Q4 2022 Pembina Pipeline Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Pembina Pipeline Corporation Q4, 2022 results conference call.
At this time all lines are in listen only mode.
Following the presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance. Please press star zero for the operator.
This call is being recorded today Friday February 24th 2023.
I would now like to turn the conference over to Cameron Goldade Permanence, Chief Financial Officer. Please go ahead Sir.
Thank you Melissa and good morning, everyone welcome to <unk> Conference call and webcast to review highlights from the fourth quarter of 2022.
On the call today, we have Scott Burrows, President and Chief Executive Officer.
Jaret Sprott, senior Vice President and Chief operating Officer.
Ducommun 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 and are based on <unk> current expectations estimates judgments and projections forward looking statements. We may expressed or implied 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.
Well learn more about these forward looking statements and non-GAAP measures. Please see the company's management discussion and analysis at February 23rd 2023 for the period ended December 31, 2022, as well as the press release issued yesterday, which is which is available online at kind of the dot com and on both SEDAR and Edgar.
I will now turn things over to Scott to make some opening remarks.
In the fourth quarter <unk> delivered strong financial results highlighted by adjusted EBITDA $925 million, leading to full year record adjusted EBITDA of $3 $7 6 billion.
Which exceeded the high end of the company's revised guidance range.
You've referenced throughout the year in 2022, we benefited from rising volumes on key systems and very strong performance within the marketing business 2022 was also highlighted by a number of accomplishments the largest of which was the creation of permanent gas infrastructure or pgi, along with our partner KKR. We were excited to bring together three complementary platforms to create.
A premier highly competitive western Canadian gas processing entity with the ability to serve customers from north Central Alberta, and northeast British Columbia and to pursue future growth opportunities in a capital efficient manner. Since closing the pgi transaction in August integration activities have progressed, well and operations have performed as expected with <unk>.
No major interruptions to service commercially we have successfully secured incremental volumes through fee per service firm contracts with a number of existing customers at both the <unk> III and <unk> facilities.
In 2022, we also had a number of commercial successes signing long term agreements and contracts. We entered into long term service agreements with three premier northeast BC Montney producers renewed contracts and secured incremental volumes on our conventional pipelines and fractionation facilities enhance the long term contractual profile of alliance pipeline, which is now fully.
<unk> for the next two years executed a long term commitment with an anchor customer to support the reactivation of the Nipissing pipeline and extended a key contract on the tiled a portion of the vantage pipeline.
Our commercial success has continued into 2023 with a successful open season for capacity on the Cochin pipeline and the extension of a contract to supply ethane on a long term basis to a key customer.
We also continued to progress our portfolio of growth projects in 2022, notably by completing the phase <unk> and phase nine peace pipeline expansions and the Empress co. Gen projects successfully delivering these projects under budget.
We also reactivated construction of the previously deferred fee the peace pipeline expansion and we look forward to placing that project in service in early 2024.
As we announced yesterday, we are proceeding with the construction of a new 55000 barrel per day fractionator at Red water the red water complex.
Which including the expansion will be comprised of RFS. One through four is underpinned by long term take or pay contracts.
In recent quarters <unk> has successfully extended existing contracts and signed incremental new contracts. The existing facility is highly utilized in RFS for as needed to meet customer demand. The decision to proceed with the expansion ensures permanent customers will benefit from a timely solution to growing volumes and constraints arising out of high utilization rates across the industry.
2022 was an outstanding year on many fronts I will have more to say about 2023 and beyond towards the end of todays call, but for now I will turn things over to Kam to discuss in more detail the financial highlights for the fourth quarter and full year 2022.
Thanks, Scott as Scott noted our reported fourth quarter, adjusted EBITDA of $925 million, which represents a $45 million or 5% decrease over the same period in the prior year.
Fourth quarter adjusted EBITDA was negatively impacted by lower margins on NGL sales, partially offset by higher margins on crude oil sales both in the marketing and new ventures business.
Lower contribution from ox Sable are.
The lower contribution from Ruby.
Lower revenue related to recoverable costs on the horizon pipeline system.
