Q2 2022 Pembina Pipeline Corp Earnings Call

Good day ladies and gentlemen and welcome to the PIMBINA Pipeline Corporation 2022 Second Quarter Results Conference call. Today's conference is being recorded. At this time I'd like to turn the conference over to Cameron Goldade, PIMBINA in Term Chief Financial Officer. Please go ahead.

Thank you Keith and good morning everyone. Welcome to Pemmentist Conference call and webcast to review highlights from the second quarter of 2022. On the call today we have Scott Burrows, President and Chief Executive Officer, Jared Sprote, a Senior Vice President and Chief Operating Officer, Janet Laduka, Senior Vice President, external affairs and Chief Legal and Sustainability Officer, and Stu Taylor, Senior Vice President, Marketing and New Ventures and Corporate Development Officer.

I would like to remind you that some of the comments made today may be forward looking in nature in our based on feminist current expectations, estimates, judgments and projections.

Looking statements 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-GET measures. To learn more about these forward-looking statements and non-GET measures, please see the company's management discussion analysis dated August 4, 2022. For the period ended June 30, 2022, as well as the press release, PEMIN Issued Yesterday, which are available online at PEMINDA.com, non-Bullets, Cedar, and Edgar.

I will now turn things over to Scott to make some opening remarks. Thanks Cam. As detailed with our release yesterday, Pemina delivered another strong quarter with adjusted EBITDA of $849 million dollars, which was a record for a second quarter. While we typically see a sequential lower contribution in the second quarter from Pemina's NGL marketing business, our results benefited from continued growth in volumes across many of Pemina's systems, higher NGL margins, and a strong contribution from the crude oil

As Camel detailed in a moment, with strong year-to-date results and a positive outlook for the rest of the year, we have raised our 2022 Adjusted EBITDA guidance to 3.575 to 3.675 billion dollars. cylinder.

Throughout the second quarter, we continue to progress our portfolio of growth projects, notably by bringing Phase 7 Peace Pipeline Expansion into service in June ahead of schedule and 150 million under budget by reactivating to phase eight expansion. Likewise, construction on the Phase 9 expansion is ongoing and we continue to look forward to bringing that project into service later this year.

These expansions deliver a multitude of benefits, including full product segregation across the peace system and creating additional egress capacity to enhance PEMINUS customer service offering and accommodate future growth. We've also advanced the in-service date for our Empress Co-Generation facility to Q3 of this year, one quarter earlier than previously expected. The co-general reduced overall operating costs and contribute to annual GHG reductions at the Empress NGL extraction facility to the utilization of co-generation waste heat and the low emission power generated.

And alongside our partners, we continue to advance two significant proposed developments, the Alberta Carbon Grid and Cedar LNG, both of which are exciting and transformative projects. And alongside our partners, we continue to advance

On the Alberta Carbon Grid, Kemen and TC Energy progressed work on several fronts, including continued discussions with the Government of Alberta, surface and subsurface engineering, and planning and engagement with customers and stakeholders. On Cedar, LNG, our project with the Highs LaFers Nation, Frontend Engineering Design and Commercialization Workstreams are both underway. The

Through ongoing commercial discussions, we have observed considerable interest to get WCSB natural gas to international markets while at the same time diversifying to new supply sources.

In addition to another strong financial quarter and continued progress on our major projects, there were several other positive developments during the first quarter, second quarter. First, all regulatory approvals have been received in respect of the Joint Venture Transaction with KKR, and we are working to satisfy the remaining conditions to close, which is expected in August . These efforts include the sale of a 50% interest in the CAHPS pipeline, which is consistent with our intentions when we announced the transaction and was part of the agreement with the competition bureau.

Second, Hamina has now executed the previous sleeve reference long-term agreements with a third leading Northeast BC Monty producer being terminally.

These agreements include the commitment of significant volumes from another multi-phase Northeast BC Monty development and allow termally to call for future firm transportation fractionation services on a take or pay basis if the acreage is developed. Our agreement with Termaline together with a previously announced service agreements with Conical Phillips Canada and another on named customer provide three leading Monty producers with certainty of transportation egress from this key area for their future development and access to the remainder of PEMINUS integrated value chain including fractionation and marketing services.

