Pembina Pipeline Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2023

There are 13 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to the Pembina Pipeline Corporation Q2 2023 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Friday, August 4, 2023. I would now like to turn the conference over to Cameron Goldade.

Operator

Please go ahead.

Speaker 1

Thank you, Jenny, and good morning, everyone. Welcome to Pembina's conference call and webcast to review highlights from the Q2 of 2023. On the call today, we also have Scott Burrows, President and Chief Executive Officer, along with members of Pembina's senior officer team, including Jared Sprott, Janet Laduca, Stu Taylor and Chris Sherman. I would like to remind you that some of the comments made today may be forward looking in nature and are based on Pembina's Current expectations, estimates, judgments and projections. Forward looking statements we may express or imply today are subject to risks and uncertainties, which Further, some of the information provided refers to non GAAP measures.

Speaker 1

To learn more about these forward looking statements and non GAAP measures, please see the company's MD and A dated August 3, 2023, For the period ended June 30, 2023, as well as the press release Pembina issued yesterday, which are available online at pembina.com and on both SEDAR and EDGAR, I will now turn things over to Sam for some opening remarks.

Speaker 2

Thanks, Cam. For the 2nd quarter, Pembina earnings of $363,000,000 and adjusted EBITDA of $823,000,000 While we face challenges in tandem with the broader industry, Pembina's business remains strong. Quarterly results reflect Pembina's resilience. In the Q2, we continued to observe growth in volumes and higher tolls on certain systems and a solid contribution from our crude oil marketing business. These positive factors were offset most notably By the impact of the wildfires in Alberta and British Columbia on Pembina's and its customers' operations, the impact of third party outages and reduced operating pressure on the Northern Pipeline system until mid May.

Speaker 2

2nd quarter results also reflect the typical seasonality in Pembina's NGL marketing business We're hopeful that the worst of the wildfire season is behind us and are extremely grateful for all of our employees, contractors and customers in the affected areas were kept safe. Further, we did not have to incur any material fire related damage to our assets. I would again like to thank our Notwithstanding the short term impacts of wildfires and the Northern Pipeline System outage on Pembina and the broader industry, the outlook for the Western Canadian Sedimentary Basin remains promising. Pembina's operations have returned to normal and through the 1st month of Q3 volumes have been strong reflecting levels from earlier in the year prior to the Northern Pipeline system outage We expect continued volume growth throughout the second half of twenty twenty three, including in the conventional pipeline business where full year volumes are expected to be 4% higher than prior year. Further, volume growth is expected to continue through the rest of the decade based on certain industry wide developments, including most notably, additional egress Through various West Coast LNG projects and the Trans Mountain pipeline expansion, production growth in the Montney, Duvernay and Clearwater and the expansion of Alberta's petrochemical industry.

Speaker 2

Our existing asset base, integrated value chain, contractual agreements and deep customer relationships, we are poised to capture new volumes and benefit from increasing asset utilization and growth On the project front, we are progressing our Phase 8 Peace Pipeline expansion and our RFS IV expansion at the Redwater complex. The Phase 8 project continues to trend on time and under budget, furthering Pembina's track record of strong project execution. In addition to Phase 8 and Redwater Ford, Teva is actively progressing over $300,000,000 of smaller projects, including over $200,000,000 in other pipeline projects. These include the reactivation of the Nipissippi pipeline, which is expected in the Q3 of 2023 and the Northeast BC infrastructure expansion. The Northeast BC expansion includes terminal upgrades, Additional storage and new midpoint pump station.

Speaker 2

These are expected to be completed in the second half of twenty twenty four and will support approximately 40,000 barrels incremental capacity on the Northeast BC pipeline system. This capacity is needed to fulfill customer demand given an expectation for growth from the Northeast BC Montney And PEMET has previously announced long term midstream service agreements with 3 premier Northeast BC Montney producers for the transportation and fractionation of liquid. On our Cedar LNG project, we continue to make great progress. Subsequent to the quarter on July 6, Cedar LNG received its LNG facility permit From the BC Energy Regulator, this is another major regulatory milestone that follows the receipt of the environmental assessment certificate from the BC Environmental Assessment Office, A positive decision statement from the Federal Minister of Environment and Climate Change and a pipeline permit for the Cedar LNG pipeline connection to the Coastal GasLink pipeline. Collectively, these reflect the key permitting milestones for Cedar LNG.

