Q4 2021 Pembina Pipeline Corp Earnings Call
Please standby were about to begin.
Good day and welcome to the.
Pembina pipeline Corporation 2021 fourth quarter results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Cameron go that deep.
<unk> Financial Officer. Please go ahead.
Thank you Jennifer good morning, everyone.
Welcome to <unk> conference call and webcast to review highlights from <unk>.
Your 2021.
On the call with me today are Scott Burrows, President and Chief Executive Officer, Jerry <unk>, Senior Vice President and Chief operating officer pipelines and facilities, Stu Taylor Senior Vice President marketing and New ventures, and corporate development Officer, and Jennifer <unk> Senior Vice President external affairs, and chief legal and sustainability officer.
To remind you that some of the comments made today may be forward looking in nature and are based on permanent 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's management's discussion and analysis dated February 24th 2022 for the period ended December 31, 2021, as well as the press release Pembina issued yesterday, which are available online at <unk> Dot com and on both SEDAR and Edgar I will now turn things over to Scott to make some open.
Any remarks.
Ken as announced earlier this week the board of Directors has completed its process regarding the CEO search I am honored and humbled to have been entrusted with its role on a permanent basis and I am thrilled to have the opportunity to work with such a dynamic and dedicated team that <unk> future is full of exciting opportunities and I'm confident that together, but there are many stakeholders, we will accomplish great things.
2021 was another remarkable year for permanent as we once again navigated the uncertainty and ever changing reality of the pandemic and its consequences on the global economy and energy prices, while still moving the company boldly forward a year ago, we spoke about hitting pause in 2020, we're getting ready to hit play again in 2021, and we did exactly that are accomplished.
Included restarting construction on several previously deferred capital projects and delivering record financial results that exceeded our annual guidance.
Sam will speak more to the details in a moment, but our strong results reflect much improved commodity prices across all products within permanent value chain crude oil natural gas and natural gas liquids.
Their volumes on many of permanent systems improved throughout 2021, and higher prices and margins on crude oil and Ngls as well as NGL sales volumes in the year led to strong annual results in our marketing business complementing the strong results of the step change we achieved in the execution of our ESG strategy, Kevin is embracing the opportunity to adopt respond and contribute to a more.
Sustainable future and our strong commitment to ESG is being demonstrated by the ambitious new projects partnerships and targets, we announced this past year.
We announced a bold target and laid out plans to reduce permanence GHT emissions intensity by 30% by 2030.
We further demonstrated the 10 minutes commitment to employee diversity equal opportunity and ensuring a safe and inclusive workplace with the announcement of employee equity diversity lesion target.
As we announced three significant partnerships that combines strong business opportunities with compelling ESG attributes.
Early in 2022, we are poised for another exciting year ahead as we have previously noted our enthusiasm is due in part to the overall improvement in commodity prices and the expectation of post pandemic economic recovery, we continue to observe strong industry fundamentals, including the extraordinary financial health of our customers New third party infrastructure and continued.
Nickel support and investment.
Finally, I would like to congratulate Jared sprout on his appointment to the newly combined position of senior Vice President and Chief operating officer pipelines and facilities. This appointment recognizes his strong leadership and significant contributions to <unk> over the past seven years and I would like to welcome EBIT, Bishop who will be joining pembina in April as senior Vice President corporate services Eva has nearly 30.
The years of experience across energy consumer goods and network industry and her new role will support the executive committee and developing new opportunities to benefit permanent various stakeholders, including our employees I will now pass the call over to cap.
For the fourth quarter and full year.
Thanks, Scott Pittman, our reported a record quarterly adjusted EBITDA of $970 million, representing a 12% increase over the same period in the prior year.
Fourth quarter, adjusted EBITDA was positively impacted by higher margins on NGL and crude oil sales combined with a higher contribution from our stable as well as higher contributions from Prince Rupert terminal in Duvernay III coming into service in March 2021 in November 2020, respectively, and also barristan midstream as a result of the highest <unk>.
<unk> projects entering service in March 2021, and higher volumes at the Dawson assets.
Fourth quarter of 2021 was also negatively impacted by higher realized losses on commodity related derivative financial instruments.
Exploration of contracts on Nipissing admits your pipeline systems, and a lower contribution from Ruby pipeline.
