Q3 2021 Pembina Pipeline Corp Earnings Call
Good day and welcome to the Pembina Pipeline Corporation 2021 third quarter results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Cameron Goldade Vice President of capital markets. Please go ahead.
Thank you Christina and good morning, everyone. Welcome to 10 minutes conference call and webcast to review highlights from the third quarter of 2021.
On the call with me today, we have Mick Dilger, President and Chief Executive Officer, Scott Burrows, Senior Vice President and Chief Financial Officer, Jennifer <unk>, Senior Vice President external affairs, and Chief legal and sustainability officer.
Jaret Sprott senior Vice President and Chief operating Officer facilities, Harry Anderson, Senior Vice President and Chief operating Officer pipelines, and Stu Taylor Senior Vice President marketing and New ventures, and corporate development Officer.
I'd like to remind you that some of the Columbus made today, maybe forward looking in nature and are based on <unk> current expectations estimates judgments and projections.
We're 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's management discussion and analysis dated November 4th 2021 for the period ended September 30th 2021 which is available online at permanent dot com and on both SEDAR and Edgar with that I'll now turn things over to Mick.
Hey, Thanks, Jim Good morning, everyone I'm very pleased with the strong results we delivered in the third quarter, reflecting continued robust pricing across all commodities and permanent value chain.
Including crude condensate.
It's real gas natural gas liquids.
The current commodity environment is supportive of our outlook for 2021 and.
2022, including an opportunity for Pembina to maintain an above average contribution from our marketing business next year.
As well as strong pricing has positive implications for volumes on our existing assets and the longer term prospects for our business, including our backlog are currently deferred and potential new growth projects totaling more than $5 billion with attractive returns.
Since the onset of the pandemic producers have maintained discipline with a focus on productivity improvements debt reduction cash generation and returning capital to shareholders. We remain of the view that the robust commodity pricing environment, driven by the post pandemic economic outlook rising energy demand.
With the tight supply curve set the stage for supply growth into 2022 and beyond with services across the hydrocarbon value chain.
Poised to benefit from the growing sector activity.
Coupled with strong financial performance in the third quarter Pembina achieved another important strategic milestone with the announcement of our target to reduce the company's greenhouse gas emissions intensity by 30% by 2030 relative to 2019 baseline emissions.
HD reduction target will help guide business decisions and improve overall emissions intensity performance, while increasing pembina has long term value and ensuring Canadian energy has developed and delivered responsibly.
To meet the target Pembina will focus initially on operational opportunities.
<unk> use of renewable and lower emissions energy and.
And investments in a lower carbon economy.
In addition to the DHT target, Emma and expect to make further ESG progress with the announcement of the equity inclusion and diversity target by the end of 2021.
As we noted in the release of our materials yesterday there've been a few other exciting developments recently recently, which support our growing enthusiasm.
We are encouraged to see a significant announcement from Dow chemical highlighting plans to build a new world scale polypropylene Bali.
Polyethylene cracker in for Saskatchewan, Alberta, we estimate over 100000 barrel per day of new ethane feedstock supply could be required for this project, which should have positive implications for third party service providers as new infrastructure will be required for ethane extraction and transportation second.
We are seeing positive tailing tail winds on the alliance pipeline. Our recent open seasons for short term capacity was nearly three times oversubscribed, resulting in alliance being essentially fully contracted.
Through 2022, and our current outlook also supports contracting of capacity beyond 2022.
We look forward to providing further updates by the end of the year.
Finally, the completion of line three replacement project represents a major milestone for the industry and meaningful advances in western Canadian oil egress.
In conjunction with the Trans Mountain pipeline expansion currently under construction, we expect the western Canadian sedimentary basin will soon have up to 750000 barrels per day of excess takeaway capacity, providing ample opportunity for supply growth meaningfully to fill the gap with the potential for related benefits to them.
Crude of Pembina also over the long term.
I'll now pass the call over to Scott to discuss the financial highlights for the third quarter.
Thanks, Meg overall Tam in our reported strong quarterly results due to new assets placed into service in a rising commodity price environment, We reported adjusted EBITDA of $850 million for the third quarter, 7% higher than the same period last year.
Mary driver of the period over period increase in adjusted EBITDA with a $75 million higher contribution from our marketing business, which continues to benefit from higher margins on NGL and crude oil sales and the positive impact of higher marketed NGL volumes marketed NGL volumes increased its sales have returned to pre pandemic levels compared to the third.
2020, when permanent buildup storage conditions due to lower commodity prices.
As we saw in Q1 and Q2 of this year with the benefit of higher prices and volumes was partially offset by realized losses on commodity related derivatives as part of our systematic hedging program, excluding the impact of the realized losses on commodity related derivatives third quarter, adjusted EBITDA increased $127 million over the same period in the prior year highlighting the potential.
<unk> of the business at current commodity prices.
The quarter also benefited from new assets placed into service throughout 2020 in 2021, and our facilities division, including the Prince Rupert terminal Empress infrastructure, Duvernay, III and hype developments as well we benefited from higher volumes at garrison midstream Dawson asset and on the peace pipeline system offsetting these positive factors was the impact.
