Keyera Corp. — Interim / Quarterly Report 2020

May 12, 2020

Keyera Corp. TSX: KEY

2020 First Quarter Report May 12, 2020

Keyera Corp.

Condensed Interim Consolidated Statements of Financial Position

(Thousands of Canadian dollars) (Unaudited)

March 31, As at Note 2020	December 31, 2019
ASSETS Cash 33,279 Trade and other receivables 366,685 Derivative financial instruments 11 175,817 Inventory 4 57,710 Other assets 7,640	9,314 488,587 54,144 93,682 10,550
Total current assets 641,131 Derivative financial instruments 11 136,259 Property, plant and equipment 5 6,311,398 Right-of-use assets 229,036 Intangible assets 85,205 Goodwill 55,761 Deferred tax assets 10 22,261	656,277 95,891 6,365,832 241,452 80,149 55,761 18,826
Total assets 7,481,051	7,514,188
LIABILITIES AND EQUITY Trade and other payables, and provisions 444,961 Derivative financial instruments 11 59,770 Dividends payable 35,185 Current portion of long-term debt 147,436 Current portion of decommissioning liability 14,707 Current portion of lease liabilities 40,548	560,338 31,213 34,867 135,540 16,533 38,470
Total current liabilities 742,607 Derivative financial instruments 11 1,428 Credit facilities 70,000 Long-term debt 2,587,197 Decommissioning liability 163,456 Long-term lease liabilities 213,974 Other long-term liabilities 6 8,773 Deferred tax liabilities 560,050	816,961 — 90,000 2,548,468 233,220 209,987 16,912 544,789
Total liabilities 4,347,485	4,460,337
Equity Share capital 7 3,134,849 Accumulated deficit (37,626) Accumulated other comprehensive income (loss) 36,343	3,073,200 (18,022) (1,327)
Total equity 3,133,566	3,053,851
Total liabilities and equity 7,481,051	7,514,188

See accompanying notes to the unaudited condensed interim consolidated financial statements.

These unaudited condensed interim consolidated financial statements were approved by the board of directors of Keyera Corp. on May 12, 2020.

KEYERA CORP.

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Keyera Corp. TSX: KEY

2020 First Quarter Report May 12, 2020

Keyera Corp.

Condensed Interim Consolidated Statements of Net Earnings and Comprehensive Income

(Thousands of Canadian dollars, except per share information) (Unaudited)

Three months ended March 31, 2020 2019 Note (Restated – Note 2)	Three months ended March 31, 2020 2019 Note (Restated – Note 2)
Revenues 15 1,060,299 Expenses 15 (647,616)	836,746 (688,721)
Operating margin 412,683 General and administrative expenses (22,761) Finance costs 13 (31,136) Depreciation, depletion and amortization expenses (52,230) Net foreign currency (loss) gain on U.S. debt and other 12 (12,013) Long-term incentive plan recovery (expense) 9 16,927 Impairment expense 5 (194,001)	148,025 (19,260) (19,853) (61,429) 3,838 (5,510) —
Earnings before income tax 117,469 Income tax expense 10 (31,861)	45,811 (10,859)
Net earnings 85,608 Other comprehensive income (loss) Foreign currency translation adjustment 37,670	34,952 (7,379)
Comprehensive income 123,278	27,573
Earnings per share Basic earnings per share 8 0.39 Diluted earnings per share 8 0.39	0.17 0.17

See accompanying notes to the unaudited condensed interim consolidated financial statements.

KEYERA CORP.

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Keyera Corp. TSX: KEY

2020 First Quarter Report May 12, 2020

Keyera Corp. Condensed Interim Consolidated Statements of Cash Flows

(Thousands of Canadian dollars) (Unaudited)

		Three	months ended
			March 31,
		2020	2019
	Note		(Restated – Note 2)
Cash provided by (used in):
OPERATING ACTIVITIES
Net earnings		85,608	34,952
Adjustments for items not affecting cash:
Finance costs	13	5,867	5,317
Depreciation, depletion and amortization expenses		52,230	61,429
Unrealized (gain) loss on derivative financial instruments	11	(132,056)	52,952
Unrealized loss (gain) on foreign exchange		59,413	(14,329)
Inventory write-down	4	12,785	—
Deferred income tax expense (recovery)	10	13,175	(11,455)
Impairment expense	5	194,001	—
Decommissioning liability expenditures		(4,675)	(300)
Changes in non-cash working capital	14	30,336	95,243
Net cash provided by operating activities		316,684	223,809
INVESTING ACTIVITIES
Acquisitions		—	(217)
Capital expenditures		(218,822)	(297,907)
Changes in non-cash working capital	14	153	34,032
Net cash used in investing activities		(218,669)	(264,092)
FINANCING ACTIVITIES
Borrowings under credit facility		90,000	410,000
Repayments under credit facility		(110,000)	(230,000)
Repayments of long-term debt		—	(70,000)
Financing costs related to credit facility/long-term debt		(214)	(32)
Proceeds from issuance of shares related to DRIP	7	61,649	52,961
Lease payments		(12,316)	(13,260)
Dividends paid to shareholders		(104,894)	(95,016)
Net cash (used in) provided by financing activities		(75,775)	54,653
Effect of exchange rate fluctuations on foreign cash held		1,725	(932)
Net increase in cash		23,965	13,438
Cash (bank indebtedness) at the beginning of the period		9,314	(10,860)
Cash at the end of theperiod		33,279	2,578
Income taxes paid in cash		63,636	36,717
Interest paid in cash		15,352	17,583

See accompanying notes to the unaudited condensed interim consolidated financial statements.

KEYERA CORP.

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Keyera Corp. TSX: KEY

2020 First Quarter Report May 12, 2020

Keyera Corp.