Speaker 2

Cedar LNG also signed incremental non binding MOUs Work towards the signing of definitive agreements is ongoing. Cedar LNG elected to progress a second feed process for the floating LNG vessel in late 2022 It's been waiting for that work to progress to the same stage as the original FEED. In conjunction with detailed commercial discussions and ongoing negotiations between LNG Canada and Coastal GasLink, This has resulted in the anticipated final investment decision being revised in the Q4 of 2023. Finally, during the quarter, Canada released its 2020 Sustainability Report, which provides updates on the advances made in ESG focus areas of governance, energy transition and climate, employee well-being and culture, Health and Safety, Responsible Asset Management and Indigenous and Community Engagement. The 2022 Sustainability Report captures the continued progress On Pembina's ESG targets, including greenhouse gas emissions intensity reductions and equity diversity and inclusion.

Speaker 2

With respect to GHGs, Pembina remains on track to meet its 30 by 30 emission intensity reduction target. As well, in relation to Pembina's diversity targets, Women now represent 45% of the independent members of our Board and 35% of our executive team, exceeding the goals we set. We are proud of the progress we have made to date on Pembina's sustainability initiatives and look forward to continuing the journey. The latest report is available on our website. I will now turn things over to Cam to discuss in more detail the financial highlights of the Q2 of 2023.

Speaker 1

Thanks, Scott. As Scott noted, Pembina reported 2nd quarter adjusted EBITDA of $823,000,000 which represents a $26,000,000 or 3% decrease over the same period in the prior year. The combined impact of the Q2 adjusted EBITDA from the reduced operating pressure on the Northern Pipeline system and wildfires was approximately 47. Finally, 2nd quarter results also include various other revenue deferrals and costs with an impact of $21,000,000 to adjusted EBITDA. In Pipelines, additional factors impacting the quarter primarily included higher revenues on the P system and Cogent Pipeline due to higher tolls and lower revenues from Alliance Pipeline as the Q2 of 2022 included the sale of line pack inventory, combined with seasonal contracts being replaced by firm contracts at lower regulated rates and finally lower interruptible volumes driven by the narrower AECO to Chicago Natural gas price differential.

Speaker 1

In Facilities, additional factors impacting the quarter included The PGI transaction and strong performance from the former Energy Transfer Canada Plants and the Dawson assets as well as lower realized gains on commodity related derivatives associated with the commodity derivative contract. In Marketing and New Ventures, 2nd quarter results reflect Lower crude oil margins resulting from lower prices across the crude oil complex and lower NGL margins as a result of lower propane and lower beefsteine prices. Realized gains on commodity related derivatives for the quarter compared to losses during the Q2 of 2022 and a lower contribution from Aux Sable as a result of lower NGL prices. Finally, in the corporate segment, 2nd quarter results reflect higher shared service revenue and higher general and administrative expense and other expense, which included lower long term incentive costs. Earnings in the Q2 were $363,000,000 representing a $55,000,000 or 8% decrease over the same period in the prior year.

Speaker 1

In addition to the factors impacting adjusted EBITDA, earnings were impacted by lower depreciation, lower unrealized gain on commodity related derivatives and lower net finance costs. Total volumes of 3,187,000 BOE per day for the Q2 represent a decrease of approximately 5% over the same period in the prior year. Volume decreases were attributable to both The pipelines and the facilities divisions, including most notably the net impact of the reduced operating pressure on the Northern Pipeline system, Lower volumes at the Younger facility and the Redfern complex due to the reduced operating pressure on the Northern System, The impact of the wildfires, the disposition of the Empress 1 and Empress 6 assets at our Empress facility, Higher volumes at the former ETC plant and the Dawson assets and higher volumes on eggs. Adjusting for the impact of the Empress 1 and Empress 6 disposition, the reduced operating pressure on the Northern Pipeline System and the wildfires, Volumes in the quarter would have grown by approximately 5% over the Q2 of 2022. Based on results through the first half and the outlook for the remainder of the year, Pembina has narrowed its 2023 adjusted EBITDA guidance range to $3,550,000,000 to $3,750,000,000 from the previous range of $3,500,000,000 to $3,800,000,000 The revised range reflects the current outlook for commodity prices and an expectation of significantly stronger volumes in the second half of the year.

Speaker 1

Based on our 2023 guidance, Cash flow from operating activities is expected to exceed dividends and capital expenditures. To date, Pembina has repurchased $50,000,000 of common shares and reduced We will continue to evaluate the merits of debt repayment relative to additional share repurchases for the remainder of the year. At June 30, 2023, based on the trailing 12 months, The ratio of proportionally consolidated debt to adjusted EBITDA was 3.5 times. M and A expects to exit the year with a ratio of 3.4 to 3.6 times, reflective of our strong balance sheet and supporting our strong BBB credit rating. I'll now turn things

Speaker 2

back to Scott. Thanks, Cam. In closing, I'd like to reinforce that Pembina's business continues to perform very well. Pembina's outlook for meaningful medium term volume growth in the WCSB remains unaltered We are poised to benefit through increased utilization across our asset base and through new growth projects. We continue to digitally execute our strategy within our financial guardrails while returning capital to shareholders and positioning ourselves to fund future growth.

