Nalcor Energy releases third quarter financial results

November 16th, 2018

November 16, 2018, St. John’s, NL – Nalcor Energy reported its financial results for the third quarter of 2018.

“Nalcor Energy’s financial results up to the end of the third quarter continue to be sound. Managing the company’s $18 billion in assets, while advancing the Muskrat Falls Project, is no small feat. It requires the commitment and focus of each and every employee. We continue to advance the Muskrat Falls Project while keeping costs steady, and at the same time, Hydro is preparing for the coming winter to reliably serve customers as we know they are relying on us.”

Stan Marshall, President and CEO

Third Quarter Financial Highlights

  • Net profit for the nine months ended September 30, 2018 was $128 million compared to $157 million for the same period in 2017, a decrease of $29 million. Key drivers of the decrease include lower earnings for Hydro regulated due to the timing of the General Rate Application orders; lower revenues from Bull Arm Fabrication as a result of the 2017 close-out of the Exxon Mobil Canada Properties sublease; and higher exploration, evaluation and depletion expense. These decreases were partially offset by increased revenue due to higher oil prices, oil production and higher energy export prices.
  • Funds from operations (FFO) year-to-date are $269 million, compared to $284 million, a decrease of $15 million compared to the same period in 2017. The year-over-year decrease in FFO is due primarily to the drivers noted in the profit statement above. Earnings before interest, taxes, depreciation, depletion, amortization and accretion (EBITDA) year-to-date are $327 million, compared to $329 million, a decrease of $2 million compared to the same period in 2017.
  • The year-to-date capital expenditures, excluding the Maritime Link, are $1,134 million, compared to $2,163 million for the   same period in 2017, a decrease of $1,029 million. The decrease is due to reduced capital incurred on the Lower Churchill Project for Transmission and at the Muskrat Falls generation site, as we get closer to in-service of these assets; completion of new island transmission assets in 2017 in Hydro regulated, and a reduction in Oil and Gas due to a change in Hibernia South Extension’s drilling schedule, as well as Hebron entering the production phase in late 2017.
  • Total assets are $18.4 billion compared to $18.0 billion on December 31, 2017.
  • Debt to capital for the quarter of 66 per cent is comparable to December 31, 2017.

Other Recent Developments

All work on the transmission lines from Churchill Falls to Soldiers Pond are complete, and throughout the third quarter commissioning work continued on the new Lower Churchill Project transmission assets. Construction on the converter stations, switchyards and transition compounds is now significantly complete and work continues on the development of the software required to operate the Labrador-Island Transmission Link. Preparations to transfer power over the new transmission assets to Hydro this winter continued throughout the third quarter.

On the Muskrat Falls generation project, in August, Bernard-Pennecon placed the last truckload of roller-compacted concrete on the 39-metre-high, 450-metre-long North Dam marking a major milestone and advancing the project toward completion. The team also completed all mass concrete works for the North Dam which is another significant construction milestone.

On October 18, Nalcor directed Astaldi to stop work on the generation side of the Muskrat Falls project to minimize the financial harm resulting from Astaldi’s inability to pay its workers. The contracts with Astaldi for the Muskrat Falls Project have since been terminated. This has been a challenging time for the workers and we appreciate their patience and hard work which has advanced the construction of the project to where it is today. Work by other contractors on the Muskrat Falls generation project continues as planned.

Hydro continued to carry out a substantial amount of investment and work on the system throughout the third quarter, including a major refurbishment of the 100-year old main dam in Grand Falls, as part of the Exploits generation system. The refurbishment was a multi-year project that modernized the dam, to ensure generation supply and reliable service well into the future, extending the operating life of the dam by 50 years.

In July, Hydro filed its 2019 capital budget application with the Board of Commissioners of Public Utilities (PUB), which laid out the annual plan for required capital work, including new construction, upgrades, replacements and refurbishments. The regulatory review process has been ongoing since the plan was submitted, with a decision from the PUB expected late fall.

In August, as part of a reliability and resource planning study, Hydro carried out direct consultation specifically focused on reliability and supply planning with key stakeholders including Newfoundland Power, each of its Industrial Customers, the Consumer Advocate, as well as provincial electricity consumers. This study will play a useful role in terms of informing and shaping some of the decisions that Hydro, as the operator of the provincial electricity system, will make for the future.

In the Oil and Gas business, exploration data collected offshore by Nalcor Oil and Gas continues to show significant geological diversity through the province’s deepwater. As a result of recent 3D seismic data and seabed coring activity, multiple new leads and prospects were identified in the area of the 2018 license round.

The Oil and Gas Independent Resource Assessment was released and identified 11.7 billion barrels of oil and 60.2 trillion cubic feet of gas potential in the 2018 license area – bringing the combined potential in less than seven per cent of Newfoundland and Labrador’s offshore area to 49.2 billion barrels of oil and 193.8 trillion cubic feet of gas. The bid results of this year’s license round included a record cumulative successful bid amount of $1,386,273,936 and a record single successful bid amount of $621,021,200 made by new entrant, BHP Billiton. In development news, the third quarter saw construction completed on the base slab of the West White Rose Project’s concrete gravity structure and slip forming of the column is underway. Work continues on the topsides and living quarters. First oil is anticipated in 2022.

Bull Arm Fabrication continued to negotiate a lease agreement to secure a tenant in 2018 that will maximize site utilization and attract sustainable business opportunities.

With respect to the transition of Nalcor’s Oil and Gas business to a stand-alone Crown corporation, work continued during the third quarter and is anticipated to continue throughout the remainder of 2018 and into 2019. As part of the transition plan, Bull Arm Fabrication is also expected to transition to a new entity. As a result of the Province’s intention to transition the Offshore Development segment to the

Province, Management has reported Oil and Gas and Bull Arm Fabrication as a discontinued operation for the period ended September 30, 2018.

A copy of the quarterly report and a recording of the webcast will be available at www.nalcorenergy.com.

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Media Contact:

Deanne Fisher

General Manager, Corporate Affairs and Corporate Planning

t: 709.733.5299 c: 709.697.3418 e: deannefisher@nalcorenergy.com