Q1 2021 Pembina Pipeline Corp Earnings Call
Okay.
Good day and thank you for standing by welcome to the Pembina Pipeline Corporation 2021 first quarter of results conference call. At this time, all participants are in a listen only mode.
The the speaker's presentation, there will be a question and answer session. So I asked the question. During the session you will need to press star one on your telephone. Please be advised of today's call conference is being recorded if you write in the first the assistance. Please press star zero and it comes on to your Speaker today camera go that everybody knows.
Vice President capital markets. Please go ahead.
Thank you Christy good morning, everyone and welcome to per minutes conference call and webcast to review highlights from the first quarter of 2021.
On the call with me today are Mick Dilger, President and Chief Executive Officer, Scott Burrows, Senior Vice President and Chief Financial Officer, Gary Anderson, Senior Vice President and Chief operating Officer pipelines, Jaret Sprott, Senior Vice President and Chief operating Officer facilities, do Taylor Senior Vice President marketing and New ventures, and corporate development Officer.
And Janet Luca Senior Vice President of external affairs, and Chief legal and sustainability officer.
I'd like to remind you that some of the comments made today may be forward looking in nature and are based on payment of current expectations estimates judgments and projections forward looking statements. We may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations.
Further some of the information provided refers to non-GAAP measures to learn more about these forward looking statements and non-GAAP measures. Please see the company company's management discussion and analysis of the dated May six 2021 for the period ended March 31, 2021, which is available online at time of the Dot com and on both SEDAR and Edgar I will now turn thing.
So over to Mick to make some opening remarks.
Good morning, everybody I hope, you're all doing well and enjoying the recovery of our sector.
As you May have noted from the introduction and as we announced yesterday Pembina has recently undertaken of certain executive changes too.
Two of payment as long standing officers, Paul Murphy, <unk> Senior Vice President of corporate Services Officer, Jason viewed senior Vice President and Chief operating Officer pipeline retired at the end of March as a result of these retirements Janet let duca has been promoted to senior Vice President external affairs, and chief legal and sustainability officer.
And Harry Anderson has been appointed the senior Vice President and Chief operating Officer pipelines.
On behalf of everyone at Pembina I congratulate Paul on Jason on their retirement and thank them for their decades of long contributions to patent of success.
Gratulate, both Harry and Janet and excited to work with them in their new roles.
As Scott will discuss more fully in a moment that in the first quarter 2021, Pembina delivered strong financial and operating results, reflecting increased commodity prices and sales and rising volumes on many of the systems and facilities.
As we've talked about for each of the past few quarters, we continue to see steady increases in physical volumes on our systems and we actually reached pre pandemic levels in April.
With many systems previously operating near take or pay levels throughout the second half of 2020 Pembina is beginning to realize the anticipated benefits of its operational leverage for torque with incremental volume is providing higher margins strong.
All of our commodity prices also drove higher sales volumes and margins in our marketing business.
Strong fundamentals and marketing were however, offset by realized losses from our.
The.
Our hedging program.
In conjunction with strong first quarter results Pembina celebrating a few recent developments the.
The first of the startup of our Prince Rupert terminal or PRT dry commissioning of PRT was completed in March and we've begun the loading propane onto vessels in April so far two vessels have departed PRT destined for international markets.
I'm also pleased to announce that we have entered into a one year agreement with the subsidiary of Mitsui, whereby they will purchase substantially all of post commissioning cargoes shipped from PRT with the propane being primarily destined for northeast Asia.
It has been years in the making and the start of the peak PRT represents a major step forward in providing new market solutions, and helping add incremental value to the commodities our customer sell.
Alongside permanent unit train capabilities PRT will link the rest of our natural gas liquids infrastructure in Western Canada with growing demand markets throughout the world with the majority of the increased value of flow into those customers with impairment of its marketing pool.
PRT has been of real ESG success story as well working together with the community governments and first nations Pembina was able to transform and repurpose the contaminated site on Watson Island, BC and now moving propane off the West coast.
Permanent bested approximately $12 billion in remediation activities and together with the city of Prince Rupert removed of toxic Anabantid pulp mill, replacing it with key income generating assets that will have lasting benefits for all stakeholders and that the community can be proud of.
Secondly, we are also pleased to have signed our first renewable power deal representing another concrete step towards delivering on Pembina is carbon stand by lowering the emission intensity of each of our businesses.
We have signed a long term 100 megawatt power purchase agreement or PPA with a subsidiary of Transalta Corp that supports development of 130 megawatt Garden plain wind project in Alberta, the Pea.
<unk> provides significant benefits of pembina, including securing posts caught sorry cost competitive renewable energy and fixing the price for carbon.
Of the power of Pembina consumes.
Further the PPA is expected to generate approximately 135000 tons of seal two equivalent emission offset annually or an estimate of total of $1 8 million tonnes of cotwo.
Equivalent emissions offsets.
Initially pembina will use the offsets to reduce its own emissions with the option to sell our bank future offsets for other uses.
The combined emissions reductions available from the PPA and cogeneration facility currently being constructed at the Empress.
Empress facilities represent approximately 7% of Pembina is 2019 reported greenhouse gas emissions at.
That man has committed to reducing the carbon intensity of each business operates and by the end of 2021 will of taking con creaked action in this area by publishing five year of emission targets.
Finally per minute through its joint venture various of midstream safely completed the startup of the highest developments.
At the existing highest gas plant.
After a challenging 2020 I am pleased to see us deliver strong start to the year with positive momentum developing on many fronts with that I'll pass it over to Scott.
Thanks, Mick Pembina reported strong first quarter adjusted EBITDA of $835 million consistent with the same period in the prior year. The first quarter was highlighted by increased marketed NGL volumes and higher margins on NGL and crude oil sales combined with new assets placed into service and facilities and higher supply volumes at the red water.
Ex these positive factors were largely offset by lower interruptible volumes on certain systems and pipeline and increase in realized losses on commodity related derivatives and higher general and administrative costs.
