Q4 2019 Earnings Call
This time all participants are in listen only mode. After the speakers presentations will be a question and answer session.
Ask a question during the session you need to press star one on your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Scott Burrows Senior Vice President and Chief Financial Officer. Please go ahead.
Thank you Marcella good morning, everyone and welcome to Pembinas Conference call and webcast to review highlights from the fourth quarter and full year 2019, I'm, Scott Burrows Senior Vice President Chief Financial Officer on the call with me today or make Gilger, President and Chief Executive Officer, Jason Boone, Senior Vice President and Chief operating Officer pipelines your throat.
Your Vice President and Chief operating Officer facilities, do Taylor Senior Vice President marketing and new ventures in corporate development Officer.
Before we start I'd like to remind you that some of the comments made today maybe forward looking in nature and are based on Pembinas current expectations estimates judgments in projections.
Looking statements, we may expressed or implied today are subject to risks and uncertainties, which could cause actual results could differ materially from expectation or there's some of the information provided refer to non-GAAP measures to learn more about these forward looking statements and non-GAAP measures. Please see the company's various financial reports, which are available at Pembina, dotcom and I, both SEDAR and Edgar.
I'm going to once again delivered strong quarterly financial and operational performance as we continue to benefit and the ongoing growth in our business, both organically and through acquisitions, while earnings of 145 million during the quarter were 61% decrease when compared to the same period last year. This was largely due to onetime noncash after tax impairment charge of 220.
Million on M. as investment in Ruby pipeline, we continue to benefit from the cumulative preferred interest in Ruby, which entitled M. that you. The first U S $91 million per year of distributable cash flow not asset in check the impairment charge was the result of an assessment triggered by upcoming contract expiration didn't business environment in the Rockies basement that remains challenged.
Prior to the impairment earnings would have been flat quarter over quarter.
Adjusted EBITDA on a quarter was 787 million a 10% increase compared to the same period last year. This increase was due to new assets placed into service and pipelines in facilities and the adoption of Viper Asixty well only contributing for half a month. The fourth quarter also was positively impacted by the contribution from new assets acquired and it can do your acquisition.
We also benefited from higher margins in our crude marketing business. Although this was offset somewhat by lower propane margins impacting axiall and an arrow Chicago equal natural gas differential impacting both alliance pipeline and stable.
The strong fourth quarter contributed to record financial results for the full year on an annual basis 2019 earnings of 1.5 billion were 17% higher than 2018.
Adjusted EBITDA of 3.06 billion with 8% higher than 2018 and slightly exceeding the upper end of our guidance range and adjusted cash from operations per share was 2% higher in 2018 at $4.36 for sure.
All three metrics set new records for Panna.
We have delivered these record results, while remaining firmly within our financial Guardrails in 2019 fee based cash flow comprised approximately 85% of adjusted EBITDA for the year, our fee based cash from more than covered or annual dividend payment with a fee for service payout ratio of 73% our dividend continues to be fully funded without relying on our commodity exposed business.
Roughly 79% of our credit exposure at year end, who is with investment grade unsecured Counterparties and we remained and we maintained our strong triple B credit rating with a year end ratio of proportionally consolidated debt to adjusted EBITDA on approximately four times, it's worth noting that this ratio include the incremental debt from kindred transaction, but only 16 days of EBITDA contribution.
Yeah.
In 2019, we placed in excess of $600 million or projects safely and successfully into service, including 2.82 personal ethane storage as well other infrastructure at Redwater complex. Furthermore, we are excited about the 1.2 billion of additional fee based projects, which are expected to enter service in 2020, including the phase six weeks.
Imagine or the peace pipeline system. The first phase of the Prince Rupert terminal height development project as well given athree with these projects coming online in conjunction with the contributions from the Kinder Morgan assets. We continue to estimate generating 2020, adjusted EBITDA of approximately 3.25 to 3.55 billion.
Good point of this range would equate to an 11% increase over 2019, we continue expect 2020 capital program of 2.3 billion, including spending at our joint venture entities.
Now I will turn things over to make for an update on some of our key growth projects in business development activities.
Thanks, Scott good morning, everyone.
In reviewing 2019, most single a significant single event was clearly the 4.25 billion dollar acquisition of Kinder Morgan.
All early days the integration is going well.
As we said at the time of the announcement, we see meaningful financial upside available from portfolios small capital projects.
In addition to the integration of acquired assets.