Higher general and administrative expense largely due to higher long term incentive costs driven by the change in payment of share price and its share price performance relative to our peer group.
As well as higher consulting fees and higher integrity costs.
These impacts were partially offset by higher volumes on the peace pipeline system, and Cochin pipeline and higher tolls due to inflation mechanisms.
The pgi transaction and stronger performance from certain gas processing assets, including the highest gas plant the Dawson assets, the cutbank complex and the rest Haven facility.
The impact of a higher U S dollar exchange rate.
And a realized gain on commodity related derivatives compared to a loss in the fourth quarter of 2021.
Earnings in the fourth quarter were $243 million.
Representing a $163 million or 204% increase over the same period in the prior year.
In addition to the factors impacting adjusted EBITDA earnings were positively impacted by lower impairment expense lower restructuring costs and a higher unrealized gain on commodity related derivatives. These factors were partially offset by a ruby pipeline settlement provision.
Total volumes of three 392 million Boe per day for the fourth quarter represented a decrease of approximately 1% over the same period same period in the prior year volume decreases were attributable to both the pipelines and facilities divisions, including most notably the <unk> and Mitsui pipeline system the Ruby.
Pipeline the disposition of the <unk>, one and <unk> fixed assets at our <unk> facility.
Excluding the volume impact of the Nipper Sea pipeline, Nicosia, and Mitsui pipelines, the disposition of the <unk> any six assets and the Ruby pipeline fourth quarter volumes would have increased approximately 4% over the same period in the prior year.
The fourth quarter also contributed to record full year results that included adjusted EBITDA of three $746 billion, which was 9% higher than in 2021 and exceeded the higher end of the company's guidance range.
Earnings of $2 97 billion, which was an increase of 139% compared to 2021.
Cash flow from operating activities of $2 93 billion, which was 11% higher than 2021, and adjusted cash flow from operations of $2 six 6 billion, representing a 1% increase over 2021.
Thanks to the strong results pennant have generated meaningful free cash flow, which was allocated to strengthen strengthening the balance sheet and returning capital to shareholders. In 2022, we raised our common share dividend by three 6%, we reached our target to repurchase 350 million common shares.
We redeemed $300 million of preferred shares and we reduced leverage to the low end of our target range.
Looking ahead to 2023, we are reiterating our 2023 adjusted EBITDA guidance range of $3 5 billion to $3 8 billion.
The midpoint of the guidance range reflects an approximately 5% increase in adjusted EBITDA contribution from permanent fee based business, reflecting higher tolls growing volumes and increasing utilization across its asset and assets in the western Canadian sedimentary basin.
Well, Kevin I expect another strong contribution from its marketing and new ventures segment. In 2023 results are expected to moderate relative to the strong results in 2022.
The reiterated guidance includes the impact of a recent incident on the northern pipeline that impacted a substantial portion of the volumes on northern and the northeast BC pipeline system.
Service on the northern pipeline has resumed at reduced operating pressure.
Pembina does not yet have a confirmed duration for the for operating at reduced operating pressure.
In the northern pipeline system will continue to operate under limited capacity with increasing rates contingent upon continued integrity assessments and approval from the ADR.
The overall impact of payment is adjusted EBITDA for the first quarter of 2023 is estimated to be approximately $30 million, including lost revenue and cost to return to service.
In December we announced our 2023 capital program, which included investments related to the construction of the phase a peace pipeline expansion.
Reactivation of the <unk> pipeline.
<unk> development activities for Cedar LNG.
Engineering activities for the Alberta carbon grid sustainment of our operating assets and advancing terminus portfolio of unsecured development opportunities.
Pembina has revised its outlook for 2023, and now estimates of 2023 capital program of approximately $800 million.
Which relative to the original guidance of $730 million reflects primarily incremental spending related to new revenue generating infrastructure in the conventional business and the sanctioning of RFS for.
2023 cash flow from operating activities is expected to exceed dividend payments and the capital expenditure program.
Additional incremental cash flow generated in 2023 is expected to be used to pay down additional debt further strengthening our balance sheet and preparing the company to fund future capital projects sanctioned.