Of a lower U S dollar exchange rate, a lower contribution from Ruby pipeline due to lower contracted volumes lower revenue from cogent pipeline due to the impact of a timing difference and the recognition of deferred revenue and higher general and administrative expense due to the higher long term incentive expenses as a result of a change in perm and its share price.
<unk> third quarter earnings of $588 million were 82% higher than the same period in the prior year.
In addition to the factors impacting adjusted EBITDA earnings were positively impacted by the receipt of the $350 million acquisition termination payment net of their related tax impact of higher unrealized gain.
Again related to certain gas processing fees tied to natural gas prices and unrealized gain on commodity related derivatives compared to a loss in the prior period.
These positive factors were offset by higher net finance costs higher transformation and transaction cost and lower share of profit from Ruby pipeline.
For clarity I want to note that while the tax expense of $76 million related to the acquisition termination payment was accrued in the third quarter. The cash payment of the tax Bill is expected to occur in the fourth quarter of 2021.
Total volumes at $3 4 million barrels per day for the third quarter were very similar to the same period in the prior year.
In pipelines lower contracted volumes on Ruby pipeline due to contract explorations lower interruptible volumes on AG due to third party outages and lower volumes on vantage pipeline were partially offset by higher volumes on peace pipeline and alliance pipeline.
And facilities volumes were lower due to lower volumes at the Saturn complex due to higher deferred revenue volumes recognized in the same period in the prior year and lower supply volumes on the east NGL system as volumes are now being processed at the Empress NGL extraction facility volumes were also lower due to take or pay relief provided to red water complex.
Customers following a third party outage.
Late in the third quarter and into the fourth quarter, we experienced outages on our systems as a result of a fire at a third party fractionation facility as well as an unexpected outage on our northern pipeline system. Those events were relatively short lived and 10 minutes operations have safely returned to normal.
Facility volumes decreases were partially offset by higher volumes at younger due to a turnaround in the prior year higher volumes at various in midstream Dawson asset and higher volumes associated with the Duvernay III being placed into service in the fourth quarter of 2020.
We are also going into the last quarter of the year in a strong financial position with proportionately consolidated LTM net debt to EBITDA of 378 times I will now turn things back to Mike for some closing comments.
Okay.
Thanks Scott.
With strong pricing, providing a steady tailwind for our business, we remain optimistic about the future as we continue to advance our ESG strategy and progress development of future growth opportunities.
Finally, we remain on track to deliver full year 2021, adjusted EBITDA within our guidance range of three three to $3 4 billion and look forward to providing.
Our outlook for the 2022 and the release of our guidance and capital budget in early December.
We would want to like once again like to thank all of our stakeholders for their support with that operator, well wrap things up and go to questions. Thank you.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question.
We will take our first question from Rob Hope with Scotiabank.
Good morning, everyone first question on the alliance.
<unk> get a little bit of color here, because the art southern Genesis contract expires at the end of October So a big gap. There. So did you just really re contract those last two months and then I guess as a follow.
I'll walk there just given the strong demand you're seeing you know why not look to extend those contracts a little bit further.
Rob I'm going to pass it over to Harry.
Hey, Rob good morning, so to be clear the contracts, but there was a renewal.
At the end of October but for contracts that would expire in November 1st of 2022 for us So for basically the 2022 2023 cash here so.
When when Mick was going through his opening what we spoke about in terms of alliance essentially been full for 2022, where the contract Expiries that happened October.
Tober 31 of 2020, so as we look at the 2021 2022 gusher alliances essentially full for the 2022 2023 gas sure going forward. We are still in the middle of a renewal process and we expect to have further information by the end of the year.
Yeah.
Alright, that's helpful. And then just taking a look at your LPG export terminal, we've been tracking that shifted out of Prince Rupert It seems its very busy there so.
When we looked at the potential expansion into Q1 of 2020.
Two is this really just wrapping up engineering, because you're at a high utilization and then secondly, what about moving other products out of there rather than just propane.
Garrett.
Good morning, Rob.
Essentially we're just wrapping up and getting to class III estimates on on the expansion so doubling the capacity and moving to the medium gas carriers. So essentially doubling the the cargoes that we can move through there versus the handy right.
Right now.
And we expect to make that decision in Q1 of 2022.
And then just thinking that you have enough propane export so you don't need to touch to you Jay.
We're looking.
It will eventually look at butane right now the focus is on on on propane.
Sue maybe maybe I think it would be interesting to listeners just to talk about the markets, we've had and and you know the the positive feedback we've gotten on our.
Product quality.
Yeah. Thanks Mick.
Pardon me.
So we've had you know we've been up and running since April I'm really happy to report the the logistics coordination from our RFS facility. The rail loading and we've moved 5400 railcars to our to our PRT site, we've moved $3 3 million barrels of propane through the facility and that in and you know.
The nine month period, you're essentially.
And we're really excited about the future and the growth we've got cargoes into Japan, South Korea, China, and Mexico, and we did our commissioning cargoes into Hawaii, and so we're really happy with where the destinations have we.
We've been able to penetrate our arb moved back into the market.