Over the next five years, we estimate realizing additional annual adjusted EBITDA of $100 million with only modest capital spending.
I'm confident time will show this was a solid use of Pembinas capital.
Early indications from customers for both caution and the tanks are promising.
Shifting to our secured portfolio projects. We currently have 2.9 billion of projects under construction, which in aggregate are trending on budget.
The stage development of peace pipeline systems remains a significant component of that program. In addition to phase six seven and eight expansions.
Recently approved first stage of phase nine expansion is also underway.
He is nine completes our multiyear effort to provide separate pipelines for each of our four products.
Oh product segregation is a significant accomplishment.
It will drive operational and capital efficiencies strengthen our competitive advantage and ultimately benefit our customers.
In addition, we continued to have the ability through a second stage of phase nine expansion to add approximately 200000 barrels per day of capacity through the addition of pump stations in the Fox Creek to no may have corridor.
And we began to evaluate what we call paid 10 and optimization project that could create up to an incremental 100000 barrels per day. So in total with minimal capital outlay Pembina could quickly and cost effectively at 300000 barrels per day capacity to support additional customer growth.
As we execute our strategy of access in global markets. We can do continue to progress our PDH pp facility.
We're pleased to announce a lump sum MPC contractor relating to the construction of the PDH plant on January 7th of this year with his contract we have locked in approximately 60% or the cost of the PDH pp facility, thus far reflecting our disciplined and prudent approach to capital spending.
We expect this percentage increase as a project evolves to meet our stated objective of two thirds locked out.
In addition to advancing our petrochemical facility. We're also excited about our Prince Rupert propane export terminal. This project is important as it represents our first export facility.
Demand for propane has capacity has been significant and we have as a result recently decided to proceed with an expansion increasing capacity to approximately 40000 barrels per day.
Also I believe pembinas existing asset footprint is poised to benefit from the development of LNG project to be located on on the North American West Coast.
We have the opportunity to benefit our customers the province, and indeed, the country, while playing an important role in reducing GHG emissions by displacing coal demand abroad.
We want to be in the LNG business and we're currently working on several opportunity including locations in North East BC as well as continuing to progress our proposed Jordan Cove project.
In 2019, we're pleased to share progress than in developing two new stands.
For Pembina stand is something you're going to do even if you don't know exactly how are you going to do it yet in other words were not there yet, but we're continuing to get.
To work towards a more definitive targets.
Carbon stance the Pembinas carbon stand states, we're committed to reducing the GHG emission intensity in each of the businesses that we operate while the diversity inclusions ban states, we're committed to diversity equal opportunity and ensuring that our employees have the ability to thrive in an inclusive environment.
In closing this year in fact, this decade Pembina has delivered significant growth, while enhancing our diversification and strengthening our overall business for the benefit of all stakeholders.
We have thrived despite the financial crisis.
By low vol of vol.
Low and volatile commodity prices regulatory and political uncertainty as well as uncertain capital markets.
We have delivered a compound annual growth rate over the decade of approximately 12% EBITDA per share, 11% adjusted cash flow per share and 9% earnings per share.
Over the 10 year period shareholders received the total compound annual return of 17% per year.
As always we strive to continue this trend.
Hi, good once again like to thank all of our stakeholders for their support we are entering a new decade with significant momentum abundant growth opportunities and we look forward to the year ahead.
With that we'll wrap things up operator. Please go ahead and open the lines for questions.
At this time I'd like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad. Your first question comes from the line of Matt Taylor from Tudor Pickering. Your line is open.
Yeah, Hey, thanks for taking my questions here guys I'm just wanted to start there on on Ruby seems like the ratings have been on the wall. There for a while say just assume this is a formalization of that but the helpful. If you could just speak to a the contracts that you do you have after expire or do they generate enough Cashel there to satisfy your press interest and then what are you assuming you'll be able to re contract even before.
You know Jordan Cove Mantra service.
Hi that this is Jason so the contracts roll off and you know some of them roll off in 2021, and then we have other contracts that carry on beyond that so.
We believe that there is demand to supply the California power market in terms of having ongoing demand there and there's also.
You know, there's an opportunity to continue to supply that million hub.
So we believe.
There was going to be an opportunity to roll those contracts over there was also.
Short term opportunities presented themselves. So if you think when the the spectra incident happened the Ruby pipeline was able to step into that void and that's why we had higher higher volumes in the fourth quarter 29 team.
