Q1 2022 Pembina Pipeline Corp Earnings Call
Yeah.
Good day and welcome to the pipe.
Corporation 2022 first quarter results Conference call today's conference is being recorded.
I'd like to turn the conference.
Please go ahead Sir.
Thank you Anna Good morning, everyone welcome to <unk> Conference call and webcast to review highlights from the first quarter of 2022 on the call with me today are Scott Burrows, President and Chief Executive Officer.
It's broke senior Vice President and Chief operating Officer, Jonathan <unk>.
Senior Vice President external affairs, and chief legal and sustainability officer.
Stu Taylor Senior Vice President marketing, New ventures, and corporate development Officer, and David Bishop Senior Vice President corporate services.
I'd like to remind you that some of the comments made today maybe forward looking in nature and are based on <unk> 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 may five 2022 for the period ended March 31, 2022, as well as the press release issued yesterday, which are available online at permanent dot com and on both SEDAR and Edgar.
I will now turn things over to Scott to make some opening remarks, thanks, Kevin We announced yesterday with the release of our quarterly results 2022 is off to an excellent start a strong contribution from our marketing business growing volumes on many key systems and the benefit of new assets placed into service over the past year allowed us to deliver record quarterly adjusted EBITDA.
$1 billion, which is a.
Again achievement for the company physical volumes on <unk> conventional pipeline systems, which serve as a good proxy for permanent broader business grew by nearly 5% in the first quarter of 2022 compared to the same period in 2020, what that trend has continued into April with physical volumes, reaching an all time monthly high.
As Ken will detail in a moment with a strong first quarter and a positive outlook for the rest of the year. We've raised our 2022 adjusted EBITDA guidance to $3 four 5% to $3 $6 billion.
In addition to a strong financial quarter, we were excited yesterday to announce two additional important developments. The first was a 20 year midstream services agreement for the transportation and fractionation of liquids from Conoco Phillips candidates Montney development in northeast B C under the arrangement which ways.
Preceded by the previously announced exclusivity agreement and subject to certain exclusions Conocophillips, Canada has dedicated liquids production from the majority of its acreage with Dennis liquids Rich northeast D. C region of the Montney resource play Conocophillips, Canada is a premier producer in the area and we are thrilled with this arrangement.
The new agreement complements the previously announced agreement with a second montney producer, which commits to permanent volumes from a multi phased development of the producers North East BC Montney acreage on a take or pay basis. Upon the acreage being developed lastly, we've finalized commercial terms of the third leading montney producer regarding significant long term northeast B C volume commitments.
And expect commercial agreements to be signed by mid 2022.
When it sees the northeast BC Montney is a strategically important area and a key driver of growth in the basin and we are poised to benefit from new development in an increasingly competitive environment. We continue to demonstrate that customers value the certainty and dependability of our infrastructure, our strong track record of safety and reliability competitive fees and integrated service offering.
As a result of these long term commitments and agreements.
There have been executed or are anticipated to be executed later this year have and expect to secure the transportation rates to a significant portion of forecasted future growth in the north East BC, Montney, which collectively will support improved utilization of existing assets as well as capital efficient expansion projects into the future.
An important announcement yesterday with to provide updates on our peace pipeline expansions as a result of the northeast B C commitments secured an ongoing conversation with other customers how minutes. Please be reactivating. The previously deferred PPA project, which will enable segregated pipeline service for ethane plus and propane plus NGL mix from the central Montney area.
At Gordon Dale a berta into the Edmonton area for market delivery based on a significant long term commitments from leading producers as I discussed we have clear visibility to the demand for incremental capacity in this region and as a result, we are confident in the decision to reactivate a date at this time. We are also looking forward to the expected placement into service of the face of an expansion on June 1st.
Ahead of schedule and approximately $150 million under budget as well construction of phase I expansion continues we've updated the in service date of that project to the fourth quarter of 2022.
We also announced yesterday that Pembina will not proceed with the previously deferred expansion of the Prince Rupert terminal at this time, Kevin doesn't match with unit train capabilities, along with his current Prince Rupert terminal to provide customers a diversified portfolio of markets.
Given the outlook for strong domestic propane prices and new propane demand sources under development within the WCS be having it believes it can provide customers with a high value offering that meets their egress needs in the near to medium term, how many will continue to evaluate and enhance its portfolio of propane sales auctions and will consider future expansion opportunities as market conditions evolve.
During the quarter, we also announced the permanent KKR will combine their respective western Canadian natural gas processing assets into a single new joint venture entity, which we are currently calling newco permanent or have been partners in various in midstream for over four years.
We work well together and share a mutual desire to invest capital and generate attractive returns. The formation of this new joint venture is a natural extension of our relationship unlocks value for Pembina increase another growth platform. We are extremely pleased to be creating this exciting new company with KKR to drive real synergies and deliver a wider suite of commercial opportunities.
We also were pleased to announce our intention to increase permanent common share dividend by three quarters of a cent per share per month or three 6% upon closing of this transaction.
We continue to work through the regulatory approval process associated with this transaction and we are now planning for the transaction to close in the third quarter of 2022.