And other expenses largely driven by an increased long term incentives offset by lower salaries and wages and lower acquisition related costs. The increased mark to market and long term incentives was driven by an increasing share price from the first quarter of 2021 compared to a decrease in share price in the first quarter of 2020 fundamentally on marketing business was particularly.
Strong this quarter, excluding the realized the impact of commodity related derivatives first quarter adjusted EBITDA in marketing and new ventures improved $140 million or 368% relative to the first quarter of 2020 and $97 million of 120% compared to the fourth quarter of 2020, the underlying marketing business.
Significantly however, our frac spread hedges and other commodity related derivatives offset some of the increases.
On a reported strong earnings in the first quarter of the $320 million consistent with the same period in the prior year. In addition to the factors positively impacting adjusted EBITDA as I. Previously noted earnings were positively impacted by a decrease in net finance costs due to lower foreign exchange losses earnings were also positively impacted by a decrease in cash.
Current tax expense as a result of lower taxable income and a reduction in Alberta corporate tax rate earnings were negatively impacted by an unrealized loss on commodity related derivative financial instruments in the first quarter of the current year compared to the significant gains in the first quarter of the prior year and a lower share of profit from Ruby.
Of the volumes was $3 5 million barrels per day in the first quarter down only slightly from the same period in the prior year lower interruptible volumes on pipelines due to reduced upstream activity in 2020, partially offset by higher supply volumes of the red water complex higher seasonal volumes on alliance pipeline and higher interruptible volumes on the Ruby pipeline while.
In the first quarter were down slightly over the first quarter last year. The real story as Mick noted in his opening comments of the steady rise in volumes over most of 2020 and now into 2021 with physical volumes in April of reaching pre pandemic levels.
Given the year to date results and the outlook for the remainder of the year Pembina is reiterating its previously disclosed 2021, adjusted EBITDA guidance of $3 two to $3 4 billion.
Pembina is 2021 capital program is fully funded by cash flow after dividends and towards the middle and upper end of the guidance range excess cash flow will be available for debt reduction dividend increases are opportunistic common share repurchases. During the first quarter of 2021, the timing of certain cash payments and receipts resulted in the draw on working capital and consequently, no excess.
Larry cash flow was available as the year progresses permanent we'll continue to assess the optimal allocation of a of excess discretionary cash flow based on the outlook for new capital investments beyond 2021, and the prevailing price of <unk> common shares finally, I am pleased to note. The last week <unk> limited upgraded its ratings to triple B high in respect of permanent.
On your unsecured medium term notes. This upgrade further validates the strength of <unk> balance sheet, something we have worked very diligently to maintain in particular over the past year I'll now turn things over to Mick for his closing comments.
Thanks, Scott the improvement we've seen in commodity prices resulted in strong first quarter and it also supports our constructive view of the future activity in the W. CSP.
We continue to believe that of post pandemic economic recovery will drive drive higher activity in the basin, which we believe is only beginning.
Higher prices are allowing our producer customers to generate higher than expected cash flow, which is currently driving their aggressive debt reduction and shareholder returns.
Ultimately, we expect producer to sanction new drilling activity in Pembina is well positioned to capitalize on that activity, particularly to serve growing volumes in the north East BC Montney in Alberta Duvernay areas.
New infrastructure, including the Trans Mountain pipeline expansion, LNG, Canada, and rigid <unk> line three replacement and Pembina is on other third party NGL export terminals are expected to collectively improve relative pricing for Canadian hydrocarbons and support the future growth in the WCS.
As well of the government of Alberta has continued and increasing support in commitments related to the petrochemical industry, including various incentive programs are expected to drive higher ethane propane and butane demand in Western Canada.
We have named these factors collectively advantage, Canada, and we expect them to generate ample opportunities for pembina.
These opportunities include the reactivation of the currently the deferred Pete pipeline phase eight and nine expansions and the expansion of Prince Rupert terminal as well as our $4 billion portfolio of unsecured brownfield and Greenfield projects.
We continue to look at 2021 as of turnaround year with Pembina returning to its cash.
<unk> growth trajectory by 2022.
Before we wrap things up I want to inform you that once again this year in light of current circumstances related to pandemic and associated health and travel restrictions.
No we will not be holding its annual Investor day in our typical May June time slot, we continue to evaluate our options for holding this event either virtually or in person in the fall of this year. We do however, hope you can join us for our annual meeting of shareholders, which will be held today at two PM Mountain time, four PM Eastern time.
Again this year it will be virtually only meeting conducted via live audio webcast participants are recommended to register for the virtual webcast at least 10 minutes before the presentation start time for.
For further information on Pembina is virtual AGM. Please visit the shareholder information page under the Investor Center tab at Www Dot Pembina Dot com.
We would once again like to thank all of all of our stakeholders for their support with that we'll wrap things up operator. Please go ahead and open the line.
At this time, ladies again gentlemen, as a reminder to ask the question you May Press Star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question will come from the line of Matt Taylor with Tudor, Pickering, Holt and company.
Hey, Thanks for taking my questions here I wanted to start first with euro of bullish comments there on the physical volume improvement in customer behavior.
Can you help us bridge the gap with what Youre seeing.
Hearing from customers on new capital being put to work on.
At the drill bit versus what investors are saying in terms of producers still on maintenance level of this is the torque youre seeing and expecting coming from certain areas of our customers.
We're seeing growth in northeast B C in the Cardium.
Of our NGL business volumes are.
Quite quite good at Red water.
And so youre seeing if youre seeing it throughout I mean, we did reach pre pandemic levels in April.
Certain areas Drayton valley been been very strong and of course that all feeds our marketing business as well.
Okay great.
Just as a follow up to that two of it looks like.
Thank you your EBITDA guidance is predicated on on levels compared to last year versus new growth. So can you just frame how all this talk of fits into that EBITDA guidance, and then and even potentially restarting the project.
