Q3 2014 Conference Call Business & Financial Update, December 1, 2014
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Participants and Agenda
Participants • Ed Martin, CEO, Nalcor Energy – Corporate Overview and Key Accomplishments • Derrick Sturge, CFO, Nalcor Energy – Q3 2014 Financial Results • Conference Call and Webinar 4
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
Corporate Overview: Long-term
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
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
Corporate Structure 9
Our Focus • Nalcor is founded on solid principles • Significant progress achieved – much more to come • Conservative projections indicate unprecedented dividend potential 10
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
Our Vision “To build a strong economic future for successive generations of Newfoundlanders and Labradorians” 12
Our Strategy • Ensure integrity of existing operating businesses • Develop growth opportunities to build the future 13
Business Update: Medium Term
Corporate Lost Time Injury Frequency 1.60 1.39 1.40 0.84 1.20 1.00 0.80 0.36 0.60 0.40 0.00 0.20 1.39 0.55 1.17 1.14 0.51 0.25 0.59 0.24 0.00 0.00 2006 2007 2008 2009 2010 2011 2012 2013 2014* * YTD Nov/14 15
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
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
2006 to 2014 2006 2014 • Total Assets $2.2 B $10.6 B • Capital Expenditures $60 M $1,806 M • Revenue $575 M $800 M • Lines of Business 2 6 • Companies 4 15 18
Where are we? 19
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
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
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
Business Update: Short-term
Investing in our Provincial Electricity System 24
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
Investment in Long-Term Asset Management 26
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 2041 27
Pursuing Opportunities in Oil & Gas 28
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
Managing our Resources for Growth & Prosperity 30
Muskrat Falls Focus Areas • Safety • Continued focus on Project Execution; – Cost – Quality – Schedule 31
Managing the Largest Fabrication Site in Atlantic Canada 32
Bull Arm Focus Areas • Cash flow management • Site quality and effective change management • Future planning post Hebron 33
Positioned for Long-Term Energy Marketing Needs 34
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 Q1 2015 35
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
Q3 2014 Financial Results
Overview • 2014 Financial Highlights • Financial Outlook 38
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
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 2013. – 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 2014. 40
2014 YTD Financial Highlights (cont’d.) • If the PUB approves these two applications in Q4, the positive earnings impact would be recorded in 2014. • Continued to invest in all areas of the business – Capital expenditures of $1.2 billion in first nine months of 2014. – $620 million higher than same period in 2013, primarily due to higher capital expenditures on Lower Churchill. 41
2014 YTD Financial Highlights (cont’d.) • Total assets of $10.2 billion at the end of Q3. • Overall capital structure of 72:28 (Debt:Equity) at the end of Q3. 42
Capital Expenditures ($ millions) $3,000 Total Capex $2,500 $2,000 $1,500 $1,000 $500 $- 2006 2007 2008 2009 2010 2011 2012 2013 2014(F) 2015(F) Note: Excludes Maritime Link 43
Total Assets ($ millions) $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F) 2015(F) 44
Balance Sheet Structured For Growth 100% 90% 38% 80% 39% 43% 47% 56% 70% 65% 66% 70% 72% 73% 60% 50% 40% 62% 30% 61% 57% 53% 44% 20% 35% 34% 30% 28% 27% 10% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (B) (Q3) Equity Debt 45
Business Unit Results ($ millions) Nine Months Ended September 30 2013 2014 Net Profit (Loss) Net Profit (Loss) Hydro Regulated 10.4 (27.2) Churchill Falls 16.7 9.6 Oil and Gas 20.7 28.2 Energy Marketing 26.3 34.5 Bull Arm Fabrication 11.7 12.2 Phase 1 Lower Churchill Project - (0.2) Corporate and Other (9.3) (11.3) Net Income 76.5 45.8 46
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