On the ESG front permanent delighted to be partnering with TC energy to jointly develop a world scale carbon transportation and sequestration system, you don't Wanna see Alberta carbon grid. This project over time could grow to sequester up to 20 million tonnes of C. O two per year and will allow pembina to play a vital role in helping Alberta based industry effectively manage emissions during the first quarter we were pleased.
When the government of Alberta announced the Alberta carbon grid has been successfully chosen to move to the next stage of the provinces carbon capture utilization and storage processing the industrial heartland.
Page includes exploring how to safely develop carbon storage hubs, north and northeast of Edmonton, We look forward to progressing this important project over the next few years.
Finally.
We continue to have success in alliance pipeline re contracting recent open seasons, including six open seasons offered to the market during the first quarter of 'twenty to 'twenty. Two you have resulted in alliance being contracted over 90% for the current gas here and 75% for the next gas year over the past year Alliance has become a real good news story as it re contracting success highlights the value of it.
Life is reliable and highly competitive access to Midwestern U S gas market and as a conduit to the Gulf coast and its robust liquefied natural gas market.
I'll now pass the call over to Ken to discuss in more detail the financial highlights of the first quarter.
Thanks Scott.
<unk> noted Tim in our recorded record quarterly adjusted EBITDA of one point over $6 billion, representing a 20% increase over the same period in the prior year the.
The first quarter was positively impacted by stronger marketing results due to higher margins on NGL and crude crude oil sales and.
And lower realized losses on commodity related derivatives combined with higher contributions from our stable.
Improvements in commodity market prices, including NGL crude oil and condensate contributed to the significant increase in results for the marketing business.
Contributions were made by NGL marketing, where higher margins resulted.
When seasonable inventories built up during the second and third quarters of 2021 were sold during the first quarter of 2022, and a higher price environment. In addition, crude oil marketing realize stronger blending margins due to rapidly rising crude oil price environment.
Adjusted EBITDA also benefited from higher volumes in combination with higher tolls on the peace pipeline system largely due to inflation.
Recoverable costs on the horizon pipeline related to an extensive slope mitigation project.
Contributions from the Prince Rupert terminal coming into service in March 2021.
And a higher contribution from garrison midstream, which was due to the height development projects entering service in March 2021, as well as higher volumes at the das and assets.
These positive factors were partially offset by lower contracted volumes on the Nicosia and Mitsui pipeline systems due to the expiration of contracts.
Lower contribution from Ruby pipeline, and higher general and administrative costs due to the higher long term incentives driven by a larger increase in perm in the share price compared to the prior period and 10 minutes performance relative to peers.
Pam I recorded earnings in the first quarter of $481 million, representing a 50% increase relative to the same period in the prior year.
In addition to the factors impacting adjusted EBITDA earnings was positively impacted by lower impairments and a higher unrealized gain on commodity related derivatives for certain gas processing fees tied to eco prices.
First quarter earnings were negatively impacted by higher income tax expense and a lower share of profit from Ruby pipeline.
Total revenue volumes of $3 4 million Boe per day in the first quarter were down approximately 3% compared to the same period last year decrease was the result of lower volumes in both the pipelines and facilities divisions due to contract explorations and third party outages offset by higher volumes on certain systems and new.
Assets placed into service.
With our release yesterday Pembina raised its 2022, adjusted EBITDA guidance range to $3 45 to $3 $6 billion from the previous range of 335 to $3 55 billion.
Relative dependent as initial guidance the revised outlook for 2022, primarily reflects stronger marketing results as a result of higher expected NGL and crude oil prices.
Partially offset by higher realized hedging losses in.
In addition, the revised outlook excludes adjusted EBITDA from Ruby pipeline from April <unk> through the remainder of 2022 pending resolution of the chapter 11 process.
Current guidance does not include the impact of the Newco transaction.
Cash flow from operating activities is expected to exceed dividend and the capital investment program in 2022, as previously disclosed Pembina expects to allocate a portion of the excess towards common share repurchases with the balance available for incremental capital investment debt repayment or.
Or additional distributions to shareholders.
Including the shares repurchased in December of 2021, 10 minute has now completed $58 million towards the 2022 target.
Based on strong financial results in 2021, and the outlook for 2022 permanent is strengthening its financial profile by paying down debt forecasted debt levels by the end of 2022 are expected to position the company favorably relative to its stated leverage targets necessary to preserve its strong triple B credit rating.
I'll now turn things back over to Scott for closing remarks.
Thanks, Ken for all our message to you today that we are very pleased with the start to the year and potential. It has created to deliver strong results. In 2022, we remain very confident about the prospects for the business any optimism we have conveyed over the past few quarters regarding the future of the Western Canadian City.
<unk> remains intact and growing the positive discussions we've been having with customers over the past year are now translating into contracting success and long term commitments for future volumes.
This will support higher utilization of permanence existing asset base as well as accretive and capital efficient new growth projects with significant benefits expected for permanent our stakeholders before we wrap things up I want to remind you that pembina will be holding its annual general meeting of common shareholders. Today at two P. M Mountain time four P. M. Eastern time once again this year it will be a virtual 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 further information on <unk> virtual AGM. Please visit the shareholder information page under the Investor Center tab at Www Dot, having a dot com and closing we would like to once again, thank all of our stakeholders for their support operator. Please.
Open up the line for questions.
Okay.