When we set the guidance, we had a much different different price deck and I think most people on the globe would be pleasantly surprised that the price of oil is in the mid <unk> in the.
And of propane price I think it's 90 at Belvieu and gas prices are sneaking up on $3 Canadian up here to 70 I think it is so we're seeing.
Something we don't see very often which is all three volume streams working at the same time normally at least one isn't working or or many times two are not working and we're seeing all three working and so notwithstanding.
I think the.
The sense you have as people are mainly focused on debt reduction.
Agree with that but people are starting to.
Return to the drill bit quietly.
And we think that will accelerate as people meet I'm reading the very lovely reports of of our customers on their paying down debt and record.
Amounts on their sharp share prices are going up which makes me think they're only going to buy back their shares for so long before they returned to growth and they have been.
Assessing where to grow and so.
I think we can assume they know exactly how to maximize their capital deployment. We think that's coming later in the year and enter into next year and we sit with still.
The good amount of capacity, we're just kind of breaking through that take or pay level.
It's going to go to US you know so we we.
We are pretty pretty excited about.
Where we are in the first quarter I mean, yes, we were slightly over hedged wouldnt do anything differently.
We put on those hedges in the in the second wave of the pandemic I think that was prudent I think you guys pay us to be careful and we work but.
A lot of those of well over half of our.
Hedges were four of discretionary not part of our non discretionary program. Those all end at the end of the quarter.
And.
We're pretty optimistic being net pre pandemic volumes and sensing the build starting to happen with.
If these prices keep up.
Going to get it's going to get exciting.
Yes, thanks for that color there, Mike maybe just to clarify your comments there like my understanding is that guidance is looking at 2020 levels.
If there's an incremental interruptible in the system or various other pieces of your business that the improvement. So is it really what you're framing here is his tour because that gets you to the top end of the guide and beyond as opposed to the.
The level of it looks achievable at least from your base business perspective, thus far this year.
We thought long and hard about what we would say about the guidance range I think it's just not prudent in the first quarter to be looking out to the fourth quarter.
This is a very uncertain world.
We're really pleased with with where we are in the first quarter, both from a volume and from a pricing perspective.
I think our marketing business is very well situated but we just don't think it's prudent to two.
Predict in this world that Youre going to go through the top end of the guidance range. So we stayed in within the guidance range.
We're comfortable there.
Yes, Matt maybe all of this add a couple a couple.
Points of color.
I think on <unk>.
<unk> the first quarter would have set us up nicely to move into the upper half of that range. Mick pointed out obviously, we had some incremental discretionary hedges.
Net debt lowered that a little bit as we look forward, we're still facing a few headwinds like FX, obviously of FX has come down pretty materially from from the budget and so that that's a headwind and you got to remember that the back half of the year, we will see lower contributions from Ruby with those contracts generally rolling off mid year now I think that's all.
Offset by as Mick said the strong physical volume throughout April we have also seen the commodity curve generally been in backwardation through most of the year, but every month, we move along.
Tends to get pushed out a month or two.
So I think our our view is is that the commodity curve should should continue to remain robust throughout the back half of the year, but that's slightly different than what the current forward curve is showing us in backwardation and of course, we still have our focus from 2020 on maintaining costs and keeping those cost savings in 2021, So I think.
We're feeling pretty optimistic, but it's just a little too early in the year to revise guidance.
Okay. Yeah. Thanks for all of that good detail there I'll leave it there.
Our next question comes from the line of from Jeremy Tonet with J P. Morgan.
Hi, good morning.
Hi, Jeremy.
Just wanted to dive in I guess, a little bit to the moving piece of this year I was wondering for hedging.
If you could provide a bit more color on what's locked in for the back half of the year, just how much open versus hedged at this point.
How do those hedges look I guess relative to the strip I mean as you noted there I think it was about $88 million of upside that would've been captured without hedging and of course, it's prudent to hedge but just trying to get a sense for.
How the back half of the year could look versus the current strip the given your hedging book.
Now I'll turn it over to Scott in a minute.
The the hedging program at the highest level is really just the non discretionary program that we have which is kind of half of our NGL business and excluding ox able so we.
We stopped the discretionary.
Sorry of the non discretionary part effective this quarter realizing that commodity prices.
Are looking much more robust than we anticipated in the fourth quarter of last year, Scott do you want to add anything to the yes sure Jeremy.
When you look out.
Based on the current strip.
We still have the frac spreads as the crack spreads in place that we put.
That we put in place in 2020, so those are obviously underwater.
And again, just as a reminder for the rest of the year, it's only on the Frac spread business the winter storage or rock Sable are on hedged based on the current strip, we're looking at forecasted losses in the neighborhood of of $20 million to $25 million.
On the NGL side of the business.
Got it.
That's helpful. Thanks, and then with the.
Corporate expense was a bit higher than what we expected this quarter.
Yes.
Should we be thinking about as the run rate. Appreciate there was some L tip of noise from retirement noise in there the made a bit higher but just thinking about what kind of normalized.
At this point.
Yeah, Jeremy I think in the in the first quarter.
Obviously as you pointed out there is the mark to market on some of the incentives and by way of background. He used to provide a sensitivity that of $1 of change in our share price is roughly of $1 million of of G&A, just just as the sensitivity and so with the share price going.
From $32 to $30 $38 at quarter end that obviously had an impact on the quarterly results. We also had some one time.
Consulting fees that were working on as we work through some of our optimization initiatives. So there's a few there's a little bit of noise in the quarter.
On the long run, we're probably looking at roughly $40 million per per quarter.
Oh, sorry, sorry, $40 million per quarter on on the corporate costs.
Got it okay. So it doesn't seem like corporate is really that different maybe than what you budgeted for the year, because if I'm looking at just pipeline and facilities segment. That's 800 for this quarter and if I annualize that without even thinking about marketing that gets you at three two of the bottom end of the range and if you talk about the kind of the improved producer of outlook.