Based on the current guidance for 2023 covenant expects to remain firmly within its financial guardrails with ample liquidity and our leverage metrics are expected to remain firmly within the range for a strong triple B credit ratings.
Ill turn things back to Scott closing remarks.
Thanks, Ken and closing out today's call I wanted to take a moment to touch on the future of <unk> and where we are headed in 2023 and beyond.
Over the next 12 months to 24 months, our key focus will be growing cash flow by enhancing utilization of our existing assets gas plants pipeline and fractionation facilities to serve our customers growing volumes, despite ongoing economic and geopolitical uncertainty. The WCS B is expected to continue to grow at a modest pace in 2023 with the potential for higher growth rates in the future.
Given major third party egress projects, such as the <unk> pipeline and LNG, Canada, which are projected to come into service over the next couple of years.
Look for continued growth was further bolstered by the recent announcement by the province of British Columbia, and the Blueberry River first nation regarding the Finalization of an agreement, allowing oil and gas activity to proceed within certain parts in northeast BC.
Future development is subject to certain provisions have been as optimistic that <unk> will provide the needed clarity for producers to allocate capital to drilling programs and support larger development plans, leading to growing volumes in the area have any permanent has a long history as the northeast BC service provider to our existing RTC pipeline, which had significant expansion potential we are well.
Position with readily available solution to meet new customer demands.
Okay.
But we are very well, we were very well positioned to benefit from this growth and look forward with the anticipation of the next few years. We also have an eye to the future of <unk> with a longer time horizon in mind and emerging from the Covid pandemic The board and management view 2022 at an opportune time to review <unk> corporate strategy through a year long detailed undertaking.
Talented ourselves on how permanent can remain resilient and indeed continue to thrive not just for several years, but for decades in the face of many uncertainties, which continue to evolve 10 minutes four strategic priorities, which we outlined in Yesterdays news release, we're informed by an analysis of scenarios built around two key themes that we expect will be a driving forces that could impact our business.
In the years to come these two teams at the pace of Decarbonization and the extent of globalization and energy markets over the course of the last year, we analyze our business through a commodity by commodity land and considering the potential impacts on Kevin as business, both risks and opportunities under different scenarios. The outcome is a strategy, which builds on our strengths by continuing to invest in our core business.
While also capitalizing on opportunities to leverage our assets and expertise into new service offerings.
Proactively respond to the transition to a lower carbon economy.
First to be resilient, and we will sustain decarbonize and enhance our business is priority is focused on strengthening and growing our existing franchise and demonstrating environmental leadership second to thrive we will invest in the energy transition to improve the basins in which we operate we will expand our portfolio to include new business is associated with lower carbon commodities.
Third to meet global demand, we will transform and export our products. We will continue our focus on supporting the transformation of Western Canadian sedimentary basin commodities into higher margin products and now enabling more coastal egress.
Fourth to set ourselves apart, we will create a differentiated experience for our stakeholders, we remain committed to delivering excellence for our four key stakeholder groups.
If you consider permanent inflight projects, such as the phase <unk> expansion phase eight expansion that the sanctioning of RFS four along with the proposed projects such as Cedar LNG in the Alberta carbon grid, you can see that they fit squarely within this strategy. Similarly through our efforts to reduce emissions and filled currently unutilized capacity at our existing assets, we will decarbonize.
Actively divesting new business ideas and projects that we look forward to sharing with you in the fullness of time.
We remain committed to executing our strategy within our long standing financial Guardrails, and we're confident in our ability to continue to deliver solid per share growth and exceptional returns to our investors. Thank you for joining us. This morning. Operator. Please go ahead and open the lineup for questions.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
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One moment. Please for your first question.
Yes.
Your first question will come from Jeremy Tonet of J P. Morgan.
Please go ahead.
Hello, Good morning.
On Jeremy.
Just wanted to start off with the high level thought on the basin because there's a lot of very positive language in the release and what you've discussed in so far as the Montney production and so just wondering if you could sketch out any numbers or any more detail as far as how you think volume growth.
To grow over the next few years post.
