Q4 2022 Pembina Pipeline Corp Earnings Call
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Yes.
Good morning, ladies and gentlemen, and welcome to the Pembina Pipeline Corporation Q4, 2022 results conference call.
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Following the presentation, we will conduct a question and answer session.
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2008.
The conference over to Cameron.
Financial Officer. Please go ahead Sir.
Okay.
Okay.
Everyone.
Welcome to today's call.
This call and webcast to review highlights from the fourth quarter of 2020.
On the call today, we have.
Scott <unk>, President and Chief Executive Officer.
Sure.
Senior Vice President and Chief operating Officer.
<unk> Senior Vice President external affairs and chief.
Please go ahead and sustainability officer.
President of marketing.
Corporate development officer.
I would like to remind you that some of the comments made today maybe forward looking in nature and are based on current expectations estimates judgments.
Forward looking statements, we make expressed 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 to non-GAAP measures to learn more and more of a forward looking statements and non-GAAP .
Measures. Please see the company managements discussion and analysis dated February 23rd 2023 for the period ended December 31, 2022, as well as the press release, Perm and issued yesterday, which is which is available online at <unk> dot com and on both SEDAR and Edgar I'll now turn things over to Scott to make some opening remarks.
Thanks, Ken in the fourth quarter <unk> delivered strong financial results highlighted by adjusted EBITDA of $925 million.
Leading to full year record adjusted EBITDA of three seven and $4 6 billion.
Which exceeded the high end of the company's revised guidance range as we have referenced throughout the year in 2022, we benefited from rising volumes on key systems and very strong performance within the marketing business 2020 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 to northeast, British Columbia and to pursue future growth opportunities in a capital efficient manner.
It's closing.
Pgi transaction in August integration activities have progressed, well and operations have performed as expected with no major interruptions to service commercially we have successfully secured incremental volumes to fee for service firm contract with a number of existing customers at both the <unk> and <unk> facilities.
In 2022, we also had a number of commercial success in 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.
Contracted for the next two years executed a long term commitment with an anchor customer to support the reactivation of the Nimbus pipeline and extended a key contract on the <unk> portion of the vantage pipeline.
The commercial success has continued into 2023 with a successful open season for capacity on our Cochin pipeline and the extension of a contract to supply ethane on a long term basis to a key customer.
We also continue to progress our portfolio of growth projects in 2022, notably by completing the phase seven and phase nine peace pipeline expansion and the <unk> co. Gen projects successfully delivering these projects under budget.
We also reactivated construction of the previously deferred phase eight peace pipeline expansion and we look forward to placing that project in service in early 2024. Furthermore, as we announced yesterday, we are proceeding with the construction of a new 55000 barrel per day fractionator at Red water the <unk> 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, Kevin 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 toward 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, we 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 our Sable.
A 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 perm in the 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.
Yes.
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 Empress facility.
Excluding the volume impact of the <unk> pipeline, <unk> 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 Companys 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 permanent 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 <unk>.
<unk> 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.
Overall impact dependent as adjusted EBITDA for the first quarter of 2023 is estimated to be approximately $30 million, including loss 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.
Development activities for Cedar LNG.
Engineering activities for the Alberta carbon grid sustainment of our operating assets and advancing permanent portfolio of unsecured development opportunities.
Permanent 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 are 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 I'll now 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 and where we're 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. Our outlook for continued growth was further bolstered by the recent announcement by the province of British Columbia and have been very river first nation regarding the Finalization of an agreement, allowing oil and gas activity to proceed with in certain parts of north.
While future development is subject to certain provision Kevin is 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.
<unk> has a long history at the northeast <unk> service provider to our existing northeast pipeline, which had significant expansion potential we are well positioned with readily available solution to meet new customer demands.
While 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 Pembina with a longer time horizon in mind and emerging from the Covid pandemic The board and management view 2022, with an opportune time to review <unk> corporate strategy.
Through a year long detailed undertaking we challenged 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 Kevin its 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 most impact our business in the years to come. These two themes at the pace of decarbonization and the extent of globalization and energy market over the course of the last year, we analyzed our business through a commodity by commodity line and considering the potential impacts on Kevin has been both risks and opportunities under different scenarios.
The outcome of that strategy, which builds on our strengths by continuing to invest in our core businesses. 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. This 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 on 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 fill currently unutilized capacity at our existing assets, we will decarbonize.
Actively developing new business ideas and projects that we look forward to sharing with you in the fullness of time and importantly, 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.
If your question has been answered and you would like to withdraw from the queue. Please press star followed by the number two and if you are using a speaker phone. Please lift your handset before entering any keys.
One moment. Please for your first question.
Okay.
Your first question will come from Jeremy Tonet of J P. Morgan.
Please go ahead.
Hello, Good morning.
Foreign Jeremy.
Just wanted to start off with the high level thoughts on the basin because theres a lot of very positive language in the release and what you've discussed in so far as you know.
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.
Robert 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 <unk> exactly.
Yes, I think we've seen we've seen.
Upwards of 200 250 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'm, 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 you across the value chain there.
Yes, 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.
One last one marketing keep 16 this the upside just wondering as you see the current environment today relative to the assumptions baked into your guidance for marketing.
<unk> is 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 marketing stands today in the current environment relative to when you set guidance.
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 price 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.
Hi, Good morning, everyone two questions on the on the strategy and maybe diving in a little bit more.