We ended the rest of them roll off but it seems like quite well positioned within the range. So just wondering is this first quarter kind of match. Your what you were expecting here are there any kind of benefit that maybe wouldn't repeat in the.
Subsequent quarters.
I think.
Again, I would just want to temper of what I'm about to say that it's early in the year, but we think volumes are going to continue to build and marketing is going to continue to improve and that we'll be able to manage our G&A at.
Kind of budgeted levels, which.
I think it's around $300 million.
The total for the year.
Yes, Jeremy I should we just we just got to make sure we're talking apples to apples my $40 million was roughly corporate we also have obviously G&A within within the businesses. So on an absolute basis aggregate, it's about $60 million to $65 million per per quarter.
Got it understood I will leave it there thank you.
Our next question comes from the line of Ben Pham with BMO.
Hi, Thanks, good morning on.
The wind project came out to try and thoughts on.
I'm just curious how do you.
How do you weigh or consider the relative difference between building the win yourself versus getting somebody else.
To do it because if you've done some some of the.
The co Gen stuff.
In the house.
Curious how you look at that relative difference.
We just look at it like any other project with that particular project. As you know we you may not know we have of small wind project already that we got with Paris, and I think it's 20 megawatt per.
Project.
We look at like any capital allocation decision.
We're learning we're studying it we do have an option on that wind farm to participate up to 50%.
But at this time.
We've decided not to allocate our own capital to it but we do have a huge demand of of power. So.
We have big economies of scale, we can we can develop strategic relationships for wind power and then.
We're leaving open the option to participate in that and self supply to a point, but at this point it has not attracted capital.
Alright.
And there was some reference to rise.
The rising power cost in the quarter, so that the Alberta power price.
Can you remind me is that do you recover that in your business as it is the wanger EBITDA instead of maybe just an overall comment on on inflationary pressures you are seeing any of any sort of protections you have there.
Yes, the generally are our variable cost well almost.
True to a very large degree our variable costs flow through the only place they don't or in our extraction business, where our like our straddle plants, where we we warehouse that power cost.
And that's one of the reasons, we're building cogeneration at our all of our big plants as we can lower our both of our emissions and are and take kind of control over our future.
Prices and have electricity aligned with gas pricing rather than with grid pricing.
And then the.
What about the.
Trade flavor of steel.
Start to do the peace expansions of anything to consider in inflationary pressures potentially.
Not right now really.
If you think of back about our largest projects like phase seven we bought the steel pre pandemic. So that was sitting on the.
Pipe was sitting in inventory recall, we had invested about 300 million that was largely for the tangibles and so that was all hedged it yesterday years.
The pricing.
And most of our big projects are completely locked in so we locked a lot of that.
That cost in it.
At a very favorable time actually on that on the heels of Keystone XL being cancel we.
Our our skilled staff locked in a bunch of of.
Costa on that Terry.
Okay.
The done on on the steel side, that's a good answer Mick on the labor side were seeing frankly of a really positive trend from our end we have our contracts in place with two main line contractors on the two spreads pursue piece of it and we've seen really directionally good pricing on both the mainline contracting in the hdds that need to happen as well.
So <unk>.
Very happy with it as we sit here today.
Alright, that's great. Okay. Thank you very much.
Your next question comes from the line of Linda <unk> with TD Securities.
Thank you.
I'm wondering as we look at the energy transition.
The most people use some of the political and economic constraints is dictating the pace as to be more of an evolution than a revolution, but I'm wondering if there might be some opportunities to accelerate your journey through either potentially acquiring divested divesting of repurposing of certain parts of the are busy.
Sort of assets I'm thinking specifically of maybe carbon capture hydrogen and maybe even purchasing late stage development technologies.
Or expertise that you might not have currently can you comment on what you might be seeing out there that that would.
Yes.
The kind of some of the blank spaces in your long term strategy and vision.
Yes.
Sure Linda Wirth, we're thinking a lot about that.
We don't really think we bring anything to solar.
Debt, what wed things does pembina bring to solar not much to wind limited again.
And hence we are.
Partnering with people rather than building wind ourselves, but when it comes to carbon capture.
Our work on.
Running a pilot at Red water, that's early stages to capture of the <unk> from Red water to see how all of that works well.
We do currently already produce hydrogen so thats within the skill set so the whole that whole field of of electric generation from gas and then sequestering it.
And we're good at all parts of that.
A carbon capture system is really on aiming trained that.
That we have and operate.
On the transportation I think.
Through pipes that speaks for itself.
And then the at the injection.
The industry has been injecting asset gas for decades. So we're really good at that but we have all of the skills and Youre right. We do have.
A great footprint, great right of ways that we can that we can leverage so we're thinking a lot about that and when you think about it.
On supplying <unk> most of the the great EUR of targets are within our footprint and so.
Whether we do it or someone else inject cotwo into the.
The Cardium, which is one of the best reservoirs are up and Swan Hills are down and Bonnie Glen area that all gets returned tripped on our on our facility. So we can.
I have an advantage.
In that area and were.
One of the things dues to spending a lot of time on right now.
Thank you.
Maybe.
Also on a slightly separate note.
Yeah.
You mentioned that you're reviewing your hedging profile.
Theres a lot of change going on in the industry and there's a lot of change on your asset mix as well with your recent LPG export capabilities being quite notable on that front can you talk about.
How the hedging might evolve to reflect all of these changes going on and whether that might create opportunities to either increase your exposure of the integrated along the value chain to commodity prices or.
Reconsider your.
The financial Guardrails on the level of contracting that's appropriate.
We like our guardrails still out we just recently finished the strategy session with our board, they're very supportive and.
I look forward to the AGM kind of reviewing all of that this afternoon, but those guardrails served us really really well I mean, we pretty much hit our <unk>.
Our midpoint of our guidance and set.
