Q Conference Call. Business & Financial Update, December 1, 2014

Transcription

1 Q Conference Call Business & Financial Update, December 1, 2014

2 2

3 Participants and Agenda

4 Participants Ed Martin, CEO, Nalcor Energy Corporate Overview and Key Accomplishments Derrick Sturge, CFO, Nalcor Energy Q Financial Results Conference Call and Webinar 4

5 Forward-Looking Information Certain statements in this presentation are forward-looking statements based on Nalcor s current expectations, estimates, projections and assumptions, subject to risks and uncertainties. Statements containing words such as could, expect, may, anticipate, believe, intend, estimate, plan and similar expressions constitute forward-looking statements. By their nature, forward-looking statements require Management to make assumptions and are not subject to important unknown risks and uncertainties, which may cause actual results in future periods to differ materially from forecasted results. While Management considers these assumptions to be reasonable and appropriate based on information currently available, there is a risk that they may not be accurate. Nalcor assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. 5

6 Corporate Overview: Long-term

7 Our Potential Energy is a globally strategic resource, both oil/gas and hydroelectric Our province has an abundance of both Leadership and control is essential for ensuring full benefit for people of NL forever We are well positioned for a step change in prosperity Nalcor is a key element of the strategy 7

8 Nalcor Newfoundland and Labrador s Energy Company Wholly owned by the people of the province Tasked to take a lead role in the development of our energy resources A tool for maximizing NL benefits Long-term value generator Profit focused with social and economic objectives 8

9 Corporate Structure 9

10 Our Focus Nalcor is founded on solid principles Significant progress achieved much more to come Conservative projections indicate unprecedented dividend potential 10

11 Our Focus The Province is at a key energy transition point CF post 2041 becoming a current issue MF/LIL/ML and connection to North America imminent Oil and gas potential set for significant positive change Positioning next steps for success is essential 11

12 Our Vision To build a strong economic future for successive generations of Newfoundlanders and Labradorians 12

13 Our Strategy Ensure integrity of existing operating businesses Develop growth opportunities to build the future 13

14 Business Update: Medium Term

15 Corporate Lost Time Injury Frequency * 0.00 * YTD Nov/14 15

16 What have we accomplished so far? Improved operating performance and asset management NL Hydro, CFLCo and Bull Arm Equity interests in oil and gas projects 4.9% Hebron 5.0% White Rose Expansion Projects 10% Hibernia Southern Extension 16

17 What have we accomplished so far? Offshore Exploration 2D Seismic and land management creating opportunity to kick offshore development into a much higher gear Muskrat Falls/LIL/ML Electricity game changer for province and eastern North America Federal Loan Guarantee Innu New Dawn 17

18 2006 to 2014 Total Assets 2006 $2.2 B 2014 $10.6 B Capital Expenditures $60 M $1,806 M Revenue $575 M $800 M Lines of Business 2 6 Companies

19 Where are we? 19

20 Poised for the future The foundation for developing and managing our energy future is in place Benefits of development will be maximized Nalcor was created to be the vehicle for this vision Much has been done; there is more to do 20

21 Opportunities Going Forward Slope and Deepwater exploration Bay du Nord development and much more Gull Island Project and other smaller hydro and wind Upper Churchill time is rapidly approaching Revenues from royalties and dividends Industrial and employment benefits 21

22 Focus Areas in Medium Term Asset management and renewal of existing assets Execution of current capital projects MF/LIL/ML Hebron New 123 MW Gas Turbine 3 rd Bay d Espoir to Avalon Peninsula transmission line Continue to execute offshore exploration strategy Continue to adjust organization structure to; Accommodate interconnection to North America Reflect the growth of the company 22

23 Business Update: Short-term

24 Investing in our Provincial Electricity System 24

25 NL Hydro Focus Areas Safety Winter Readiness Continued focus on asset management and renewal program for existing assets Execution of major capital program General Rate Application and Interim Rates Continue to evolve the organization structure to receive MF power and connect to N.A. 25

26 Investment in Long-Term Asset Management 26

27 Churchill Falls Focus Areas Safety Continued focus on asset management and renewal program for existing assets Execution of major capital renewal program Manage the legal actions in Quebec Continue to prepare for