Condensed Interim Consolidated Statements of Changes in Equity

(Thousands of Canadian dollars) (Unaudited)

			Accumulated
			Other
	Share	Accumulated Deficit	Comprehensive Income	Total
	Capital	(Restated–Note 2)		(Restated–Note 2)
Balance at December 31, 2018	2,846,496	(64,769)	19,485	2,801,212
Common shares issued pursuant
to dividend reinvestment plans	52,961	—	—	52,961
Net earnings	—	34,952	—	34,952
Dividends declared to shareholders	—	(95,299)	—	(95,299)
Other comprehensive loss	—	—	(7,379)	(7,379)
Balance at March 31, 2019	2,899,457	(125,116)	12,106	2,786,447
			Accumulated
			Other
	Share	Accumulated	Comprehensive
	Capital	Deficit	Income	Total
Balance at December 31, 2019	3,073,200	(18,022)	(1,327)	3,053,851
Common shares issued pursuant
to dividend reinvestment plans	61,649	—	—	61,649
Net earnings	—	85,608	—	85,608
Dividends declared to shareholders	—	(105,212)	—	(105,212)
Other comprehensive income	—	—	37,670	37,670
Balance at March 31, 2020	3,134,849	(37,626)	36,343	3,133,566

See accompanying notes to the unaudited condensed interim consolidated financial statements.

KEYERA CORP.

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Keyera Corp. TSX: KEY

2020 First Quarter Report May 12, 2020

Keyera Corp.

Notes to the Condensed Interim Consolidated Financial Statements As at and for the three months ended March 31, 2020 and 2019

(All amounts expressed in thousands of Canadian dollars, except as otherwise noted) (Unaudited)

1. GENERAL BUSINESS DESCRIPTION

The operating subsidiaries of Keyera Corp. include Keyera Partnership (the “Partnership”), Keyera Energy Ltd. (“KEL”), Keyera Energy Inc. (“KEI”), Keyera Rimbey Ltd. (“KRL”), Keyera RP Ltd. (“KRPL”), Rimbey Pipeline Limited Partnership (“RPLP”), Alberta Diluent Terminal Ltd. (“ADT”) and Alberta EnviroFuels Inc. (“AEF”). Keyera Corp. and its subsidiaries are involved in the business of natural gas gathering and processing; transportation, storage and marketing of natural gas liquids (“NGLs”) and iso-octane in Canada and the United States (“U.S.”); the production of iso-octane; and liquids blending in Canada and the U.S.

Keyera Corp. and its subsidiaries are collectively referred to herein as “Keyera”. The address of Keyera’s registered office and principal place of business is Suite 200, Sun Life Plaza West Tower, 144 – 4th Avenue S.W., Calgary, AB, Canada.

Pursuant to its Articles of Amalgamation, Keyera Corp. is authorized to issue an unlimited number of common shares (the “Shares”). The Shares trade on the Toronto Stock Exchange under the symbol “KEY”.

Keyera is approved to issue two classes of preferred shares (one class referred to as the “First Preferred Shares”, a second class referred to as the “Second Preferred Shares”), and collectively both classes being referred to as the “Preferred Shares”. Each are issuable in one or more series without par value and each with such rights, restrictions, designations and provisions as the board of directors may at any time and from time to time determine, subject to an aggregate maximum number of authorized Preferred Shares. No preferred shares had been issued as at March 31, 2020.

2. BASIS OF PREPARATION

These condensed interim consolidated financial statements are in accordance with IAS 34, Interim Financial Reporting , as issued by the International Accounting Standards Board (“IASB”). The accounting policies applied are in accordance with International Financial Reporting Standards (“IFRS”) and are consistent with Keyera Corp.’s consolidated financial statements as at and for the year ended December 31, 2019, except for the adoption of new IFRS standards, amendments and interpretations effective January 1, 2020.

These condensed interim consolidated financial statements as at and for the three months ended March 31, 2020 and 2019 do not include all disclosures required for the preparation of annual consolidated financial statements and should be read in conjunction with Keyera Corp.’s consolidated financial statements as at and for the year ended December 31, 2019.

As detailed in note 2 of the most recent annual consolidated financial statements, effective December 31, 2019, Keyera voluntarily changed its accounting policy for decommissioning liabilities to utilize a creditadjusted risk-free interest rate instead of a risk-free interest rate to determine the present value of the liability at each statement of financial position date. This change in accounting policy was applied retrospectively, including the restatement of certain comparative amounts in these condensed interim consolidated financial statements, which have been summarized below.

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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Keyera Corp. TSX: KEY

2020 First Quarter Report May 12, 2020

Reconciliation of the Condensed Interim Consolidated Statement of Net Earnings and Comprehensive Income

	Previous
For the period ended March 31, 2019 (Thousands of Canadian dollars)	accounting policy	Adjustments Restated
Finance costs	19,869	(16) 19,853
Depreciation, depletion and amortization
expenses	62,953	(1,524) 61,429
Income tax expense	10,472	387 10,859
Net earnings	33,799	1,153 34,952
Earnings per share
Basic earnings per share	0.16	0.01 0.17
Diluted earnings per share	0.16	0.01 0.17

Reconciliation of the Condensed Interim Consolidated Statement of Cash Flows

	Previous
For the period ended March 31, 2019 (Thousands of Canadian dollars)	accounting policy	Adjustments Restated
Net earnings	33,799	1,153 34,952
Itemsnot affecting cash	95,067	(1,153) 93,914

The condensed interim consolidated financial statements were authorized for issuance on May 12, 2020 by the board of directors.

Adoption of new standards

There were no new IFRS standards adopted by Keyera during the three months ended March 31, 2020.