First nation agreement here.
With these new Montney contracts as you outlined in northeast BC, just trying to get a flavor for what that means for exactly.
Yes, I think we've seen we've seen.
Upwards of 200 to 250 licenses issued since the announcement.
Whether those all get drilled or not we'll wait to be seed.
In terms of specific numbers, Jeremy I am not going to give you specific numbers, but I do think what we've been talking about historically is seeing kind of that 3% to 4% growth on the conventional pipeline from 'twenty one into 'twenty, two and I think we see that volume continuing for the next couple of years on that trend.
Got it that's very helpful. Thanks for that and then just as far as the new Frac contracts are concerned just wanted to.
See there if those are kind of full value chain contract. So theres upstream integration economics.
Kind of enhances your across the value chain there.
Yeah, I mean everyone's kind of different but on a lot of them. There are there are value.
Integration across the value chain.
But theres multiple contract there some are fully integrated some art.
Got it just one last one marketing keeps 16. This the upside just wondering as you see the current environment today relative to the assumptions baked into your guidance for marketing are things tracking as planned or a bit better we've seen the frac spread step up here. So just wanted to get a flavor for how much.
Getting stands today in the current environment relative to when you set guidance.
I would I mean, we put the sensitivities in in the 2023 budget release, if you look at those we would be up we would be up slightly we've obviously seen gas prices come way off now that being said propane has has come off as well slightly offset by a slightly more favorable FX rates. So.
All in all I'd say slightly ahead of where we set budget.
Got it I'll leave it there thanks.
Your next question comes from Rob Hope at Scotiabank. Please go ahead.
Good morning, everyone two questions on the on the strategy and maybe diving in a little bit more spin.
Specifically, you highlight that Pembina wants to meet global demand and transform and export your products can you give a little bit more color on this historically we've seen exports.
Prince Rupert as well down into the U S. But are you looking for something larger there essentially on the crude oil side and then when you were talking about transform the products as well does that mean you could.
You have a look at Ken.
So maybe I'll answer that first part and then I'll turn it over over to Stu as part of the strategy work one of the conclusions was that global demand remains more resilient 2030, and beyond compared to North American demand. So we continue to think that that having egress.
Out of the basin will continue to be a strategic priority and so yes, we have prince Rupert and we do export quite a bit to both the.
The U S and propane to Mexico, as well, obviously, cedar LNG fit squarely within that dynamic in terms of exporting product as well as.
Our partnership with W. IPG as we explore the possibility of what <unk> could look like in our portfolio and the ability to get crude to world markets as well so I.
I think all of the things we're working on fits squarely within that thesis and maybe I'll turn it over to Stu now just to talk a little bit of boat.
The changing of products.
We've been looking and watching closely.
The global demand the need for Decarbonization, we've had lots of inbounds, obviously pembina is well situated with our our red water complex in the end the lands that we have available and the expertise that we have in the operation capability and so we've had.
Lots of inbounds, and we've been looking at ourselves at <unk>.
Energy transition opportunities the likes of hydrogen ammonia methanol and other products and so we continue to evaluate.
While the low carbon complex, we're referring to it in the.
In our Red water area, we are looking at how we can participate in those we might be an equity partner a player in those those various.
Entities that I talked about but at the same time. We also recognize we have the opportunity to provide additional services Pembina has.
Again, I mentioned operation capability, we can provide feedstock, which was proposed even with our PTH opportunity. We can provide water and other services that we think would help.
Help growing businesses in that area and we think we have a large role to play there.
Alright, I appreciate the color.
And then maybe as a follow up just taking a look at your capital allocation in 2023 and even in the next year, you've sanctioned archespore, but even still you have a very strong balance sheet. You have very strong cash flows when you take a look at paying down debt versus share buyback is that a function of you are seeing some larger projects maybe creeping on.
The horizon of when you'll have to start to deploy capital.
I think that's right Rob I mean, when you're sort of in your point is valid when you sit there and look forward I mean.
We're still obviously very positive on the Cedar LNG opportunity in if we.