So so we think that there's going to be beyond just you know specific long term contracts. We also think theres going to be in term opportunities for that pipeline to the supply some boyd, including you know as the California energy markets sort of turns to more green power there'll be opportunities provide the.
So does the power that socks off the green power for a you know the spot generation when when there was no power availability through Sun Erwin.
Great. Thanks, Jason and is there enough base level contracting there to at least cover the press interests in the in the interim.
No.
Great. Thanks, Scott and then on Jordan Cove.
Hey, Matt Let me just clarify for 2220, 2020, 20 and 2021, Yes post 2021, the short answer is no, but as Jason pointed out they are actively working on re contracting.
Yeah. Thanks for that Scott and then I'm, just moving over to Jordan Cove. When do you expect FERC to every year that decision. Obviously, there's a few balls in the air and and can you give us an update on discussions there just more broadly with working because you walked away from a project there before to to build the LPG in Canada and just wondering what it would take you know for.
For you to focus you had mentioned in your opening remarks, there about BC LNG opportunities. So just wondering if we might see something similar here, where you might focus your attention NBC.
Matt its do Taylor. So we are continuing to await the FERC, we were expecting decisions to come out on February 13, I went to lead to the Twentyth and then a a decision was further delayed we've not go out of an exact time when the purposes in the next for Commission meeting is.
Believe March Twentyth.
We are expecting.
A decision that at the latest by that point, we may get it earlier, but at this point, we're continuing to wait there's been nothing published by FERC as far as the Oregon, We continue to work through the regulatory process with the regulators in Oregon, a we continue to provide information and answer questions and work through all of the requirements of which will be.
Required for the project. So we're continuing to progress as best we can and continued move things forward and are looking forward to making progress on receiving some of those permits RBC initiative is with the progress that's been made in British Columbia, we see an opportunity to.
Move additional projects additional opportunities for LNG to go off the West Coast British Columbia. So we are progressing all of our LNG projects, including Jordan Cove, and looking to come forward with a project on the BC side as quickly as we came through through a lot of hard work by a number of people.
Great. Thanks, that's it for me Thanks for taking my question.
Your next question comes from a line of Jeremy Tonet from JP Morgan Your line is open.
Hi, Good morning, just wanted to touch base on a lions here if you could.
Expand a little bit more on what were some of the drivers for I guess the.
Volumes coming in a bit there as far as the differentials there and I guess, a you know what's your outlook going forward here do you expect that to repeat and anything as far as demand for for Bakken take away. There just everything on a wind so you could share would be great.
Sure.
Hey, Jeremy Jason So on in the near term obviously, the spreads have come a little bit between Chicago in Alberta. So so we are seeing a little bit less demand for IP volume on the pipeline at the moment shoot historically Chicago markets always been the premium market. We think this is just a temporary.
Temporary situation in terms of you know the weather conditions and some of the things like thought that have happened in the in the fourth quarter and first quarter. So we expect as we go into summer and next fall things will go back to the way they normally our in terms of the Bakken a word you know we kinda.
Started looking at the back in a bit differently. We were we were trying to go with a large expansion and try to try to walk up volumes and we realized it's better to take us sort of staged approach there. So.
We are progressing our discussions with a number of the producers in the area and looking at.
Sort of unique offerings that we can we can provide on alliance and the near term one other things that we've noticed as with the Kocian pipeline you know in the vantage pipeline. We're now starting to see that the suite of assets, including our Palermo gas processing facility with talk stable there, we're starting to be able to sorta pockets.
Together a fairly good midstream.
Opportunity side. So so we're getting a bit more interest in terms of you know some of the value chain opportunities as the Pembina story that we typically typically talk about in Alberta. So so we do think that we're gaining traction there. The other thing we're looking out to as you know some of the flaring that's going on.
Within North Dakota, and seeing what we can do to help but with some of the flaring. There. So we think theres an opportunity to capture a lot of gas that's being flared at the moment.
That's helpful. Thanks and.
I want to just turned over to the BC Prac something that you guys had talked about the possibility of the pass and wondering if you could update if there as far as.
No what your thoughts on the potential you know need for that service and the ability to kind of you know do that at some point in the future.
Hi, Germany Gerard.
Sure.
So on the need side, we see that the the fracture could continue to tighten up here in Western Canada.