Speaker 2

Thank you for joining us this morning and for your continued support. Jenny, please go ahead and open up the line

Speaker 3

for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Questions will be taken in the order received. Your first question is from Jeremy Tonet from JPMorgan. Please ask your question.

Speaker 4

Hi, good morning.

Speaker 2

Good morning, Jeremy.

Speaker 4

Just want to dive into the fundamentals a little bit more if you could. Curious what you're seeing as far as Producer customer conversations and expectations for drilling activity here as it relates to your footprint given Recent developments and also competitive pressures. Just wondering if you could give us updated thoughts as far as what type of volume growth trajectory you could see over The near or medium term?

Speaker 2

Yes. Jeremy, I'll start and I'll let Jared jump if he wants to add some incremental color. But I think based on our comments in the prepared remarks, you would have seen that we're pretty optimistic about volume growth across the basin. We're still expecting roughly 4% growth on the conventional pipeline system. I do think it's very customer specific though, but When you go through many Q2 reports, you would have seen increased activity not only throughout this year, but also Into the upcoming years, obviously, there's been some pretty decent sized projects sanctioned in Northeast BC.

Speaker 2

Many of those we have under contract today. So we do have visibility beyond 2024 into 2025 and into 2026. So We remain optimistic around volume growth within the basin as well as our ability to capture that on our systems.

Speaker 5

I'll just add to that Jeremy. So Pre wildfires, really what we were hearing from customers was gas egress was becoming their largest constraint here in Western Canada. Since then, we saw at the worst of the worst, pardon me, about 2 Bcf of gas come offline. That's now Just under a Bcf, so about just over a Bcf has come back. So we are seeing in kind of like the short term, some of our customers are taking advantage If they've had gas behind by taking advantage of that incremental, I'll call it, IT space on 3rd party gas egress pipeline, That's positive thoughts for the preeminence of our customers.

Speaker 5

And then I think in the very short term, what we've seen is June, July August have had Very high demand for pumping services here in Western Canada, which is obviously a great sign that that production, that's expected, will be coming on Over the next 2 to 3 months as our customers tie those wells in. So it's as Scott said, it's looking positive.

Speaker 4

Got it. That's very helpful there. And then just want to shift gears towards Cedar LNG and moving the FID back a quarter to 4Q. Just wondering If you could peel back the onion a little bit more on the drivers and the shift of the timing there, how much is factors under your control versus not under Your control for the timing shift and confidence level at this point in getting to the finish line.

Speaker 6

Hey, Jeremy, it's Stu. We remain very confident with the schedule that we proposed here to look to FID Cedar in the Q4 of The largest reason for our move and as stated is, we elected to kick off an alternate feed. That was done with the intent to obviously to create some competitive pressure and to do from a capital cost perspective and To do the best industry practice to have some competing bids and some pressure on the EPC firms, that work is ongoing. We are pushing to get both of the DPC firms bids before we kick off the repricing here. So that work is continuing as we expected.

Speaker 6

It's a bit later than we had originally anticipated and that's resulted in us pushing that back. There continues to be other Ongoing negotiations that are out there, but the larger reason is our choice to elect with the second FEED and to get those time to come in Simultaneously for us to review.

Speaker 4

Got it. That's very helpful. Thanks. And just a last one real quick here. We've seen some Major moves among midstream competitors both in Canada as well as potential consolidation in the U.

Speaker 4

S. And just wondering If you could provide us any updated thoughts, I guess, on PEM and his views as far as any strategic outlook here, spinning, consolidating,

Speaker 1

Hey, Jeremy. It's Ken here. I mean, I think, as we've always said, we look at opportunities to enhance The asset base and the portfolio and really as we released kind of the refreshed or the Reviewed strategy earlier this year from the results of the work we did last year. That really anchors how we look at any investment, whether it's Organic, external, any other sort of strategic investments. I think, obviously, We're pretty excited about some of the organic investments that we've got.

Speaker 1

You mentioned SEDAR. There's a number of other things that we're working on. And of course, I mean, we're going to look at other opportunities as they're available. Frankly, the list of That are available at the moment, I think are pretty narrow, which would actually be additive to our business. I think we'll sort of look at things as they come up and continue to be disciplined as we always have, but nothing has really changed on that.

Speaker 4

Got it. So would it be fair to say an interest in TMX is probably the main thing under consideration and not really much else out there The narrow list as you

Speaker 1

described? Well, it's certainly the biggest. I would say that obviously we've been public about our partnership with WIPG and continue to be very proud Of being selected as their operating partner. And I think as we've said in the past, I mean, as far as we know that the asset is not for sale at the moment. We'll continue to do work and obviously stick to our guardrails.