Pembina recorded earnings in the fourth quarter of $80 million compared to a loss of $1 $2 billion in the same period in the prior year.
In addition to the factors impacting adjusted EBITDA fourth quarter earnings were impacted by lower noncash after tax impairment compared to the prior period.
Pembina recognized $335 million net of tax or.
Impairments in 2021, largely related to the Nipper, <unk> and Mitsui pipeline systems as well as the Edmonton South rail terminal compared to $1 $6 billion net of tax of impairments in 2020.
Excluding impairments and associated deferred tax recovery earnings for the fourth quarter would have been $415 million compared to $338 million in the fourth quarter of 2020 or 23% increase.
The fourth quarter was also impacted by unrealized gains on commodity related derivatives compared to unrealized losses in the prior year.
Higher other expense, which increased due to higher transformation and restructuring costs and project write downs.
Net finance costs due to lower foreign exchange gains and a lower share of profit from Ruby pipeline.
Total revenue volumes of $3 4 million Boe per day in the fourth quarter were down approximately 5% compared to the same period last year.
Volume decreases were largely attributable to the pipeline division, most notably due to contract expirations on certain oil and oil sands pipeline systems, and Ruby pipeline as well as the timing difference in the recognition of deferred revenue volumes largely with the peace pipeline system.
The fourth quarter contributed to solid results for the full year, including record adjusted EBITDA of 3.43 billion, which was 5% higher than the 2020 result, and exceeded our annual guidance range.
Adjusted cash flow from operations of $2 6 billion, which was 15% higher than 2020 and full year volumes of $3 5 million Boe per day, which were roughly consistent with 2020, despite the impact of contract explorations I just mentioned.
Strong financial performance allowed permanent you exit 2021, and an even better financial position with a stronger balance sheet improved liquidity and having maintained or strengthened the company's financial guardrails.
This is demonstrated by approximately 89% of adjusted EBITDA coming from fee based sources.
Our dividend continues to be fully funded without relying on our commodity exposed business.
Fee based cash flow more than covered our annual dividend payment with a payout ratio of 75% on this basis.
Including our commodity exposed cash flows are all in dividend payout ratio of adjusted cash flow from operating activities was 53%.
Likewise, roughly 82% of our credit exposure at year end was with investment grade unsecured Counterparties and we maintained our strong triple B credit rating with a year end ratio of proportionally consolidated debt to adjusted EBITDA of approximately 3.6 times.
On a proportionately consolidated basis, which includes debt at our joint ventures pennant have reduced debt by about $500 million in 2021.
As we previously as previously announced during the fourth quarter Pembina expects to deliver 2022, adjusted EBITDA of $3 35 to $3 $55 billion.
In 2022.
Likewise in 2022 cash flow from operations cash from operating activities is expected to exceed dividend payments and the capital expenditure program.
In December 10 minute announced that it expects to allocate up to the first $200 million of the excess cash flow to common share repurchases by mid 2022 or is that representing approximately 1% of the company's common shares during the fourth quarter. We got an early start towards the school repurchasing $17 million of common shares.
I'll now turn things back to Scott for some closing comments.
Thanks, Ken This is an exciting time for <unk> and I believe our value proposition remains compelling we have a diversified business integrated asset base and a growing ability to reach higher value markets for our customers' product.
These prospects for the broader industry, particularly here in Western Canadian sedimentary basin remain bright and Pembina is well positioned to benefit.
We are capitalizing on the many opportunities to build upon permanent base business, while developing our multibillion dollar portfolio of growth opportunities.
And we are a leading participant in the energy industry's evolution to a more sustainable future.
Before opening the line for questions I want to say that with the loosening of Covid related restrictions are particularly looking forward to welcome dedicated employees back to our offices in the coming days any of the many of whom have been working from home throughout the pandemic. Similarly, we look forward to enjoying more in person meetings over the coming months with many investors customers and communities. We are excited by the prospect of reconnecting.
Person after a long period of mostly virtual interactions in closing we would once again like to thank all of our stakeholders for their support with that we'll wrap things up please open up the line for questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Your phone please make sure your mute function is turned off July your signal to reach our equipment.
Once again star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll go first to Jeremy Tonet with J P. Morgan.