Thank you I'd like to ask a question. Please signal by pressing star one on your telephone keypad.
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Once again that is star one if you would like to ask a question.
Well pause for just a moment to allow everyone an opportunity.
And we'll take our first question from Jeremy Tonet with J P. Morgan.
Hi, good.
Okay.
Good morning, Jeremy.
Just wanted to start off on the guidance increase here and I'll refrain from asking annualized in the first quarter versus the whole year guide, but really just wanted to see the raise that was baked in here is this just the outperformance in <unk> marketing or do you see kind of improvement for the base business too.
And if you did where to factor in the uplift from Newco JV is there any way to kind of give us some color what type of uplift that would be what would be the first year uplift.
From Newco JV.
Sure Jeremy I do it's a combination of both you know I'd say on the as you recall marketing tends to have its biggest quarters in Q1 and Q4. So so by getting through Q1, we have a good sense of where our typical <unk> best quarter for marketing is that's really.
What's driving the increase on the lower end of the guidance range and then on the higher end. It's both a combination of increased marketing outlook as well as growing volumes throughout the system as it relates to newco is always it's always difficult to forecast because it depends on when that closing date is.
But if we close some time.
In Q3, it's probably something in the neighborhood of $15 million to $20 million.
Yeah.
15 to 20 would be the uplift for the balance of the year or kind of an annualized uplift just to clarify.
But for the balance of the year.
Got it thank you.
Then kind of shifting gears a bit towards our capital allocation strategy you touched on a bit in the remarks there.
But just wondering you know we've had factors change since the last time, our last call and you've talked about it EBITDA.
EBITDA is much higher than expected are there are some more growth capex new projects coming back.
And also a higher share price. So just wondering how these factors come together in your mind with regards to the cadence or outlook for buybacks and.
How you think about that at this juncture.
Yeah, if you think about the midpoint of the new guidance range versus the midpoint of the old guidance range.
$75 million that that's roughly the increase in capital we expect to see in 2022 for the REIT sanctioning of phase <unk>. So you can you can think about the increase in guidance really going towards funding.
Funding phase eight as it relates to your question around capital allocation.
As you saw in our notes yesterday, we continue to buy back shares I would say that over the next quarter. We are going to spend some time looking at at what the plan would be for Q4 and the remainder of the year as you as you rightly pointed out our share price has gone from 40 to 50 or 10 year yields have gone from 3%.
455% and so paying down debt both to position ourselves for growth, but also from an economic perspective.
Has become more attractive so no change to the guidance right now, but it is something we're spending a lot of time thinking about.
Got it and just a quick last one if I could any thoughts you have on resolution should blueberry River first nation situation and or thoughts on that in general and how that impacts your guidance and outlook.
Sure I'm going to turn it over to my colleague Janet to talk about our perspective on the situation.
Yeah, Good morning, Jeremie, it's Janet.
We've been hearing very positive.
Outcomes coming from the discussions between the government of BC and various indigenous communities, including the blueberry liver first nation and so we do expect to have that resolved I, it's difficult to anticipate the timing but.
We're certainly watching it closely and we'll be.
Looking forward to some resolution I would say you know in the coming months, Jeremy I would just add given the discussions we're having with producers. The arrangements. We have entered into that all gave us confidence to sanction phase eight.
Got it that's very helpful I'll leave it there thanks.
Thanks, Jeremy.
We will now take our next question from Matt Taylor with Tudor, Pickering, Holt and company.
Yeah. Thanks, guys for taking my questions here I wanted to go to Cedar LNG, Oh, it looks like you're making good progress. There can you can you just give us an update on the commercial discussion both in terms of new customers given what's going on with global pricing and then obviously existing relationships and then just giving us the guideposts for finance.
The plant when you reach the plan to reach out.
I'll jump in and starts to I'll talk about our commercial conversations.
Just itself we're.
We're very busy on the on the engineering side and on the.
Regulatory consultation side and filing of applications with respect to commercial we've we've been out talking to a number of potential customers off takers regarding the Cedar LNG project.
<unk>.
The response has been very positive.
We're making good progress.
The fact that Cedar LNG.
<unk> has a lot of.
Very favorable characteristics from a cost perspective from a from a ESG perspective from the indigenous community perspective, and it's very attractive to the off taking off take market.
And with the pricing that's there today, we've had very very positive.
Positive conversations we're working very hard to progress from these conversations to two term sheets and that'll be whats going to take place for the remainder of this year.
With financing I'll turn it over to Cam.
On the finance side, I mean, I think obviously, that's a big piece of it.
It's an active work stream.
We're looking at a lot of different options. There. Obviously, we're working with are working with our partners a hydro to find the most accretive solution I think ultimately for Pembina, it's quite a manageable quite manageable bite size and when you consider.
The scale of it you know the 50% own ownership dependent and the timetable for the spend which as you know really over a four year timetable so for permanent quite bite size and we're working very closely with the highest too.
To help them with their financing situation.
More to come on that obviously over the next over the next few months here as we as we get closer to a potential up I D, but but definitely seeing some positive signals so far.
Yes, thanks for that.
Sometime next year is that what you're still targeting.
Yes, we were shooting for some time following Q1.
Awesome, great. Thanks for that and then part of your sensitivities that you've previously disclosed was $39 million impact for every move.