One of the things that we're excited about is our again, our operating teams were producing a low ethane propane and in particular, we have a very exceptionally low methanol content, which is rare which is unique for us we're producing what what I'd like to refer to as a pet chem quality propane.
At our RFS facility that allows us we're getting great feedback on the quality of the products that we're loading and we believe that opens up premium markets on a go forward basis.
Thank you for the color I'll jump back in the queue.
Go to our next question from Patrick Kenny with National Bank financial.
Hey, good morning, guys, maybe just on the Dell opportunity can we get your thoughts on when.
You might need to expand the <unk> system, perhaps.
Perhaps vantage.
Also does it make sense to strip off some ethane.
From alliance at Fort Saskatchewan, So just wanted to get a better sense on how youre thinking about feeding dow that incremental supply over time.
Hey, good morning, Pat I'm going to.
Just make a quick comment then turn it over to Ted Europe, We as you know we have.
Assets ethane extraction out that's all all over the all.
All over the province, so we're just sorting through.
The portfolio and and frankly, the diversification that our customers are asking for they're not asking for just one source they want diversified geographically diversified.
Product for obvious reasons, they're they're putting billions into the ground.
And they don't want to be beholden to one supply source.
Derek maybe you could add some color.
Yeah, you bet. Thanks, good morning, Pat.
Like Nick said so we're.
We're currently evaluating all of the pipelines that feed our current customers' Pat so between eggs and vantage and the pes system et cetera, and evaluating the red water complex on where do we need to where do we need to expand to provide our customers with that diversification that <unk> talked about what they want to ensure that that's the <unk> molecules their feedstock.
Coming from a variety of sources. So we're just kind of working through that right now.
With respect to our Sable ox able does have the contractual rights to to straddle the alliance pipeline and extract.
Ethane volumes outside of our shadow on facility.
At the end of the pipeline and I'm working with our fantastic partners over at Enbridge, where we're currently evaluating that as well too.
Not only satisfy existing demand.
But also as part of the the new expansion that.
Potentially might be coming for the province.
Okay. That's great. Thanks for the color guys and then just maybe a quick follow up on alliance.
But more from a longer term contracting perspective curious to.
You'll get your thoughts on how you build out that asset as a conduit to the Gulf Coast is this more of a greenfield initiative or just look at M&A.
More strategic partnerships downstream thanks.
Yeah.
It's very insightful.
Question.
It's like you're giving us tips on what to do next but.
Thanks, Thanks for that.
A bunch of this gas is making its way to to the Gulf coast with.
20, plus dollars, an mcf product you can imagine why and.
Steve told our board yesterday that you know, there's a better part of 10, BS a day of export capacity being.
Developed on the on the Gulf Coast and until more things happen like our heater LNG project, albeit that goes to Asia.
Hum.
We think theres going to be a continued desire for shippers on our lines to get to the coast and certainly that's a that's caught our attention.
Attention so.
That is that is under review and I think some of the you know Harry namely touched on the shorter term contracting, but there's also a very robust activity for longer term contracts.
Interest underway and I'm I'm I'm quite certain some of that has to do with with golf Gulf Coast exports. So.
It took us a few years to Digest Alliance I think there is a possibility.
With alliance too.
Put a lot of gas into that line.
And to look downstream.
As we have for where where does the ethane go where does the propane go where does that where does the methane go in and keep our vertical integration going downstream and I know Steve's teams looking at that.
Great. Thanks, Nick I'll leave it there.
And we'll take our next question from Shneur <unk> with UBS.
Hi, good morning, everyone.
Maybe just wanted to start off kind of on the marketing business and how youre thinking about it for 2022.
Commodity prices have obviously changed dramatically over the last three to six months.
Frac spreads have kind of opened up as well also do you expect to continue our hedging program and it would it be programmatic in nature.
Do you sort of sit there and kind of watch it.
Sort of see where this market is going to just kind of trying to get your thoughts as to how youre thinking about the hedging strategy for next year.
Yeah.
Yes.
The thing about hedging as its only hedging if you if you do it.
With with regularity and consistency.
So in terms of trending.
We said in the notes that are or were.
Quite or very optimistic on what can happen next year.
In marketing.
And that is across.
Across the board. We also said in that in the piece that that all commodities are doing well and I think youre seeing.
Our customer quarter releases are I mean, jawdropping and <unk>.
Possibly even better in the fourth quarter and.
So when they're making money across all commodities.
It certainly helps us to make money and and the differential pricing that we need to.
Uh huh.
Early good outcomes is in place today.
So it's shaping up a good.
And I think.
We've taken some risk off the table.
We intend to follow our normal process because.
Ever.
Never absolutely sure what mother nature will do in a in a warm winter or or something unforeseen can can upset.
The the differential pricing in a hurry because many many of our.
Our arps depend on more than one commodity as you know and so we have to be cautious. So we do intend to keep following our.
Systematic program of hedging.
Great No that makes perfect sense, maybe if we can pivot to the.
<unk> project that you announced earlier this year that you're exploring.
As part of the conversation or the assets at the time, you talked about Repurposing pipeline and so forth.