As the condensate demand continues tobacco at some of the imports Ngls, obviously come with that so we see that there's going to be requirement for incremental fracs on what we're evaluating right. Now we continue to evaluate is the location of that obviously, we have a significant infrastructure in and around Redwater area unit train capabilities.
Underground storage et cetera, and we are weighing that against building up in northeast BC, where we don't have some of those things, but you are closer to some of the west coast markets. So evaluating customer feedback evaluating what how pembina can maximize our infrastructure, while providing our customers with the highest reliability and and the lowest cost.
Option. So no update on that right now just we continue to do the due diligence on that.
That's helpful. I'll stop there. Thank you.
Your next question comes from the line of Linda as they gills here from TD Securities. Your line is open.
A bit of a runway to go in terms of progressing on your PDH project, but I'm wondering if you could just give us a sense of how the commercial discussions are evolving have you made any specific progress recently are the quantity.
And type of Counterparties shifting a little bit do you have any line of sight in terms of when you might get to your targets and any other contacts that you're able to share realizing that there is some commercial sensitivities would be appreciated.
[noise] lenders to we continue to work through the commercial side were we are in contact with a number of parties to continue to increase our fee for service component.
We're looking at.
At the credit worthiness of those Counterparties, making sure they're the right partner on a go forward basis worsen, we believe the PDH pp market the ability to access the market will be a valuable commodity a valuable asset in the future and where were we think it just adds to the pembina value chain and we can take customers from wellhead.
Plants through pipe and put their product into a local market at a at very low cost. So we're we're continue to have conversations we believe it's something that will be valuable we've not a at this point added any new contracts to that file but worse, we remain in conversation with the number of parties.
That's helpful context, and maybe shifting to your gathering and processing business can you give us any sense of recent discussions with your customers in terms of the outlook for their activity levels and what that might mean for your operations are there any requests.
For some rate relief, maybe from them in terms of potentially trading lower near term rates for longer term commitments or any anything of that nature.
Hi, Hi, Linda juror, yes, so on the processing side, our gas processing business.
You know under the but the traditional business outside of various and midstream is highly contracted to date with fairly lengthy contracts and we have fairly high utilization in those areas. We do have some exposure about 15% of our approximately 15% of our total processing business is exposed to Cretaceous reserves.
Which I would say are struggling a little bit today, and then in today's commodity prices.
On November 27th of last year, we did see one of our customers.
Who had some small volumes not through our gas processing business, but through our pipeline and fractionation business.
Go into Cc double play so that did impact a little bit immaterial, albeit.
In the fourth quarter of last year, and we just continue to work with with that customer on providing alternative arrangements. So pembina can still provide them the service that they need.
Yeah.
Well I mean that that that's those are all considered and our guidance.
So now you know nothing that.
Would remotely take us out of guidance, we're always across our businesses looking to we call it blend and extend.
How we think we'd rather take a little lower toll and get a little longer terms. So that's that's what we do and all our businesses.
Thank you and maybe you can just give some contracts around what's going on in various midstream and I realize it's embedded within your guidance, but maybe a bit more granularity around the outlook. There are we looking at a temporary blip in Q4 is this new run rate or or might there be some other tilt and in the volumetric outlook this year and beyond.
So in the various midstream Linda.
2020, we would expect to be very much in line with a 29 genes EBITDA. We do we're obviously very excited with the amount of liquids that are coming out.
The one customer there event of has been very public with the amount of money liquids coming out of that played so we really like the resource there and we're extremely excited about the advancements with LNG, Canada, Obviously CRP Cutbank Ridge partnerships. Other partner is also a partner in LNG, Canada.
So we continue to see that bridge through the liquids.
In the low gas prices and then continuing on into.
Maximum utilization once LNG, Canada comes on in service.
Thank you.
Final logistical question a rail disruptions how might we think of any sort of impact on your business in Q1 would it be view, obviously embedded in your and your guidance, but might it be a more modest headwind cut it creates some pricing dislocation opportunities. If you have flexibility in your system and how might that effect if at all any.
Right of major parts being shipped for any of your capital projects.
Either whether it be rail airport or other shipping disruptions on that front.
And I'll talk about the from the marketing side so.
Yes, we've got a slight headwind like everyone else.
Moving up our products, the marketing or products across Canada, and other places we were impacted the with the rail challenge that we're facing today I think pembina.