Speaker 1

And if and when that becomes available, We'll evaluate it, but so far no action.

Speaker 4

Got it. That's very helpful. Thank you.

Operator

Thank you. Your next question is from Rob Hope from Scotiabank. Please ask your question.

Speaker 5

Good morning, everyone. Two follow-up questions. Maybe first on the conventional volume outlook. You did note that it was going to increase 4% this year. Volumes on the conventional system have been down in the first half.

Speaker 5

So when we take a look at achieving that 4 percent growth in 2023, is that pro form a the wildfire impacts? Could we see a makeup of lost volumes In the back half of the year or is this really just given the amount of growth that you're seeing in the system right now that will carry over into 2024? Hi, Rob, it's Jared. No, you basically nailed it. So although we were slightly under in the first half of the year due to the reasons that you noted, We do see that strong growth in the second half, just like you mentioned.

Speaker 1

Yes. And Rob, it's Cam. I'll just add in that, obviously, The second half always has the typical profile to it. When we're talking volumes, we're talking revenue volumes. So as you look at our disclosure, We've got more slightly more volumes or recognized volumes deferred for Q2 than we did last year.

Speaker 1

So A little bit of a revenue tailwind there in Q2. But as Jared said, we're also seeing strong outlook on the physical side

Speaker 5

All right. I appreciate that, especially the color on revenue versus actual volumes. And then as a follow-up on the Sanuk Pathways partnership and the opportunity there. When this was set up, it was a fifty-fifty JV between yourself and the WIPG, but the environment has really changed. How do you think about the size of the potential opportunity there as well as the potential financing opportunities?

Speaker 5

Specifically, Is 50% still the bogey or something much smaller in that 20% to 25% more likely with the potential that you could use some hybrids and some asset sales to finance it?

Speaker 1

Yes. Thanks for the follow-up, Rob. It's a really good point. As you mentioned, when that Partnership with Structured, we were less than half of the current size of the investment that it is today. So I do think we think about things here from a portfolio perspective and what size of certain asset types we want in our portfolio.

Speaker 1

And that's not only Commodity or commercial, it's the customer portfolio, It's the market access. It's all these points that we think about from a portfolio perspective of our asset base. So when we do think about That asset in light of a larger potential gross investment size, we do Things largely similar from damages net investment. So when you talk about sort of a smaller than 50% investment, I would say that's where our heads are at as we think about this asset under the current circumstances. To pin it down to an exact number, It's tougher, but yes, I think that sort of 20% to 30% range is probably where you get to the same sort of Asset investment size for Pembina, probably the right scope on it.

Speaker 1

And then in terms of finance, think what we've said is obviously a commitment to the financial guardrails and our strong BBB rating. And there's a lot that goes But obviously, we recognize that over history, a strong balance sheet has been a strategic advantage. And when it's not, it's obviously a big distraction and a hindrance. And so we're absolutely focused on maintaining that strong balance sheet, But also recognizing that as part of that, there's potentially some creativity required for an asset such as this. And We're exploring different avenues for financing to obviously keep the investment in our business Within the financial guardrails, but also deliver a strong value accretive investment.

Speaker 1

And if that isn't available, obviously, then we'll continue to be As we have in the past, and with this, we've got lots of other opportunities.

Speaker 5

Thank you.

Operator

Thank you. Your next question is from Linda Ezergailis from TD Securities. Please ask your question.

Speaker 7

Thank you. Just looking at Cedar LNG, recognizing That you've been working on this for a while. How might we think of your creativity potentially around financing that and ensuring it stays within the guardrails? Would you see project financing and what might be this cadence of spend and might that cause you to high grade Any other potential investments you see?

Speaker 1

Hey, Linda, it's Cam again. Yes, thank you. One of the things we really love about Cedar, obviously, in addition to the strategic aspect of it, I mean, we've always Really thought that LNG was a fantastic strategic fit for our company. But the really nice thing about Cedar is obviously the scale of it. Obviously, at 3,000,000 tonnes and an associated capital cost, it obviously fits very nicely for a company at the scale of Pembina.

Speaker 1

And so when we look at it, when you think about the nature of those commercial agreements, long term agreements backed by investment grade counterparties, obviously, that's a highly We are exploring project finance for that with a commensurate leverage structure. And so when you look at that relative to Pembina's free cash flow generation of Last year, it was getting rid of the one time impacts around $1,000,000,000 of cash flow after dividends. And so if If you stretch that forward, we're in a very strong funding position going forward. The spend for SEDAR on the current time frame really wouldn't Accelerate until the 2025, 2026 timeframe. So but we see it Very readily financeable within our existing liquidity sources, existing cash flow.