Play on that into next year, obviously that that starts to bring more meaningful capital into 2024, along with the RFS for opportunity and so it'll be a function of that.
And beyond that I mean, obviously theres lots of different things that Steve just talked about that we're seeing opportunities with we continue to see opportunities in our base business to.
To accommodate customers volumes. So I think you can hear from the tone that we are very optimistic about.
The current outlook over the next few years and where this could go beyond that so certainly a possibility, but we will always stay disciplined and evaluate those opportunities against the alternatives being.
The ones you mentioned repayment of debt share buybacks whatever the most optimal use of funds will be held against that standard.
Excellent that's it for me thank you.
Your next question comes from Linda <unk>.
At TD Securities. Please go ahead.
Thank you and maybe just as a follow up in terms of the growth outlook.
Looking out over the next year or two can you just.
Give us a little bit more clarity beyond your conventional pipelines, how much operating leverage you might have and how we might think of any sort of ramp up.
In contribution from volumes on existing capacity.
Beyond the 3% to 4% on conventional that you cited.
Good morning, Linda Jaret here.
Yes, so as Scott mentioned, the $3 to 4% on a conventional system look we're hearing from customers right now is where the customers are essentially constrained by gas egress and fractionation capacity, hence the RFS for announcement today. So we continue to work with our customers we do see some torque.
In the Pgi and continuing to build some white space with our customers who who have.
The <unk>.
Substantial gas egress.
Capacity and.
That leverages right into.
In liquids onto the pipe.
Alliance is obviously highly contracted I think Scott mentioned that earlier so volumes. They they look really good pricing is continuing to be strong even at let's call. It $2 50 a go.
Still our customers are doing extremely well.
So yeah, it's it's looking really good.
Okay, and then maybe if you can just comment on what's your updated strategy.
Im just having a have the in house talent to execute on your decarbonization and energy transition related aspects of your strategy and how might acquisitions fit into.
Your plans to gain that expertise and maybe accelerate execution.
You know I get a sense that everyone's trying to hire these types of folks.
Hi, Linda it's Stu.
Yeah, I mean, as we sit here.
We brought some in house expertise, we're continuing to grow that team just as you mentioned as is everyone else.
It's a growth opportunity and those people are valuable commodities, we think we've added some tremendous staff and some some great expertise.
We will look at.
You know how to get there faster potentially through partnering through Jv's.
M&A those opportunities do come along we will evaluate that as.
As they come around and how does that compare to a greenfield build of what that looks like but we're continuing to build that team. We've got we've got some tremendous in house talent right. Now we continue to look to expand that will be a hiring exercise for us, but there are other ways to do it as I mentioned through JV and M&A opportunities.
<unk> as you point out.
We're picking where our points are we still are determining how we participate in some of those opportunities. We may not be in the facility itself, but we may be providing services and those services could be what pembina has been done for 68 years.
Feedstock provider and such like that so we're trying to still evaluate exactly how we participate in some of those those new opportunities.
Okay. Thank you and just a quick.
Question on RFS for.
What class of estimate is your 460 million dollar number.
And can you give us some sense of how maybe you might have a healthier contingency or maybe firmed up.
More than you might've historically just to.
To indicate your level of confidence in that estimate.
Hi, Linda so internally, we would deem that as as a class score estimate, but obviously building RFS two RFS III and the loss.
I'd say, what does that six years now.
Our confidence level with respect to our engineering design the equipment, we need the vendors that we will utilize to help support the execution of this project is extremely high.
We do have some rail expansion associated with that.
Our best for.
That's obviously.
Something that's well within our execution capabilities.
Summer demand is extremely high our confidence in the execution team is obviously extremely high and our operating capabilities.
And.
What we're really focused on is maximizing the utilization of the entire complex right utilizing the entire the feedstock cavern storage.
Cavern storage.
The rail opportunities et cetera, So that's really helping us.
<unk> the efficiencies in the execution of RFS for.
Thank you I'll jump back in the queue.
Thanks Linda.
Your next question comes from Patrick Kenny at National Bank Financial. Please go ahead.