The size for rail fleet, our logistics expertise, we've probably done you know better than most and are continuing to move product, but there's a slight headroom. We are a few days behind where we'd hope to be for the month of February ourselves, we're closing out.
With reduction of speeds on on the rail system that will affect everyone as is the rails become more congested.
We're working.
We're providing input and talking to the government with relation of the rail side and the real speeds, but it isn't impact that.
We're going to face, but we also feel we're probably one of the best to serve and survive in this environment with our fleet and with our logistics capability.
I can't speak to any equipment coming in at this point I heard there's you know there is significant.
Traffic can shifts coming in I I'm not aware of any of our approach is at this point being affected by the delivery of equipment.
Thank you.
Your next question comes from the line of Robert <unk> from RBC Capital. Your line is open.
Hey, good morning.
I can come back to Ruby I'm just wondering.
Can you share lease even directionally, what some of the assumptions are behind the write down.
For example, you assumed any amount of re contracting and.
What types of.
Tolls.
Directionally do you expect expect lower tolls.
Hi, Rob it's Scott here, where we're not going to get into we're not going to get into the specifics of that just because of the fact that we are going to be entering commercial negotiation. So we don't want to tip our hand.
But we did assume some.
Re contracting at tools that are lower than the existing rates right. Now that's about all I think we're prepared to say on that front.
Fair enough interest on those tolls remember it does PGT have and the sovereign nation costs with respect to its contracted tolls.
We can't comment on.
The terms of people contract.
I guess the last just on Ruby if things get.
Worse are you willing to allow ready to file for restructuring.
I think it's a bit early for that so I think if you think back.
You know to 2000 pre 2015 on alliance you know it within a situation where a lot of people thought things would not go well I think we've got a lot a lot of running room in front of us before we get the so those types for discussions I think.
We talked about earlier in the call that theres some spot opportunities that present themselves. The can generate some pretty good good revenue on that Ruby pipeline. So I think it's too early to say anything like that yeah, Rob I would just jump in that.
If you go if you go to the impairment note in our in our financials.
We do talk a little bit.
About the Ruby impairment I believe it no 10.
And so one another data point is the discount rate of 8% that that's public in the in the financials. The other thing I'd say is is that.
Based on the current contractual profile.
We obviously see no impact to that preferred distribution for 2020 and 2021.
The next note that comes due in 2022.
And so we do have we do have two in a bit years to continue to work on that file.
Yeah, it's okay.
Yes, we have significant cash flow don't get their idea there is significant cash flow projected on that asset well well into the future. So we don't want to leave the impression that that theres uplift coming.
Right I guess the question is just a little bit more philosophical given there is no requirement for you to step down I'm just wondering whether.
Reputation or what have you.
You would want to step down.
Is there anything we've never we've never had a write down so.
This is already new to us that's an interesting question, but.
We'd have to think about it.
Okay, I'm not going to finish on guidance.
I know you've reiterated the range, which is fine I guess, if you just think about when you set the guidance are you able to set out say two tailwinds to that guidance and two headwinds at this point.
Well headwinds, obviously to the marketing marketing margins.
Continue to be a little bit of.
Have a headwind.
And that's really what what forms the outliers in the guidance is is or kind of.
The 10, P. 90, however, with where you want to come on.
On the range of of of marketing.
You know volume volume growth has been.
A modest so you know obviously with the.
Commodity price deck out there.
Tailwind.
You know the as I said in my Pizza caution in the tanks have been.
Really well received so we're seeing some some some nice pickup on caution.
The ability.
You think about the feminist store to have storage along with your transportation I think cats.
That's a that's really interesting as well so so theres theres always a bit of both in and those are those are a couple of come to mind.
Okay, and just clarifying the coaching and tanks.
As a tailwind to the 2020 guidance I guess it sounds like you're on track to be realizing some what.
Material part a 100 million.
In 2020.
It's not really what I'm speaking I'm, just saying day to day operations.
Our we're getting.
We're exceeding our expectations on on some of the day to day stuff.
Outside the synergy buckets dyssynergy buckets on track.
Okay. That's great. Thank you.
Your next question comes from the line of Praneeth Satish from Wells Fargo. Your line is open.
Thanks, Good morning, just going back to alliance for a second that you mentioned in the past the possibility of doing a smaller.
100 million cubic feet per day expansion is that still the size of offering that youre looking at and I guess, if you're successful when could that capacity be placed into service.
Hi, This is Jason.