It's been similar discussions in the U S in Texas and so forth.
The conversation seems to always show that are or the pushback rather had been that.
C O two pipes are very different than the other pipes.
Thicker steel wall and pressure and so forth.
Just wondering.
Are the pipes different that Youre planning to repurpose is it a scenario where it's more you have the right away and you plan to replace pipe just kind of wondering if you could give us a little bit more color or thoughts on how this will come to about from a capital perspective.
Yeah, I'll I'll start out and then kick it over to Stu there. There is there are there.
Theres a couple of things number one.
We're looking at a combination so in certain circumstances, we have a right away, but to your point, we don't have the rate hike lets say, we have an oil pipe and a right away that's not gonna have the pressure capability that we need to move cotwo and so.
That's a situation, where we could pull a line or a high pressure.
Pipe within the pipe that that's under review with the regulator on our ability to do that.
In places, we do have high pressure gas pipeline.
You know we've done the work and we think those pipelines can be retrofitted they need some work they'd eat cracker esters put in.
But the big difference between Alberta and Texas.
Is it's damn cold up in Alberta, and it's cold and the ground temperature remains very cold.
And so that is a fundamental a tailwind we have in most of the time, we're complaining about it this might be the one time it is.
Actually a positive and that keeps it keeps that C O two.
And check maybe Stu you could elaborate a little bit where we are on the.
The process there and also what are critical path is a two to take that that project off the drawing board and to make it real.
Sure. So I know again I think you know we'd have a vision and and as just described.
We believe there is an advantage to two are <unk>.
Gathering systems that we have in there you've highlighted is it right of ways or is it pipelines. We also believe as a pipeline operator that we have expertise we move.
High pressure pipelines and products. We do appreciate the difference at C. O. Two is and we're working exceptionally closely with industry experts as Mick described I think youre going to see as we come forward that we will be building new some new pipe will be drive you know, putting liners and other pipes and retrofitting some.
Of our pipes all in an attempt to be.
To provide a C O two solution.
At the lowest possible cost we recognize.
We will be working with others collaborating on how to do that where the emissions are going to come from and so we're working hard we are part of the government of Alberta process on on the carbon sequestration rights outside of the government is working through.
Working.
With with the government with our partners extensively with our partner on how to proceed and we're excited about the progress we've got experts, helping us along the way and so as the government's described we're hoping in early 2022 that the sequestration permit process will be through and the government will be.
Making some decisions on who.
Have the rights to sequester products in Alberta.
We believe we have a strong a strong solution an industry solution to capture a lot of the emissions in Alberta in and working with customers on the government to progress that that path to that process.
No that makes perfect sense really appreciate the technical answer there. Thank you very much and have a great weekend.
You as well thank you.
And we'll go to our next question from Robert Kwan with RBC capital markets.
Good morning.
Just start with how.
How you're characterizing the nature of the discussions you're having.
Now with producers as you noted they are holding.
They're they're maintaining a lot of discipline for now, but just what's the pace or how does the pace of inquiries for new capacity and new projects.
And then and do you see it.
In their thinking with the commodity prices just trying to drill into existing capacity to take advantage of high prices quickly or is there.
Our growing willingness that you're seeing to make a long term infrastructure commitment.
Robert.
You would have you would know that answer.
As well, our almost as well as we do I mean, there. There's there's so much excitement in the sector and so much cash in dividends and share buybacks and you know even even when the producers are allocating that kind of money to.
You know both of those activities.
You know I looked at through some tables, the other day and the average net debt at the end of 2022 for the Canadian.
Junior in intermediate sector in the U S sector.
It's actually negative on average people across the sector are not going to have that they're going to have cash in the bank.
The only people that are gonna have remaining that death or are the seniors.
Canada in there, they're all meeting their targets I read some illnesses release.
And so the question remains at these prices you know.
And with the with the economics of oil and gas well drilling I mean.
The silver lining them through the horrible pandemic is and people people learn how to do stuff with low at low cost and so the economics of.
Of wells of activities have have never been better.
Question to me then is is is when.
And you know, there's there's lots of talk sale at a cop 26, and everything that that.
That is a headwind.
But most producers don't have any reliance whatsoever on capital markets anymore I.
I mean, they they're completely internally funded they don't need bank debt.
Cash in the bank.
And.
My prediction is a this is one man's prediction.
Is when they can you know.
<unk>.
Drill drill gas drill oil.
With very fast payouts and with Hedgeable commodities that theyre going to start to take ground.
Particularly drill to fill situations so if a producer.
<unk> has capacity in their gas plant or we have capacity in our plant or they are paying for a service that they are not fully utilizing them as we said in the call you know we've got a.
We got line three so there is no mystery about egress anymore that was all a headwind.
So I think that.
That.
The things that can be done in relatively with relatively fast payouts will drive production up.
What remains to be seen or are there going to be new Sag D trains and things like that are happening or is is the industry just kind of slowly scale up to two it's egress capacity.
Even if it did that with shell coming on and some time in and line three there with surplus capacity.
And Trans mountain coming the industry has has more running room with with the best economics I've ever seen.