Future accounting pronouncements update

There were no significant new accounting standards or interpretations issued during the three months ended March 31, 2020.

3. THE EFFECT OF RECENT DEVELOPMENTS ON CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

In March 2020, the World Health Organization declared a global pandemic as a result of the emergence and rapid transmission of a novel strain of the coronavirus (“COVID-19”). This pandemic has significantly affected the global economy, disrupting business operations and economic activity worldwide, and drastically reducing the global demand for crude oil. In addition, the decision of certain Organization of the Petroleum Exporting Countries (“OPEC”) and non-OPEC members to temporarily increase the supply of crude oil during the first quarter of 2020 resulted in severe declines to crude oil and crude-based commodity prices. As a result of this deterioration in market conditions, an unprecedented environment of extreme volatility in financial markets has emerged, and Keyera’s share price has sharply declined since December 31, 2019.

The magnitude of the effect that the COVID-19 pandemic and decline in commodity prices will have on Keyera’s operations and future financial performance is currently unknown. In the application of Keyera’s accounting policies, management is required to make estimates and assumptions about the carrying amounts of assets and liabilities recorded in the condensed interim consolidated financial statements. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. The current deterioration in market conditions introduce additional uncertainties, risks and complexities in management’s determination of the estimates and assumptions used to prepare Keyera’s financial results. As the COVID-19 pandemic and decline in financial markets is an evolving

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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Keyera Corp. TSX: KEY

2020 First Quarter Report May 12, 2020

situation, management cannot reasonably estimate the length or severity of the implications. Actual results may differ from estimates and the effect of such differences may be material.

Examples of key estimates used to prepare the condensed interim consolidated financial statements include fair value measurements, the determination of triggering events for the impairment of non-financial assets, the measurement of the decommissioning liability, the assessment of expected credit losses, and the determination of the amounts to be recognized for deferred tax assets and liabilities. A full list of the key accounting estimates, and the methodologies and assumptions underlying such estimates, are described in note 4 of the annual audited consolidated financial statements for the year ended December 31, 2019.

During the three months ended March 31, 2020, a write-down of inventory was recorded to adjust the carrying amount of inventory to net realizable value as discussed in note 4. In addition, in response to the recent decline in economic conditions, Keyera increased its allowance for expected credit losses as discussed in note 11.

4. INVENTORY

The total carrying amount and classification of inventory was as follows:

As at	March 31,	December 31,
(Thousands of Canadian dollars)	2020	2019
NGLs and iso-octane	46,500	83,334
Other	11,210	10,348
Total inventory	57,710	93,682

For the period ended March 31, 2020, $16,342 of inventory was carried at cost (December 31, 2019 – $93,682) and $41,368 was carried at net realizable value (December 31, 2019 – $nil). For the three months ended March 31, 2020, a write-down of $12,785 was recorded to adjust the carrying amount of inventory to net realizable value (three months ended March 31, 2019 – $nil). The cost of inventory expensed for the three months ended March 31, 2020 was $506,138 (three months ended March 31, 2019 – $566,665).

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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2020 First Quarter Report May 12, 2020

5. PROPERTY, PLANT, AND EQUIPMENT

Impairment expense

In the first quarter of 2020, Keyera identified through its impairment review that certain gas plants had carrying values that were greater than their recoverable amounts. The recoverable amount for each asset was calculated based on value in use which represents the estimated net present value of the cash flows expected to be derived from the asset, and were nominal in value.

The following impairment expenses with a combined value of $194,001 were recognized in the Gathering and Processing segment during the three months ended March 31, 2020:

	Applicable	Impairment
	value in use	expense
(Thousands of Canadian dollars, except rate information)	discount rate	recognized
Central Foothills Cash-Generating Unit
Ricinus gas plant	13.0%	73,222
West Pembina gas plant	13.0%	52,634
Nordegg River gas plant	13.0%	42,167
Drayton Valley North Cash-Generating Unit
Brazeau North and Pembina North gathering and
processing complex	13.0%	25,978
Total impairment expense recognized
in Gathering and Processing segment		194,001

The impairment expense recorded for the Central Foothills Cash-Generating Unit (“CGU”) is a result of Keyera’s gathering and processing optimization strategy. As part of this optimization strategy, Keyera expects to suspend operations at its Minnehik Buck Lake gas plant in May 2020 and at its West Pembina gas plant in the second half of 2020. The closures of the Ricinus and Nordegg River gas plants are expected to occur in 2021. An impairment expense was not recorded for the Minnehik Buck Lake gas plant as this facility was previously impaired to its salvage value in 2019.

The impairment expense recorded for the Drayton Valley North CGU was a result of underutilization of the Brazeau North and Pembina North gathering and processing complex, including lower producer activity in the capture areas for this complex.

6. OTHER LONG-TERM LIABILITIES

As at	March 31,	December 31,
(Thousands of Canadian dollars)	2020	2019
Long-term incentive plan	2,347	11,012
Other	6,426	5,900
Total other long-term liabilities	8,773	16,912

7. SHARE CAPITAL

HARE CAPITAL
	(Thousands of Canadian dollars)
	Number of Common Shares Share Capital
Balance at December 31, 2019	217,915,793 3,073,200
Common shares issued pursuant to dividend reinvestment plans	1,988,946 61,649
Balance at March 31, 2020	219,904,739 3,134,849

In April 2020, Keyera announced that the regular and premium components of the Dividend Reinvestment Plan (“DRIP”) will be suspended, effective with the May 2020 dividend payout. As a result, shareholders

KEYERA CORP.

Notes to unaudited condensed interim consolidated financial statements

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2020 First Quarter Report May 12, 2020

who have been participating in either component of the DRIP will receive the full cash dividend declared beginning with the dividend to be paid in May 2020. The cash payment required for the May 15, 2020 dividend payout is $35,364.

