SemGroup Reports Third Quarter 2019 Financial Results

11/7/2019

SemGroup Shareholder Meeting Set for December 4th to Vote on Proposed  Merger with Energy Transfer

TULSA, Okla., Nov. 07, 2019 (GLOBE NEWSWIRE) -- SemGroup® Corporation (NYSE:SEMG) today reported third quarter 2019 net loss of $5.5 million, compared to second quarter net loss of $12.9 million and third quarter 2018 net income of $8.5 million.  The third quarter 2019 net loss improved over the prior quarter primarily driven by a one-time loss on disposal recognized in the second quarter of 2019.

Third quarter 2019 Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) was $94.3 million, compared to $105.5 million in the second quarter of 2019 and $96.5 million in the third quarter 2018. Adjusted EBITDA is a non-GAAP measure and is reconciled to net income below.

"Our Canadian and U.S. Gas businesses delivered improved quarter over quarter segment profit, offsetting the lower results in our U.S. Liquids segment, which was primarily impacted by lower crude marketing margins," said SemGroup President and Chief Executive Officer Carlin Conner. "We have been actively executing on key projects and have recently completed construction of the White Cliffs NGL line conversion and the Patterson Creek expansion. The Moore Road pipeline in Houston and Smoke Lake Plant in Canada are on track to come online at the end of this year."

"In addition, SemGroup's proposed merger with Energy Transfer is progressing swiftly and a shareholder vote is set for December 4th," said Conner. "We look forward to executing this transaction, which we expect to close shortly after the shareholder vote in early December."

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   Nine Months Ended
  September 30 June 30   September 30
Segment Profit: 2019 2018 2019   2019 2018
U.S. Liquids $ 67,508   $ 75,500   $ 85,189     $ 242,208   $ 223,949  
U.S. Gas 13,661   19,754   11,040     36,866   49,468  
Canada 34,931   20,543   29,669     87,293   64,104  
Corporate/Other (1,527 ) (913 ) (219 )   (1,983 ) 9,878  
Total Segment Profit $ 114,573   $ 114,884   $ 125,679     $ 364,384   $ 347,399  

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

U.S. Liquids

  • Lower third quarter White Cliffs volumes and Cushing throughput due to one White Cliffs crude line out of service for NGL conversion, as well as take-or-pay contract expirations
  • Lower crude marketing margins in the third quarter primarily due to inventory timing, expect partial recovery in the fourth quarter of 2019

U.S. Gas

  • Higher STACK gas volumes and margin per mcf

Canada

  • Volume growth at the Patterson Creek and Wapiti gas plants
  2019   2018
Select Operating Statistics 1Q 2Q 3Q   1Q 2Q 3Q 4Q
U.S. Liquids (1)                
White Cliffs Pipeline Volumes (mbpd) 147   106   93     107   135   112   144  
Cushing Terminal Utilization % 100 % 90 % 90 %   98 % 97 % 94 % 98 %
Houston Terminal Utilization % 98 % 98 % 98 %   97 % 97 % 96 % 96 %
U.S. Gas (2)                
Total Oklahoma Average Processing Volumes (mmcf/d) 290   301   311     293   353   380   355  
Canada (3)                
Total Average Processing Volumes (mmcf/d) 460   590   638     441   382   434   430  

(1) Second and third quarter 2019, White Cliffs Pipeline volumes decline primarily due to one crude line taken out of service for NGL conversion  in early May 2019 and lower Cushing terminal utilization due to tanks out of service for routine inspections 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 3Q YTD   1Q 2Q 3Q 4Q FY2018
U.S. Liquids $ 89,511   $ 85,189   $ 67,508   $ 242,208     $ 68,056   $ 80,393   $ 75,500   $ 85,474   $ 309,423  
U.S. Gas 12,165   11,040   13,661   36,866     14,277   15,437   19,754   17,602   67,070  
Canada 22,693   29,669   34,931   87,293     22,113   21,448   20,543   17,226   81,330  
Corporate and other (1) (237 ) (219 ) (1,527 ) (1,983 )   10,963   (172 ) (913 ) (152 ) 9,726  
Total Segment Profit 124,132   125,679   114,573   364,384     115,409   117,106   114,884   120,150   467,549  
Less:                    
General and administrative expense 29,547   25,520   29,662   84,729     26,477   22,886   21,904   20,301   91,568  
Other income (979 ) (1,347 ) (1,075 ) (3,401 )   (950 ) (533 ) (400 ) (497 ) (2,380 )
Plus:                    
M&A related costs 4,635   1,676   4,790   11,101     1,156   648   290   1,058   3,152  
Employee severance and relocation 159   73   731   963     137   211   43   758   1,149  
Non-cash equity compensation 2,632   2,232   2,808   7,672     2,196   3,398   2,738   3,190   11,522  
Consolidated Adjusted EBITDA $ 102,990   $ 105,487   $ 94,315   $ 302,792     $ 93,371   $ 99,010   $ 96,451   $ 105,352   $ 394,184  