Speaker 1

And frankly, that timing works really well with The cadence of the other projects we've got going on, obviously, Phase 8 comes online next year, Redwater comes online in the first half of twenty twenty six. So, it fits really nicely with the rest of our portfolio from a spend perspective.

Speaker 7

Thank you. And just as a follow-up looking at accessing Tidewater maybe with LPG and NGLs, What are you seeing in terms of customer preferences for the optionality to either rail down to the U. S. Or Bring to the West Coast and any sort of West Coast pathway, Do you see that continuing to go through the Edmonton Fort Saskatchewan area? Or do you see the merits of going direct to the West Coast.

Speaker 7

If you can just comment on flows of NGLs prospectively and your outlook for that, that would be helpful.

Speaker 8

Sure, Helane. It's Chris. I think that customers continue to value a bit of a portfolio. They don't want to see everything pointed at the West Coast. That being said, right now, ARBs are extremely strong.

Speaker 8

And so if you look at Conway, FBI differentials and Edmonton FBI differentials, there's a really positive case for going west. We do think in the long term those Far East markets are going to be very attractive. So there is room for more off the West Coast. And what we continue to hear from our producer base that they want to see flexibility. They want to see us access the best Markets are the best times and not get stuck for the sort of one trip pony, if you will.

Speaker 8

I think when you talk about coming To Fort Saskatchewan, we continue to believe there's a real advantage to aggregate into Fort Saskatchewan. We've got tremendous rail capability Out of the area, like I said, it leaves that optionality open to go to the best markets at the best times, and we continue to see support for that.

Operator

Thank you. Thank you. Your next question is from Robert Catellier from CIBC. Please ask your question.

Speaker 3

Hi. You've answered most of my questions, but I wanted to follow-up on Cedar LNG, specifically with respect to What needs to be accomplished between LNG Canada and Coastal GasLink further negotiations before you can reach FID? I assume that relates To the final tolls, and aside from that, can you just comment on the executability Of that 8.5 kilometer pipeline from the Coastal GasLink to the Cedar site and how you're planning to manage cost risk on that aspect of the project?

Speaker 6

Yes, Rob, it's Stu. Yes, I mean LNG Canada and Coastal GasLink have been Negotiating and finalizing their arrangements for a continued period of time, obviously, with the announced Coastal gasoline cost increase. There's also, as they move forward, how that relationship is going to be managed and developed. So it's ongoing. We continue to work well with LNG and with Coastal Gas We are waiting in some cases for them to complete some of these negotiations, but there's been good progress made.

Speaker 6

But it is something that we need to finalize For our connection agreements and for our transportation agreements on Coastal GasLink. So We continue to work with both parties in a positive way. As far as the execution of the pipeline, It is we're coming from the end of the Coastal GasLink connection from the header. As you described it, 8.5, 9 kilometers of pipe. It is it has to we're looking at pipeline routing.

Speaker 6

We've right away identified. We've drilled our test holes to identify the terrain and the materials that we would actually be going through. We remain confident of Pembina's ability to execute that pipeline in a cost effective manner. We have And working on this project that has done mountainous pipeline install. And so we priced it accordingly And have a plan to execute within that pricing.

Speaker 3

Okay. Thank you.

Operator

Thank you. Your next question is from Ben Thanh from BMO. Please ask your question.

Speaker 9

Hi, thanks. Good morning. I just wanted to check the quantification of the wildfires and I guess, less the extent piece, can you walk through is that just in terms of the process, is that just simply taking your The volumes that have declined and you're using a margin that's been earned on that segment in the past?

Speaker 1

That's right, Ben. That was based on our outlook. That was based on our outlook and where we were sort of pre fires. Obviously, we've got profiles from customers and we've got the outlook there. So Basically, it was our outlook for what that would have been based on a regular operating condition.

Speaker 1

And you can also recall that there was a little bit of IT on some of the systems, but most of that Most of those volumes were flowing right at sort of take or pay levels. So it's not a lot of variability actually in it.

Speaker 9

Okay. Got it. And maybe Sierra LNG, that last question is I know you mentioned some of the tolls being finalized. Is Sentinel linked directly to in service On Coastal, is there a link between the 2?

Speaker 6

Sorry, Ben, I missed can you repeat your question?

Speaker 9

Yes, I was just thinking with Coastal GasLink expected in service late this year. You can tee up the sanction on Cedar. But if it If it gets pushed to next year, is that linked to your sanction decision or there's enough leeway on timing that Even if it's delayed by a year, it doesn't really impact the sanctioning decision?

Speaker 6

Yes. Our timing We'll not be impacted by Coastal GasLink's in service date. Our first gas isn't until 2027 time for commissioning purpose. So we're quite we have plenty of leeway for them to complete their project of which they're making progress on and driving forward. So yes, we have lots of Slack built into that system.

