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 six months ended September 30, 2023. 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 November 22, 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 2022-23 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 2022-23 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 six months of 2023-24 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 six months ended September 30, 2023, to the results for the six months ended September 30, 2022, unless otherwise noted. OPERATING ENVIRONMENT SaskEnergy monitors a number of crucial factors that could influence financial performance. More Global Variables As the global supply of liquified natural gas (LNG) continues to grow, the market for natural gas continues to be driven by an ever-wider diversity of variables. Through much of the second quarter, volatility in the LNG market was driven in part by strikes and the risk of strikes at LNG facilities along the coast of Australia. After a successful vote for industrial action was passed in early August, global benchmark prices increased by over 20 per cent in a single day. The market seems to have stabilized somewhat as the risk of long-term strike action was averted with an agreement being reached. Australia has been the second largest exporter of LNG over the last year and the facilities in question supply nearly 10per cent of global LNG. Prices in North America were also volatile through the first weeks of August. US and Canadian benchmarks rose by around 20 per cent during the first week of strike uncertainty. Volatility during the remainder of the quarter was relatively low even though July, August, and September all set monthly average demand records in the US – a function of record-breaking heat and a continuing shift from coal to gas for electricity generation. Growing receipts continue to keep the market in balance despite the growing demand. In western Canada, production has outstripped demand, and this leaves storage levels above seasonal norms going into winter. Well completion and licensing activity remains quite robust as incremental gas supplies will be expected on-line ahead of the initial startup of the LNG Canada facility at Kitimat.
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