And they they look like they're going to get better.
Not worse I think OPEC is showing a lot of discipline.
And even there.
We know that there's hiccups from some of the smaller countries not being able to meet there.
There are quotas.
And demands returning people are getting back on airplanes. So.
I think things are looking very very good from a cash generation perspective.
And we have lots of inbound interest and I think it's not if it's it's win but to your point.
The reason for your question is.
This is more disciplined than we've ever seen like I'm I'm a bit surprised the volumes capital budgets haven't ramped up.
More significantly it's it's just an incredible time in the industry is making a ton of money and they're shedding I think reliance on capital markets entirely and there.
There may be good reasons for that I know, that's a long answer.
Okay. That's good color.
If I can just turn to marketing and a couple of questions. Here you had a statement that you expect marketing to be above the average.
In 2022, and I'm, just wondering I guess with the changes in your business in Hawaii and over what time period, what are you seeing.
As average the second part last quarter on the hedging program you disclose that pricing on the hedges you added for 'twenty, two where we're at in the range or even a little above the prevailing.
Bought frac spreads in the first half of the year I'm. Just wondering if you could give an update on pricing for the hedges you've added subsequent to the quarter.
Scott do you want it to that's always a delicate question, maybe Scott you could take that one.
Yeah, Yeah, Rob we added the 25% hedges kind of throughout Q2, so those would've been at roughly prevailing prices as it relates to Q2.
Obviously since Q2, we've seen a continued increase in rally in the prices. So those 25% that we initially put in in Q2 would be slightly out of the money today nothing material I'd say 15 call it $15 million roughly out of the money and then the 12% debt.
We added weight was within the past several weeks here, so relatively close to where the spot pricing is for 2022.
Got it and then just on the overall above average commentary on marketing.
How are you calculating what's average for Ya.
Yes.
I E.
Of course answer like a 2020 with like a P 10 year. So.
On any given 10 year stretch.
And in the bottom 10% this.
This year, given the strong second half and in the way that.
Towards year end look.
It will be you know a P like an average year and next year.
We will be.
You know a very good year, so I would say.
You never know Robert so like forward looking information.
But it's it could be a 75 year.
Or better but.
Well, we'll wait to see her remember it's not just one commodity its differential pricing that really.
Is is key and in how we make money in it and it's really difficult to predict one.
One commodity versus another but if things were not to change from today's pricing, we have a very good year.
Robert I would just also add that that obviously is in early December will be we'll be putting out our capital budget in our 2022 guidance and at that time, I think we'll be able to provide you a little more color to help you with that with that answer.
Fair enough and maybe just to follow on that I know, that's partly a marketing partly maybe facilities, but just any commentary as to what track tightness NGL mix sloppiness, given the planes outage and what that means both near term and into 'twenty two.
Gary you want to talk about you know where we sit.
How big do you think.
Red water in the general admin and Frac complex is in maybe that can help Robert.
Yeah, Robert Good morning, Yeah, the Frac Frac complex, obviously, it did get backed up a little bit with some of the challenges that are happen there in the <unk>.
Late September but yeah overall, even on a run rate basis, the frac complexes in Fort Saskatchewan. They are they're highly utilized right now everyone, including ourselves we're seeing stronger.
Stronger physical gas volumes.
Some of our customers have shifted their their portfolio was a little bit to maybe not as heavily condensate waiting it out a little bit more into that.
Hum very liquids rich, but still a lot of gas coming there, which is driving a lot of ngls down through the value chain and they're all showing up in Fort Saskatchewan.
I'm highly utilized.
Thankfully everything's, a rocking and rolling with the assets and where we're seeing a lot of.
Hi processing rates, so, it's going well and it's looking really good for you know when you talked about are there maybe there was a question earlier about where are the customers asking for incremental services. There are certain segments of the entire value chain, where there are bottlenecks and that would be one where obviously pembina looking at RFS.
Three.
You know going to be out there and going to a full C to plus like red water RFS two et cetera. Those are those are the types of things we're looking at right now.
Culminate the customers increasing Ngls.
Okay. That's great. Thank you.
Okay.
Go to our next question from <unk>.
Andrew Koskey with.
Credit Suisse.
Thank you good morning, I guess, a question for Mick and it's really when you look at your footprint that you've got.
And do you think about green hydrocarbons, attracting premium pricing you know to what extent do you start allocating capital.
To effectively provide your customers a turnkey service on a value chain basis for capturing carbon moving carbon and then eventually shipping out.
Hydrocarbons are premium prices like how do you think that fits into the Pembina store that you've got.
Well I think youre seeing a re.
Real examples here I mean.
The Cedar LNG project for example is using green power.
And so it'll probably be the greenest LNG in the world I can't imagine how it would be better.
Better than that so that's obviously going to be a coveted coveted a product.
We are we are not participating in the generation of renewable power, but we're acquiring renewable power from a long term renewable power.
We've announced the deal we see the prospects for doing more of that to to help drop.
Our emissions intensity and if possible our overall emissions.
Particularly if we don't keep growing so that's well underway.
We are looking at on.
On a on a micro on a pilot basis sequestering all the carbon at Red water, that's our largest single point.