(1) 1Q 2018 reflects earnings from divested businesses

Recent Developments
SemGroup has scheduled a special meeting of stockholders in connection with the proposed merger with Energy Transfer LP (NYSE: ET) on December 4, 2019, at 9 a.m. local time on the fifth floor of Two Warren Place, 6120 S. Yale Avenue, Tulsa, Oklahoma 74136. At the special meeting, stockholders will consider and vote on a proposal to approve the previously announced merger agreement whereby SemGroup will be acquired by Energy Transfer in a unit and cash transaction. SemGroup’s stockholders of record at the close of business on October 25, 2019 will be entitled to receive notice of and to vote at the special meeting.

On November 4, 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 November 21, 2019 to all common shareholders of record on November 14, 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 $6.8 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 payment date for the payment in kind on the shares of convertible preferred stock is November 21, 2019 and the record date is November 14, 2019.

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, the expected merger of SemGroup with and into Merger Sub LLC, a wholly owned subsidiary of Energy Transfer (“Merger Sub”) pursuant to the Agreement and Plan of Merger between us and Energy Transfer LP and Merger Sub, dated September 15, 2019 (the “merger”) 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 consummate the merger on the expected time frame or at all, including due to the inability to obtain all approvals necessary or the failure of other closing conditions; 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)

  September 30, 2019 December 31, 2018
ASSETS    
Current assets $ 877,580   $ 715,825  
Property, plant and equipment, net 3,927,645   3,457,326  
Goodwill and other intangible assets 783,085   622,340  
Equity method investments 283,638   274,009  
Other noncurrent assets, net 151,017   140,807  
Right of use assets, net 89,665    
Total assets $ 6,112,630   $ 5,210,307  
LIABILITIES, PREFERRED STOCK AND OWNERS' EQUITY    
Current liabilities:    
Current portion of long-term debt $ 15,912   $ 6,000  
Other current liabilities 633,417   631,157  
Total current liabilities 649,329   637,157  
Long-term debt, excluding current portion 2,477,326   2,278,834  
Other noncurrent liabilities 274,612   94,337  
Total liabilities 3,401,267   3,010,328  
Preferred stock 379,285   359,658  
Subsidiary preferred stock 258,376    
Total owners' equity 2,073,702   1,840,321  
Total liabilities, preferred stock and owners' equity $ 6,112,630   $ 5,210,307  

Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)

  Three Months Ended   Nine Months Ended
  September 30, June 30,   September 30,
  2019 2018 2019   2019 2018
Revenues $ 562,410   $ 633,996   $ 674,940     $ 1,804,582   $ 1,891,399  
Expenses:            
Costs of products sold, exclusive of depreciation and amortization shown below 377,174   468,871   493,580     1,274,126   1,377,092  
Operating 73,619   64,835   77,997     214,823   224,871  
General and administrative 29,662   21,904   25,520     84,729   71,267  
Depreciation and amortization 61,489   53,598   64,011     184,536   155,889  
Loss (gain) on disposal or impairment, net (373 ) (383 ) 8,936     7,119   (2,125 )
Total expenses 541,571   608,825   670,044     1,765,333   1,826,994  
Earnings from equity method investments 9,065   14,528   12,695     35,711   41,493  
Operating income 29,904   39,699   17,591     74,960   105,898  
Other expenses, net 39,389   33,935   36,574     111,348   116,425  
Income (loss) before income taxes (9,485 ) 5,764   (18,983 )   (36,388 ) (10,527 )
Income tax expense (benefit) (4,019 ) (2,697 ) (6,085 )   (14,710 ) 16,773  
Net income (loss) (5,466 ) 8,461   (12,898 )   (21,678 ) (27,300 )
Less: net income attributable to noncontrolling interest 7,042     12,689     23,256    
Net loss attributable to SemGroup (12,508 ) 8,461   (25,587 )   (44,934 ) (27,300 )
Less: cumulative preferred stock dividends 6,773   6,317   6,657     19,971   17,360  
Less: cumulative subsidiary preferred stock dividends 2,604     2,577     6,288    
Less: accretion of subsidiary preferred stock to redemption value 255     237     14,241    
Net loss attributable to common shareholders $ (22,140 ) $ 2,144   $ (35,058 )   $ (85,434 ) $ (44,660 )
Net income (loss) $ (5,466 ) $ 8,461   $ (12,898 )   $ (21,678 ) $ (27,300 )
Other comprehensive income (loss), net of income tax (6,317 ) 3,352   27,387     6,837   27,703  
Comprehensive income (loss) (11,783 ) 11,813   14,489     (14,841 ) 403  
Less: net income attributable to noncontrolling interest 7,042     12,689     23,256    
Less: other comprehensive income (loss) attributable to noncontrolling interests (4,605 )   8,018     8,993    
Comprehensive income (loss) attributable to SemGroup $ (14,220 ) $ 11,813   $ (6,218 )   $ (47,090 ) $ 403  
             