Okay.
Hi, good morning.
Good morning, Jeremy.
Just wanted to start off Scott if I, you know you might be able expand a bit more with regards to you know your vision for the company at this point you know.
Assuming the role of CEO on a permanent basis.
Granted you been integral to the formation of the strategy up to this point, but just wondering if you could provide a few more thoughts as far as what might change or what might not change or any other thoughts under under your leadership going forward.
Thanks, Jeremy.
I think as you pointed out I've been here for 11 years been been CFO for seven part of the strategy that got us to where we are today. So I wouldn't expect any tectonic changes in strategy or vision.
As we look forward, we're still excited about.
Accretive growth funded within cash flow, obviously looking to maintain and have modest growth to our dividend and maintain a strong balance sheet and live within our guardrails I mean, that's the fundamental to who we are and I don't see any changing of that here in the short term.
Got it Didnt think so thank you for that and and so I want to also kind of follow up a little bit more on capital allocation and I think you've touched on a bit there, but just wondering you know the balance between the different ways to allocate capital and particularly as it relates to you know.
Capital expenditures growth Capex going forward here I guess, how much of an emphasis do you see there within your whole capital allocation strategy.
Yeah, Thanks, Jeremy I S.
Still believe that that organic and brownfield opportunities are our best use of capital based on the rates of returns that we think we can achieve so.
Obviously, our maintaining our dividends our first priority, but to the extent that we have solid accretive growth program, we're going to look to fund those first.
To the extent that that there's some delays in that organic growth profile I think we've been pretty clear that we're going to allocate that capital both to share buybacks, depending on where the share prices as well as debt repayment, depending on where our leverage metrics is so it's a bit of a fluid discussion.
As we pointed out in our conference call. We saw some dislocation in price in December and tried to take advantage of that.
But it was by back up a step the first priority will be looking for additional organic opportunities.
Got it just the last one if I could if I take the old annualize the fourth quarter and compare that to the 2020 guide.
It smells a little bit of a traditional pamela conservatism, especially.
Commodity price environment that should put wind in your sales. So just wondering are there any other headwinds next year that we should be thinking about here or just kind of other any other gives and takes in the guide.
Yeah.
I I.
We caution on the NGL side, because the fourth quarter and the first quarter always the strongest and the middle two quarters are not just due to the seasonality of that business. So it's a very dangerous game to just analyze annualize the fourth quarter or the first quarter.
And again the Ngls are also depends on your on your rate of sales depending on your on your cost of goods sold and so to the extent that we benefited in the fourth quarter from a rapid increase in commodity prices versus our carrying cost of our inventory.
As we move through 2022 here, where not only are we selling but were also adding inventory at quite high prices as well so.
I can see where you got to that conclusion, but I would be cautious at this stage.
Got it.
Thank you for that Scott and.
We'll talk soon thanks bye.
Okay.
We'll go next to Linda.
With TD Securities.
So I wanted to congratulate you Scott and Derek both on your appointment.
Very clear.
Thanks, Linda Linda.
And talk about some of your project can you help us understand for the peace nine expansion are there any sunset clauses in your shipper agreements that might cause the contracts to expire if you're not in a position to make a reactivation decision by the middle of this year in the event that the BC government and first nations can't come to agreement by.
At that time or some other factors that that delay that decision.
Okay.
And then maybe just to clarify do you mean phase eight.
Oh, sorry, yeah, Yeah, sorry, I got my numbers wrong.
Yeah.
Yeah, I would say, there's a combination of through some of the optimization work that we've been doing we've actually started to move some of those those volumes today or will be shortly so we're getting the benefit of some of that already but to the extent that there is still a couple of contracts that relate to phase eight.
Yes, there is no sunset clauses.
Okay. Thank you and maybe moving onto your Prince Rupert terminal expansion.
I guess the decisions eminent the quarters more than half done.
What still needs to be figured out in order to make that decision and might any geopolitical developments recently potentially influence.
That decision as well.
Good morning, Linda I'm going to let Steve talk about just the performance of our base asset just to touch on that briefly and then I'm going to speak a little bit to the expansion.
Linda.
So we've been very very pleased with the performance of PRT.
Great work by our staff both in the Red water area.