As we have been saying for a while, PEMMENT has a very positive outlook for Northeast BC development, and with existing infrastructure and our integrated service offering, we feel poised to benefit. As a result of long-term commitments under these agreements that we have announced recently, as well as through our ownership and various in midstream, we expect to secure the transportation, fractionation, and marketing rights through significant portion of forecasted future growth in the Northeast BC, Mottany.

Capturing these incremental volumes will collectively support and improve the utilization of our existing assets as well as capital efficient expansion projects into the future. As a specific example, PEMIN is currently engineering and evaluating up to an incremental 55,000 barrels per day of procline plus fractionation capacity as PEMIN is red water complex. ???

The Redwater Complex allows for a capital-efficient expansion due to existing cavern storage, ownership of significant contiguous land holdings, and industry-leading rail and pipeline connectivity. The significant existing infrastructure provides permanent flexibility.

To right side the incremental fractionation capacity to meet recently announced customer commitments, as well as incremental demand in a de-risk, timely, and cost-effective manner.

Third, the contracting of Alliance Pipeline continues to progress very well. During the second quarter of 2022, Alliance offered three open seasons to the market. The largest of the open seasons resulted in approximately 270 million cubic feet per day of incremental long-term firm service with a volume weighted average term of 15 years commencing in November 2022.

The other two open seasons were for short-term service. Recent open seasons have resulted in a line being contracted over 90% for the current and next gas here, through November 2023. The other two open seasons were for short-term service. This is the last one. The other two open seasons were for short-term service. This is the last one. The other two open seasons were for short-term service. This is the last one. The other two open seasons were for short-term service. This is the last one. The other two open seasons were for short-term service.

And finally, PEMINDA continues to advance execution of a ESG strategy. In July , we established a $1 billion sustainability linked revolving credit facility, aligning PEMINDA's finance strategy with its ESG priorities. The facility contains pricing adjustments that reduce or increase borrowing costs based on PEMINDA's performance relative to a greenhouse gas emissions intensity reduction performance target. Establishing this facility further highlights how an ESG commitment.

and ongoing efforts to integrate ESG into our business and financing strategy. Additionally, we entered into a power purchase agreement 105 megawatts of renewable energy and associated renewable attributes with a wholly owned subsidiary of Capstone Infrastructure Corporation. We view power purchase agreements as an efficient tool to support development of renewable energy infrastructure, lower emissions, and support the transition to a lower carbon energy system. The PPA with Capstone also benefits have backfired off of renewable energy and fix lessons learned along withadem reverence expected participants to mark follow-up visit actual schedules to

having to create a safe and inclusive workplace and attracting a broad and diverse talent pool at all levels of the organization. so

Given industry tailwinds, I am looking forward to continued strength and momentum into the back half of this year beyond. I will now pass the call over to Cam to discuss some more detail the financial highlights for the second quarter. I will now pass the call over to Cam to discuss some more detail the financial highlights for the second quarter.

Thanks Scott. As Scott noted, Pemana reported quarterly a just debuts up of $849 million representing a $71 million or 9% increase over the same period in the prior year.

Relatives of the same period last year, second quarter results benefited from stronger marketing results due to higher margins on crude oil and NGL sales, a combination of higher volumes on the peace pipeline system, and higher tolls largely due to inflation, as well as higher contributions from oxable and alliance. As well as higher contributions from oxable and alliance.

These positive factors were partially offset by a lower contribution from Ruby due to Ruby pipeline filing for bankruptcy protection on March 31st, 2022.

Higher realized losses on commodity related derivatives.

Lower contracted volumes on the Nipisian Mitsubipline systems due to the expiration of contracts.

and higher general and administrative costs primarily due to higher long-term incentive costs driven by PEMINA's relative share price performance.

Terminator recorded earnings in the second quarter of $418 million representing a $164 million or 65% increase relative to the same period in the prior year.

