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 three months ended June 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 August 23, 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 three 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 three months ended June 30, 2023, to the results for the three months ended June 30, 2022, unless otherwise noted.
OPERATING ENVIRONMENT SaskEnergy monitors a number of crucial factors that could influence financial performance. Forest Fire Impacts
Forest fires had an uncharacteristically significant impact on the gas market last quarter. The Canadian fire season appears to be on pace to record the largest ever area burned. While the fires of Quebec and Ontario made national and international news for their regional air quality impacts, it was the fires of Alberta and BC that had the greatest impact to gas supply. Production in NW Alberta and NE BC fell by nearly 25 per cent in early May as fires in the producing areas were causing shut-ins at facilities at risk from fire. For context, this loss of supply was about two times larger than shut-ins from extreme cold last winter. The NGTL transmission system also had controlled precautionary shutdowns to compressor stations west of Edmonton. Fortunately, this loss of compression did not impede capabilities – due to the loss of upstream receipts. The loss in supply was short lived, with most of the supply back within a week of the initial declines. The price mechanism seemed to operate efficiently during the fire impacts. Temporary extreme high prices at AECO (as high as $7 per GJ during the initial weekend) kept Alberta exports subdued and allowed the market to find a balance. Over the following week, prices returned to their post-winter lows and stayed there for the remainder of the quarter. Elsewhere on the continent, low prices have begun to affect gas drilling rig deployment; the quarterly drop in rigs was the largest since 2016 bringing counts down to a level they were at prior to the large price run up last summer. Despite lower rig counts, US production remains at all-time highs. Offsetting this is continued growth in demand from power producers and LNG importing countries. Unlike last year, however, global prices for LNG remain relatively low. This has reduced the impact to North American prices and has also allowed several poorer countries to secure LNG cargos after being priced out of the market last year.
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