Thank you good morning, guys just on the corporate strategy and looking at a high level here at the four key priorities that you've outlined can you just clarify you know what would be considered new within the strategy.
And then I guess by virtue of omission what parts of the prior strategy.
It might not be a priority going forward.
Thanks Pat.
The way, we think about it is a natural evolution of the strategy considering the changing dynamics of the world in our industry. So when you step back.
Is it a major pivot and that's partially by design, that's partially by going through the process I mean, the strategy wasn't broken but I'm not sure. It was written down anywhere where the average reader it could really could really understand it or see it I know most of the analysts on this call understood. It just do it through to our frequent communication, but it is important for us to step back.
And kind of re look at it through multiple lenses and test it through various scenarios to make sure that it could be resilient and thrive under various scenarios. So that was that was really that the exercise that we undertook and through that.
We came out with the strategy, which was largely in line with what we had been talking about previously, but I do think there are some subtle things I think it's important to point out our commitment to the core business, we still see lots of opportunity in our core business and.
And we see it.
And we see the ability to grow that and we are committed more than ever to the core business I think the point around decarbonization was what we're really focused in his decarbonising, our assets and our basins.
And the basins in which we operate in because that not only benefits us, but it benefits our customers as well and I think some of the points. There to your question around omissions as you know we're not looking at carbon sequestration as a business and I don't know where the Permian or in the Midwest, where we don't really have a lot of operations. It's really it's really focusing where were we.
We're spending our time and energy and that's really in the basins in which we operate today.
I think I think other points is.
We've been getting questions around energy transition projects and I think from our perspective, you could see this as a threat or as an opportunity and I think we're choosing to see it as an opportunity and we're really getting focused on which of those opportunities.
We think we can bring a competitive advantage or it's a skill too.
And then I I'd say for us really calling out the four stakeholders and how important they are to our strategy was woods was another important point to get that down on paper and.
And then our commitment to egress and really stepping back and challenging all of those assumptions around world demand versus WCS be demanded and making sure those are some of the egress.
Projects are the large capital commitments you know.
They require long term contracts will those products be resilient.
Over the next 20 to 40 years and that was another kind of key part of this and we came to the conclusion they are.
That was just again formalizing our commitment to egress was important so.
I know that was a long winded answer, but I think the point was there isn't a lot new which probably shouldn't surprise you given I think we've had a pretty successful track record, but I think it's important to test all of the assumptions focus it and write it down so all of our investors or potential investors could understand where we're headed.
Got it Okay. That's super helpful. Thanks, Scott.
And then maybe back to Cedar LNG I'm just wondering.
You guys have received any feedback from the BC government on your environmental application, there or perhaps the timing of the processes.
So I thought the approval was expected before year end, so I'm just not sure.
Theres been any friction or any back in force that's still needed.
In order to achieve approval of the application.
Yes, Hi, Patrick.
So we have heard from the BC government.
The issuance of the environmental assessment approval is going to be delayed.
But we're very optimistic that it will be approved weakness is going to be one of the greenest LNG projects in the world and I think the.
Environmental assessments was very positive from that perspective, so we continue to.
In discussions with BC government, but we are optimistic that.
We will receive.
Approval in the near term.
Okay. Thanks for that.
And then last one maybe for Cam here just.
I know the NCI will be renewed here in March just as normal course, but if you could just confirm that.
The intent is still to allocate any discretionary cash flow towards debt repayment.
Unless of course, there is a.
Significant selloff in the markets to take advantage of or are you now thinking of more of a balanced capital allocation approach for the year.
I think you've got it right Pat.
We sort of look at the market dynamics as they stand and sort of evaluated.
As days and weeks go by and.
Obviously interest rates have been volatile and have backed up a little bit.
In 2023.
Obviously, the equity markets are volatile as well so we think keeping the NCI be in place and intending to renew it for another year just gives us all the optionality in the world to be able to react to markets and allocate our capital capital optimally, but I would say is as we think about it today base case is continuing to allocate free cash.
Towards debt repayment in the immediate term.
Okay, great. Thanks, everybody.
Your next question comes from Robert <unk> of CIBC capital markets. Please go ahead.