Speaker 9

Okay, got you. And maybe just a last one, a couple of questions on M and A and TMX, I'm more curious as you think about M and A now, you have TMX, which is 25 year contract, So premium assets and then you got a couple other assets out there in North America that might have a shorter dated contract with Potentially lower multiple, like what do you think the best opportunity is for you then? I mean you can take TMX Hi, great. Your cash flows, but then is there maybe an arbitrage for some of these shorter dated contracts that market is not placing a good premium on in the market today?

Speaker 2

Yes. Ben, I think the way we've talked about it is in terms of the strengthening of the guardrails with TMX that potentially have some minor commodity exposure versus shorter term contracts. That's not something that we currently put into the mix. But obviously with our position in the NGL market, we like that business. We think that we have some competitive advantages and we're really good at NGLs.

Speaker 2

And so to the extent that there's opportunities that come with Some incremental exposure, we can capture those once we strengthened our guardrails through the TMX acquisition if successful.

Speaker 9

Okay. All right. Thank you.

Operator

Thank you. Your next question is from Andrew Kuske from Credit Suisse. Please ask your question.

Speaker 10

Thanks. Good morning. Maybe just addressing your various low carbon businesses, so Alberta Carbon Grid, the Low Carbon Complex and Low Carbon Ammonia. Maybe bookend these like how big do you think these businesses could be as part of the balance sheet or the investment opportunity On the big end and then on the low end, what's sort of the toe end of the water part of the business?

Speaker 2

Yes. So if we think about those investments as kind of aggregate buckets, If you're putting me on the spot, I'd say somewhere between $2,500,000,000 to $4,000,000,000 of incremental capital that we see line of Site to potentially deploying across those asset bases. Now that's over the next decade to 2,030. That's not immediately. But our near term focus really is on the Alberta carbon grid and on blue ammonia, which would then tie into our low carbon Complex and really accelerate the profile of that asset base.

Speaker 2

So we're pretty excited about it. Obviously, the ammonia is Early days, we just announced our partnership this quarter and we're really just in the pre feed stage, but we do see A pretty decent opportunity there. And as we continue to attract capital towards low carbon complex, we think there'll be a snowball effect we can attract incremental projects to that site.

Speaker 10

I appreciate that color. And maybe with that snowball effect, how do you see this Entire business line working within your Pembina store concept, is it really like another part of the slide, you've got the 3 already, is this a 4th Or does this business group sort of intersect all of the 3 that you've got now?

Speaker 6

Yes, Stu, again, I think you've hit on it. We know there's an opportunity for the 4th, a platform for growth and opportunities presented. At the same time, it interconnects with our existing asset base. There's opportunity to provide feedstock. There's opportunity To our operating expertise in the area, our facility expertise in build.

Speaker 6

So it does integrate very, very well It does have opportunities for future growth in that space as well.

Speaker 10

Maybe just an extension on that Stu, do you see this sort of conceptually like a multiplier that you had off of Redwater where it gave a lot of growth across different business lines? Is that the same conceptual thing for the whole carbon business?

Speaker 6

Yes, it has that potential. We're We will continue to follow Pembina's guardrails. I think we always look at it as a tolling model and not to be in the commodity space. So it's got a fit for us there. Redwater and working with our marketing team and our expertise in the LPG space allowed us to probably go a bit further and offer more extension and back into the

Operator

Thank you. Your next question is from Robert Kwan from RBC Capital. Please ask your question.

Speaker 11

Good morning. Whether it's Cedar, potentially other sizable investments, can you just Refresh the types of returns that you're seeking or if you want to look at it from a build multiple perspective that works. And then just as it relates to leverage, the leverage Card work, rail. And specifically the top end, is that top end firm or would you be willing to exceed it for a period of time? Also maybe just confirming that you're committed to continuing to look at that guardrail on a proportionate consolidated basis?

Speaker 1

Hey, Rob. I would say that the types of returns That we're seeing I mean, obviously, in the past through the latter half of the last decade, I mean, I think Our experience was build multiples in the range of sort of 6 to 8 times Overall and obviously, the brownfield ones towards the lower end of that range and sometimes even below that, the greenfield ones in most cases Towards the upper end of the range and of course as I mentioned before our portfolio is important to sort of keep that blended multiple in the right range And hopefully, keep it to the lower end. I would say that in our current outlook with our existing projects, We're not far off that. We're probably still sort of in that 7 to 9 times multiple ranges. And Obviously, the 9 times multiple ranges are reflective of those opportunities where there's very low risk embedded in them, long term contracts, High grade counterparties, some of the opportunities at the lower end of that spectrum are the brownfield opportunities, the integration opportunities, It's kind of the typical stuff that we know and do quite well.