50 cent move in April pricing I guess I'm just wondering if this was factored into your updated guidance and then if you could just.
Run through some commentary on the puts and takes of the higher Ecu pricing, although it might be a bit of a negative on the marketing side, but what youre seeing in other parts of your business that may offset.
Yes, Jeremy I'll I'll take that I mean.
All right Matt.
Definitely you're correct in terms of the high nickel price is putting pressure.
On the back half of the year, a frac spread that being said, we are 50% hedged in and so you know on the way up when propane prices are rising we always caution people to.
To not get too far ahead of themselves because we are 50% hedged on the on the NGL side. Likewise on the input costs were 50% hedged on the eco side. So to the extent Eagle has been running we are 50% hedged, but we did factor that into our updated guidance range.
It has risen since that time.
But we're still very comfortable with with that range and then on the flip side.
It's got the indirect benefit of obviously, our producer community is making a significant amount of money.
And rapidly paying down debt.
Hopefully returning more to the drill bit here to come and then on a direct basis, we've seen the eco to Chicago basis, why don't know pretty significantly. So we're benefiting both from a strong interest in alliance as.
As well as upside AD hoc stable with some contracts and other things that are tied to that differential so lots of puts and takes across the board, but it all gives us our comfort in terms of our guidance range.
Yes, thanks for that Scott and then one more if I may just to finish this off can you just give us some more color on why you canceled the LPG expansion cause from from the seats that were in global pricing seems elevated you've got Alberta with the discount moving back to historically wide compared to U S benchmarks. So.
Is this more of a decision relates to scope and infrastructure required or or can you give us an update on the on your strategy going forward and how you are thinking about propane.
Yeah.
Yes, I'm going to turn that over to Jarrett, but maybe before I do I'll just clarify that it wasn't cancelled. We just continued to defer that project and assess longer term the need for it so.
I think theres a difference between continued deferral and cancellation, but Derek do you want to take that one.
Good morning, Matt Yeah, what.
As Cam said in the in the opening remarks, there, we obviously have unit train capabilities and we can deliver our propane.
<unk>, North America, and domestically to so many different destinations, providing our customers and ourselves.
Wide range of diversification.
At this time.
You know looking at the very strong domestic pricing here.
Here in Canada, and the United States you know its we feel that the you know the roughly the 19 to 20000 barrels of of export capacity that we have in our portfolio.
Is sufficient.
And I'm, just moving forward with with providing our customers the best options domestically and with that slice of pie going internationally. That's that's our our best outcome here for the for the short term and like Scott said, it's not you know.
Internet canceled it's just.
You know, we're just going to continue to evaluate.
And if market conditions change drastically.
We potentially could.
Anything to add snook on the on the marketing side.
No I think you've covered it very well Gerard we.
So we evaluate all the markets that are available to us.
We're very.
As jure said, we're happy with the mix of.
Mark is that we have in the portfolio today, we believe the North American markets will remain quite strong are our unit train capability is described allows us to access those markets very well and we think as we sit here today and look at things that we're comfortable with the markets. We can access and believe it to be the right choice at this.
As stated if that changed in the future, we will move and make the change to look at more international markets as they can come available.
Great. Thanks for taking my questions here guys have a great weekend.
Thanks, Matt.
And we'll take our next question from Linda.
With TD Securities.
Yeah.
Thank you.
Expanding on markets what are your latest thoughts on doing more with the molecule moving down the value chain are potentially getting involved in a petrochemical type investments I'm, including PTH is that off the table based on your comments there can you just.
Provide us with an update on how you're thinking about that.
Linda It's Stu again, yeah, I mean, we continue to look obviously the market is evolving.
The IPL project at <unk> will be coming into service.
We've always liked that project.
As we sit here today, we look at what markets are available to us moving down a number of value change permanent plays a large role in feedstock provider.
We're working with potential petrochemical projects that are in the press and being described we think we have a major role to play in providing and continuing to provide feedstock on a go forward basis, we look at what opportunities to continue to move further along as you described that.
None of those are are completely.
The table for us and we're trying to evaluate where pembina best place again, we think we've.
Where historically been a great feedstock provider and we'll continue to do so and we'll look to evaluate do we step further along as those markets progress we'd like the pet Chem space, we like we like being the provider of feedstock and we'll look at what opportunities present themselves on a go forward basis in the future.
Thank you and maybe just another question around all the conversations youre, having given your incumbency in the region.
Your discussions with producers.
Are you seeing acreage commitments, becoming the standard what are the other attributes of your commercial agreements that you're negotiating how are they shifting if at all or producers still preferring a full path I'm.
Are you looking to ensure that any sort of inflationary cost pressures are passed through to customers or are they resisting that.
Any color you can provide on on on those discussions would be helpful.
Gary would you like to take that one.
Yeah. Thanks, Scott Good morning, Linda.
So there was a lot there so I'll try to break it down into.
The the area dedications so.
The ones that we have been have been talking about most recently, they're very similar they do come with take or pays.
Once the customers start engaging in and calling on on services.
Through the value chain.
A little bit differently, some of our some of our customers choose to build their own gas field base gas processing and some leave that up to us like.
The.