Hey, good morning, you've answered most of my questions, but maybe just a couple of follow ups here.
How are you managing the construction cost risk on the fractionator, specifically do you have a lump sum EPC contract there or is there some form of risk sharing with the customers.
Right now Robert we're just we're actually evaluating doing a lump sum so on a smaller scale projects like this $460 million.
We think there is opportunities out there in the market to derisk that so that's ongoing as we speak.
The confidence level.
Talk to you earlier, we want to get out there and start speaking with some of the vendors really to secure that that labor component and give them. The certainty. So they can make some commitments.
We're forward.
Positively.
And so no no risk sharing with the <unk>.
Customer zone.
I don't think we're going to talk about our commercial contracts right now Robert.
That sensitive.
Yes.
Okay.
Just on the strategy here would.
Would you say there is likely to be any change in your appetite for taking on commodity price risk.
Look too.
Transforming product products and exporting.
Yeah.
I think we've always enjoyed a little bit of commodity exposure I mean, that's you know given the stability in underlying contractual profile at the base business.
You know really the commodity side is which gives us the uplift.
In good years, so absolutely there is an appetite for slightly more commodity but it has to stay within the guardrails, which is why you know as part of this we said and reiterated our commitment to the long term term guardrails. So I think we're still sticking to to the 80% fee for service, 20% commodity expose but as our as our fee for service grows that also.
Allows us to take on slightly more commodity risk.
Yeah understood and then when you look at driving resilience and trying to preserve value in the existing business. What's the biggest risk factor you see there.
I think we're pretty it's a good question I mean, I think overall, we're pretty we're pretty we see more opportunities than we see downside to be honest with you I think with some of the volume growth as we talked about whether it's whether it's a <unk>.
<unk> coming online LNG one too.
Our Cedar project Theres talk of brand new ethane cracker being built in Alberta, There's just there's a lot of pull on the products to which we transport so.
I'd say, we're pretty optimistic about the core business.
Okay. Thanks for all that.
Ladies and gentlemen, once again, if you would like to ask a question. Please press star one at this time.
Your next question will come from Ben Pham BMO. Please go ahead.
Hi, Thanks, Good morning, a couple of questions.
On the RFS for what.
Types of returns on capital do you expect on on a project when you have that the Atlanta in place and then he also mentioned debottleneck opportunities how did the returns on capital to pay down on that as well.
Well.
Again, we're in a bit of a commercially sensitive time, so what I would say is that RFS is consistent with previous pembina build I mean, we do benefit from some land in place we benefit from some existing infrastructure offsetting that obviously is inflation that we've seen over the last couple of years. So.
All in all I'd say RFS competes very similarly to two previously sanctioned pent up projects and then on some of the others kind of smaller debottleneck.
Would come in come in typically we like to talk about.
Smaller smaller kind of bolt on Debottleneck and kind of four to six times EBITDA, obviously goes higher as we get into Greenfield and then even higher as it goes into M&A. So the brownfield or the debottleneck tend to be at pretty attractive returns overall.
Okay.
And it maybe the.
Maybe a clarification on the net proceed restart do you.
Do you need more contracts.
I'll not to to push forward with that and maybe you can maybe expand on how how things look in the evolution of the players there are.
Restart and then maybe a potential expansion at some point.
Good morning, no, we don't need incremental contracts right now obviously.
Sanction the restart that's proceeding and.
Expected in service later this year.
The demand obviously from our customers is extremely high.
And the expansion opportunities. Unfortunately, they are limited with respect to that pipeline, but we do we do see that growing.
The volumes growing back too.
Ultimate capacity.
Okay, and then maybe one last cleanup.
Mhm ox table.
The loss in the quarter or is that or is that more of that year end.
Sharon you have with that agreement.
I think that it was a it was a couple of different things. It was the it was the strong it collapsing of the acreage Chicago price there was some hedging losses there for some of the I.
I guess the old rich gas premium deals that were still in place that we don't have going forward. So there was a there was a couple I'd call. It one off things that impacted the quarter that we wouldn't expect to see going forward because we no longer have hedges in place at Sable.