Point emission source and we have suitable geology in.
And we can be customers of the Alberta carbon grid.
An existing pipe there ourselves we're looking at.
Similar kind of micro sequestration opportunities in some of our larger point emission sources in in the field, where we have that the combination of <unk>.
The right geology.
And where we're using gas you turned to various midstream and most people don't know this but but that's a that's all.
Hydroelectric power there too so so we've got a bcf a day of.
<unk> of gross capacity there that's all run on on Green power. So.
We're well down that road and so we compare pretty well on a benchmark basis, and we're going to take keep taking ground and then.
We're trying to those are the things that we're doing to put permanent on the on the right footing in the right direction.
And but we're not stopping there.
Actually trying to provide an industry solution as you as you described.
The one.
One of the most important things so for the industry solution is that we.
Our partner Trans Canada is the largest pipeline owners and province, So we've got most of our pipe in the province has us Trans Canada in terms of N. GT L are both open access.
Uh huh.
Service providers that we're going to combine and we have combined our efforts.
To provide a grid and open access grid like Pembina does in oil and NGL and Transcanada's does on N GT L.
And use our surplus pipe and our students at our capability, but we need we need the poor space and sequestration rights to be able to offer those services.
To two customers. So we look forward to doing that we aspire to do that.
But the obviously, the where you put that stuff is really important to that equation, but we'd love to have that in the pembina store in and we're gonna be users of that store ourselves.
That's very helpful color and context, and I guess, maybe just a follow on.
And it relates to you know on the sequestration side of it.
Do you think the pricing regime in Canada is enough is our pricing regime on carbon is enough to really stimulate capital or do you need like a 45 equivalent in Canada to really drive more capital into that into that industry.
Jack do you want to take a crack at that and I'll add my thoughts after.
One moment, while we.
One moment it looks like we have lost them for just a moment.
Okay.
Okay, I'll I'll I'll take that.
The I think it I think the.
The carbon grid.
And.
The sequestration the transportation.
It can work at today's carbon pricing I think the capture.
The captures the most capital intensive part and that's where the.
The the level the government need to kick in is really.
To help producers the emitters captured there are meters. It's all.
Ah well understood technology, that's technology Pembina knows and has experienced with.
But it's it's capital intensive and so we do need we.
We do need assistance from the government.
With investment tax credits or or fast right off tax pools.
Or just oh right incentives to to get that started and then it will be good I think the the the.
<unk>.
Carbon taxes in Canada is way way beyond what we see in the U S and in I think almost anywhere in the world.
So.
Clearly were that to come come to pass.
Carbon capture could be economic.
Okay. That's very helpful. Thank you.
Yeah.
We will take our next question from Robert <unk> with <unk>.
CIBC capital markets.
Hey, good morning, Eva acceptance of the majority of my questions. So just a couple of small ones here.
I noticed there was a discussion in the MD&A about using rail transportation to position some propane at Corona.
I'm wondering what you're seeing the fundamentals there to support that decision and the second part is do you see that as a just a talk that based on the current market or is that more of a long term strategy.
Stu, maybe you and Garrett want to tag team on that.
Yeah, I'll start and then John can jump in so Rob Thanks for the question.
This is not uncommon for us we actually have been using our current asset we've ramped our products and we.
We do like we liked the Sarnia market, we like the seasonality of the Sarnia market, we're coming into a valuable time, so yes, the economics do justify.
The cost of rail our product at this point in time, and it's nothing new for US we've done it on a regular basis. So.
No nothing further.
Okay, and then just with the a third party outage they are take or pay fee relief related to that do you have any line of sight as to when that.
That might mitigate and get back to normal operations there.
Jerry maybe you can take the operating part and Scott do you want to chime in on any financial things you want to talk about there.
Yeah, Robert everything is back to a 100%.
Operating on our side.
And it's been I don't know, but we'd probably have to say, yes, but it's been a couple of weeks now that everything has been back to normal.
Yeah, Rob we don't expect any material impact to our Q4 results.
Okay. Thanks, everyone.
Okay.
And we'll take our next question from Matt Taylor with Tudor Pickering Holt.
Hey, good morning, everyone. Thanks for taking my questions here I just want to go back to the alliance and if you could provide some commentary on how rates and there are new contracts compared to the historical rates.
We saw this spread sure Heiko to Chicago is quite tight there for a while and for the past quarter or two so any comments on that and then I know theres been a lot of bearishness in the market about alliance and how the three X oversubscribed open season. This is changing your outlook for that type of longer term.
I'm just going to.
Make one comment and then turn it to Harry or our longer term outlook on that pipe has never changed even though when we had the <unk>.
60 differential.
You know, it's it's going to move around.
But our our and I know our partner Enbridge. Our view has always been that's that's the.
The best pipe from Canada going into into the United States and in our outlook has always been a very very.
Positive about that pipe Harry.
Thanks, Mike and good morning, Matt.
Just following behind making me a longer term workload mix right. The structural advantages that alliances enjoyed over its 20 years.
We firmly stand behind in our student mix, we've talked about we're seeing some additional structural advantages come into play for alliance around.