8. EARNINGS PER SHARE

Basic earnings per share was calculated by dividing net earnings by the weighted average number of shares outstanding for the related period.

	Three months ended	Three months ended
		March 31,
		2019
(Thousands of Canadian dollars, except per share information)	2020	(Restated–Note 2)
Basic and diluted earnings per share	0.39	0.17
Net earnings – basic and diluted	85,608	34,952
	Three	months ended
		March 31,
(Thousands)	2020	2019
Weighted average number of shares – basic and diluted	218,860	211,480

9. SHARE-BASED COMPENSATION AND PENSION PLANS

Long-Term Incentive Plan

Keyera has a Long-Term Incentive Plan (“LTIP”) which compensates officers and key employees by delivering shares of Keyera or paying cash in lieu of shares. Participants in the LTIP are granted rights (“share awards”) to receive shares of Keyera on specified dates in the future. Grants of share awards are authorized by the board of directors. Shares delivered to employees are acquired in the marketplace and not issued from treasury. The acquired shares are placed in a trust account established for the benefit of the participants until the share awards vest.

The LTIP consists of two types of share awards, the Performance Award and the Time Vested (“Restricted”) Award.

The LTIP is accounted for using the liability method and is measured at fair value at each statement of financial position date until the award is settled. The fair value of the liability is measured by applying a fair value pricing model whereby one of the valuation inputs was the March 31, 2020 share price of Keyera, which was $13.08 per share (December 31, 2019 – $34.02 per share).

The compensation cost recorded for the LTIP was:

	Three	months ended
		March 31,
(Thousands of Canadian dollars)	2020	2019
Performance Awards	(15,691)	4,395
Restricted Awards	(1,236)	1,115
Total long-term incentiveplan(recovery) expense	(16,927)	5,510

Employee Stock Purchase Plan

Keyera maintains an employee stock purchase plan (“ESPP”) whereby eligible employees can purchase common shares of Keyera. Keyera will contribute an amount equal to 5% of the employee’s contribution. To participate in the ESPP, eligible employees select an amount to be deducted from their semi-monthly remuneration. Employees may elect to withhold up to 25% of their base compensation for the stock purchases. The shares of Keyera are acquired on the Toronto Stock Exchange on a semi-monthly basis consistent with the timing of the semi-monthly remuneration. The cost of the shares purchased to match

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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2020 First Quarter Report May 12, 2020

5% of the employee’s contribution is expensed as incurred and recorded in general and administrative expenses.

Defined Contribution Pension Plan

For the three months ended March 31, 2020, Keyera made pension contributions of $2,664 (three months ended March 31, 2019 – $2,543) on behalf of its employees. The contributions were recorded in general and administrative expenses.

Deferred Share Unit Plan

Effective January 1, 2016, Keyera implemented a deferred share unit (“DSU”) plan, for non-employee directors. Each DSU vests on the date the grant is awarded but cannot be redeemed until a director ceases to be a member of the board of directors. The grant value is determined based on a 20 day weighted average trading share price. DSUs are settled in cash (on an after-tax basis) based on the 20 day weighted average Keyera share price up to the date of termination. For the three months ended March 31, 2020, Keyera recorded a recovery of $1,376 (three months ended March 31, 2019 – expense of $704) in general and administrative expenses related to the DSU plan.

The following table reconciles the number of DSUs outstanding:

	March 31,	December 31,
	2020	2019
Balance at beginning of period	97,573	80,521
Granted	18,665	36,983
Redeemed	—	(19,931)
Balance at end ofperiod	116,238	97,573

10. INCOME TAXES

The components of the income tax expense were as follows:

	Three	months ended
		March 31,
		2019
(Thousands of Canadian dollars)	2020	(Restated–Note 2)
Current	18,686	22,314
Deferred	13,175	(11,455)
Total income tax expense	31,861	10,859

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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Keyera Corp. TSX: KEY

2020 First Quarter Report May 12, 2020

11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial instruments include cash, trade and other receivables, derivative financial instruments, bank indebtedness, trade and other payables, dividends payable, current and long-term lease liabilities, credit facilities, current and long-term debt, and certain other long-term liabilities. Derivative financial instruments include foreign exchange contracts, cross-currency swaps, NGLs, crude oil, motor gasoline and natural gas price contracts, electricity price contracts and physical fixed price commodity contracts. Derivative instruments are measured at fair value through profit or loss in the consolidated statements of net earnings and comprehensive income. All other financial instruments are measured at amortized cost.

Financial Instruments

(a) Fair value

Fair value represents Keyera’s estimate of the price at which a financial instrument could be exchanged between knowledgeable and willing parties in an orderly arm’s length transaction motivated by normal business considerations.

Fair value measurement of assets and liabilities recognized on the consolidated statements of financial position are categorized into levels within a fair value hierarchy based on the nature of valuation inputs.

The fair value hierarchy has the following levels:

• Level 1: quoted prices in active markets for identical assets or liabilities;

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

• Level 3: inputs for the asset or liability that are not based on observable market data.

All of Keyera’s derivative instruments are classified as Level 2 as their fair value is derived by using observable inputs, including commodity price curves, foreign currency curves and credit spreads. For fixed price forward contracts, fair value is derived from observable NGL market prices.

Financial instruments with fair value equal to carrying value

The carrying values of cash, trade and other receivables, trade and other payables and dividends payable approximate their fair values because the instruments are either near maturity, have 5 to 30 days payment terms or have no fixed repayment terms. The carrying value of the credit facilities approximates fair value due to their floating rates of interest.