So I guess, if you do it will take its really just the compression project. So it takes you know probably Uh huh.
With regulatory process and construction it probably takes about two to as much as three years to get something like that in service because it is a buffer federally regulated pipeline. So so you know I would say that would be about the timeline.
Got it and then if you proceed with that just to clarify with Oxaydo, we'll have to be expanded.
Are you talking about in Chicago.
Yes.
So we think that we can handle the you know a small expansion like that at auction a dog stable with some minor tweaks that the at the plants, but once we go towards the bigger expansion two to 400000 or two to 400 million cubic feet. Today. That's when we have to start having a hard look at oxaydo. Yeah stared here, yeah, we just have to be valley.
Wait the richness of the gas it would be coming out of the Bakken and can we accept that thought on the processing started shanahan, but I'm on the Frac side, and then do we need to add it anymore rail capacity is what we're looking at right now.
Got it and then just one more question for me in terms of Ah Prince Rupert are you seeing any demand from your customers to maybe start moving some some butane I think it's mostly a propane export dock at this point, but could it be expanded to a incorporate butane shipments.
I'm currently we're focused on expanding for the C.
In our recent announcement just due to the the overhang of C and the province, butane, obviously isn't that long, but definitely customers.
What would like and joy and benefit from having a more butane and propane offs uptake.
Okay. Thank you.
Your next question comes from the line of Robert Catellier from RBC Capital. Your line is open.
Hi, Good morning, everyone and thank you for your forthright answers to questions. So far.
I just wanted to.
Right.
Dive into your right your appetite for for LNG.
In general in Jordan Cove in particular, so how do you go about balancing the need.
That you see in the marketplace versus the.
The challenges in developing those types of products.
The next and.
Thanks.
Take for you to.
To go up I'd on something in Canada.
Are you looking at.
A new project or buying an interest in an existing permitted project.
Oh, well that would really narrow it down but net profit [laughter].
Listen.
As we.
As we push to.
You know.
Our products to to better markets you know.
We're looking at everything.
LNG project.
Jordan Cove, what timeline, that's on exactly I.
I guess, we'll we'll get some insight.
From FERC on that.
We think the FERC approvals will build momentum for the project with the state and the scarcity of that project.
You know probably will be the only west coast, North American LNG terminal it still intrigued us.
And we're going to stick with it because our cost to stick with it is is nominal and it has huge.
Upside.
And so at the math is pretty easy we're going to methodically moved out when forward.
We're looking at a bunch of locations in and NBC and and.
Theres Theres attributes of.
Lower risk with some existing projects that that are appealing.
But.
Those those are not free so.
Just weighing all that out looking at really what the gating criteria is for for BC LNG.
If for example, with determined that access degree power was a gating gating issue. Then that's something you have to look at origination support is something you have to look out so they all the locations, we're putting them through our Sip of of key attribute and we'll try to try to move something forward.
This is going to be a long term process I'm not aware of any you know a major infrastructure projects in Canada.
<unk> for that matter anywhere on the west coast of the U.S. that.
That gets done quickly you go through the regulators then you go through the courts.
And so these are kind of.
Mid to end decade projects that were looking out and we're just laying the groundwork.
Now because it just takes that long.
Yeah, I mean, there's no question development.
As hard on and that's a good segue to my next question I'm curious as to how are you factoring in.
You see in training on drift into law in terms of you know and also I guess separately. The recent rail blockades into how you.
Now your view on development NBC, not specifically are limited to LNG just in general, but also on the LNG file.
You know, it's a great question, we actually added that uncertainty into our investment criteria.
So we had let's say 10 and investment criteria Weve added 11.
I've got my numbers right around.
What what are the risks of of changing regimes right. I mean, you've got a federal reserve game of provincial or state regime, you've got a local regime you've got.
First nations and other local stakeholder regimes and there are always and as a state of flux. So if you take a Jordan Cove that let's call. It a 10 year total development cycle, you're going to have two or three federal government, two or three state governments and so on and so forth and so how do you how do you weve the golden thread.
Through all those things and create.
Some lasting alignment for all stakeholders.
That is that is a new risk criteria that we consider on these long term.
Projects and so the one thing it could lead you to is to have.
Many many opportunities because.
Only one will be able to leave the golden threads, though it changes your portfolio thinking.
[noise] kind of speaks to the need to have a higher returns that you're gonna have to invest more development dollars spread against different options that kind of speaks to.