In addition to the factors impacting at just a debita, earnings in the second quarter were possibly impacted by lower, lower expense and impairments, and a higher unrealized gain on commodity-related derivatives. And a higher unrealized gain on commodity-related derivatives.

Second quarter earnings were negatively impacted by higher income tax expense and higher net finance costs due to foreign exchange losses compared to gains in the second quarter of 2021. Total volumes of 3.34M barrels of oil equipment per day in the second quarter were down approximately 4% compared to the prior period of last year.

A 6% decrease in pipeline volumes was largely driven by a Ruby pipeline filing for bankruptcy protection and lower contract volumes on NIPACY and NITSU pipeline systems due to contract expiration. Combined with lower volumes on the Alberta Ethane Gathering system due to third party outages.

These factors were partially offset by higher volumes on the piece pipeline system, Vantage Pipeline, Drayton Value Pipeline, and Cochin Pipeline.

A 1% decrease in facility volumes was largely due to lower volumes at the Saturn complex as a result of scheduled maintenance, partially offset by higher contracted volumes at the up end complex.

It is worth noting that excluding the volume impact of contract explorations on the Nipisi and Mitsubi pipeline systems, as well as the Ruby pipeline entering bankruptcy protection, second quarter volumes would have increased approximately 1% over the same period in the prior year.

As Scott noted, based on the strong year-to-date results and the outlook for the remainder of the year, Pimin has raised its 2022 adjusted EVA guidance range to $3.575 to $3.675 billion dollars. Relative to the previous guidance, the revised outlook for 2022 primarily reflects stronger marketing results.

higher contributions to the alliance and coach and pipelines, as well as certain assets in the gas services business and the anticipated closing of the new coach transaction later this month.

Year-to-date PEMIN has generated cash from operating activities of nearly $1.3 billion, which has been used to fund dividend payments and a capital program. With the excess used to repurchase common shares and reduce debt, thereby strengthening the company's leverage metrics. The company's leverage metrics.

Since late 2021, PEMIN has now repurchased 3.7 million common shares at a total cost of approximately $122 million. PEMIN remains committed to common share repurchases up to $350 million, subject to the closing of the new co-transaction. Additional excess cash will in the year, if any, is expected to be used to reduce debt in position the company for the future.

I'll now turn things back to Scott for closing remarks.

Thanks, Cam. As I reflect at the midpoint of the year, I am pleased with our results and our prospects. I am pleased with our results and our prospects.

With stronger than expected performance, we've been able to raise guidance twice. We expect to close our new co-transaction this month, and through the combination of three complimentary platforms created premier, highly competitive Western Canadian gas processing entity. We continue to advance our multi-billion dollar portfolio of projects, including Cedar, LNG, and Alberta, Carbon Grid. We've allocated capital both to common share repurchases and pay down debt, strengthen our balance sheet, and positioning us well for the future. And we are executing on our ESG strategy and making progress towards the targets we sat last year.

More broadly in our view, the potential opportunities within the Western Canadian Centenary Basin remain underappreciated. Pemina continues to observe steady volume growth on key systems and a positive outlook for additional future growth is being informed by a number of factors, including the sound financial position of Pemina's customers, price strength across all commodities and Pemina's value chain, the quality of the WCSB formation, such as the Montney and the Duvernay, the development of LNG facilities on Western Canada's west coast, and many more climb Bret Government Goals, such as Namely to Gold aud mighty T

The expansion of the Trans Mountain Pipeline and potential growth and diversification within Alberta's petrochemical sector. Overall, PEMMA's outlook for meaningful medium-term volume growth in the WCSB remains unaltered and is being supported by customer commitments and contracting success and is materializing prospective future growth projects. Thank you for joining us this morning and for your continued support. Please go ahead and open up the line for questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star one on touchtone telephone. Star one for questions. Please make sure the mute function on your phone is turned off so the signal can be read by your equipment. We'll part a moment to assemble the cue.

We'll take our first question from Jeremy Tonet, which AP Morgan, please go ahead.

Hi, good morning.

