occur or occur to a greater or lesser degree. Historically, we have selected items such as gains on the sale of NGL Energy Partners LP common units, costs related to our predecessor’s bankruptcy, significant business development related costs, significant legal settlements, severance and other similar costs. Management believes these types of items can make comparability of the results of day to day operations among periods difficult and have chosen to remove these items from our Adjusted EBITDA. We expect to adjust for similar types of items in the future. Although we present selected items that we consider in evaluating our performance, you should be aware that the items presented do not represent all items that affect comparability between the periods presented. Variations in our operating results are also caused by changes in volumes, prices, mechanical interruptions and numerous other factors. We do not adjust for these types of variances.

CAFD is based on Adjusted EBITDA, as defined above, and reduced for cash income taxes, cash interest expense, preferred stock cash dividends, maintenance capital expenditures and CAFD attributable to noncontrolling interests, as adjusted for selected items which management feels decrease the comparability of results among periods.  CAFD is a performance measure utilized by management to analyze our performance after the payment of cash taxes, servicing debt obligations and making sustaining capital expenditures.

Total Segment Profit represents revenue, less cost of products sold (exclusive of depreciation and amortization) and operating expenses, plus equity earnings and is adjusted to remove unrealized gains and losses on commodity derivatives and to reflect equity earnings on an EBITDA basis. Reflecting equity earnings on an EBITDA basis is achieved by adjusting equity earnings to exclude our percentage of interest, taxes, depreciation and amortization from equity earnings for operated equity method investees. For our investment in NGL Energy, we exclude equity earnings and include cash distributions received. Segment profit is the measure by which management assess the performance of our reportable segments.

These measures may be used periodically by management when discussing our financial results with investors and analysts and are presented as management believes they provide additional information and metrics relative to the performance of our businesses. These non-GAAP financial measures have important limitations as analytical tools because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider non-GAAP measures in isolation or as substitutes for analysis of our results as reported under GAAP. Management compensates for the limitations of our non-GAAP measures as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the non-GAAP measure and the most comparable GAAP measure and incorporating this knowledge into its decision-making processes. We believe that investors benefit from having access to the same financial measures that our management uses in evaluating our operating results. Because all companies do not use identical calculations, our presentations of non-GAAP measures may be different from similarly titled measures of other companies, thereby diminishing their utility.

Forward-Looking Statements
Certain matters contained in this Press Release include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical fact, included in this Press Release including the prospects of our industry, our anticipated financial performance, our anticipated annual dividend growth rate, management's plans and objectives for future operations, planned capital expenditures, business prospects, outcome of regulatory proceedings, market conditions and other matters, may constitute forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, our ability to generate sufficient cash flow from operations to enable us to pay our debt obligations and our current and expected dividends or to fund our other liquidity needs; any sustained reduction in demand for, or supply of, the petroleum products we gather, transport, process, market and store; the effect of our debt level on our future financial and operating flexibility, including our ability to obtain additional capital on terms that are favorable to us; our ability to access the debt and equity markets, which will depend on general market conditions and the credit ratings for our debt obligations and equity; the loss of, or a material nonpayment or nonperformance by, any of our key customers; the amount of cash distributions, capital requirements and performance of our investments and joint ventures; the consequences of any divestitures of non-strategic operating assets or divestitures of interests in some of our operating assets through partnerships and/or joint ventures; the amount of collateral required to be posted from time to time in our commodity purchase, sale or derivative transactions; the impact of operational and developmental hazards and unforeseen interruptions; our ability to obtain new sources of supply of petroleum products; competition from other midstream energy companies; our ability to comply with the covenants contained in our credit agreements, continuing covenant agreement, and the indentures governing our notes, including requirements under our credit agreements and continuing covenant agreement to maintain certain financial ratios; our ability to renew or replace expiring storage, transportation and related contracts; the overall forward markets for crude oil, natural gas and natural gas liquids; the possibility that the construction or acquisition of new assets or other business combination activities may not result in the corresponding anticipated benefits; any future impairment of goodwill resulting from the loss of customers or business; changes in currency exchange rates; weather and other natural phenomena, including climate conditions; a cyber attack involving our information systems and related infrastructure, or that of our business associates; the risks and uncertainties of doing business outside of the U.S., including political and economic instability and changes in local governmental laws, regulations and policies; costs of, or changes in, laws and regulations and our failure to comply with new or existing laws or regulations, particularly with regard to taxes, safety and protection of the environment; the possibility that our hedging activities may result in losses or may have a negative impact on our financial results; general economic, market and business conditions; as well as other risk factors discussed from time to time in each of our documents and reports filed with the SEC.