Fair value of senior fixed rate debt

The fair value of long-term debt is based on third-party estimates for similar issues or current rates offered to Keyera for debt of the same maturity. The total fair value of Keyera’s unsecured senior notes and medium-term notes at March 31, 2020 was $2,852,100 (December 31, 2019 – $2,810,100) and this was determined by reference to inputs other than quoted market prices in active markets for identical liabilities under Level 2 of the fair value hierarchy.

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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2020 First Quarter Report May 12, 2020

The fair values and carrying values of the derivative instruments are listed below and represent an estimate of the amount that Keyera would receive (pay) if these instruments were settled at the end of the period.

Weighted Fair Value Notional Average Hierarchy As at March 31, 2020 Volume1 Price Level	(Thousands of Canadian dollars)
	Net Fair Carrying Value Value Asset Liability
Marketing (NGLs and Iso-octane) Financial contracts: Seller of fixed price WTI2swaps (maturing by December 31, 2021) 3,443,421Bbls 63.96 /Bbl Level 2 Buyer of fixed price WTI2swaps (maturing by December 31, 2020) 874,573 Bbls 58.04/Bbl Level 2 Seller of fixed price NGL swaps (maturing by March 31, 2021) 1,243,000 Bbls 30.94/Bbl Level 2 Buyer of fixed price NGL swaps (maturing by December 31, 2021) 1,697,900 Bbls 36.73/Bbl Level 2 Seller of fixed price RBOB3basis spreads (iso-octane) (maturing by December 31, 2020) 1,365,000 Bbls 23.71/Bbl Level 2 Physical contracts: Seller of fixed price NGL forward contracts (maturing by December 31, 2020) 80,000 Bbls 19.68/Bbl Level 2 Buyer of fixed price NGL forward contracts (maturing by December 31, 2020) 170,000 Bbls 21.86/Bbl Level 2 Currency: Seller of forward contracts (maturing by December 31, 2020) US$168,500,000 1.34/USD Level 2 Other foreign exchange contracts4 Level 2 Liquids Infrastructure Electricity: Buyer of fixed price swaps (maturing by December 31, 2020) 120,840 MWhs 54.51/MWh Level 2 Corporate and Other Electricity: Buyer of fixed price swaps (maturing by December 31, 2020) 76,800 MWhs 54.44/MWh Level 2 Long-term Debt: Buyer of cross-currency swaps (maturing September 8, 2020 – November 20, 2028) US$531,639,000 0.98/USD -1.22/USD Level 2	87,256 88,411 (1,155) (16,743) 254 (16,997) 13,750 15,265 (1,515) (26,286) 931 (27,217) 28,370 28,370 — 135 200 (65) (386) 88 (474) (12,537) 68 (12,605) 2,000 2,000 — (816) 3 (819) (196) 155 (351) 176,331 176,331 —
	250,878 312,076 (61,198)

Notes:

1 All notional amounts represent actual volumes or actual prices and are not expressed in thousands.

• 2 West Texas Intermediate (“WTI”) crude oil.

3 Reformulated Blendstock for Oxygen Blending (“RBOB”).

4 Keyera has entered into other foreign exchange contracts to protect against fluctuations in the U.S. dollar to Canadian dollar exchange rate.

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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2020 First Quarter Report May 12, 2020

Weighted Fair Value Notional Average Hierarchy As at December 31, 2019 Volume1 Price Level	(Thousands of Canadian dollars)
	Net Fair Carrying Value Value Asset Liability
Marketing (NGLs and Iso-octane) Financial contracts: Seller of fixed price WTI2swaps (maturing by December 31, 2020) 4,419,479 Bbls 74.85/Bbl Level 2 Buyer of fixed price WTI2swaps (maturing by December 31, 2020) 1,116,000 Bbls 73.42/Bbl Level 2 Seller of fixed price NGL swaps (maturing by December 31, 2020) 1,660,200 Bbls 37.91/Bbl Level 2 Buyer of fixed price NGL swaps (maturing by December 31, 2020) 1,800,400 Bbls 41.44/Bbl Level 2 Seller of fixed price RBOB3basis spreads (iso-octane) (maturing by December 31, 2020) 1,920,000 Bbls 19.59/Bbl Level 2 Physical contracts: Seller of fixed price NGL forward contracts (maturing by January 31, 2020) 130,000 Bbls 24.94/Bbl Level 2 Buyer of fixed price NGL forward contracts (maturing by January 31, 2020) 105,000 Bbls 27.12/Bbl Level 2 Currency: Seller of forward contracts (maturing by June 30, 2020) US$146,500,000 1.33/USD Level 2 Liquids Infrastructure Electricity: Buyer of fixed price swaps (maturing by December 31, 2020) 131,760 MWhs 57.55/MWh Level 2 Corporate and Other Electricity: Buyer of fixed price swaps (maturing by December 31, 2020) 43,920 MWhs 56.15/MWh Level 2 Long-term Debt: Buyer of cross-currency swaps (maturing September 8, 2020 – November 20, 2028 ) US$534,286,100 0.98/USD -1.22/USD Level 2	(13,876) 989 (14,865) 5,065 5,486 (421) 9,651 9,777 (126) (11,771) 628 (12,399) 1,257 3,679 (2,422) 464 464 — (533) — (533) 4,303 4,303 — 144 501 (357) 109 199 (90) 124,009 124,009 —
	118,822 150,035 (31,213)

Notes:

1 All notional amounts represent actual volumes or actual prices and are not expressed in thousands.

2 West Texas Intermediate (“WTI”) crude oil.

3 Reformulated Blendstock for Oxygen Blending (“RBOB”).

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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2020 First Quarter Report May 12, 2020

Derivative instruments are recorded on the consolidated statements of financial position at fair value. Changes in the fair value of these financial instruments are recognized through profit or loss in the consolidated statements of net earnings and comprehensive income in the period in which they arise.