And in our in our.
Prince Rupert location, we've managed to we're managing to export just under 20000 barrels a day.
We've proven up our reliability, we are operating very effectively we load unit trains consistently reliably we move them to the coast even through some very rough climate.
Environmental issues that took place in British Columbia, We got our trains to to the coast, we loaded ships very effectively and one of the key points that we've had is we've actually been able to manage the quality of our propane exceptionally well, we're producing and selling propane out of Prince Rupert that is what we refer to as pet Chem quality very very.
Low methanol content and so we're super excited about 2022.
We.
Prove it up our performance.
In the export market and we're getting lots of inbounds. So it's worked out very very well for us and we're excited about where this is going.
Yeah. Thanks to and then I'll just talk a little bit Linda on the expansion itself. So engineering is essentially complete we're just right now refining the rail the and the shipping opportunities and onshore opportunities stews team is is actively reviewing you know there's there's some dynamics ex the G.
Oh political that you mentioned dynamics on versus domestic and international pricing in the short term and long term reviewing that some shipping alternatives.
Like Steve said, where we're shipping pet chem quality propane product so.
So lining that up with what the demand side.
So everything is progressing as planned in and with an expected decision here and then in the foreseeable future.
Thank you and just as a follow up with with respect to our pet Chem initiatives in the region.
I'm not sure if there's been any developments recently, but and again given the living a pricing.
And demand supply considerations globally can you give us an update on how youre thinking about living along the value chain and potential for them getting involved in in local petrochemical.
Yes, Linda we continue to look at those opportunities and I think you've already apart address your own question, we watch and look at the supply demand balance of the petrochemical feedstock. We're looking you know where that where those markets are what the supply is looking like I mean theres been <unk>.
<unk> change in.
In the propane exports our own facility in LTE gas facility, but along with that the IPL development.
With their pet Chem space. So we're watching very closely the feedstock we like our integrated assets. We think we can be a player in the pet chem space that might be along the lines of <unk>.
Infrastructure builder.
Feedstock supplier and perhaps even further along and we're evaluating those opportunities they come where we're in we're in conversations with a number of parties of pet Chem development in Alberta, and the industrial Heartland in particular and trying to determine our best way to participate in those upcoming activities.
Thank you Edwin.
We'll go next to Matt Taylor with Tudor Pickering, Holt <unk> company.
Yes. Good morning, guys. Thanks for taking my questions here I just wanted to start on volumes first would you be able to provide some commentary on what youre seeing on the conventional side in terms of physical versus contractual and then maybe a follow on comment to whether or not the current drilling activity is.
It's included in your 2022 guidance.
Good morning, Matt Jaret here.
Yeah, I won't speak too much to the contracted nature of piece and I'll just focus on piece here for right now, but physical volumes. Obviously, we did see a little bit of a decline Western Canada saw how prolonged 30 plus day at minus 30. So we did see some of our customer volumes drop off through through the holiday season, there with the cold weather that's pretty much all.
Been alleviated and we're seeing those volumes come come back the volumes in Alberta, we've seen are obviously growing at a faster pace than on the BC side due to the previously mentioned ongoing negotiation between the.
The BC government and the Blueberry River first nation.
So you know.
The resource obviously MPC. It is it's an exceptional resource we believe long term it will get developed prudently once that negotiation is complete but we've really seen that uptick on the Alberta side as capital has kind of flowing across the border.
So things.
Things are looking good.
Yes, Thanks, Jared and I noticed there's a lower recognition of deferred take or pay can we interpret that as as physical.
Physical volumes are right up against contracts and you're starting to realize some interruptible.
I think the way to interpret that Matt would be if you go back to 2020, we typically you recall because of the recognition of take or pay volumes, that's backend weighted often it either becomes a significant recognition in Q3 or Q4 because of the dynamics of obviously the pad.
<unk> in 2020 that recognition was deferred into Q4 of last year. When it has typically been more so in Q3 and I would characterize 'twenty 'twenty. One is a more normalized year. So you know as.
As Jared mentioned, we are seeing some positive some positive momentum.
Momentum overall quarter over quarter on the volume side, but what you're speaking about is really sort of a year over year dynamic.