28 Pursuing Opportunities in Oil & Gas 28

29 Oil & Gas Focus Areas Safety Continued execution of Exploration Strategy Execution of capital projects Hebron Project Hibernia South White Rose Extension Efficient Operations White Rose and Hibernia South 29

30 Managing our Resources for Growth & Prosperity 30

31 Muskrat Falls Focus Areas Safety Continued focus on Project Execution; Cost Quality Schedule 31

32 Managing the Largest Fabrication Site in Atlantic Canada 32

33 Bull Arm Focus Areas Cash flow management Site quality and effective change management Future planning post Hebron 33

34 Positioned for Long-Term Energy Marketing Needs 34

35 Energy Marketing Focus Areas Maximizing revenue and cash flow from current market sales activities New company - finalize the new organization Continue training in prep for.. Going live Q

36 Summary Significant growth to date and will continue into the future Long-term outlook for both Oil and Gas and electricity is exciting and excellent NL Hydro is ready for winter Further organizational evolution required to prepare for interconnection and adjust for growth which has occurred 36

37 Q Financial Results

38 Overview 2014 Financial Highlights Financial Outlook 38

39 2014 YTD Financial Highlights All amounts presented are in accordance with International Financial Reporting Standards (IFRS). Net profit of $ 45.8 million as of September 30, 2014 Decrease of $30.7 million from same period in 2013 largely due to delays in obtaining regulatory approval of Hydro s 2014 general rate application and interim rates. 39

40 2014 YTD Financial Highlights (cont d.) Oil and Gas and Energy Marketing business segments both had higher earnings in the first nine months of 2014 compared to Hydro requires new rates to support higher costs and significant re-investment in capital assets An amended General Rate Application was filed on Nov 10, 2014; regulatory process is ongoing. PUB currently considering two separate applications; if approved would provide additional earnings of $55.6 million in

41 2014 YTD Financial Highlights (cont d.) If the PUB approves these two applications in Q4, the positive earnings impact would be recorded in Continued to invest in all areas of the business Capital expenditures of $1.2 billion in first nine months of $620 million higher than same period in 2013, primarily due to higher capital expenditures on Lower Churchill. 41

42 2014 YTD Financial Highlights (cont d.) Total assets of $10.2 billion at the end of Q3. Overall capital structure of 72:28 (Debt:Equity) at the end of Q3. 42

43 Capital Expenditures ($ millions) $3,000 Total Capex $2,500 $2,000 $1,500 $1,000 $500 $ (F) 2015(F) Note: Excludes Maritime Link 43

44 Total Assets ($ millions) $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ (F) 2015(F) 44

45 Balance Sheet Structured For Growth 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 70% 30% 65% 35% 56% 44% 47% 53% 43% 57% 38% 39% 62% 61% 73% 72% 27% 28% (Q3) 66% 34% 2015 (B) Equity Debt 45

46 Business Unit Results ($ millions) Nine Months Ended September Net Profit (Loss) Net Profit (Loss) Hydro Regulated 10.4 (27.2) Churchill Falls Oil and Gas Energy Marketing Bull Arm Fabrication Phase 1 Lower Churchill Project - (0.2) Corporate and Other (9.3) (11.3) Net Income

47 Hydro Regulated Net loss of $ 27.2 million as of September 30, 2014 Decrease of $37.6 million from same period in 2013 largely due to delays in obtaining regulatory approval of Hydro s general rate application and interim rates. Hydro is permitted to earn a return on equity of 8.8% (same as Newfoundland Power), resulting in annual net income of approximately $30 million. 47

48 Hydro Regulated (cont d) Hydro has requested 2014 interim earnings relief on three occasions and has been denied by PUB each time. Amended GRA filed with the PUB on Nov 10, 2014 (included a fourth request for 2014 interim relief based on updated costs). Year over year sales to Newfoundland Power increased by 8%; production of Holyrood up 59% over same period in