Speaker 1

So I would say that for us, that's been Part of the strategy and with the asset base that we have and sort of the connectivity between them, we continue to see opportunities around that and in that range. As it relates to leverage and our thoughts on that, I would say that we've obviously got A commitment out there to a strong BBB rating as we've long talked about and the financial guardrails, but which frankly is really Ultimately anchored in a rating agency methodology and the way they look at it. But we sort of take the simplistic view of saying Leverage is leverage and there's an appropriate amount of leverage for an asset wherever it sits and that's obviously why we talk about personally consolidated leverage. We've had a guardrail there, a range of sort of 3.5% to 4.25%. I would say that as The industry has evolved and the interest rate environment has obviously changed.

Speaker 1

The high end of that range is Probably something we would shy away from at the moment. I think we pretty consistently hear from the market. And as we said earlier that Strong balance sheet and strong leverage is an advantage. And so even kind of getting above that 4 times is probably going to start to give us heartburn. But yes, I would say we do continue to look at that on a proportionally consolidated basis.

Speaker 1

And obviously, sticking to that leverage Commitment is something that's been part of our success and don't see any reason to change that.

Speaker 11

Got it. As it relates to just the short term leverage, Small changes quarter, kind of 3.4 to 3.6 and I think previously you were 3.3 to 3.6. It's not a big deal, but just is that EBITDA Changing or is this maybe a bit of an indication of a bias towards share buybacks just given the current share price versus debt repayment?

Speaker 2

No, I just think it was narrowed off of it was basically based off of our guidance range and obviously with the narrowing of the guidance range Just due to rounding the 3.6 obviously didn't move, but just due to rounding the 3.3 went to 3.4 as we lowered The top end of that guidance range. So it's really the narrowing of the EBITDA range versus anything else, Robert.

Speaker 11

Got it. Okay. And just last, just coming back to that The question or your answer on the timing of the FID for Cedar versus Coastal GasLink, I guess the timing of When your project be online and you could have a CGL delay, but wouldn't you want to see Coastal GasLink completely, Mechanically complete just given what's going on and the other is there still is some toll finalization based on the cost on CGL. So how do you Protect yourself on where that final toll goes before you commit to the FID.

Speaker 6

Yes, Robert. We're again, those negotiations are ongoing. Again, the work between CGL and LNG Canada, they're looking at that the negotiation of the existing base Pipeline is complete. We know what our toll is. The next phase is the expansion to add the compression that is required.

Speaker 6

And so That's ongoing and that those negotiations are underway. We're hoping those will be completed here in the next little while. We expect to have that done in our Transportation agreements, we would have in hand as we make FID.

Speaker 11

Got it. So you need to see though that happened before the FID?

Speaker 6

Yes, we need to be able to tell our offtake customers and the who ultimately be the holders of the capacity in CGL What's the transportation agreement going to look like?

Speaker 2

Okay. So you're tied to

Speaker 11

the tariff, but you're comfortable on mechanical completion?

Speaker 6

Yes, mechanical completion of the Phase 1 and then we need a compression addition to get our capacity for the cedar service.

Speaker 9

Okay. Thank you very much.

Operator

Thank you. Your next question is from Patrick Kenny from National Bank Financial. Please ask your question.

Speaker 12

Good morning, Eric.

Speaker 5

It's been about

Speaker 12

a year since you closed the PGI transaction. Wondering if you can comment on how integration relative to your initial expectations. And also as a vehicle created to unload growth, We're talking about the long term landscape surrounding the organic growth for M and A opportunities Around PGI's footprint.

Speaker 2

I think you cut out, but I think that we got the gist of the question, Which was around integration and organic and other opportunities at the asset base. So I think From an integration perspective, it's gone as planned, maybe slightly below budget. Obviously, A lot of time and effort in the field to get the plants into Pembina's systems, but the opportunity growth Continues to expand there and I'll maybe turn it over to Jared. I mean we're pretty pleased with both the volume growth we've seen at those assets, But as well as now that we've had, as you said, our hands on the wheel for a year, we're really starting to see not only opportunities at that asset base, but opportunities and synergies across the gas plant. So maybe I'll turn it over

Speaker 5

to Jared. Yes. Thanks Pat. Good morning. Maybe I'll just break it down into a couple of buckets.

Speaker 5

One is The Pembina processing assets, they're performing as we would have expected. Obviously, we have pretty good line of sight into that. The Dawson assets, which we acquired an incremental working interest in, specifically The CRP, Cut Bank Ridge Partnership, in that area, what we're seeing there is that, that is exceeding our expectations Even through the Veresen Midstream lens, the performance of those wells that the partnership are drilling and their public that's public information It's outstanding. The development and the activity going into the startup of Costa GasLink, we're seeing that ramp up And maybe a little bit more gas than we had expected, which is great. Obviously, that's a processing tolling model.