Area dedications with there are some midstream and CRP or also our duvernay dedication with Chevron and coops back in the conoco scenario, they've chosen to utilize permanent value chain through transportation and fractionation and marketing.
Obviously, the term Terminalling and rail.
So it.
Where as we continue to grow it allows us to diversify our contractual arrangements.
To meet our customers' customers' needs.
I think inflation.
That's always been a part of.
Our contracts with our customers and our agreements with our customers.
So those those typically are in our agreements and I think that's.
I think that answers your question.
Yes, Thank you I'll jump back in the queue.
Thanks Linda.
We will now take our next question from Rob Hope with Scotiabank.
Good morning, everyone. A follow up question you continue to secure additional volumes for northeast B C and I guess northwest Alberta.
And we're looking to draw them into Fort Saskatchewan and the region. How are you thinking about your frac capacity and when you could need some additional.
Assets in that region, and then I guess as a follow up does this kind of also imply that youre. Prior start prior strategy potentially Joseph field Frac could be pushed off further just given.
It looks like you continue to want to move volumes down to the floor.
Yes, Rob I'll take that and Garrett please jump in it if you if you want to have additional comments, but in general our fractionation facility is getting pretty tight.
As we look forward to the future we're back filling contracts and so we have kicked off engineering on RFS far we've talked about that in the past and that continues to be an option and something that we continue to assess its probably a little too early to talk about timing on that but we are working on it in the background given the tightness that we.
See in the Frac in terms of free field Fracs I think our preference is still to centrally located in red water just with the scale. We have there with the land with a unit train capability with our ability to make low methanol propane as well as additional sources.
Like the IPL PTH coming online, we still think it's the ideal spot to put it.
Is there anything you want to add to that.
Okay.
Yeah, well well said Scott further to that you know.
The storage the field Fracs that we had looked at we just couldnt extensively find adequate underground salt cavern storage. Obviously, you would all have to be above ground. So increasing your cost structure. So you know I think we've pretty much eliminated the opportunity of field scrap due to manifest rail.
And lack of storage. It just provides for a inefficient operation so continuing to look although it intuitively you're sending your product a long way.
And to the Edmonton in the Port area. It does makes sense due to our vast.
Feed cavern storage or spec cavern storage, our rail infrastructure access of numerous markets out of the Fort Saskatchewan area. We will continue to focus going into the floor due to economies of scale, which will increase the netback for our customers.
Alright, thanks for that and one more if I may.
We are seeing kind of increased competition for moving liquids out of northeast BC and northwest, Alberta, but you continue to do very very well on the contracting side can you just maybe comment on kind of what key benefits our customers are saying regarding your your offerings versus the competition.
Yeah.
So number one obviously.
We're in service.
Our pipeline our organization has been around for 68 years and about the communities in Western Canada. So, we're we're well known to the communities and we have assets that are in service.
Obviously asset better and service can be expanded fairly quickly through pump stations and or or laterals and or some you know you know like our phase right now will have segregated product flow all the way from from Gordon Dale into Edmonton and that really optimizes their system. It takes batching.
You know those types of things out of out of the system, which ultimately lowers your cost structure.
No.
Not all of them.
Not only do our customers look at our capital fee, but they also look at our operating fee and when you have a very large volume base over the asset we can.
We work very hard every day to drive down the operating cost for our customers. So I think that is part of it and obviously our connection into.
Our pipeline system has a connection into all of the Fracs in and around the Fort Saskatchewan area, not only ours, but also our customers are our story or.
Our competitors so our customers like that Optionality, we do win a lot of the volumes into the red water facility.
But we do provide that optionality for our customers to go to other places on the condensate side, we have multiple connections into condensate delivery points. So I think it's the whole package that the customers really like.
Alright, Thank you I appreciate the color.
And we will now take our next question from Robert <unk> with CIBC capital markets.
Hey, good morning, everyone I just had a couple of questions left on the conical Phillips our agreement.
So it sounds like there's enough infrastructure, there with phasing in 79, so that there.
There's not a lot of capital requirements in the near term in the country and some operating leverage but as they call on additional capital.
It sounds like that's going to be supported by take or pays but will bear the capex risk is that the way to look at it.
Yeah.
Good morning.
Yes, so think of it as I wouldn't think of it that is one sole customer that would require a permanent to deploy capital I think the success that I. Just we just previously talked about in the in the previous question. We will one day in the event that all of our customers that that have agreements with us continue.
To grow as per their they are publicly disclosed plans, we will have to deploy more capital.
To continue to capture those volumes and increase the utilization you know, let's call it from from the Alberta side of our system.
Hmm.
So we will be working very closely with our customers looking at their development plans to make sure we can accommodate that growth profile.
It's really exciting and then you know obviously.
I think theres a couple of questions ago, we do have to continue to evaluate the frac capacity as well because it's this isn't only NGL focused this pardon me condensate focused theres going to be significant Ngls coming here and then also with the you know there will be incremental gas from from LNG, Canada owners.
Asset will be coming into service.
So let's call it a few quarters after our phase <unk> capital deployment in the first half of 2024 and that will drive more ngls to come so it will be dynamic and fluid, but we think we're well positioned to deploy that capital and meet the customers' demands.
Okay fair enough on the aggregating supply from multiple customers to drive the infrastructure, but I just want to make sure that there is a.