Hey Jeremy.

right sky i was running a little bit of math and i it's all if the first half of the year ebeda is repeated in the second half you guys i think you might go over the top end of your new guide there and so i was just wondering um... with the guidance raised how much of that was predicated on i guess the base cash flow versus commodity cash flow or there are other headwinds in the second half of the year that we should be thinking about

Jeremy, again, if you recall, typically our marketing business, the two largest quarters historically have been Q1 and Q4. We obviously had a very strong Q1 this year. If you look at the pricing at the forward curve, it does continue to remain backwardated, which helps inform our view as we set the guidance range. But also, Q1 of this year benefited.

obviously from adding inventory in Q2 and Q3 of last year and then a rapid appreciation in prices, whereas this year propane has remained quite strong so our inventory and our carrying cost of inventory is a lot higher than it was last year, which just means as you go into the winter there's potentially less margin based on the curve we see. So I would suggest that we always get nervous when people annualize Q1 or even half point of the year because there is seasonality in the market.

and so we typically see some profiling of higher costs through Q3 and early Q4. So that does contribute to some of the seasonality as well.

Got it. Thanks for that. Maybe just picking up on the propane point there. Is wondering if you could provide update thoughts on how you see the propane balance in the basin right now.

Is there need for more exports or do you think things are balanced or just kind of curious, I guess, where you see things heading at this point?

Jeremy, it's Stu. You know, the propane market is, is there's, you know, the IPL facilities coming online. We are seeing pardon me. The market is in in relatively good balance. We're excited about increasing volumes of propane as more volumes build on the pipeline systems. And then the mention of us looking at additional fractionation capacity, we think there's opportunity to export additional volumes.

But the market is pretty balanced right now, but we are looking at incremental growth.

Got it and just with capital allocation, I know you talked about higher interest costs, I guess, impacting how you think about deploying excess cash here. But as it relates specifically to the buyback portion up to 350 as you mentioned there.

Would timing a buyback be more function of balance sheet capacity or share price or how do you balance those factors?

I mean, I think obviously the balance sheet capacity is strong Jeremy, or comment around the economic benefits of repainting debt at this time. I mean, I think we just look at where the fixed income markets have gone and obviously they've...

you know, they've popped up here. And so in terms of being a strong free cash flow position, you know, it does certainly make some sense to be repaying debt.

in the interim, in the short term here, you know, obviously with the view that, as our girls program continues to take shape over the next couple of years that will be pulling on that at a later date. As for the share buybacks, obviously, you know, I think I would characterize this as being on track to hit that 350 for the first half of the year. Obviously, you know, that was reliant on 150 million of proceeds coming back from the pulp, excuse me from the new code transaction. And, and, and,

and using that in the second half of the year. We're obviously going to look to be opportunistic as we do that to the balance of the year, but we do feel a strong commitment to that 350.

Got it, thanks. Just a real quick last one. Scott, the CFO process, just wondering if there's any updates you can provide us there. And time-in seems like the CFO functions being performed very well right now, but just curious what you can say.

Yeah, thanks for the question, Jeremy. I would agree with you, Cam, soon an excellent job, which has allowed us to run a full and thorough process. I would say that we are in the ninth inning of that process, and we would look to update the market, and I'll call it the next month or so. I'll call it the next month or so.

Got it. That's helpful. Thank you.

We'll take our next question from Linda Escalius with GD Securities. Please go ahead.

Thank you. This is a follow up to Jeremy's question about to share a buyback and to build on that. Can you provide some updated thoughts on your dividend policy and philosophies? I mean, the market is anticipating the increase after the new code transaction closes, but beyond that, how do you view future increases being matched? Would it be an annual or would it be again, opportunistic related to big projects?

or a creative transactions. And how do you think about balancing a payout ratio with retaining capital for growth investments?

Yeah, Linda, so as we publicly stated, we will be increasing the dividend off the closing of the new co-transaction, so expect an update on that in the next couple of weeks. As I look forward, really we want to tie our dividend growth to a form of cash flow per share growth. So we would expect to resume normal course dividend increases. So we would expect to resume normal course dividend increases.