If you zoom out we actually had a record year for EBITDA last year, and that's really the diversification the guardrails on all of those things. So so very pleased with how that served us and sometimes it <unk> like with our first quarter hedging losses, but we.
We get paid to produce steady and growing dividends and we're good at that.
That's why people buy the stock so we're going to keep going as it relates to hedging and Rupert.
Recall only a quarter of those volumes are our proprietary volume three quarters through our marketing pool, our producer volumes. So they are the ones who are going to get this great Bay price, we will get some they will get a lot and.
We differentiate ourselves I think from competition by by bringing customers markets customer volume. So if the markets rather than just our own and that'll start to flow through and theres going to be some smiles on people's faces when they get the E Bay net back so there isn't really a ton of incremental hedging to do.
They're on on Roper.
From our perspective, it's just a nice diversification beyond Edmonton, Sarnia Conway and Belvieu, who just have this brand new new market and on.
Of our off taker reflects the.
Way, we want to go with the slowly go more global and have some demand pull customers.
Thank you I'll jump back in the queue.
Yeah.
Our next question comes from the line of Robert Kwan with RBC capital markets.
Thanks, Good morning.
With the conventional pipeline system in the first in the near term.
<unk> talked about the record volumes of cheap I'm. Just wondering if you can square Apis I know you've reported revenue volumes, but how did gives of coal volumes look in Q1 on how's that squaring up with your comments for April.
Yes, so on a on a physical basis, Robert I think.
We saw a pretty steady increase throughout the first quarter.
Specially in March where we saw volumes.
Just about get back to pre pandemic volumes.
The volumes, we've seen that strength continue throughout April in fact, the April of physical volumes.
We're in the neighborhood of of call it.
2% to 3% above where we saw in March and actually April physical volumes on the conventional system.
We're almost back to all time highs.
In line with where we exited 2019.
And in April volumes were above where we saw any monthly volume in 2020, So we're continuing to see strength.
On the conventional pipeline system and just a reminder, Robert like like work those are the only.
Attracting of small fixed cost burden as you know the variable costs flow through in every barrel gathered as a barrel of marketed so we've got great torque here from this point forward.
And I think Thats, probably what you were getting on so not only do you have the coal volumes on the pipeline system, but what percentage of those incremental volumes you have debt further torque.
They're feeding into the red water I'm not sure if the contractual sort of take or pay levels are similar but as well the ability for you to take the sterile and then make a bunch of more money in marketing.
For oil.
It's very highly correlated almost every barrel that we bring in as a barrel marketed for NGL not quite as much but.
I think a quarter of quarter of the barrels roughly coming out of the backend of red water.
Belonged to us as well as all of the Frac spread barrels right at Empress of Taylor and so there were fully we're fully exposed.
And.
This is a good time to be exposed by Robert It's Jaret here I just wanted to add that we're also seeing the fundamental shift on on where our customers are ultimately drilling they're moving away from that really the.
The volatile oil.
Liquids rich condensate into the gas of your space with with <unk>, and Chicago pricing staying strong and with that we're also seeing record 30 day and 180 day Ips on the gas side like if you look at any reports and other just phenomenal rates like 15 to 20 million of day for a sustained period. So.
With that what's not changing is the the richness of the the Ngls in the gas so the more gas that we're seeing through our our physical processing plants.
Roughly on a on a quarter to quarter Q4 to Q1, we saw an incremental 200 million of day of physical volume going through our gas processing assets, obviously with the frac spreads being very strong we're seeing a lot of Ngls come on.
Obviously, those obviously the flow through conventional into red water and then ultimately through our marketing business, which that's that's kind of that torque that Mick was talking about so you're seeing the two things the change of the types of wells and the increase of the volume.
Got it.
Can you talk about within the conventional as well.
The the discussions that you are having with customers and specifically thinking about.
How do you bring back eight.
Eight of nine you did mention that the customer contracts are still there.
<unk> also frame the discussion are you seeing any slippage now debt.
<unk> is going forward and if you of any comments as well with respect to the northeast BC connector project filing.
And what that might mean for you.
We're advancing key conversations Robert and and.
We'll stay with the guidance we provided earlier this year that.
By the by the second half of the year, we'll be able to say something about phase eight and nine as well as the Rupert expansion, but we are.
We're on track to make some comments like that later in the year, it's just a little bit too early.
Yeah.
Generally speaking are you are you seeing the the outlook is more of a rising tide or more of a zero sum game.
Yes.
We are very comfortable that we.
We can announce those projects later in the year and that there'll be very well anchored.
If I can just finish I'm sorry.
Robert on the way.
I think about it is.
It's really threefold Jarrett absolutely nailed it when you talked about each VP volumes started so that's the first piece on on the conventional system. We really started to see early in the first quarter of rise of HCP volumes across all of our systems and then what came secondly was.
Corresponding ryzen OBP volumes and if you have a look of Drayton valley in particular, they were just above the April pre pandemic levels. So it's been really positive the.
Third thing we've been watching is we've been watching how volumes respond because we're right on both the middle of breakup of the volumes have been really strong through the middle of breakup and then the fourth thing is in our customer conversations.
Customers have been focused on getting to their take or pay levels. During the first quarter on conversations that are now starting to return to additional volumes of bulk docs, we feel really positive directionally for those four reasons.
We're going in on I think we also feel confident speaking into the mic in the back half of the year on fees.
Yes, the one.
On the intricacy debt, maybe people don't fully understand in northeast BC as the.
The system that reaches into the heart of NBC is is the cost of service system.
And so as the customers build that their per unit total drop.
And so that system gets ever more competitive.
Used to be of pretty expensive system, when petronas anchored at what five years ago.
And now it's getting super competitive.
As it fills in as we consider looping it for non <unk>.
Not a lot of money so the customers up there are creating their own future and driving down the their own fees.
So that's that's a key pipe and.
It's a.
Really key competitive advantage that our customers have really created for themselves up there.