Requirement for 100 return as well.
Yeah, I mean, it's you know we used to we used to say like.
You want to build a hydrocarbon project and in Africa, then you need the political risk.
Rich you know.
Marty or return and I think that that exists now locally so you're quite right.
Okay. My final question, Dan is just with what's going on.
In the markets I want to get too carried away, but the short term or consider I'm thinking I'm just longer term on the gas market.
Everything that's happening if there are what's your appetite for new Oh gosh investment.
Yeah.
Taking the permanent Ruby, but a number of your peers have also take you know gosh I've said in the impairments during the quarter. So what's your uptake like for you move.
Gosh infrastructure investment.
Well I mean, we're we're primarily as you know hydrocarbon liquid to company and we got into into the gas business originally to get more liquids out of the gas stream and.
Turning to feed our core hydrocarbon liquids.
Business, you know comes down to geology.
I was glad you're at pointed out that were.
We're only 15% Cretaceous, meaning that the other 85% is is high liquids.
Hi, liquids product and so it's a means to an end rather than a oh of course, a core strategy for us.
Other than perhaps you know the things that we need to do.
To support LNG development, because at that hopefully take you into a completely different.
Different market and.
Reminding everybody that we pursue a tolling model and and so that the buyers of those are those services have very very long term.
Demand, which which makes it much more ambivalent too though.
Yeah.
Okay. That's it for me thank you.
Your next question comes from the line of Packer, Kenny from National Bank. Your line is open.
Yeah, Hey, guys are just on the polypropylene facility I know you have the engineering and procurement contract locked down but.
When you have a couple other projects currently trending over budget, maybe you can comment on your comfort level around the construction budget for the pp facility.
Eric through were refer the you know, we're just starting with detailed engineering and so to be clear what we have we we have the the PDH component of the of the project. The most complex from an engineering and build perspective walk down on a lump sum contract that secured 60% of our costs we've kicked off the.
Pete contract on the PDP.
Facility.
We're continuing to evaluate that it's a less complex simpler facility. We believe we've gone and partnered with TR, who are experts and have built on numerous facilities are engineered numerous facilities and.
Pp facilities in recent years and when we get down to the construction contract will be evaluating not but our team remains confident at the highest level of our capability to to secure a good contracts. Good construction contracts when we need those and again, it's a simpler facility to build so.
We at this point remain confident that will come in on budget as we plan for that pp facility.
Okay, great. Thanks to the maybe for Scott.
Just looking at a consolidated leverage here.
Based on guidance for 2020 looks like debt to EBITDA will be temporarily above the 4.25 times threshold I know you have various levers to pull but just curious when you expect this ratio would come back in line with your longer term guardrails.
And if maybe you can confirm your your outlook for any near to medium term equity needs to fund your capital program.
Sure Rob sorry, Pat.
I think our math would show us not not breaching not reaching a guardrail in 2020 as we look forward to 2021 2022.
I think we've been pretty open that leverage will peak.
Slightly higher than that maybe up to 4.5 times as we reach peak kind of construction on on the pp plant.
You think about where we are in the asset cycle. We do have some assets coming on in 2020, but down a lot of the cash flow from the existing projects don't come on until kind of later in 2022 in 2023, So we've always been pretty clear and showing our path.
For leverage to tick up in 2021, 2022, and then you start to see it come down in 2023, and then materially in 2024, when the pp PDH come online.
And then in terms of equity we I mean, I think as we've stated many times in our base case development plans.
We're not forecasting are predicting any need for equity.
Okay, great. That's it from you guys. Thanks.
[laughter] again, if you take ask a question. Please press star and the number one on your telephone keypad. Your next question comes from one of Ben Pham from BMO. Your line is open.
Okay. Thanks, good morning.
On the Watson can you remind us what you're a tolling or contracting strategy is on that project.
Dennis do were essentially we're moving product through our customers product through that facility and recovering costs.
For the for the services offered so it's an all in cost essentially for we're moving product through the facility and market wrapped with market and sell that price they'll get a return on that so itself, we're taking our.
Contracted volumes that we have with their customers and running them through that Oh, we I'd just add we some of we have some of our own product and they're going to recall from Provident acquisition.
Some we have some some frock spreads barrels out of Taylor for example that that we own the barrels.
And we take that through you know on a proprietary.
Basis, alongside a customer's barrels and.