And then we always look at them in terms of closing of major acquisitions or closing of large greenfield opportunities coming into service. We've typically looked at a second dividend increase over time, but as we stand right now, I do think we aspire to getting back to normal course annual dividend increases. Obviously, those were paused in 2020 and 2021 just with the uncertainty around the pandemic.

As far as our pay or ratios concerned, we're somewhere in the neighborhood of 55 to 60%. So we feel pretty good about the amount of capital we're retaining and that ability to either buy back shares or pay down debt. And I think really positions us as some of that growth comes back into being more visible. And it comes back into being more visible.

Thank you, that's a helpful update. And then maybe if you could just help us with the timing of potential FID on some of your other larger projects, I guess the frack that you're looking at, when do you expect me to be in a position to make a decision on that? And can you give us some guesstimate of what magnitude of cost we're looking at in this inflationary environment and how the contractual attributes might differ versus?

So, we will need about a 2 year lead time in order to meet our customer demand for that. So we are feverishly working and as Scott said in his Prelude there, we're really focusing on what incremental outside the frack lease boundary utilities do we need such as spec storage, front end storage, incremental rail, connectivity, etc. So just really working through that.

We expect to have, you know, a line of sight into exactly what that looks like here by fourth quarter. And then subsequently, we would be looking to make a decision after that, but we do still have some work to do. So it's a little bit early right now.

And with respect to the inflation, we obviously, like everyone else, have seen significant inflation, but with that said, over the last, I think, 14 weeks, steel prices have come down substantially. So, waiting a little bit time's actually in your favor when sanctioning large projects right now.

So we just continue to evaluate and watch that and make sure we pull the trigger at the appropriate time.

That's helpful context. Maybe just as a broader, bigger picture, a follow-up. Peminas always never constrained itself with corporate capacity to look at opportunities that are opportunistic. Just maybe an update on what you're seeing in terms of additional M&A and how you balance that with all the opportunities organically that you have.

any any thoughts on what you're seeing and what excites you right now in that front would be a of interest.

Yeah, Linda, I think our short-term priority here really is to close the existing acquisition, new code transaction. You know, we expect to close that in the next couple weeks and there's a heavy lift once that gets closed. That's when the real work begins in terms of integration and quite frankly getting after all the commercial opportunities we see on that asset base and we just haven't been able to do due to obviously pre-close being under restrictions with the competition bureau. So I think we're pretty focused on that asset. We also have the CAHPS disposition.

Maybe to clarify and maybe further understand.

Are the three agreements in Northeast BC the area of dedication there? You know, how far does that get you to support the 55,000 barrel a day frac? And secondly, how are you thinking about area dedications versus firm volumes to backstop such an investment?

Yeah, Rob, it's, first of all, those agreements take us a decent way down the path. You got to remember that we also have underlying track contracts underneath that, that we're balancing, you know, the renewals of those, the timing of those, with the timing of the new contracts coming into consideration. So it's a bit dynamic, I would say.

but assuming the fracks stay full with existing production, it has taken us a long way there. Secondly, as it relates to the agreements we have in place, obviously I have to be careful with what I say because they're confidential, but we do get visibility into the drilling plans and the production profiles on those assets. And while they are not solely land-dedications, they are land-dedications.

with taker pay arrangements once projects get sanctioned. When we look at the producer track record of our customers, we have a high degree of confidence that those are going to turn into developments in ergo taker pay

Good color, thank you. And then as a follow up, just on Cedar LNG, can you provide an update on that project? You have spent a little bit of capital there, but where are we in terms of commercial agreements and how have those changed through, we'll call it the last six months, as well as the permanent side.

Robots too. Yeah, we've been progressing the Cedar Project across the board. We're continuing to work our EPC, our pricing and our contractual arrangements with the EPC contracts. We've been working the regulatory process, filing all of the regulatory documents, reaching out on consultation basis with all the communities, well at the same time progressing our commercial conversations.