The LNG exports off the east coast and also out of the U S. Gulf Coast combined with what we're seeing is still a movement towards switching from coal fired to gas fired and nuclear to gas fired as well. So long term the structural advantages that alliance enjoyed are still there and we're actually seem to be a bit more robust.
From a pricing perspective, I'll talk about in terms of the 2021 2022 gas sure. So the volumes that we put up there were an average of about 130% in excess of the current tool.
For the 2022 2023 and longer gas here and beyond that we're currently in a process with them working with the shippers.
So there's not much I can say, but we're expecting to have an update before the end of the year.
That's great thanks for that Harry and Mac and then.
I had one on Cochin as well probably first maybe for Scott is that deferred revenue issue material and is that just a one off and then previously you guys had been talking about adding potentially adding more capacity and Nick as you've outlined bullishness on volumes here, our conversations are heating up there that that capacity.
And then as well.
Capacity that is.
I'll take the first part of that question and then turn it back to Harry Matt No. The overall. The overall result was not material in a lot of it just relates to the timing of.
Makeup rights and other things on our on our system. So.
It was it was less than $10 million to the quarter with that maybe I'll pass it over to Harry.
In terms of increasing the capacity of precaution discussions are ongoing obviously, the condensate market in Alberta.
It's very robust and I think we feel positively about the direction of alliances, calling both or cushion is growing.
Both from a volume and a price perspective.
Great. Thanks for that and then last one for Mick.
Can you elaborate a bit more on some.
Some comments out there in the press about you.
<unk> seen the benefit of combining some of the Ccs projects out there and some of the pushback. We've been hearing as you know I'd say, it's hard to third party premium for that service.
Or some of those other competing projects might be a bit more refined and scope. So would you mind just yeah, just touching on some of those key rebuttals and what's your what's your vision is for a broader system in Alberta.
Yeah I mean.
It's confusing how someone.
Someone who could say they would need to pay a premium given that that our pipes are you now that we're proposing to utilize or fully depreciated and we're only trying to make a return on incremental investment, which we've said to the market. We expect to be about 50 cents on the dollar compared to new.
Whereas other proponents need to build brand new pipe, so I can't really ascertain the root of that.
Comment, but listen if if if someone can do it less costly on their own clearly there theyre going to do it and I guess well.
We'll wait and see.
Great Thanks for that.
Go to our next question from Linda.
With TD Securities.
Thank you recognizing we'll get more information in December and I look forward to that I'm wondering if you could help us understand in the meantime, a little bit about you know.
Where there might be some operating leverage that you could benefit from in your system in 2022 volumetric Klee any updates you could provide on key sensitivities, whether it be commodity prices FX or anything else would be helpful and then.
Perspective as well.
How might we think of inflation plus <unk> versus <unk>.
On the revenue side versus the cost side.
In terms of any sort of a commercial protections in place.
Whether that means inflation still need to be.
Yes.
Yeah.
Yeah.
Yeah, I'll take a couple of those so starting with inflation.
When we think about scarcity of.
Goods and services.
The number one thing is we've got to take good care of our employees.
Because a lot of the scarcity, we're reading about has to do with employees and so we're.
We're very focused on on that and then the next thing regardless of cost is making sure you have all the spare parts you need.
Is this we're all learning and our personal lives, it's hard to get stuff right. Now. So we've looked at having you know critical spares and spare parts and inventory across our systems.
In terms of the monetary part of inflation.
Number one.
Think about three quarters of our operating costs are pass through we're obviously very cognizant that.
That you know those cost matter to our customers and so we're doing everything we can to drive efficiency and we've we've literally put tens of millions of dollars of efficiencies into our business since.
2020, and that remains an ongoing focus of ourselves.
And our board.
Lastly.
We observed that often inflation.
Does correlate relatively well to commodity prices and.
And so to the extent, we're left with a remaining residual inflation, we think theres a good hedge at least that's what's happening now I would say our.
Our ability to make money from our marketing business has been a far out strip.
Inflation that we see on the financing side, obviously inflation can lead to interest rates.
And where we're really well.
Hedged in terms of long term interest rates, maybe Scott wants to add something.
To that and then lastly, you.
Second last so I'll open it up probably to Scott next but where do we have leverage we have leverage.
And various midstream.
A bit of capacity there we have.
We have a.
Leverage obviously on Kocian, we have some very low cost expansion. There we are a low cost expansion.
On alliance.
That we've talked about in the past you never know we have significant leverage across our conventional.
Pipeline business.
We are still operating in that business around.
Three quarters to 80% full and so you know tremendous torque on on adding barrels there.
So you know there are places where more full as jarrod is on our.
Our frac business and some of our other.
Gas gas processing businesses. So Linda we we can run quite a quite a while are within our footprint, but and that sounds great and it is great. But it also is dependent on where it comes on the system.
It's like we're building phase nine because the product is coming on at a part of our system at the end.
We don't have.
Quite enough capacity, so sometimes you still have to deploy a bit of capital depending on where that that product comes on so.
I'll open it up to my colleagues here to add some color.