Net income (loss) per common share:            
Basic $ (0.28 ) $ 0.03   $ (0.45 )   $ (1.09 ) $ (0.57 )
Diluted $ (0.28 ) $ 0.03   $ (0.45 )   $ (1.09 ) $ (0.57 )
Weighted average shares (thousands):            
Basic 78,677   78,353   78,668     78,613   78,290  
Diluted 78,677   78,977   78,668     78,613   78,290  


Reconciliation of Net Income to Adjusted EBITDA:
(in thousands, unaudited)

  Three Months Ended   Nine Months Ended
  September 30, June 30,   September 30,
  2019 2018 2019   2019 2018
Net income (loss) $ (5,466 ) $ 8,461   $ (12,898 )   $ (21,678 ) $ (27,300 )
Add: Interest expense 39,663   35,318   38,910     115,225   113,683  
Add: Income tax expense (benefit) (4,019 ) (2,697 ) (6,085 )   (14,710 ) 16,773  
Add: Depreciation and amortization expense 61,489   53,598   64,011     184,536   155,889  
EBITDA 91,667   94,680   83,938     263,373   259,045  
Selected Non-Cash Items and Other Items Impacting Comparability 2,648   1,771   21,549     39,419   29,787  
Adjusted EBITDA $ 94,315   $ 96,451   $ 105,487     $ 302,792   $ 288,832  


Selected Non-Cash Items and
Other Items Impacting Comparability
(in thousands, unaudited)

  Three Months Ended   Nine Months Ended
  September 30, June 30,   September 30,
  2019 2018 2019   2019 2018
Loss (gain) on disposal or impairment, net $ (373 ) $ (383 ) $ 8,936     $ 7,119   $ (2,125 )
Foreign currency transaction loss (gain) 801   (983 ) (989 )   (476 ) 4,625  
Adjustments to reflect equity earnings on an EBITDA basis 4,633   4,926   4,718     14,061   14,695  
M&A transaction related costs 4,790   290   1,676     11,101   2,094  
Employee severance and relocation expense 731   43   73     963   391  
Unrealized loss (gain) on derivative activities (10,742 ) (4,860 ) 4,903     (1,021 ) 1,775  
Non-cash equity compensation 2,808   2,738   2,232     7,672   8,332  
Selected Non-Cash Items and Other Items Impacting Comparability $ 2,648   $ 1,771   $ 21,549     $ 39,419   $ 29,787  


Reconciliation of Operating Income to Total Segment Profit:
(in thousands, unaudited)

  Three Months Ended   Nine Months Ended
  September 30, June 30,   September 30,
  2019 2018 2019   2019 2018
Operating income $ 29,904   $ 39,699   $ 17,591     $ 74,960   $ 105,898  
Plus:            
Adjustments to reflect equity earnings on an EBITDA basis 4,633   4,926   4,718     14,061   14,695  
Unrealized loss (gain) on derivatives (10,742 ) (4,860 ) 4,903     (1,021 ) 1,775  
General and administrative expense 29,662   21,904   25,520     84,729   71,267  
Depreciation and amortization 61,489   53,598   64,011     184,536   155,889  
Loss (gain) on disposal or impairment, net (373 ) (383 ) 8,936     7,119   (2,125 )
Total Segment Profit $ 114,573   $ 114,884   $ 125,679     $ 364,384   $ 347,399  

Cash Available for Dividends:
(in thousands, unaudited)

  Three Months Ended   Nine Months Ended
  September 30, June 30,   September 30,
  2019 2018 2019   2019 2018
Adjusted EBITDA $ 94,315   $ 96,451   $ 105,487     $ 302,792   $ 288,832  
Less: Cash interest expense 37,817   36,377   36,458     109,901   103,777  
Less: Maintenance capital 7,603   8,635   8,073     26,276   27,914  
Less: Cash paid for income taxes 6,570   600   796     8,276   15,300  
Less: CAFD attributable to CAMS Midstream noncontrolling interest 10,549     9,840     23,233    
Less: Distributions to Maurepas Class B shareholders 6,595     6,595     19,803    
Selected items impacting comparability            
Add back: Cash income taxes related to SemCAMS Midstream formation 8,700         8,700    
 Add back: Mexico disposal cash taxes           10,955  
Cash available for dividends $ 33,881   $ 50,839   $ 43,725     $ 124,003   $ 152,796  
             
Dividends declared $ 37,177   $ 37,022   $ 37,161     $ 111,399   $ 111,048  
             
Dividend coverage ratio 0.9 x 1.4 x 1.2 x   1.1 x 1.4 x

 

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