We have considerable interest in the CDER project. It is a unique opportunity that has been secured by the Hizla nation to through the pipeline being constructed by TC and the acceptance and value that the Hizla nation see in an LNG project. The conversations are progressing commercially. There is as surprising LNG pricing today. There is a frenzy of LNG activity and people see diversification as a major success and Canada.

Can the Lerior with CIBC capital markets, please go ahead.

Nice try Rob Catelier. Good morning everyone. I just wanted to follow up first on a couple things, just on the Frack discussion. So two things there. Just curious what your appetite might be to take any capacity there on spec. I heard you mentioned the, whether, question whether there's a need for spec storage. So just curious about your appetite there. And.

You know, given the reality of the environment we're in with respect to inflation, is there any opportunity to risk here on the cause side with... Is there any opportunity to risk here on the cause side with...

potential customers there.

I think we're off its Jared out maybe take the first question when I said expect storage I meant specific like expect product so right to get product storage on the back end of the on the fact they're sorry and then with respect to the cost sharing with the customers what we've actually seen as an appetite on the build side for people to do. So taking that risk premium on you know taking that away from from from Pemina so traditionally we.

you know, we manage that but we have seen the appetite for that on these types of assets. So that is definitely something we're looking at and as I previously previously stated, obviously we saw a significant increase in cost in a very, very rapid time period. We're also seeing that contract very just as quickly. The timelines, the delivery of equipment hasn't been as quick to come in but in the next few months we expect to

have a significantly better line of sight and mitigation strategy to anything incremental. We would have seen maybe in Q1 of 2022. Thank you. Thank you.

Okay, and then.

Moving on to just the lines, pipeline and aux table.

I'm curious if you're at Liberty 2 that's close, how much capacity on the lines on a table might have, how much to make up of that 90% contract in 22 and 23.

Separately, how is that exposure being managed? For example, are you doing anything to hedge the Chicago Eco differential?

Sorry, Rob, I'm not sure I understood the question on Alliance. Could you just clarify it?

Yeah, I'm just curious as to, you know, it's got a high level of contracting currently, and I'm curious to know how much oxable represents of that level of contractiveness.

until the extent they do have exposure on the lights is there anything being done to to the head of the differential? the head of the differential?

Rob bumb jert.

So currently, Mox table does have some capacity.

Talking into the new gas here, that all goes to essentially zero. That'll be upstream customers taking that capacity. So very minimal long-term exposure, but the extent or short-term exposure, we are hedging a portion of the Acotas Chicago differential.

At the at the level, not at the level.

Right, got it. And so last question for me then is, I'm curious what the opportunity and the vision is for reducing emissions at NuCo once that's closed. For example, are there opportunities for more renewable power or even CCS further down the road?

I can take that Rob. So

I'll break it into three buckets. So, there's some midstream primarily is is hydroelectric power. So. You know, a little bit of opportunity there, but limited opportunity due to the nature of the power that that's.

that's powering those assets. GBU, so Pemina's wholly owned business, we have a lot of opportunities there to, it won't be more CCUS because it's going to be more asset focused, reducing flaring, you know, focusing on our emissions, fugitive emissions and gas consumption. 80% of our emissions are from the consumption of natural gas to power feed mediums.

So really focusing on the efficiency around consumption of natural gas. That is one of our biggest levers and that'll be essentially the same focus as you move into the Energy Transfer Canada assets. Really focusing on natural gas consumption reduction, potentially some more cogens in certain areas where it makes sense, like we have at Empress and Redwater previously, but those would be the real big ones Rob that we're looking at.

Okay, fantastic. Thank you. We'll take our next question from Andrew Cuskey with Credit Suisse. Please go ahead.

Thanks, good morning. Maybe a big picture question. You touched upon some of the LNG dynamics and you know, inherently longer term, but there's some stuff happening in the front end.

You know, when you look across your platform and your footprint,

Just see an opportunity on a longer-term basis to have maybe a smaller scale red water look alike on the BC side.

We have looked at that previously, Andrew.