Given the inflationary environment, where and that Theres some protection to Pamela.
You know the infrastructures required three or four years down the road.
They havent locked yourself into a rate that doesn't.
Back to you from inflation.
Rob Great question.
I was going to say our tools typically have CPI insulators in them. So to the extent that there is some capital cost creep, we should be able to recover that in our tools.
Okay, that's what I thought.
Thank you and then next question here I just wanted to confirm something I think I heard in response earlier, but there isn't talked an opportunity the market the liquids associated with the.
Conocophillips, Canada agreement.
Sorry can you repeat the question.
Yeah.
I just wanted to confirm that you are you do have an opportunity in the market the liquids associated with the Conoco agreement.
That's correct.
Okay last one for me.
Made some progress over the last couple of quarters here with alliance contracting.
It gives us pretty good visibility for the next couple of years, but I'm wondering if you can.
Provide some color beyond 2023 in terms of how much you need might.
It might be contracted to the extent that that's not a.
Immediately commercially sensitive.
Yeah.
We have an open season ongoing there's actually closes today, Rob for longer term and so you know maybe.
Next quarter, we'll be in a position to update that but we're in a bit of a commercially sensitive time period right now so I prefer to not answer that question right now other than to say the demand for that pipeline is robust.
Okay. Thanks, everyone.
And we'll take our next question from Ben Pham with BMO.
Alright, Thanks, Marty I wanted to go back to Prince Rupert and I see it.
Reevaluate it.
The net backs and shipping costs have gone up in there.
Speaking of your customer.
Customers on this what is your expectation in terms of where the propane net backs or like what's the most attractive as it is at the P. H side of things producers or more on a swap for part properly nuts, that's perhaps driving some decision on Prince Rupert.
Ben It's Stu.
We're looking at all of our markets.
Right now the you know the PD H Mart facilities coming into service, that's not up and running as of yet.
We've really.
Enjoyed shipping and our capability to get product out into the Sarnia market. This this past winter we've had great success there.
We've seen rising prices in some of our U S deliveries as well and so you know that's been a market that the Saudi market in particular as you know it's been a historic good market for us over the long term, we see that continuing.
We've seen the rises in the in the fee pricing are we like where we're sitting today and we like the balance that we have so we look at all of our markets and the net backs do move.
But you you you've hinted area or stated a couple of things you know rising shipping costs and where we're at so we evaluate the markets. We look at the cost to our facilities in accessing those markets and at this point in time believe we're best served to continue too.
Ship as we are capable of today and look to feed the markets that are available to us in North America, including opening up markets such as that PTH. So we look at it on a go forward basis, but it is dynamic as the pricing does change.
Okay.
And if they arent planning to expand.
Not plan to expand with Commscope in the near term is that.
Is that facility.
And how important is it to the store.
Do you do.
You need it.
Well I mean, it's it's currently we're shipping almost 20000 barrels a day, we're accessing international markets we believe.
It it provides diversification and value to our customers and to ourselves when you say as far as need we can move that was barrels we those those barrels are loaded into railcars shipped to the coast. We have the opportunity to move those barrels around North America as we see fit.
But we like we still really like the Prince Rupert terminal, we like it at the size. It is today given the market dynamics that we see in front of us right now.
And you.
It's something that I think our producers and over the long haul will be a valuable asset to the Pembina store and we we continue to look at how we can add.
Access markets on a go forward basis, we don't Wanna Overcapitalized, and we want to make sure that we're expanding at the right times such that we ensure that our customers receive the best netback that they can get.
Okay, Great and then my my last one isn't it any update in terms of the timing on.
Our CFO .
Yes.
I'll take that one no no immediate timing I mean, where we're actively in the process and would hope to conclude that in Q3 Q4 this year.
Okay, that's great. Thanks, everybody.
And we'll take our next question from Robert Kwan with RBC capital markets.
Hey, good morning, if I can come back to it.
Hanukkah agreement I know, there's been a lot of questions I make sure I'm, capturing but specifically are there any.
Take or pay components.
The base volumes coming out of the area of dedication.
Good morning, Robert.
Oh, yes.
Sorry, the question was.
I'm, just having a hard time hearing right now a bad connection.
Go ahead. Jeremy was described you described it as an area of dedication. So I'm. Just wondering are there any take or pay components, whether on an annual basis over a multi year basis. That's part of the base volumes that would come out under the deal.
Yeah.
Yes, there would be Robert.
And would they roughly approximate your quote unquote typical.
You kind of take or pay structure of roughly 75% or would it be something left.
No they would be in line with our with our typical with their typical contracting strategy.
Yeah.
Okay, that's great.
I can just ask something a little more philosophical than you have a number of joint ventures, although a bunch of them were inherited by.
But you are entering into a new one and most of you are the operator so.
Just as you grow you know want to grow and diversify your business will be mindful of the share count do you see additional joint ventures at something being attractive.
The company.
I think so Robert especially as we move into new energies and energy transition in a lot of the stuff Stewart and his team are working on.
There are certain areas, where we bring a lot to the table, but we don't necessarily have the same experience as some of our potential partners.
As it relates to that area. So specifically in the new ventures area I would say that would be the area where were joint ventures are intriguing to us.