Okay, Thanks, Cam and where youre seeing volumes today, how is that tracking to your assumptions in your guidance.
Yeah, I think so far we're you know we're bang on it it is tracking according to expectations. We are pleased to see activity continuing in <unk>.
Nothing nothing is changing much relative to our expectations so far.
Okay, Great and then maybe one last one now that the <unk> cost has been updated can can you.
Give us an update there with how your partners are thinking about that in terms of is that project still on the radar given the cost overruns in the government stepping back and saying it.
I need to find their own financing just any update on what you'd need to see to still.
There'll be an involved in that process.
Yeah, I'll take a stab at that one and Janet feel free to jump in if you want to add anything I think Matt strategically, we still like the outset and we still think it makes sense.
We still have strong alignment with our with our partner, but clearly last week news was pretty material in terms of cost of schedule. So we're currently digesting.
Yeah, I'd just add that you know at the end of the day it needs to be a commercially viable pipeline and so.
That's the cost is definitely a factor that we're looking at right now.
Okay, great. Thanks for taking my questions.
We'll go next to Rob Hope with Scotiabank.
Good morning.
Congrats on the endpoint on the appointment.
Hmm.
Moving to a bit longer term here, you know frac capacity and utilization and of course, Saskatchewan is creeping up we have kind of the expectations of increasing volumes with LNG, Canada.
Are you looking at the need for new Frac capacity, whether it be at Edmonton or trying to build.
Build out some additional opportunities in northeast BC.
Okay.
Good morning, Rob Thanks.
Jared here. So obviously you have nailed it track capacity in Fort Saskatchewan is.
Becoming a scarce commodity as you may recall, RFS II RFS III kind of had that sanctioning in 'twenty or came on in 2016 2017, and we have that 10 year I believe contracted windows. So we do have some expiries coming up.
Four to five years from today, so we want to obviously ensure that we get our base assets fully contracted prior to announcing any expansions and maximizing utilization through RFS, one two and three to date.
With that said, we recognize that our new Frac buildup. We obviously have the land we have the rail infrastructure, we have a lot of the utilities, we have the cavern on the on the front end side and the sales side all essentially in place. So what pembina would need one of the one of the advantages we have obviously as we just really need to build a.
And possibly another co gen two.
To go along with that to generate some some green power so where.
We're looking at it it would probably be built about a two year build.
It would be a replica of of the products, we already have in place so.
So we wouldn't have to do a lot of upfront engineering et cetera, we might just optimize around the corner is a little bit from what we've learned on the previous builds.
Pembina can satisfy that fairly quickly so actively looking at it it's probably just a little bit.
Premature right now but.
It's definitely on our radar you nailed it.
Alright, I appreciate the color and then just an allocation of capital kind of clarification. There you know it looks like marketing could be another good year in 2022.
You know as you try to balance excess cash flow, how do you look at dividends versus buybacks.
Yes.
Yeah, Rob I think based on the current forecast.
And kind of looking out over the next couple of years I think we still.
Obviously subject to board approval and other things feel like Theres room to grow the dividend modestly, while still having cash flow for potential share buybacks or or debt repayment and not necessarily debt repayment to the extent of significantly lowering our leverage but more in the anticipation of.
Incremental growth projects and positioning that balance sheet, so that when we start to add the capital.
And you do not get the EBITDA, we don't want to get over our skis in terms of leverage metrics. So it's a bit of a balancing act, but we still think that dividend modest dividend increases are on the table.
Thank you I'll hop back in the queue.
Okay.
We will go next to Robert Kwan with RBC capital markets.
Great Good morning.
Scott if I can just come back to the strategic side of things and can you just comment on any changes even nuanced depend minutes approach or your approach to acquisitions just given prior statement.
M&A is part of <unk>, DNA and historically, you've been quite acquisitive relative to your Canadian peers.
Nuanced.
Well, we've known each other a long time, I'm, obviously, a little more conservative in nature, but I got a lot of peers like SKU, who are are very optimistic so I honestly Robin I don't think there's going to be too much of a change I think we'll we'll react when opportunities come available. We'll continue to to look what's out there and it's something additive to our.
Value chain, we'll look at it I mean.