We've essentially shelved that opportunity and the real reason for that is due to the connectivity. A frack by itself, if you had the same rail connectivity to get barrels to the West Coast does make a lot of sense, but the inability due to just the quality of the rail infrastructure in Northeast BC, for example, and getting a unit train out of there is just actually impossible. Well, I guess nothing's impossible with the right amount of capital, but it's economically not feasible. It does make a.

Economic more sense to bring that into the Edmonton market and and reel it out of there in a unit train capacity.

So we've pretty much all but shall that opportunity.

Okay, great, appreciate that. And then maybe just sort of building upon the economic opportunities and either compounding of your asset base. When you think about just CCS and sort of the three distinct elements to capture, transport, and storage. you know, capture, transport, and storage.

which areas to you are the most appealing? Clearly you have the Alberta carbon grid.

But how do you think about just return profiles for those three buckets and then risk management on those three buckets?

You know, right now as a corporation, you know, we are looking at the capture aspect as Derek mentioned. I mean, that's, there's ongoing work for our own emissions and we continue to progress our own assessment of the capture capability of those assets. With the Alberta carbon grid, it is, essentially, it is a gathering of other emissions. It is a hub, you know, a hub for those emissions and then...

transportation and sequestration from that. So we see that as something very long lines of PEMINES capabilities. We gather our product, we upgrade product and we transport and move that product. So we think it's right in line with our capabilities. We like where we're sitting with the Alberta Carbon Grid, the asset that we've worked with the delivery government and we are we're continuing to progress those opportunities.

As far as the return of that, we're looking at our normal pipeline returns. We continue to have conversations with potential customers. We're continuing to bring forward our ARP. We're continuing to bring forward our ARP.

Our engineering cost estimates is what that's going to take and what is the price of carbon on a go-forward basis? And where does it make sense? So I think we're in line right now It's early days still for us and those conversations are ongoing, but there's nothing different I would say from what Pemin is normal course businesses.

Okay, thank you, I appreciate it.

We'll take our next question from Matthew Weeks with IA Capital Markets. Please go ahead.

Good morning, thanks for taking my question. Just looking at the contracts that you've signed with producers in Northeast BC, I'm just wondering if you take into account those volume commitments and looking at your asset footprint, are you able to provide an idea of where you are in terms of utilization at this point and how much more room you have to...

to sort of just expand volumes without really deploying too much capital into incremental capacity.

Good morning, Matt. Right now, the P system obviously with phase 7 coming into service in condensate service that allowed us to repurpose some different pipes to give us incremental NGL service. Phase 9 is being executed as we speak and phase 8 has been sanctioned. So, where I'm going with all that once that is essentially built out on average across the system, you have to recall that we have a system that goes all the way from Northeast BC and Edmond. And so,

Hundreds of kilometers long, and it moves for different products C2 plus C3 plus crude and condensate with all that said. You know, currently around 72% utilized across that system. So we do have significant. Running room to accommodate future volumes across those 4 products into the Edmonton market.

Okay, thanks. That's helpful. I'll turn the call back. Thanks.

We'll take our next question from Robert Kwan with RBC Capital Markets. Please go ahead.

Good morning. If I can just start at a higher level. You had some commentary just around inflation and the impact it may have. I guess maybe just cautious statements around future projects.

I'm just wondering though, as you go forward, typically you haven't had capital cost protection. Is that something that you would consider as you talk with your customers, just given that hasn't generally been the norm for your types of infrastructure? Is that something they're amenable to?

Yeah, problem, maybe I'll start big picture on the projects, and I'll let Cam talk about the impacts on the base business. I think as Jared pointed out, inflation is volatile right now, and we're seeing it move all over the place. A lot of the capital projects, we're seeing steel increases through the first half of the year. We've seen that come down dramatically.

the one thing I'd say is we're probably more apt to push some of that risk off to the engineering firms as Jared pointed out. For example, on on Cedar and the feed work we're doing there, you know, we're looking at securing that or the majority of that under a lump sum turnkey arrangement. As well, as some of the other projects we're looking at, so, as it relates to some of the larger scale projects, I'd say we're more so looking at at pushing that risk off to engineering firms than say to customers.