And do you feel just philosophically you get to a point, where there are too many joint ventures or are you comfortable, especially just if the vast majority of them are operated in just the way you report proportionate type numbers at that mitigates a lot of that.
Yeah.
Well philosophically from my perspective.
You know I think that they are a great way to leverage different skill set to move forward in terms of number of joint ventures I don't know if we've sat down and said if there's a hard and fast number of joint ventures, I mean, I think from our perspective, what we've tried to do and always do is give investors clarity into what it looks like on a.
Consolidated base, both from an EBITDA, but as well as a leverage perspective to try to demystify. It for our investors. So I think as long as our Investor relations.
Disclosure gets investors, what they need that I'm not too worried about the number of joint ventures, we have.
Got it if I can just finish on methane Metz here, just with the run off.
Are there any kind of opportunities do you see the.
The additional contracts repurpose extend into some other plays in.
Maybe just taking a step back to are there any takeaways that you think how these projects quite out theres a lot of fanfare anywhere bell.
Whether that just relate to seeking longer term contracts for as you go forward with other projects are higher cash on cash returns during the contracted carrier.
I would say that that in that particular area given the growth we're seeing in the clear water and the surrounding plays we think there is opportunities for that pipelines and were in some active discussions, but that's about all I can say on that right now.
Okay, and just the greater question of.
How are you thinking about contracting other projects as you go forward.
Just given how does quite well I mean, if you recall he recall on that that 10 that was a 10 year contract of course, we'd always like longer but it's it it's a constant negotiation with our customers. So.
The extent, we were able to get longer contracts I think thats something we would have would have pursued.
You know I think from the perspective of that pipeline.
There's going to be more to say on that in the coming months here.
Okay. That's great. Thank you very much.
Well take our next question from Andrew Kuske with Credit Suisse.
Thanks, Good morning, maybe a big picture question that covers a bunch of different things and how do you think about just the outlook for bluegrass and really across the gamut of stuff. So.
So crude liquids in the basin natural gas Ngls, and then really in your own system do you have points of congestion in certain pockets.
There's other areas, where you may be facing competition, and then where do you have excess capacity.
Hum.
I'll try to answer I mean, if if I back up a step and think macro Lee.
Obviously the line three expansion coming on which was very helpful for the basin, but it sounds like that's it.
<unk> up if not if not full already so I think we're all waiting patiently for T. M X to come into service to really unlock and add that incremental egress out of the out of the basin and not just solely rely on rail as a as a swing factor as it relates to crude egress. So <unk> is obviously a.
A pretty important asset for the future of the basin from a gas perspective.
There's still multiple areas that have capacity as it relates specifically to pembina.
You know as we've been trying to highlight here alliance is very full and we expect to be full for a period of time to getting to the point, where we're starting to think about what an expansion on that pipeline might look like as well as it relates to Ngls.
Most of that moves out on on <unk>.
Unit trains as you're well aware, we also have a new source coming online with Ipl's PTH, but as I talked about earlier in our conference call. We are seeing some some tightness in our frac capacity.
In the fourth and then as it relates to the conventional pipeline system. There. There's tightness today, obviously phase seven comes on in a month here phase nine comes on at the end of this year and then phase eight we just re sanction. So we're debottlenecking the parts of the system that.
That debt are currently or are forecasted to be constrained once those expansions come on we will have some capacity and after that some some low cost pump station capacity to continue to to grow with our customers.
That's very helpful. And then I guess as you start to think about developing a virtuous producer intentions to increase activity.
All that plays into your footprint really from the existing expansions as we've outlined them into some of the low cost stuff coming down the pipeline and I guess, but maybe it's the most expensive thing that you would do and maybe because benefit would be on the frac side is sort of a fair characterization.
It is fair.
But you know with our existing footprint and the amount historically, we've been able to invest in caverns in rail.
The investment really is on the facility itself with a lot of the ancillary business.
Already in place so from our perspective, it's a very attractive expansion opportunity.
So does this assume a frac goes ahead you would expect.
The same multiplier effect across the franchise or maybe even a better multiplier effect across the franchise given your positioning.
Correct.
Okay. That's great. Thank you.
Well now take our next question from Matthew Weekes with IAG capital markets.
Good morning. Thank you for taking my question just a.
So question just looking at our the rising rate environment. We're in and I was wondering if you could just comment on on that end and sensitivity to interest rates in terms of maybe how much of the debts are fixed maturity profiles like or or maybe interest rates swaps that you are that you have on that.
You against rising interest rates.
Hey, Matthew it's Cam yeah, So we've done a.
Really programmatic approach clearly for some time to maintain.
Very high proportion of fixed rate debt. So as we stand today, if you look at sort of the Pembina.
Permanent corporate debt profile, which is about $10 5 billion, 95% of that is fixed rate today and the average tenor of that is in excess of 10 years, it's sort of closer to almost 15 actually.
When you when you look at the debt that we roll up with the Jv's, you know theres, a little bit more floating rate debt. There. We have managed to introduce some some hedges into that portfolio. So rolling that up in totality of our total proportionate debt were to the tune of just under 90% fixed rate debt. So we've really got a lot of interest rate.
Protection.
When we looked at when.
When we look at.
The refinancing risk again, we've really tried to maintain a really stable ladder to our debt portfolio. So.