Unrealized gains (losses), representing the change in fair value of derivative contracts, are recorded in the following consolidated statements of net earnings and comprehensive income line items and the related reportable operating segments:

	Reportable Operating	Consolidated Net Earnings and
Derivative Contracts Related To	Segments	Comprehensive Income Line Item
Natural gas, crude oil and NGLs,	Marketing;	Marketing revenue;
and iso-octane	Corporate and Other	Corporate and Other revenue
Electricity	Liquids Infrastructure;	Liquids Infrastructure expenses;
	Gathering and Processing;	Gathering and Processing expenses;
	Corporate and Other	Corporate and Other revenues and
		expenses
Cross-currency swaps	Corporate and Other	Net foreign currency gain (loss)
		on U.S. debt and other
Emission performance credits	Gathering and Processing	Gathering and Processing expenses
		Three months ended
		March 31,
(Thousands of Canadian dollars)		2020 2019
Marketing revenue		80,999 (40,599)
Liquids infrastructure operating expenses		(960) 12
Gathering and processing expenses		— (590)
Corporate and Other:
Corporate and Other revenues and	expenses	(305) 22
Change in fair value of the cross currency swaps on U.S. debt1		52,322 (11,797)
Total unrealizedgain(loss)		132,056 (52,952)

Note: 1 Includes principal and interest portion.

Risk Management

Market risk is the risk that the fair value of future cash flows of a financial asset or a financial liability will fluctuate because of changes in market prices. Market risk is comprised of commodity price risk, interest rate risk, and foreign currency risk, as well as credit and liquidity risks.

(b) Commodity price risk

Subsidiaries of Keyera enter into contracts to purchase and sell primarily NGLs and iso-octane, as well as natural gas and crude oil. These contracts are exposed to commodity price risk between the time when contracted volumes are purchased and sold, and foreign currency risk for those sales denominated in U.S. dollars. These risks are actively managed by utilizing physical and financial contracts which include commodity-related forward contracts, price swaps and forward currency contracts. A risk management committee meets regularly to review and assess the risks inherent in existing contracts and the effectiveness of the risk management strategies. This is achieved by modeling future sales and purchase contracts to monitor the sensitivity of changing prices and volumes.

Significant amounts of electricity and natural gas are consumed by certain facilities. In order to mitigate the exposure to fluctuations in the prices of electricity and natural gas, price swap agreements may be used. These agreements are accounted for as derivative instruments.

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Certain NGL contracts that require physical delivery at fixed prices are accounted for as derivative instruments.

(c) Foreign currency risk

Foreign currency risk arises on financial instruments that are denominated in a foreign currency. Keyera’s foreign currency risk largely arises from the Marketing segment where a significant portion of sales and purchases are denominated in U.S. dollars. Foreign currency risk is actively managed by using forward currency contracts and cross-currency swaps. Management monitors the exposure to foreign currency risk and regularly reviews its financial instrument activities and all outstanding positions.

The Gathering and Processing and Liquids Infrastructure segments have very little foreign currency risk as sales and purchases are primarily denominated in Canadian dollars.

Keyera is also exposed to foreign currency risk related to its U.S. dollar denominated long-term debt and U.S. dollar denominated LIBOR loans when drawn under Keyera’s bank credit facility. To manage this currency exposure, Keyera has entered into long-term cross-currency swap contracts relating to the principal portion and future interest payments of the U.S. dollar denominated debt as well as short-term cross-currency swaps relating to the LIBOR loans drawn under the credit facility. These cross-currency contracts are accounted for as derivative instruments. Refer to note 12 for a summary of the foreign currency gains (losses) associated with the U.S. dollar denominated long-term debt.

(d) Interest rate risk

The majority of Keyera’s interest rate risk is attributed to its fixed and floating rate debt, which is used to finance capital investments and operations. Keyera’s remaining financial instruments are not significantly exposed to interest rate risk. The floating rate debt creates exposure to interest rate cash flow risk, whereas the fixed rate debt creates exposure to interest rate price risk. As at March 31, 2020, fixed rate borrowings comprised 98% of total debt outstanding (December 31, 2019 – 97%). The fair value of future cash flows for fixed rate debt fluctuates with changes in market interest rates. It is Keyera’s intention to not repay fixed rate debt until maturity and therefore future cash flows would not fluctuate.

(e) Credit risk

The majority of trade and other receivables are due from entities in the oil and gas industry and are subject to normal industry credit risks. Concentration of credit risk is mitigated by having a broad domestic and international customer base. Keyera evaluates and monitors the financial strength of its customers in accordance with its credit policy. Keyera does not typically renegotiate the terms of trade receivables. There were no significant renegotiated balances outstanding at March 31, 2020.

With respect to counterparties for derivative financial instruments, the credit risk is managed through dealing primarily with recognized futures exchanges or investment grade financial institutions and by maintaining credit policies which significantly reduce overall counterparty credit risk. In addition, Keyera incorporates the credit risk associated with counterparty default, as well as Keyera’s own credit risk, into the estimates of fair value.

The allowance for credit losses is reviewed on a monthly basis. An assessment is made whether an account is deemed impaired based on expected credit losses, which includes the number of days outstanding and the likelihood of collection from the counterparty. As a result of the recent decline in economic conditions, during the first quarter of 2020, Keyera increased its allowance for expected credit losses by $2,500. As at March 31, 2020, the total allowance was $4,241 (December 31, 2019 – $1,741). The carrying amount of financial assets on the consolidated statements of financial position approximates Keyera’s maximum exposure to credit risk.