What I would say is that where we are seeing the most inflation is really a couple of points, obviously on the labor side as everyone else is, and you can ask yourself whether that's just a function of coming out of the pandemic and catching up or whether it's more systemic, and it's sometimes hard to differentiate between those two. But we have seen a bit of inflation there more recently. The second piece would be on the commodity side more generally, and that goes to...

PEM in this account. So you know while there has been inflation you know as you can see from the results you know we structured the business you know to insulate ourselves quite

That's great. And if I just kind of think about the more cautious statements here and tie it back to capital allocation, I just want to have...

to be clear on something you said earlier. While you're committed to the buyback, it sounds like at this point, instead of scaling the buyback higher, you're seeing a lot more optionality in basically warehousing that capital on the balance sheet, reducing leverage, whether that's temporarily or permanently, is that fair?

I think that's a fair comment, Robin. Ultimately, I think it goes to, I mean, if you look at where that balancing point has been throughout the year so far, it's kind of flipped to favor both ends of that spectrum at various points along the way. So we're obviously going to continue to pay close attention to it and make the decision that creates the most value, based on the opportunities ahead of us. But as the market stands.

where you are in terms of the...

getting all the contracts you need an extending term, you know our customers amenable to. You know our customers amenable to.

extending term for what?

one through three.

Morning, Robert, Jared. Customers, we've been very active in executing extensions across our current frac complex. Obviously, the pricing is extremely high, activity volumes are growing and customers are seeing that spare capacity is becoming very sparse. So yes, we have been successful in doing that. And when you say success, like what percentage of

of the capacity is where you need to start looking at for.

I don't have that on top of my head, Robert, but we could probably have a follow up.

Okay, that's great. And then just for Alliance and the results that we're seeing this quarter, very strong proportionate EBITDA. How does that compare to as you look forward, you know, factoring in the new contracts and whatever those rates would be, but as well, how much of this quarter came about?

from any of the.

the interruptible volumes or any other kind of volumes that would have been subject to bids that may have been inflated due to basis.

Yeah, I think that there's a few different dynamics going on on Alliance. So clearly with where the spread was, we saw strong interruptible bids on short-term volume. That being said, as we've re-contracted that pipeline, there's less space on the interruptible. But the space that we do have has been quite strong. I think we also highlighted in the second quarter that we...

typically just due to seasonality have line pack sales and historically that's been you know relatively modest just due to the pricing but if you look at where you know we would have acquired that line pack last year to where gas price is today there was you know an uplift in Q2 from that that will unlikely to be reoccurring and then we lastly we also have down next year

There's a bunch of noise on on Alliance,

And so is there kind of just a bit of a, like let me put it this way, is you think about your guidance for the year and citing alliance?

Is that largely due to what we've already seen in the first half, or do you expect, you know, certain aspects to continue?

into the second half of the year and possibly into 2023.

I think the aspects that we continue to see will be high, high utilization. You know, going into the year, we weren't fully utilized, whereas now we're basically full on that pipeline. And we are seeing a stronger differential through the back half of the year, which should lead to continued strength in any of the short term, kind of daily, monthly contracting efforts there. Well, you need to keep heavy up the space between, when I get with it a little now. Yeah, I'm kind of daily monthly contracting efforts there. Yeah, sure strategic inventory air inquiry performance, we're so excited to let a sought-away clear Brookview brighter right this spot. I think really you've been headpiece, desseett. Passed quite a lot of the questo point, you're a little overflowing into the right now is, what connects you back, you're from you? Providing good impact on the aggregate? No. Let's take that sort of dangerous??? ????er how to implement absolutely finesse private trance SyYYY ? PROMBI and The finer search with the För the C daily monthly contracting efforts there.

That's great. Thank you. Ladies and gentlemen, this concludes today's question and answer session. At this time, I'd like to turn the conference back to Scott Burrows for any additional or closing remarks.

Just a few closing remarks. Just wanted to thank everyone for their time today and your questions. We're really excited about what we achieved in the first half of the year and are equally excited as we move through the back half of the year. So, I hope everyone has a safe and healthy summer and we'll chat soon. Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.