This year, we've got one term loan a.
Our bilateral term loan which comes due.
And we've got.
Just just around.
About $500 million or so of bonds that come due in the second half of the year.
So we'll be looking at that obviously as Scott mentioned in his capital allocation comments I mean, we're obviously generating considerable free cash flow right now that always remains an option and looking at that but really.
The upcoming maturities are very manageable and are in terms of refinancing.
<unk> P said I'd comment is obviously, we've got a considerable portion of hybrid capital in our structure.
The press and the hybrids and we've got a couple of resets coming towards the tail end of this year and again, we'll be looking at at the various alternatives.
Two to handle those.
Obviously reset they can be redeemed.
And so we'll be looking at the optimal approach there as we get a bit closer to the timeline for that.
Okay. Thank you and just a follow up question.
The debt and thinking about our energy transition opportunities going forward and how a project like this could could take up sort of a greater amount of spending going forward do you see any opportunities for any sort of green financing access.
It's definitely something we are spending some time on.
Obviously, theres a number of products.
In the market to the tune of sustainability linked loans sustainability linked bonds.
The loan pieces is probably something that is the first step for us.
Something we are spending some time on.
And once we've got that tack down you know I think we will start looking at some of the some of those other alternatives on the on the S. L b framework or potentially even a green bond related to a specific projects. So certainly something we're looking at it as these opportunities in scale continued to mature.
It's something we'll definitely look advantage of.
Okay. Thank you I appreciate your answer on that I will turn it back and have a great weekend.
We will now take another question from Patrick Kenny with National Bank financial.
Hey, good morning, everybody I'm, just on the Alberta carbon grid as you move through the design stage of the project any update on the need to bring in other partners to help firm up your supply sources, just thinking, namely from the oil sands.
So perhaps you could clarify if there's any potential to work alongside the pathways group.
The link ACG into the Cold Lake region.
Just thinking given.
The 37, 5% ITC not sure if that gives you a little bit more financial flexibility.
Perhaps overbuilt the scope of the project or maybe even participate in.
Some of the capture investment opportunities with your customers.
Patents to capture some of that or try to we're in the process as we speak with the government.
We the first part of the carbon sequestration process was the industrial Heartland and so we were one of the parties selected to come forward with sequestration.
Opportunities for emissions from the industrial Heartland, we're working hard with our partner TC energy building out the scope of what that project will entail we will we're looking at the meters within the industrial Heartland, who will ultimately become our partners our customers sorry.
And we're working on our scope working on the the customer outreach and communications and we continue to do to work with the government of Alberta and are waiting some more clarity on their process as we go forward.
As described they'll come out with evaluation agreements, which you will negotiate evaluate your proposed acreage for sequestration capability and then ultimately move to sequestration permit as you prove up the sites.
The government just recently closed a second process people did submit.
Our submission for outside of the industrial Heartland emissions outside of the industrial Heartland what other areas.
We participated in that as well we continue to look.
And look at partners and customers and believe there is room.
For working together as an industry and with other players in this space we have had conversations.
With the other players in announced projects such as pathways.
Those are ongoing people are are progressing their own projects at this point in time, but I do believe that there is opportunity to partner in the future with others of a variety of others existing producers E mirrors indigenous communities and new.
New technologies that could be used in this space the government grant.
Tax credit Thats been announced does give a bit more freedom. We've not at this point looked at the capture side of the equation, we stuck to the sequestration as far as our scope, we've got a lot to do.
Looking at the transmission and sequestration side, so we haven't progressed too far.
Into that capture side, I think if that answers everything else Pat.
It does yeah, that's great color. Thank you.
And maybe switching over to alliance and given the heightened demand here for securing egress into the Midwest.
You mentioned.
As a conduit into the Gulf.
Perhaps you could just help us frame the end game for alliance.
As a meaningful connection to LNG off take longer term what needs to come.
Come together here I guess from a BD or perhaps an M&A perspective downstream of Chicago to again bring that longer term vision towards reality.
Yeah, I'll take the M&A part Pat I think from our perspective producers are able to do that contractually right now and are doing it. So I don't I don't think we need to see any sort of acquisition to link those two.
Things together.
What we're seeing we're seeing that we're seeing it today happen and we think it is going to continue to happen, especially as people are securing incremental LNG capacity out of the Gulf coast and the long term outlook for LNG. So I think we're able to provide that conduit into the Midwest and ultimately Gulf coast, LNG without having to own incremental assets.
Okay. That's helpful.
And then just last clean up question here I'm not sure if your comments or quantify what the offsetting impact.
Removing the EBITDA contributions from Ruby had on your revised EBITDA guidance range for the year.
Yeah.
Yeah, we're not going to get there were so many gives and takes as it went into it we're not going to get into specifics.
No fair enough I'll leave it there thanks guys.
Thanks Pat.
Yeah.
There are no further telephone questions I'd like to turn the conference back over to Mr. Burrows for any additional or closing remarks.
Well. Thanks, everybody. We appreciate you dialing in and listening to our story, we're really pleased with our results and hope to see you virtually at our AGM. This afternoon, if not have a great weekend.
And once again that does conclude today's conference. We thank you all for your participation you may now disconnect.
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Yeah.
Okay.
Yeah.
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