Okay got it thank you.
Okay.
Your next question comes from Robert Kwan at RBC Capital markets. Please go ahead.
Good morning.
I know you don't want to talk about the RFS for contracts specifically.
Maybe when you think about our access for once it's in service can you talk about what the pro forma percentage would be undertake or pay and the average duration across all red water fractionator.
No.
So that is all the document.
They got in the base I think as we've talked about our base. Our base business is highly contracted under and continues to be re contracted.
For the long term, we have significant contracts underpinning red water and we have pretty significant commercial momentum. So given this is in service two and a half years out.
We'd expect with the pace of conversations that we would be very highly contracted by the time that this comes into service.
Okay is it fair to say that red water in its entirety would be consistent with the guardrails.
Yes.
Okay.
If I can turn to the strategy and particularly the decarbonization side of things.
Just given what we're seeing in some of those initiatives either.
It involves a new commercial framework or one that just doesn't exist in the market some sort of technology RAF score for established things like renewables much weaker returns than you're used to.
So.
Do you look to change your return expectations to kind of mark to market realities.
Event shall renewables or do you.
Shift your thinking.
Do you accept lower upfront returns or take some different risks.
And you'll get something on the residual or background.
First I'm going to answer probably an omission I should have I should have spoken about when Pat asked his question just around what we're not doing I think I think what we're what we're talking about when we talk about decarbonization really is is <unk> and I'll, let Stu talk to ACG and what we're thinking about there, including some of our initiatives to <unk>.
Harmonize our assets, but as I step back I mean, where part of what we're not going into is is renewable power. I mean, we've made a commitment that we think we can get the same benefits by taking long term agreements you would've seen us over the last year or so take on two pretty significant.
200 megawatt power purchase agreements, we're focused on our cogeneration facilities, which have as of right now very strong returns and we're looking at a few small behind the fence solar for our specific sites, but but permanent not planning on getting into the renewable power business. So the question around kind of I'd say lower return.
As it relates to renewable power.
I don't need to comment on that because that's how currently within this strategy, but then maybe I'll turn it over to Stu to talk about more of the U S. As it relates to decarbonization.
Yeah, Robert we're continuing to work with our partner to progress.
The Alberta carbon grid.
Got approval from the parents too.
Move forward with our appraisal program that appraisal program is going to be.
It's the proving up of the sequestration capability of the lands that we have been.
Granted to go have a look at.
Shoot some site, we'll evaluate some seismic will maybe shoot some additional seismic can ultimately drill a well we need to prove up the sequestration capability.
Along with that we will probably begin securing our pipeline right of ways as well. So we have that project is moving forward we began looking at.
Working with Jerry and his teams looking at our assets and the decarbonization of what will that take to capture our emissions and it's a goal of permanent to move forward with those as well we're looking at and have a good model of where those emissions are coming from within the Permian assets and we will look at it and come up with plans on how to go forward with those things.
We're not looking when we let her talk about energy transition projects, we're not looking at a lower return expectation at all we're looking at.
Continuing to to move forward and as I said, we may take an equity position within some of these new energy transition opportunities, where we may just provide services that pembina has provided historically.
Looking at how we can work with.
Those new opportunities, but not at a lower return than what we've historically put forward.
I appreciate that Steve just on the return and just I guess as you think about the risk or the contracted cash flows like to the extent you could actually fit it in under the corporate wide Guardrails would you be willing to take on quite a bit more risk where should we think about these projects.
<unk> returns, but from a contracted profile being plus or minus consistent with the guardrail.
I mean based on the based on the portfolio of things. We're looking at nothing in there would have a significantly different risk profile than our existing base business.
Okay. That's great. Thank you.
At this time there are no further questions. So I would like to turn the conference back to Scott Burrows for any closing remarks.
Just wanted to say thank you. It was another great year. So thank you to all of you on the phone for your questions. Thanks to my team here in the room and thanks to all the investors and our staff well chat soon.
Ladies and gentlemen, this does conclude your conference call for this morning, we would like to thank you all for participating and ask you to please disconnect your lines.
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