And then when you look at North East BC, Robert I think we don't know about.
Two of 3000 or 5000 barrels is it going to do it you have to have a material volume. So we're working hard with those customers that have.
We're really confident directionally.
Okay. Thanks.
<unk> finished the year.
Any commentary whether it's volumes.
Or and or pricing, especially just comparing to the 2020 years.
The NGL year here.
Yes.
Turn it over to Stu, yes, but I mean, it's it's.
On the pricing now is like way better than last year, I think I'm just trying to remember my AGM numbers, but I think of us.
50, <unk> last year, and we're at 90% Belvieu I think those are the numbers that I'm going to present this afternoon. So.
Yes, yes gas prices are a little more but youre talking $2 roughly to maybe $2 70. So you have got a double let's call it rounded of double on.
On NGL pricing and you've only got it.
The 50% increase in gas pricing year over year. So.
That's a lot to us so we're we're.
I don't know where exactly we are heading to in terms of.
The full year, but.
We're we're way ahead of where we thought we'd be in the first quarter.
Robert I won't add a lot more mixed.
<unk> covered it.
We had a great.
Gas re contracting our NGL recovery at our on our facilities when were out.
Securing gas. So we're really really pleased where we are I think we've already covered we're seeing strong pricing there will be some softening through the summer months of as we go but we are expecting to come back with very very strong pricing in the fourth quarter, but across the board from some significant improvement over 2020 and excited about where the.
We're going on.
And I'm, sorry, I was just asking about the on the procurement side.
Are you able to capture similar volumes.
Headline NGL prices moving higher.
Are you seeing of similar.
The percentage shift in your procurement cost.
On the buy side.
We paid up the obviously with the pricing going up there, but again, it's not substantially different. So we were very very pleased with our procurement of the gas on the gas side of where we ended up.
Thank you.
Our next question comes from the line of Chris Tillett with Barclays.
Hey, guys. Good morning, Thanks for taking my question.
I guess, maybe it is just the shift gears here a little bit can you talk about.
The progression of phase eight and nine.
How the discussions are going there.
And then the contracts that you have in place that you mentioned in the release are those.
With new customers or the sort of expansions of.
The contracts with existing customers.
Just curious to hear sort of an update on that.
Yeah.
We're doing the engineering for those projects as you saw with phase seven we've kind of the laminated phase seven of little bit I mean, we took a lot of cost out of seven a lot of it was outright savings some of it was scope and so were getting a little forensic on eight nine and maybe nine goes before eight we'll see.
<unk>.
So.
We're trying to mix and match that.
The the tricky part is the only get to put the pipe on the ground once and so what size do you put in and Thats kind of what we're waiting for with the C which.
Remaining anchor tenants, we can land and that will drive the physical design, so we're carrying different options.
The original customers.
They are signed so they.
They remain in place.
But there are some very exciting developments.
Up in northeast BC.
Im sure Youre, all aware of them and.
We are working hard to.
The capture those before we announce exactly what phase eight nine looked like.
Okay.
And then obviously.
You sort of need to know the sizing there before you can have a better grasp on capital expectations, but is there anything you might be able to tell us at this point in terms of.
Where those might land relative to prior expectations.
Yeah.
I'll take that.
If if things work out we will have.
Possibly.
Lot more volume and a lot longer runway to growth there that's kind of what we're seeing right now than we thought before Eric go ahead.
Here you talked about here you talked about some of the.
Procurement et cetera, yes, there is inflationary pricing, but I think we're making excellent headway on driving down our overall.
Diameter French mile cost.
As well.
Yes, let me summarize it by saying we believe NBC is more exciting than we thought when we did the first time.
Okay, great. Thanks.
Thanks, so much for that and then I guess.
Last one from me is obviously the last six months have seen quite of bit of.
M&A activity in Western Canada.
I guess, particularly in specifically in areas that are served by the <unk> system.
So it would just be curious to know kind of your thoughts about where in that cycle. You think we are today.
And how you think the M&A impacts you guys moving forward.
Can you.
Best buy what kind of M&A, you mean like loose assets corporates are or just in general.
Yes sort of all of the above I guess.
Sure.
We've got a great value chain and so we normally have kind of embedded advantages when it comes to to loose asset purchases. We're always on the on the look out there of course.
We've really focused through 2020 on.
Our profitability our return on invested capital and I think the full impact of that will start to show in 2022. So we're still very focused on on cost in the I think we took about $150 million out of our cost structure last year, we're working hard to maintain that and so.
That's our primary focus.
As our share price comes off of our currency improves more things become possible, but we are we are right now focused more on profitability and that pork is we've been trying to message when we fill up existing assets, it's almost infinite return and.
We look absolutely outstanding if we can if we can improve our utilization say from.
75%, 80% too.
90% and keep our cost in check.
We just saying.
That's our primary focus.
Great.
Okay. That's helpful. I think I guess, maybe just to clarify I meant more.
How has the upstream M&A.
The impact.
The your assets.
Tom.
Positively like we we.
From a counterparty credit we've seen.
Like with the arc <unk> merger, we had.
They became investment grade.
They became more capable.
They've all taken debt.
Debt down like I am looking across the universe of everyone is just getting after their debt.
But the <unk> release, the other day and so that's really.
Really positive week, the tend to see the biggest producers who have huge plans they they like dealing with with.
The real pipe and that's in the ground that they know they can rely on and so generally not just from a financial guardrails perspective, but from a commercial perspective.
The people the biggest companies tend to transact with us So we're pretty pleased with how that's working out.
Okay perfect. Thank you very much.
Your next question comes from the line of Robert <unk> with CIBC capital markets.
You've answered most of my questions here I'm, just curious on the Ruby pipeline term loan that was repaid in April.
Any other financial support the might be going forward.
Level of support is required from the owners to make those payments.
Robert you are correct. The Ruby pipeline term loan was repaid in April.
With funds at Ruby.