I'd reiterate the messages, where youre not going to wake up tomorrow, and see us buying a Permian pipeline like it's not within strategy its not within value chain I think will continue to be disciplined as it relates to acquisitions.
I think we showed that on the inter pipeline transaction I think that will continue going forward. So.
You know I still go back to if we see good return.
Good risk return projects that fit within our guardrails that fit within our strategy, that's going to probably be our first order of capital allocation.
Obviously make our company better.
And add services to our producers that'll be the first order of allocation and then after that we'll go down the chain to buybacks and debt repayment.
Okay.
And then just on your initial answer around.
Guardrails and and the like you did say in the short term and I guess I'm just wondering what types of things might be on the table for changes over the medium to longer term in your view.
Yeah, maybe maybe I shouldn't say, it's short term you're misinterpreting My words I would just say for now I mean to see this is how we're visiting it and I don't foresee any changes.
Okay perfect. If I can just send you something a little granular here just as you think about your marketing business and Scott you talked about some of the things to think about is that year over year headwinds can you just breakdown for US 2021 between like what percentage of marketing came from Frac spread what percentage roughly came from crude oil midstream and at what came for.
NGL marketing the buy sell business.
Yeah, I think we've sort of intentionally not not delaminated to that point, Rob I think we've we've gone back over time and you know if you go back to 2018, we were sort of 50 50.
Excuse me 50, 50, NGL and crude in the marketing book in that year. This was obviously a incredibly stronger year in <unk>.
Much of much of the performance in 2021 has to do with the rapid acceleration of rapid change in price in the NGL books. So you can you can probably infer that.
The weighting in 2021 was was more heavily weighted to the NGL book.
Compared to that compared to that data point.
But that NGL book was the combination of Frac spreads.
The buy sell business, though right.
That's correct Yep.
Yeah.
Do you have any sense or.
Do you have anything you can give us just as the waiting then between those two businesses.
Yeah, I mean, the frac spread business actually ends up being a smaller component of the NGL book relative to it.
The sales profile.
Which was you know boat.
For Q4.
Let's let's call. It 100, 190000 barrels a day, the frac spread business would be.
Let's call it 20% to 25% of that.
That's great. Thank you.
We'll go next to Patrick Kenny with National Bank financial.
Hey, good morning, guys I'm, just on the Alberta carbon grid now that you've had a little bit more time to work with T C on design and scope.
I'm wondering if you could.
Help us distill this opportunity for Pembina, a little more just as it relates to both the transportation of the C O two.
But as well, perhaps integrating the sequestration infrastructure with your Ford SaaS footprint.
And then also lastly, if you're still or if you feel like you need to perhaps bring in another strategic partner before you might be in a position to sanction.
Capex to all.
We're pretty happy.
We've been working through the process.
The government defined process.
Bids are our submissions were due.
Sure.
Earlier this year, we have submitted our our our documentation. We again believe we've submitted with our partner T C. A very viable seek.
Sequestration application.
The government is reviewing those.
It changed through the year, we had originally came in with the larger vision a provincial solution the government's come out with the process of the first step being.
The industrial Heartland emissions, we've put forward in our submission a sequestration and transportation.
Our plan for the for the Alberta, industrial Heartland emissions, we still see opportunity to grow that to a provincial solution.
It's in the industrial Heartland, our red water assets are in the industrial Heartland.
We see it very near those assets, we have our own emissions to capture and sequester and so we think we can integrate it very effectively and with our operations that take place there.
Along with TC that we have the experience and the capability to be an effective operator that carbon sequestration hub that we're proposing.
Okay. Thanks, Steve.
I appreciate that.
And then maybe for Scott you have the Cedar LNG project in the works.
But I guess as you zoom out and think about.
Energy transition any thoughts around accelerating the company's market position within the.
North American LNG landscape.
Either through further Greenfield brownfield.
Or perhaps M&A.
Pat I'm going actually let's do you answer that question.
We're looking we're working very diligently on our feed work with our partner are the highest low first nation.
You know everything is going well, we submitted our environmental assessment application for the project.
We liked the Cedar project, we're looking for additional opportunities in the area.
How to continue to grow and work that we like the opportunity for more western Canadian gas to get to Tidewater and LNG export.
They're challenging we have theres, a large pipeline that is required to get to Tidewater in Canada.