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(f) Liquidity risk

Liquidity risk is the risk that suitable sources of funding for Keyera’s business activities may not be available. Keyera manages liquidity risk by maintaining bank credit facilities, continuously managing forecasted and actual cash flows, and monitoring the maturity profiles of financial assets and financial liabilities. Keyera has access to a wide range of funding at competitive rates through capital markets and banks to meet the immediate and ongoing requirements of the business.

Risk Management Sensitivities

The following table summarizes the sensitivity of the fair value of Keyera’s risk management positions to fluctuations in commodity price, interest rate, and foreign currency rate. Fluctuations in commodity prices, foreign currency rates and interest rates could have resulted in unrealized gains (losses) affecting income before tax as follows:

	Impact on income	Impact on income	Impact	on income
	before tax		before tax
	March 31, 2020		March	31, 2019
(Thousands of Canadian dollars)	Increase	(Decrease)	Increase	(Decrease)
Commodity price changes
+ 10% in electricity price	976	—	642	—
- 10% in electricity price	—	(976)	—	(642)
+ 10% in NGL, crude oil and iso-octane
prices	—	(8,970)	—	(30,914)
- 10% in NGL, crude oil and iso-octane
prices	8,970	—	30,914	—
Foreign currency rate changes
+ $0.01 in U.S./Canadian dollar exchange
rate	—	(2,174)	—	(1,125)
- $0.01 in U.S./Canadian dollar exchange
rate	2,174	—	1,125	—
Interest rate changes
+ 1% in interest rate	—	(700)	—	(2,600)
- 1% in interest rate	700	—	2,600	—

12. NET FOREIGN CURRENCY GAIN (LOSS) ON U.S. DEBT AND OTHER

The components of net foreign currency gain (loss) were as follows:

	Three months ended	Three months ended
	March	31,
(Thousands of Canadian dollars)	2020	2019
Foreign currency gain (loss) resulting from:
Translation of long-term debt and interest payable	(50,808)	12,583
Change in fair value of cross-currency swaps – principal and interest portion 52,322		(11,797)
Gain on cross-currency swaps – interest portion1	354	369
Foreign exchange re-measurement of lease liabilities and other	(13,881)	2,683
Total net foreign currency (loss) gain on U.S. debt and other	(12,013)	3,838

Note:

1 Foreign currency gains (losses) resulted from the exchange of currencies related to the settlement of interest payments on the longterm cross-currency swaps.

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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13. FINANCE COSTS

The components of finance costs were as follows:

	Three months ended	Three months ended
		March 31,
	2020	2019
(Thousands of Canadian dollars)		(Restated–Note 2)
Interest on bank indebtedness and credit facilities	1,812	2,988
Interest on long-term debt	33,368	23,543
Interest capitalized	(9,978)	(11,942)
Interest on leases	2,527	2,061
Other interest expense (income)	67	(53)
Total interest expense on leases, and current and long-term debt	27,796	16,597
Unwinding of discount on decommissioning liabilities	2,687	2,786
Unwinding of discount on long-term debt	482	470
Other	171	—
Non-cash expenses in finance costs	3,340	3,256
Total finance costs	31,136	19,853

For the three months ended March 31, 2020, $9,978 of borrowing (interest) costs were capitalized (three months ended March 31, 2019 – $11,942) at a weighted average capitalization rate of 5.0% on funds borrowed (three months ended March 31, 2019 – 4.8%).

14. SUPPLEMENTAL CASH FLOW INFORMATION

Details of changes in non-cash working capital from operating activities were as follows:

	Three	months ended
		March 31,
(Thousands of Canadian dollars)	2020	2019
Inventory	27,422	49,006
Trade and other receivables	124,499	22,573
Other assets	2,772	(1,342)
Trade and other payables, and provisions	(124,357)	25,006
Changes in non-cash working capital from operating activities	30,336	95,243

Details of changes in non-cash working capital from investing activities were as follows:

	Three	months ended
		March 31,
(Thousands of Canadian dollars)	2020	2019
Trade and other payables, and provisions	153	34,032
Changes in non-cash working capital from investing activities	153	34,032

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15. SEGMENT INFORMATION

Keyera has the following four reportable operating segments based on the nature of its business activities:

Gathering and Processing

The Gathering and Processing segment includes raw gas gathering systems and processing plants located in the natural gas production areas primarily on the western side of the Western Canada Sedimentary Basin. The operations primarily involve providing natural gas gathering and processing, including liquids extraction and condensate stabilization services to customers. This segment also includes sales of ethane volumes extracted from the Rimbey facility and sold to a third-party customer under a long-term commercial arrangement.

Liquids Infrastructure

The Liquids Infrastructure segment provides fractionation, storage, transportation and terminalling services for NGLs and crude oil. As well, it provides processing services to Keyera’s Marketing business related to NGLs, iso-octane and liquids blending. These services are provided to customers through an extensive network of facilities that include underground NGL storage caverns, NGL fractionation and de-ethanization facilities, NGL pipelines, rail and truck terminals, the AEF facility, a 50% interest in the Base Line Terminal, and the Oklahoma Liquids Terminal.

Marketing

The Marketing segment is primarily involved in the marketing of NGLs, such as propane, butane, and condensate; and iso-octane to customers in Canada and the United States, as well as liquids blending.

Corporate and Other

The Corporate and Other segment includes corporate functions and the production of natural gas, NGLs and crude oil.

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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Inter-segment and intra-segment sales and expenses are recorded at current market prices at the date of the transaction. These transactions are eliminated on consolidation in order to arrive at net earnings in accordance with IFRS.

The following table shows the operating margin from each of Keyera’s operating segments and includes intersegment transactions. Operating margin is a key measure used by management to monitor profitability by segment.