49 Hydro Regulated (cont d) Capital expenditures of $143 million in first nine months of 2014 $84 million higher than same period in Increase primarily due to addition of new 123MW combustion turbine at Holyrood. Total Assets of $ 2.0 billion at the end of Q3,

50 Hydro Regulated (cont d) Target capital structure of 75/25 Debt:Equity $200 million, 3.6% bond issue maturing in 2045 issued on September 15,

51 Churchill Falls Net profit of $13.0 million as of September 30, 2014 Decrease of $10.0 million from same period in 2013 primarily due to decrease in energy deliveries required by Hydro Quebec in Nalcor s share is $9.6 million Capital expenditures of $37.2 million in the first nine months of $5.9 million higher than same period in

52 Churchill Falls cont d Nalcor s share is $23.9 million. Total Assets of $695.6 million at the end of Q3, 2014 Nalcor s share is $488.1 million. No debt in Churchill Falls All capital investments financed by internally generated cash flow. 52

53 Oil and Gas Net profit of $28.2 million as of September 30, 2014 Increase of $7.5 million from same period in 2013 largely due to higher production volumes and increased sales of seismic data. Average realized oil price for nine months ended Sept 30/14 was $ USD/bbl (compared to $ USD/bbl in 2013). 53

54 Oil & Gas cont d Capital expenditures of $186.5 million during the first nine months of 2014 Total Assets of $708 million at the end of Q3, 2014 No debt, fully financed by equity 54

55 Energy Marketing Net profit of $34.5 million as of September 30, 2014 Increase of $8.2 million from same period in 2013 largely due to increased export market prices in the first half of Average realized export price of $43.73 USD/MWh in the first nine months of 2014, compared to $ USD/MWh during the same period in

56 Energy Marketing cont d Export electricity prices influenced by weather patterns in the North Eastern US: Colder than normal winter positive impact on prices. Cooler than normal summer negative impact on prices. 56

57 Bull Arm Fabrication Net profit of $12.2 million as of September 30, 2014 Revenue source is lease payments from ExxonMobil Canada Properties for use of site for construction of Hebron GBS. Increase of $0.5 million from same period in 2013 largely due to favourable foreign exchange rate on USD revenue. 57

58 Phase 1 Lower Churchill Project Capital expenditures of $878 million during the first nine months of 2014 $468 million higher than during the same period in Total capital expenditures life to date of $1.9 billion. Total assets of $6.7 billion (including proceeds of Dec bond issue). 58

59 Phase 1 Lower Churchill Project cont d From an accounting perspective, IFRS requires Nalcor to include the costs incurred by Emera on the Maritime Link in Nalcor s Consolidated Financial Statements. The Maritime Link assets continue to be owned and financed by Emera and costs will be recovered in Nova Scotia customers rates. 59

60 Phase 1 Lower Churchill Project Nine Months Nine Months ($ millions) Ended Ended Total Sept 30/13 Sept 30/14 To Date Nalcor Facilities Costs ,754.6 Capitalized Interest/Financing Costs Total Nalcor Capital Costs ,913.9 Maritime Link* Total Capital Expenditures ,127.9 * IFRS requires the Maritime Link capital costs to be included in the Nalcor consolidated F/S. 60

61 Financial Outlook Decision anticipated from PUB in Q4 on two applications that could increase earnings by $55.6 million. Lower oil prices in Q4 will impact Oil & Gas results (36% of production hedged at average price of $ USD/bbl). Planned maintenance outage at Massena, NY transmission facilities in October impacted sales into US market. 61

62 Financial Outlook Forecasting higher net profit in 2015, primarily driven by: Anticipated approval of rate increase for Hydro. Increased power sales in Churchill Falls as the result of a new power purchase agreement for the 225MW Twinco Block of energy. Continued earnings contribution from Oil & Gas, Energy Marketing and Bull Arm, but volatility on commodity prices. 62

63 Financial Outlook 2015 cont d Likely net profit impact from lower forecast oil prices but 26% of 2015 production currently hedged at $87.44 USD/bbl. Planned 2015 capital expenditures of $2.9 billion Includes $2.4 billion for Lower Churchill Planned long-term bond financing in Hydro of up to $250 million 63

64 Questions & Answers 64

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