Readers are cautioned not to place undue reliance on any forward-looking statements contained in this press release, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements.

Contacts:
Investor Relations:
Kevin Greenwell
918-524-8081
investor.relations@semgroup.com

Media:
Tom Droege
918-524-8560
tdroege@semgroup.com

 

Condensed Consolidated Balance Sheets
(in thousands, unaudited)

  June 30, 2019 December 31, 2018
ASSETS    
Current assets $ 1,043,362   $ 715,825  
Property, plant and equipment, net 3,886,438   3,457,326  
Goodwill and other intangible assets 794,789   622,340  
Equity method investments 284,186   274,009  
Other noncurrent assets, net 156,076   140,807  
Right of use assets, net 93,089    
Total assets $ 6,257,940   $ 5,210,307  
LIABILITIES, PREFERRED STOCK AND OWNERS' EQUITY    
Current liabilities:    
Current portion of long-term debt $ 12,682   $ 6,000  
Other current liabilities 707,962   631,157  
Total current liabilities 720,644   637,157  
Long-term debt, excluding current portion 2,510,897   2,278,834  
Other noncurrent liabilities 283,549   94,337  
Total liabilities 3,515,090   3,010,328  
Preferred stock 372,628   359,658  
Subsidiary preferred stock 252,876    
Total owners' equity 2,117,346   1,840,321  
Total liabilities, preferred stock and owners' equity $ 6,257,940   $ 5,210,307  


Condensed Consolidated Statements of Operations

(in thousands, except per share amounts, unaudited)

  Three Months Ended   Six Months Ended
  June 30, March 31,   June 30,
  2019 2018 2019   2019 2018
Revenues $ 674,940   $ 595,794   $ 567,232     $ 1,242,172   $ 1,257,403  
Expenses:            
Costs of products sold, exclusive of depreciation and amortization shown below 493,580   412,089   403,372     896,952   908,221  
Operating 77,997   90,245   63,207     141,204   160,036  
General and administrative 25,520   22,886   29,547     55,067   49,363  
Depreciation and amortization 64,011   51,755   59,036     123,047   102,291  
Loss (gain) on disposal or impairment, net 8,936   1,824   (1,444 )   7,492   (1,742 )
Total expenses 670,044   578,799   553,718     1,223,762   1,218,169  
Earnings from equity method investments 12,695   14,351   13,951     26,646   26,965  
Operating income 17,591   31,346   27,465     45,056   66,199  
Other expenses, net 36,574   37,685   35,385     71,959   82,490  
Loss before income taxes (18,983 ) (6,339 ) (7,920 )   (26,903 ) (16,291 )
Income tax expense (benefit) (6,085 ) (3,613 ) (4,606 )   (10,691 ) 19,470  
Net loss (12,898 ) (2,726 ) (3,314 )   (16,212 ) (35,761 )
Less: net income attributable to noncontrolling interest 12,689     3,525     16,214    
Net loss attributable to SemGroup (25,587 ) (2,726 ) (6,839 )   (32,426 ) (35,761 )
Less: cumulative preferred stock dividends 6,657   6,211   6,541     13,198   11,043  
Less: cumulative subsidiary preferred stock dividends 2,577     1,857     3,684    
Less: accretion of subsidiary preferred stock to redemption value 237     13,749     13,986    
Net loss attributable to common shareholders $ (35,058 ) $ (8,937 ) $ (28,986 )   $ (63,294 ) $ (46,804 )
Net loss $ (12,898 ) $ (2,726 ) $ (3,314 )   $ (16,212 ) $ (35,761 )
Other comprehensive income (loss), net of income tax 27,387   6,180   (14,233 )   13,154   24,351  
Comprehensive income (loss) 14,489   3,454   (17,547 )   (3,058 ) (11,410 )
Less: net income attributable to noncontrolling interest 12,689     3,525     16,214    
Less: other comprehensive income attributable to noncontrolling interests 8,018     5,580     13,598    
Comprehensive income (loss) attributable to SemGroup $ (6,218 ) $ 3,454   $ (26,652 )   $ (32,870 ) $ (11,410 )
             