We have looked obviously you are well aware of the Jordan Cove opportunity. We have looked further further afield at some of those opportunities, but they just get further and further away for us and Theres. Many many people who are operating in those areas and we like the we like the integration with our existing asset base, we obviously our gas.
And our pipelines and in northeast British Columbia in particular.
And in Alberta connecting those.
And the demand draw on that gas, we think is hugely valuable to us to our customers and we think we can integrate those very effectively.
Okay. Thanks for that and then if I could sneak in one more cam just on the the bond maturity at Ruby. This April so you mentioned in the release that there are several options here to satisfy the maturity, but perhaps you could just walk us through what those options are.
Also I guess, if you know handing over the keys.
To the bondholders might be an option that you're considering at this point as well.
Given the outlook for volumes and incremental contracts.
Yeah.
I appreciate the question that I'll probably.
Wade kind of going into too much detail recognizing that it is.
An ongoing an ongoing discussion.
A discussion.
What I will say is that we're continuing to work towards a solution alongside our partner Kinder Morgan and clearly.
We'd like to have a solution to this in advance of the first of April but.
Really need need everyone to come to the table so.
Probably just leave it there.
Yeah fair enough okay. Thanks, guys.
We'll go next to Robert Cavalier with CIBC capital markets.
Hey, good morning, Congrats on the majority of my questions, but.
Maybe you can just provide some detail on the exposure of certain guys feelings.
Gas processing fees tied to echo prices, how much of the processing fees are tied that way.
And is there something structurally in Tenda is more in the future.
And related to that there were some unrealized losses on related hedging I wonder if you could explain the hedging strategy and how that interplay with the frac spread business, where you are.
Naturally short.
Gas and whether or not theres, a natural hedge there.
Rob I will take the first part of that question. So in the gas processing business pre pandemic, we executed executed a blend and extend agreement with one of our one of our customers.
In GPU and what it did essentially Rob was.
It's a combination of a base fee, 100% take or pay and then pembina has the ability to participate in upside.
When obviously commodity prices go up so it's it was considered a win win with our customer.
And we obviously as <unk> seen get to participate when when commodity prices are strong. It's the only type of deal we've done like that and it's not something typically we've done in the past, but in this particular, one instance, it was a it was a really good outcome with the customer at the time.
Yeah, Rob maybe just just one additional point is I don't I mean, it was a call. It a one and done I don't think thats the fee structure will be doing in the future and then maybe just to your question as it relates to hedging.
Nothing has changed with our hedging strategy as it relates to our Frac spread business, we continue to hedge approximately 50%.
The frac spread business and that's on our wholly owned business that doesn't include ox Abel. So we're hedging obviously, the propane the butane and condensate and gas purchases on our sales profile throughout the year.
Okay. That's all very helpful and then with the Lotus.
What has changed and the production outlook upstream to cause the impairment charges for <unk>.
Mitsui never say in how those assets been fully written off.
Yeah, Rob I'll take the first part and maybe gives you an opportunity to just weigh in in terms of what we're seeing commercially so youre right.
The foundational contracts under pursue nipper, <unk> and Mitsui expired in Q4 and.
That that led us to take a full impairment on the assets. There are there are opportunities are potential opportunities.
Obviously in the Clearwater area with that activity being.
You know, we're very active at the moment that said.
No nothing to the extent it in substantial probability.
For us to for.
For us to bake into our assessment, but you know what.
We are continuing to work on that I'll give it to Jared if there's anything else there yeah. The only thing I would add Rob is that obviously well maintained high integrity pipeline.
Pipeline assets, we believe are very.
Very valuable and like Kevin said, we continue to talk in and around the area on on different commercial solutions to different types of product in that fight.
Okay. Thank you that's it for me and congratulations to everyone on their appointments.
Thanks, Rob.
We'll go next to Matthew Weekes with IAA capital markets.
Good morning, I think all my questions have actually been asked.
And so at this stage so I'll just hop back in the queue. Thanks.
Well I think that's it.
Sorry, I was just going to say I think thats. It for questions. So appreciate everybody taking the time today, we look forward to an exciting 2022, thanks for all your support.
Thanks, everyone. Thank you.
This does conclude today's conference we thank you for your participation.
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