Linda I would just add about about 90% to 91% of our of our debt is at fixed rates. So we do have somewhere in the neighborhood of $900 million exposed to floating rates that we're looking at what to do with that here in the short term. We also have short term rate exposure at.
At various in midstream as well, but we've hedged 50% of that away and as it relates to sensitivities. He just bear with US one more months, we'll obviously lay out all of our sensitivities in conjunction with our 2022 budgets. So that will form that will form part of that press release.
Thank you and on a separate note some headlines recently that your Oregon LNG pipeline our approval once they get a new first review recognizing.
A high priority initiative morale.
Just wondering what the thinking is there and you know my other.
And the industry, maybe find more value in that initiative or are what what what are the moving parts.
Janet are you are you able to speak to that.
Yeah. You know this is Janet and thanks for the question you know I think as we've announced previously we paused the Jordan Cove development at this point and while we haven't made any decisions, we're continuing to work with her concluding on the.
The the appeal them. So I think we'll have to continue to evaluate we do see that there is value to this asset and in some way shape or form so I think more to come on that.
Thank you and maybe it's a broader question with respect to maximizing value, how my acquisitions and divestitures.
The leverage.
Where outright trading of assets might optimize.
Bigger lower cost solutions for industry versus partnering with the Alberta carbon grid.
You know Linda Ware.
That's a great question.
Ultimately assets on it end up is in the hands of the owners who can.
Utilize them the best so swapping assets is a terrific solution.
If they're respectively worth more to the other.
Party.
And so where we are.
We're looking at things like that we're looking at the.
The the ability to cycle capital, maybe a little more than we.
And we used to and so anything is possible and we will come into.
2022, we'll talk more about that again in December, but you know extremely extremely well position generating.
A ton of cash with a low payout ratio very very low levels.
Level of debt and a machine that has.
A lot more upside than downside, so we're feeling really robust about what's possible.
Coming into next year.
Thanks for answering my questions.
Here's Linda.
And we'll take our next question from Ben <unk> with BMO.
Alright. Thanks, Good morning wanted to ask a question on M&A.
Curious about the activity you're seeing in your appetite or are there more.
Selling salaries altera given improvement in asset values.
Our other geographies certainly we're looking now that you haven't looked before I mean, well have more high level comments on M&A.
Yes sure.
We tend to like to to grow with connected assets or or assets that are virtually connected through through contracts. So what.
What I mean by the latter comment is we're not physically connected to Prince Rupert, but we have long term rail deals that that make it. So so we consider those still connected and vertically integrated.
And the reason we like to grow.
With connected assets is because as we as we offer services in the field to customers.
Through the value chain, there's always some part of the value chain that is has spare capacity like in my response to Linda.
You know if we got a huge new NGL contract because Dow Dow needed ethane are and lets say its <unk> plus we built a field facility that would be new capital, but it could flow on our pipe without capital and so the contribution to our pipe would go right to the bottom line.
We need to build a new frac, but we have extra storage, we have surplus rail for the C. Three plus.
And we are pipeline connected to egg so no capital there. So you could see in that collage some activities need.
New capital and some don't and the ones that don't add.
Add exceptional profitability some of which we can share with customers.
Customers and so we can make a nice profit and customers can have.
A better net backs and so that's the reason we seek that connectivity now if we if we had a you know a storage terminal and in Europe, It's hard to imagine how one plus one equals three there. So we tend to shy away from that.
We've also learned that are building from a position of strength.
And and assets and customers are we know paths question about whats possible downstream to alliance well.
We're down in Chicago, we have major assets. There. So we have familiarity with that business. So that would be a good example of places where were.
Where we could look where we are we have knowledge and experience in an advantage and so that's really has and will continue to guide what we do next.
Okay and then.
My second last question is on Ruby.
The post contract.
Financial contribution is that is that tracking in line with your.
Expectations initial expectations and budget.
I don't I'm not sure I understand the question, but I'm going to turn it over to Harry maybe he understood and he can answer it.
Yeah.
Generally yes.
The specifics, yes, I mean, I think obviously the producer contracts rolled off at the end of July.
So Q3 was a pretty decent.
Run rate for Ruby going forward Theres been some short term deals there that.
Backfill some of the volumes on a short term basis, but not not meaningful contributors to revenue just given that the current spread but I would say that where were at.
The balance of Q3 and into Q4 is sort of going to be the run rate for Ruby.
So oh.
Okay.
Okay.
Yeah.
And that concludes today's question and answer session I will turn the call back over to Mick for any additional or closing remarks.
Well thanks, everyone for your questions. We do have to jump too we have a employee town hall lots of interest I can tell we rarely take the full hours. So.
Thanks for your interest you know we've got we've got a lot of tailwind right now.
Existing assets or our king and our customers are healthier than ive ever seen them in the sky's the limit for them and hopefully that will.
I'll turn into volumes.
Soon and drive our activity.
Forward looking forward to.
Providing our updated 21.
Insights in December and a further look into 2022 at the same time, so with that thank you very much and have a great weekend bye.
This concludes today's call. Thank you for your participation you may now disconnect.
[music].
Yeah.