Net loss per common share:            
Basic $ (0.45 ) $ (0.11 ) $ (0.37 )   $ (0.81 ) $ (0.60 )
Diluted $ (0.45 ) $ (0.11 ) $ (0.37 )   $ (0.81 ) $ (0.60 )
Weighted average shares (thousands):            
Basic 78,668   78,319   78,492     78,580   78,259  
Diluted 78,668   78,319   78,492     78,580   78,259  


Reconciliation of Net Income to Adjusted EBITDA:

(in thousands, unaudited)

  Three Months Ended   Six Months Ended
  June 30, March 31,   June 30,
  2019 2018 2019   2019 2018
Net loss $ (12,898 ) $ (2,726 ) $ (3,314 )   $ (16,212 ) $ (35,761 )
Add: Interest expense 38,910   35,904   36,652     75,562   78,365  
Add: Income tax expense (benefit) (6,085 ) (3,613 ) (4,606 )   (10,691 ) 19,470  
Add: Depreciation and amortization expense 64,011   51,755   59,036     123,047   102,291  
EBITDA 83,938   81,320   87,768     171,706   164,365  
Selected Non-Cash Items and Other Items Impacting Comparability 21,549   17,690   15,222     36,771   28,016  
Adjusted EBITDA $ 105,487   $ 99,010   $ 102,990     $ 208,477   $ 192,381  


Selected Non-Cash Items and

Other Items Impacting Comparability
(in thousands, unaudited)

  Three Months Ended   Six Months Ended
  June 30, March 31,   June 30,
  2019 2018 2019   2019 2018
Loss (gain) on disposal or impairment, net $ 8,936   $ 1,824   $ (1,444 )   $ 7,492   $ (1,742 )
Foreign currency transaction loss (gain) (989 ) 2,314   (288 )   (1,277 ) 5,608  
Adjustments to reflect equity earnings on an EBITDA basis 4,718   4,886   4,710     9,428   9,769  
M&A transaction related costs 1,676   648   4,635     6,311   1,804  
Employee severance and relocation expense 73   211   159     232   348  
Unrealized loss on derivative activities 4,903   4,409   4,818     9,721   6,635  
Non-cash equity compensation 2,232   3,398   2,632     4,864   5,594  
Selected Non-Cash Items and Other Items Impacting Comparability $ 21,549   $ 17,690   $ 15,222     $ 36,771   $ 28,016  


Reconciliation of Operating Income to Total Segment Profit:

(in thousands, unaudited)

  Three Months Ended   Six Months Ended
  June 30, March 31,   June 30,
  2019 2018 2019   2019 2018
Operating income $ 17,591   $ 31,346   $ 27,465     $ 45,056   $ 66,199  
Plus:            
Adjustments to reflect equity earnings on an EBITDA basis 4,718   4,886   4,710     9,428   9,769  
Unrealized loss (gain) on derivatives 4,903   4,409   4,818     9,721   6,635  
General and administrative expense 25,520   22,886   29,547     55,067   49,363  
Depreciation and amortization 64,011   51,755   59,036     123,047   102,291  
Gain on disposal of long-lived assets, net 8,936   1,824   (1,444 )   7,492   (1,742 )
Total Segment Profit $ 125,679   $ 117,106   $ 124,132     $ 249,811   $ 232,515  


Cash Available for Dividends:

(in thousands, unaudited)

  Three Months Ended   Six Months Ended
  June 30 March 31,   June 30,
  2019 2018 2019   2019 2018
Adjusted EBITDA $ 105,487   $ 99,010   $ 102,990     $ 208,477   $ 192,381  
Less: Cash interest expense 36,458   34,870   35,626     72,084   67,400  
Less: Maintenance capital 8,073   11,550   10,600     18,673   19,279  
Less: Cash paid for income taxes 796   12,900   910     1,706   14,700  
Less: CAFD attributable to CAMS Midstream noncontrolling interest 9,840     2,844     12,684    
Less: Distributions to Maurepas Class B shareholders 6,595     6,613     13,208    
Selected items impacting comparability            
 Add back: Mexico disposal cash taxes   10,955         10,955  
Cash available for dividends $ 43,725   $ 50,645   $ 46,397     $ 90,122   $ 101,957  
             
Dividends declared $ 37,161   $ 37,022   $ 37,061     $ 74,222   $ 74,026  
             
Dividend coverage ratio 1.2 x 1.4 x 1.3 x   1.2 x 1.4 x

 

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