No additional support required.
With rupee from the owners.
Okay.
Okay, Great and then just a.
The.
Clarification here.
We got a shutdown on the line five.
How that impacts your business.
What the litigation plans do you have in place specifically.
As the Prince Rupert terminal and some of the other export options available on the NGL side now enough share to effectively mitigate the.
With respect to net exposure you might have.
And then the headwinds getting to your guidance.
Robert.
When we built the Empress fractionation facility, which came into service.
We built it to make money and it's making money to working out great. But we also built it as a hedge in case eastbound volume west to east.
The volumes.
Ran into problems.
And so.
We can we can rail out of that facility now and we can rail to Sarnia, if we need to.
That line shuts down Sarnia is going to get pretty expensive, but we can get our product theyre still but youre absolutely correct. We can also get those volumes elsewhere, whether it's south of the west So.
Again, partially we primarily built out to make money.
But we also built it in a defensive way just in case. This happened so it would be.
<unk>.
Terrible and unprecedented.
For this to occur, but we do have contingency plans in place to Jarrett anything to add just add the Mick mentioned in Sarnia look we moved those volumes from west to east and Frac them out there, but we also have a large storage position in Corona Corona with rail and trucking.
Inbound and outbound so if in the unfortunate event that would happen.
The asset would be highly coveted.
Okay, and then I just want to make sure I understand the risk transfer on the Mitsui agreement it seems like most of the spread benefit.
Seem to accrue to the.
To your marketing customers sort of effectively.
On that piece of the business now sort of in the fee per service on the tolling type of.
Type of contractual arrangement.
Yes, the way the marketing pool works Robert is is.
All of our volumes, including permanent so roughly a quarter of the volumes are ours and three quarters of the volumes or the agent for.
They they get what we get so we shipped to Conway, where rail to Conway, we deduct the rail cost if we take it through PRT, we deduct the.
The the toll at PRT and the rail costs and so it just.
Three quarters fee per service and one quarter is proprietary to us.
So it's kind of like that's the reason our marketing pool is so successful is is that.
We have the greatest economies of scale in the sector to get to premium markets.
And because we give our customers what we get and so we're shoulder to shoulder and that creates tremendous alignment.
And we think it's the the winning model.
Yes.
I appreciate that aspect of the model I'm just curious on the Mitsui agreement of if you are still in the whole marketing pull as long the spread to Asia or estimate the suite.
Okay.
Page on spread.
It's the former Robert at this point in time line again, we deliver the product.
Load the vessel and mitsui of selling that product and as Mick said, we're covering our costs.
For 75%, but it's essentially the.
Those barrels are selling into the Asian market at this point and so that's that's how the deal was struck with Mitsui.
Okay. Thank you.
Yeah.
Your next question comes from the line of Cheniere of Giussani with UBS.
Hi, Good morning, everyone. Most of my questions have been asked and answered.
I just wanted to come back to the $8 nine expansion for a second here.
And sort of on listening to your responses to the various questions.
Im trying to wonder I'm trying to think about how to think about when it actually gets you need.
Whether you're forcing GUL or not just like if you are at the point, where you are discussing.
Scope and size and so forth does that mean net we're we're pretty.
Close to the point, where you could have idea and it's something of that.
Could be spent potentially in 'twenty one.
Or mostly in 'twenty, two or or am I misreading that and that's probably going to still take some time, just given the recovery isn't where it's at.
Consider we need those.
Once already and then pull them back so there they are very well understood from.
Our routing regulatory perspective.
It's it's just a matter of what what is physically required giving the rapid.
The rapidly emerging picture of an EDC and what that price might might look like so we just need a little bit. We're just measuring measuring twice before we got there and we have some things we'd like to get done before we.
We move that thing forward hearing anything to add there I think Mike hit the nail them ahead.
What can really really good I think as mix of alluded to earlier in the call you could probably see fixed non res sanctioned earlier, but the.
Probably the two fold reality is.
How the industry and our producer community of your thinking about what they need next of shifted slightly so we are adjusting with them in the context of financing and nine and then secondly, I believe of making the team of talked about on.
The optimization process.
Moving through here and that's resulted in clearly some optimization across of our conventional business and we're looking to take advantage of that initially before we spend money on new capital. So there is.
I think the safe to see some growth street up through our optimization process that this would be helped ups were looking to fill of out first and then get into the new capital. Yeah. Just just on that we used to call that phase can just for those who.
I heard about phase <unk>, so we do kind of of sweeping review of our pipe.
Across the board.
We realized kocian has way more capacity embedded in it than we thought before and we're already using a bunch of that incremental capacity with more to come.
Peace Sweet freed up tens of thousands of barrels a day through optimization and again with technology, we expect that to continue to improve and so when you are let's just say hypothetically, we could move 50 or 60000 barrels a day more down piece that obviously impacts our design.
And so those things are all.
The iteration right now on cross referenced against what the demands and win those demands from from customers will evolve.
So again, we're we're working it.
We're optimistic we can.
Say more about it in the second half of this year, along with the Prince Rupert expansion.
If I can just clarify my understanding TP response there.
Sounds very interesting.
Are you essentially saying through the optimization process that use of stock you effectively been able to create essentially one of the stages synthetically.
Is that sort of the way to think about it so it sort of delays the need for some capital, but you can still actually capture the volumes and the associated cash flow as debt does that the right way to be thinking about it.
That is that is correct.
Debt that we are creating.
The parts of those phases.
Through just getting more through the pipe I mean could consider the.
If you kind of go back 510 years, we've been building building building, we never had.
On a pandemic debt to stop and look what the systems can actually do and so we've had that time to engineer reengineer and we are producing that capacity synthetically at no cost.
Throughout our systems throughout our pipeline universe, we've never had that opportunity before and so.
That is partially what led to phase seven.
We didn't have the bellowed all of phase seven.
We realized phase seven optimized could move.