Three months ended March 31, 2020

Three months ended March 31, 2020
	Gathering &	Liquids		Corporate	Inter-segment
(Thousands of Canadian dollars)	Processing	Infrastructure	Marketing	and Other	Eliminations	Total
Segmented revenue	128,759	144,787	873,163	3,486	(89,896)	1,060,299
Segmented expenses	(64,288)	(42,665)	(627,140)	(3,419)	89,896	(647,616)
Operating margin	64,471	102,122	246,023	67	—	412,683
General and administrative expenses	—	—	—	(22,761)	—	(22,761)
Finance costs	—	—	—	(31,136)	—	(31,136)
Depreciation, depletion and amortization
expenses	—	—	—	(52,230)	—	(52,230)
Net foreign currency loss on U.S. debt and other —		—	—	(12,013)	—	(12,013)
Long-term incentive plan recovery	—	—	—	16,927	—	16,927
Impairment expense	(194,001)	—	—	—	—	(194,001)
Earnings (loss) before income tax	(129,530)	102,122	246,023	(101,146)	—	117,469
Income taxexpense	—	—	—	(31,861)	—	(31,861)
Net earnings (loss)	(129,530)	102,122	246,023	(133,007)	—	85,608
	Gathering &	Liquids		Corporate	Inter-segment
Three months ended March 31, 2019	Processing	Infrastructure	Marketing	and Other	Eliminations	Total
				(Restated –		(Restated –
(Thousands of Canadian dollars)				Note 2)		Note 2)
Segmented revenue	116,647	132,821	665,981	6,487	(85,190)	836,746
Segmented expenses	(48,325)	(38,371)	(684,109)	(3,106)	85,190	(688,721)
Operating margin (loss)	68,322	94,450	(18,128)	3,381	—	148,025
General and administrative expenses	—	—	—	(19,260)	—	(19,260)
Finance costs	—	—	—	(19,853)	—	(19,853)
Depreciation, depletion and amortization
expenses	—	—	—	(61,429)	—	(61,429)
Net foreign currency gain on U.S. debt and other —		—	—	3,838	—	3,838
Long-term incentive plan expense	—	—	—	(5,510)	—	(5,510)
Earnings (loss) before income tax	68,322	94,450	(18,128)	(98,833)	—	45,811
Income tax expense	—	—	—	(10,859)	—	(10,859)
Net earnings (loss)	68,322	94,450	(18,128)	(109,692)	—	34,952

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DISAGGREGATION OF REVENUE

The following table shows revenue disaggregated by the major service lines offered by Keyera in its four reportable operating segments:

Three months ended March 31, 2020

Three months ended March 31, 2020
	Gathering &	Liquids		Corporate
(Thousands of Canadian dollars)	Processing	Infrastructure	Marketing	and Other	Total
Gas handling and processing services1	107,784	25,986	—	—	133,770
Fractionation and storage services	3,417	58,424	—	—	61,841
Transportation and terminalling services	—	60,047	—	—	60,047
Marketing of NGLs and iso-octane	—	—	873,163	—	873,163
Other2	17,558	330	—	3,486	21,374
Revenue before inter-segment
eliminations	128,759	144,787	873,163	3,486	1,150,195
Inter-segment revenue eliminations	(6,101)	(75,447)	(4,767)	(3,581)	(89,896)
Revenue from external customers	122,658	69,340	868,396	(95)	1,060,299
Three months ended March 31, 2019	Gathering &	Liquids		Corporate
(Thousands of Canadian dollars)	Processing	Infrastructure	Marketing	**and Other **	**Total **
Gas handling and processing services1	100,480	24,887	—	—	125,367
Fractionation and storage services	1,784	55,116	—	—	56,900
Transportation and terminalling services	—	52,494	—	—	52,494
Marketing of NGLs and iso-octane	—	—	665,981	—	665,981
Other2	14,383	324	—	6,487	21,194
Revenue before inter-segment
eliminations	116,647	132,821	665,981	6,487	921,936
Inter-segment revenue eliminations	(4,866)	(69,078)	(3,756)	(7,490)	(85,190)
Revenue from external customers	111,781	63,743	662,225	(1,003)	836,746

Notes:

1 Processing services revenue recognized in Keyera’s Liquids Infrastructure segment represents the processing fees charged to Keyera’s Marketing segment for the production of iso-octane at the Keyera AEF facility.

2 Other revenue in Keyera’s Gathering and Processing segment includes sales of ethane volumes extracted from the Rimbey facility and sold to a third-party customer, and other miscellaneous revenue. Other revenue recognized in Keyera’s Corporate and Other segment relates to the production of oil and gas reserves.

KEYERA CORP. Notes to unaudited condensed interim consolidated financial statements

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Geographical information

Keyera operates in two geographical areas, Canada and the U.S. Keyera’s revenue from external customers and information about its non-current assets by geographical location are detailed below based on the country of origin.

	Three months ended
Revenue from external customers located in	March 31,
(Thousands of Canadian dollars)	2020 2019
Canada	885,855 669,629
U.S.	174,444 167,117
Total revenue	1,060,299 836,746
Non-current assets1 as at	March 31, December 31,
(Thousands of Canadian dollars)	2020 2019
Canada	6,222,398 6,328,560
U.S.	459,003 414,634
Total non-current assets	6,681,401 6,743,194

Note:

¹ Non-current assets are comprised of property, plant and equipment, right-of-use assets, intangible assets, and goodwill.

Information about major customers

For the three months ended March 31, 2020 and 2019, Keyera did not earn revenues from a single external customer that accounted for more than 10% of its total revenue.

16. SUBSEQUENT EVENTS

On April 9, 2020, Keyera declared a dividend of $0.16 per share, payable on May 15, 2020, to shareholders of record as of April 22, 2020.

On May 12, 2020, Keyera declared a dividend of $0.16 per share, payable on June 15, 2020, to shareholders of record as of May 22, 2020.

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