Our our mantra there is customers get what we get and and but there is as more of a tolling model. It will be a percentage, it's a small percentage of our entire portfolio as we move.
Barrels all over North America, or kind of scared about every get a portion of that they'll get a portion of the PRP opportunity as well and in the future as we go forward with the PDH and we move on propane in through the PDH facility that went to will become part of the the baskets of market that our customers will be able to access giving them great diversification and.
Pricing and it really just one last build on that.
The expansion up to a new frac, whether it's in any BC or or Redwater for I think is is a significant.
Feature that that customers are looking for.
You know.
Okay, and other exposure to to those incremental propane barrels. So again, that's that's more than one thing to buy in the Pembina store.
Okay.
And they make going back to <unk> guardrails being above 80% and.
And I think you're at 87 or 86 or so that's that's helping out in this this commodity tape.
Could you comment on where that trends over time, especially with PDH coming on and I noticed just just kind of high level of thinking like is it kind of like.
More than I think a lot more your leverage where you've always historically to be below.
Under leverage position at the same thing on the commodity side, and 80% plus but you like to be well above that.
Yes, maybe I'll take that.
I think in 2019, we still overall head to head a pretty good year for commodities around that 85% if you take a normal.
Well, we'll call. It P 50 marketing case, and then you annualize for a full year up candor, we should be in around that 90% range on a fee basis and in fact, our our 2020 budget looks at about 90% fee based contribution on a pro forma basis, if we get too.
Some of our expectations around contracting to PDH, we would expect that all else being equal to drop to maybe somewhere between 85 wrap around 85% Ben that would be about the impact meat somewhere plus or minus <unk> percent or two off of that.
Okay, that's spread but.
So it's always been underground every year, depending on the commodity contribution. So I'm just trying to use in normalized commodity environment to kind of baseline you at about 90%.
Yeah that makes sense and they had made just just lastly, the piece expansions and and maybe more specifically assays phase 10 as that his pays 10 really just more getting better predecessor phases, and reevaluating that or do you actually see some are more volume production ramping up in.
The montney.
Well I think.
Two part answer there band its a.
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We've we've put on some of our other expansions and as we've we've ramped up the volume to full utilization. We found that usually we have built in enough.
Caution through our engineering process that we actually have been able to pursue.
To run those assets at a higher higher volume than we then we predicted so.
It's just you know there's there's a lot a.
Processes in place and some conservatism on <unk> a number of steps through the process that you take that it's sorta until you actually have the volume there.
I can't really test.
So in terms of the long run, though yeah, we still see a long runway of volumes in terms of.
Opportunities then you know where we're somewhere in the neighborhood is 70% utilization right now contracted at a much higher level and we still have a lot a discussions ongoing to see.
More capacity signed up here and over the next year. So.
And then made it may just to close off those type of that face 10 and then.
Product segregation and in line.
Is there still lot of runway.
On faced and maybe just caught up in house at that point, we can't start expanding piece even beyond that.
Well I think a Mick mentioned you know between powering up our main lines and phase and we have about 300000 barrels. So that's a that's a fair bit a runway right off the Dod, but we also have a number a pipeline.
In the corridor between say Fox Creek in Edmonton that or you know underutilized or utilized in different services that we could look at for for alternative so.
Before we'd have to start building anything new in terms of you know if you want to zoom way out you look at the the the Montney and Duvernay, hi, liquid basins, they're very immature really.
100, plus your resource life.
250, depending and and every time, we look over our shoulders, it's more barrels per million that people are are able to bring out. So you know if you're asking could there be life beyond phase 10.
You know absolutely those those basins. If we had eager asked a number of LNG plants versus one and as all these these pipelines fight their way through.
I used to say approval, but now being becoming operationalized.
There is there there's going to be a lot of.
He grass and were really well position.
Between you know if you if you look at the the the oily grass million and a half barrels of oil oily rest. It has to come from the field to the center and Pembinas between the field in the center. So we're pretty optimistic as east these pipes gas or oil get.
Get a bill that we're extremely well positioned to.
Benefit from macro.
All right that's great. Thanks, everybody.
There are no further questions at this time I turn the call back over just presenters.
Well, thanks, everybody, it's been a great Brian for some of US who had been here 10 years spend a lot of fine and look forward to the next 10 and thanks for your ongoing support and try not to look at your you're trading screens today.
Shares.
This concludes today's conference call you may now disconnect.
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