Virtually as much capacity, it's all of phase seven so we took $150 million out of that cost estimate. So that is what is going on and part of the reason that we're taking from.
<unk> to say a pause for the cause to make sure we don't over capitalized these assets.
And all of that leads to lower tolls for for our customers.
A good way of the let me kind of.
Yes, sorry please.
Good way to look at it is because pieces obviously are much more complicated system of the example, Mick came on cushion as of.
Perfect.
The team look the cushion.
We were able to find 14000 barrels a day that are flowing today that weren't flowing before with no capital.
Right, Okay, perfect really appreciate the color there.
Just wondering if you can go back to the Prince Rupert.
The expansion potential as well too I.
I guess, what I sort of think about the LPG demand in <unk>.
Asia, when I think about shipping vessel rates have gone up as well also.
Indicative of of the strength of the market there.
Have you been able to handle some of the larger vessels I think you were talking about it.
Tcf kick remember what the names of our correctly.
In.
Is the demand there.
<unk> to easily expand and it's something that debt is also potentially a fourth of growth type of expansion and could the opportunity from a pricing perspective, the pretty strong just given the global market dynamics.
100% the demand is there right now.
We could have sold a lot more than we did through our <unk>.
Our process, we're very pleased with Mitsui as a partner there.
The question is do we expand it.
If you recall our original <unk>.
Put in a few more spheres and.
Upgrade the rail somewhat and kind of go from $25 to 40000 barrels a day and that's still a legitimate plan and we're realizing that that even though we're using the smaller handy sized ships or they.
They are very handy they can they can get into some really great niche markets and Mitsui is helping us understand that so well.
We may choose not to go to the larger ship size, because we we can access niche markets that no one else can Ken access on smaller markets all of Hawaii Alaska.
South America, Mexico.
They are very well suited for smaller smaller cargoes, because if you had a VLCC they'd have to soften the Alaska, partially unload and then sales of Hawaii, partially unload and that's just not economic so.
On the hand, these arent necessarily a liability but.
That said.
We have realized we can get the larger ships into the into the harbor and we're assessing the implications on the dock, we have and the larger ships don't refrigerate on board. So we'd have the refrigerate onshore that's a little more capital intensive so where we're studying those those are.
Options.
Right now I think we have at least two options in parallel of Jarrett anything else. Yeah. Just I would just add like Mick said customer demand is high the relationship with the the.
The community of Prince Rupert the port and the surrounding indigenous communities is excellent.
Just evaluating the two different work streams that stick with the hand these <unk>.
Or go from 150000, roughly 250000 barrels per vessel.
That work's ongoing and.
We expect to have that wrapped up.
Mid to later this year.
Alright, perfect really appreciate the color and the discussion towards the end of year. Thank you very much and have a great weekend.
You as well thanks for your interest.
Your last question comes from the line of Patrick Kenny from National Bank.
Good morning, Mick just to clarify on your comment there around providing more of a growth update in the second half of the year.
Are you in light of discussions today with shippers with respect to the the timing and the need for building out incremental frac capacity, whether at red water or in the field in BC.
And perhaps dovetailing these discussions into rolling over whatever's left on.
The near term contract Expiries on piece or is that.
Simply your expectation as we step into the second half of the year.
We're in live discussions.
Every single place in the value chain, whether it's processing.
Whether it's.
Increases in what we need on peace filling piece.
Filling alliance.
<unk>.
Fractionation.
Soup to nuts.
About Rupert.
The things things of our comment around and.
Like when we think when we say, we think we're going to be the pembina of.
2017 to 2019 in 2022, we believe that wholeheartedly that the.
That will get our capital program back to a 1 billion of five 2 billion of year.
Without too much difficulty, we will keep our cost flat and we'll do a bunch of things that you know of and we will probably do a bunch of stuff that might surprise you as we always have over the last decade or so.
<unk>.
We are feeling.
We've hit play and were or emerging so our morale is very good.
Okay.
Excellent.
Then just maybe one last clean up question.
Back to the PPA with Transalta, obviously checks the ESG box nicely there but.
Given where power prices were in the quarter are you now looking to ramp up your contracted power portfolio, just as much from a financial standpoint.
Or do you prefer to keep more of an open position as it relates to power costs.
It's mixed.
We always have to be careful of how we do it I mean places like <unk>, where we're where we bear all the costs for power.
It's it's it's game on and.
We're looking to to contract a lot of that out places, where we flow through.
We will have to be very mindful that debt, we're making the best deal possible on behalf of our customers. So far all the deals we're doing are our two our accounts.
We will investigate.
Going beyond that in the future, but this won't be the last PPA. We do we think it's a good part of the energy mix.
Us and.
As you know, we do what we say and when we say we're going to reduce the emission intensity of every business, we will do that.
We're just we're just not going to make.
Grandiose.
Claims about 2015, when we have no idea of how to get there that's not who we are.
Okay, that's great I'll make sense. Thanks Mick.
At this time there are no further questions are there any closing remarks.
Yes, it's Scott here I'll, just clarify one question before I turn it over to Mick to wrap up Hey, Jeremy just circling back to your question on.
On on hedging for the remaining of the year. Your previous question asked me for a quarterly run rate on G&A. So I actually answered your question.
I didn't answer it on a quarterly I answered it on a quarterly basis on a yearly basis. So we we expect to have losses of about $20 million per quarter. When it relates to NGL and thats pricing as of as of March 31st. So I just wanted to clarify that by $20 million was per quarter for the rest of the year.
Yes, Thanks, Scott listen everybody look forward, we have our AGM at two P M.
Looking forward to.
Having you tune in for that.
Got a very positive message to to deliver on.
We got through 2020, which we're extremely proud of.
And what we see.
Upcoming and we will have a nice little video at the end of which is something new realizing youre all online of the little more entertaining and you'll get to meet Janet in person. So looking forward to having the all meet her so that's two P. M Mountain time talk to you soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
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