Management’s Discussion and Analysis
INTRODUCTION The Management’s Discussion and Analysis (MD&A) highlights the primary factors that affected SaskEnergy’s consolidated financial performance for the nine months ended December 31, 2022. Using financial and operating results as its basis, the MD&A describes the Corporation’s past performance and future prospects, enabling readers to view SaskEnergy from the perspective of management. The MD&A is presented as at February 15, 2023 and should be read in conjunction with the Corporation’s condensed consolidated financial statements, which have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS). For additional information related to the Corporation, refer to SaskEnergy’s 2021-22 Annual Report. The MD&A contains certain forward-looking statements that are subject to inherent uncertainties and risks. Many of these risks are described in the Risk Management and Disclosure section of SaskEnergy’s 2021-22 Annual Report. All forward-looking statements reflect the Corporation’s best estimates and assumptions based on information available at the time the statements were made. However, actual results and events may vary significantly from those included in, contemplated by, or implied by such statements. The volume of natural gas delivered to customers is sensitive to variations in weather, particularly through the prime heating season of November to March. Additionally, changes in market value adjustments may cause significant fluctuations in net income due to the volatility of natural gas prices. Therefore, the condensed consolidated financial results for the first nine months of 2022-23 should not be taken as indicative of the performance to be expected for the full year. The Corporation’s financial results are subject to variation, especially given the volatility of natural gas prices. To compare financial performance from period to period, the Corporation uses the following measures: income before unrealized market value adjustments; realized margin on commodity sales; and realized margin on asset optimization sales. Each measure removes the impact of fair value adjustments on financial and derivative instruments and the revaluation of natural gas in storage to the lower of cost and net realizable value. Unrealized market value adjustments vary considerably with market prices of natural gas, drive significant changes in the Corporation’s consolidated net income and may obscure other business factors that are also important to understanding the Corporation’s financial results. The measures referred to above are non-IFRS measures, in that there is no standardized definition and may not be comparable to similar measures presented by other entities. The discussion of the Corporation’s results in the MD&A, set out on the following pages, is a comparison of the results for the nine months ended December 31, 2022, to the results for the nine months ended December 31, 2021, unless otherwise noted.
OPERATING ENVIRONMENT SaskEnergy monitors a number of important factors that could influence financial performance. Falling Energy Prices
Despite a bitterly cold stretch in December, the quarter was characterized by falling energy prices. Oil and gasoline futures reached low prices not seen since December 2021. This occurred at a time when broader commodity prices were flat or rising. Europe continued to see interruptions to liquified natural gas (LNG) deliveries, due to continued delays bringing Texas’ Freeport LNG facility back online, and severe flooding near an LNG export facility in Nigeria. Import capabilities were also hindered when a Spanish facility warned of delays due to inadequate room in storage. The European continent’s energy worries have, at least temporarily, been tempered due to high storage inventories, warm weather, good wind generation, and reduced industrial demand. European natural gas market prices ended the calendar year near their 52- week lows, but longer-term supply concerns continue to support increasing capital investment in LNG facilities; global LNG infrastructure investment for 2024 is expected to be nearly 20 times that of 2020. With diminishing concerns about Europe’s market, premiums on natural gas prices declined. In combination with strong supply, a nearly 9-week long price decline began during the third quarter in North America. West Texas experienced negative prices as supply exceeded demand and takeaway capacity of the region. Later in the quarter, prices stabilized and began to rise as cold weather was forecasted and materialized.
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