Speaker 5

So that's kind of the one bucket. And then the incremental ETC portion that we acquired 60% of, that is Exceeding our model expectations. We're just seeing a lot of gas getting drilled into our white space, which is great. I think now that the team it's been roughly a year here coming up on August 15. There is a lot of optimization opportunities just we're not able to speak to those Specifically right now, but as we move through sanctioning gates, we will disclose those.

Speaker 5

And then on the I think I mentioned last quarter on the call that there's a significant amount of expansion opportunities through the PGI platform across the 3 different Businesses that we find, not only for gas processing and liquids handling, but also on the GHG reductions. Obviously, our Processing business contributes a significant amount of our GHGs and the team has a lot of opportunities there to work with our customers to lower their Carbon tax, while deploying capital and lowering penmina's emissions. So that's kind of how I'd sum it up, So positive.

Speaker 12

Okay. Perfect. Thank you. And then wanted to check-in as well with Respect to your exposure to Alberta Power prices, I know the 100 Megawatt Garden Plain PPA kicks in here right away. But I guess, pro form a of that contract, can you remind us what your net exposure to the grid would be Relative to total power consumption and then also if you're looking to sign additional renewable offtake agreements beyond that Just as part of your plan to reduce scope to emissions.

Speaker 12

And if so, how you might be thinking about achieving your goals in light of Alberta's announcement to take a pause on Approving any further renewable developments in the province? Thanks.

Speaker 2

Yes, Pat. I mean, I'm not going to get into Specifics with our usage, but you would have seen obviously over the last 2 years, we would have signed 2 different renewable power agreements to really capture a significant portion of our net exposure to the power prices. In addition to that, we obviously commissioned our cogen@empris and In addition to looking at a few different co gen opportunities across our asset base, we also have small solar going in at Empress As well, we are actively managing our exposure to the Pembina fully owned exposure to the power grid. In addition to that, a large portion of our OpEx is flowing through, but we're working really hard to reduce Power where necessary and optimize the usage of that because obviously we want as low of OpEx as possible for our customers. So we're really focused on optimizing power use across the asset base because the volatility we've seen in the This is obviously a significant line item for Pembina and our customers.

Speaker 2

So we're doing everything in our power to look at reducing that usage. But Just circling back as it relates to our net exposure, we're mostly protected on that through some of the PPAs we've signed and some of the other initiatives

Speaker 5

And just on top of that, Scott mentioned, obviously, we're working to utilize less consumption, which obviously supports lower OpEx for our customers, but lower scope to emissions. Chris' team Chris Sherman has an energy management team and also A lot of work internally on peak power price avoidance. So with our obviously our P system that we have a lot of storage at various places. We don't have to be continuously pumping when price is $900 a megawatt. So being very proactive on When do we need to be storing and when should we be pumping?

Speaker 5

And that's all run out of our Sherwood Park control center. So that's been a huge win for our customers as well.

Speaker 12

Okay. That's really good color guys. Appreciate that. And sorry, just one follow-up question on the Alberta carbon grid, if I could. So we've seen a bit of a slowdown on the capture side of the equation with respect to some government support Coming to fruition.

Speaker 12

Wondering if that's translating into any slowdown on your end in the development process of ACG. I guess, if there's just any update on timing related to a potential FID or in service date, that would be great.

Speaker 3

Yes, Pat. Maybe

Speaker 6

just to just reemphasize where we're at. So we have we've been busy. We have an appraisal permit From the government of Alberta, that has allowed us to be out. We've bought seismic and reprocessed. We've shot additional seismic over our proposed sequestration site.

Speaker 6

That work has been completed. We are in the process of getting ready to drill our evaluation well that will be drilled here in the second half of twenty twenty three. Essentially, that work upon completion and some evaluation of the results will allow us to prove up that we have a sequestration site. So we've had preliminary conversations with off takers. Sorry, not off takers, use of the sequestration.

Speaker 6

There remains interest. It's competitive. It's a little bit still out there. Our work has largely been focused on Proving up our site and initial conversations, once we get that move into 2024, we'll ramp up the commercial conversations upon Proof that we actually have something that we can use and sell. We haven't changed our FID date or any of that timing at this point.

Speaker 3

Okay,

Speaker 12

that's great. Thanks everybody. Have a great long weekend.

Speaker 5

You as well.

Operator

There are no further questions at this time. Please proceed.

Speaker 2

Thanks, everyone. Really appreciate you calling in on a Friday before a long weekend. Obviously, as we said in our prepared remarks, Challenging quarter, but we remain optimistic through the back half of this year. So everybody have a great long weekend. Stay safe and have a good rest of your summer.

Speaker 2

Thank

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Earnings Conference Call
Pembina Pipeline Q2 2023
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