Pacifically you highlight the tenant wants to meet global demand and transform the next part of your products can you give a little bit more color on this historically we've seen exports.
Prince Rupert as well as data into the U S. But are you looking or something larger there potentially on the crude oil side and then when youre talking about transform our products as well does that mean you can once again look at pet Chem.
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 base and we will continue to be.
Strategic priority and so yes, we have Prince Rupert and we do export quite a bit to both.
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 fit squarely within that thesis and maybe I'll turn it over to Steve now just to talk a little bit of both.
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 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 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 had mentioned operation capability. We can provide feedstock, which was proposed even with our PTA to 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 into next year, you've sanctioned <unk> four 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 may be creeping onto the horizon of when youll have to start to deploy capital.
I think thats right, Rob I mean, when you sort of your point is valid when you sit there and look forward I mean.
We're still obviously very positive on the Cedar LNG opportunity and 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 are seeing opportunities with we continue to see opportunities in our base business to.
To accommodate customers volume. 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 it will be held against that standard.
Excellent that's it from 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.
And 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 the.
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 and the pgi and continuing to build some white space with our customers who who have.
The.
Substantial gas egress.
Capacity and.
That leverages right into it.
Liquids onto the pipe.
<unk> is obviously highly contracted I think Scott mentioned that earlier so volumes.
They look really good pricing is continuing to be strong even at let's call. It $2 50 a co.
That's still our customers are doing extremely well.
So yes it is.
It's looking really good.
Okay.
Okay.
And then maybe if you can just comment on with your updated strategy.
Just having to have the in house talent to execute on your decarbonization energy transition related aspects of your strategy and how might acquisitions fit into your.
Your plans to gain that expertise and maybe accelerate execution.
I get a sense that everyone's trying to hire these types of folks.
Hi, Linda its too.
Yes, 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.
How to get there faster potentially through partnering through Jv's.
M&A those opportunities do come along we will evaluate that 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.
Got you know we've got some tremendous talent right now we continue to look to expand that will be.
Hiring exercise for us, but there are other ways to do it as I mentioned through JV and M&A opportunities as you point out.
We're picking where our points are and where we still are determining how we participate in some of those opportunities.
May not be in the facility itself, but we may be providing services and those services could be what payment 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 number and can you give us some sense of how maybe you might have a healthier contingency or may be firmed up.
More than you might have historically just to.
To indicate your level of confidence in that estimate.
Yes.
Hi, Linda.
Internally, we would deem that as as a class four estimate, but obviously building RFS two RFS III.
I would say what is 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 invest for.
That's obviously.
Yes.
Well within our execution capabilities.
Demand is extremely high our confidence in the execution team is obviously extremely high and our operating capabilities.
Yes.
What we're really focused on is maximizing the utilization of the entire complex rate utilizing the entire the feedstock cavern storage the spec cavern storage.
Rail opportunities et cetera, So that's really helping us drive the efficiencies and 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 what we.
Be considered new within the strategy.
Then I guess by virtue of omission what parts of the prior strategy.
It might not be a priority going forward.
Thanks Pat.
We think about it is a natural evolution of this strategy considering the changing dynamics of the world in our industry. So when you step back it wasn't 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 im not sure. It was written down anywhere where the average reader it could really.
We 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 can be resilient and thrive through various scenarios. So that was that was really that the exercise.
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 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 the core business.
And we see 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 a decarbonising our assets in our basins.
In 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 we're not looking at carbon sequestration as a business and I don't know the Permian or in the Midwest, where we don't really have a lot of operations, it's really it's really focusing where we're at.
We're spending our time and energy and Thats 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'd say for us really calling out the four stakeholders and how important they are to our strategy.
Woods was another important point to get that down on paper.
And then our commitment to egress and really stepping back and challenging all of those assumptions around world demand versus WCS be demand and making sure those are some of the egress.
The projects are the large capital commitments.
They required 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 then 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 am just wondering if.
If you guys received any feedback from the BC government on your environmental application, there or perhaps the timing of the process.
Because I thought the approval was expected before year end, so I'm just not sure.
If theres been any friction or any back and forth that's still needed.
In order to achieve approval of the application.
Yes, Hi, Patrick Janet with Luca.
So we have heard from the BC government that the.
The issuance of the environmental assessment approval is going to be delayed.
But we're very optimistic that it will be approved.
Is going to be one of the greenest LNG projects in the world.
And I think the.
Environmental assessment 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.
But the intent is still to allocate any discretionary cash flow towards debt repayment.
Unless of course there is.
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 an.
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 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 as we think about it today base case is continuing to allocate free cash.
Towards debt repayment and 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.
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.
Talked to 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.
Forward.
Positively.
No no risk sharing with the weather.
Well the customer zone.
I don't think we're going to talk about our commercial contracts right now Robert.
Sensitive.
Yeah.
Okay and just.
Just on the strategy here.
Would you say there is likely to be any change in your appetite for taking on commodity price risk as you look to <unk>.
Transforming product products and exporting.
I think we've always enjoyed a little bit of commodity exposure.
Given the stability in underlying contractual profile of the base business.
Related to the commodity side, which gives us.
And good year. So absolutely there is an appetite for slightly more commodities. It has to stay within the guardrails, which is why.
Part of this we said and reiterated our commitment to the long term guardrails. So I think we're still sticking to the 80% fee for service 20, Brian commodity expose it as our as our fee for service to grow that offset also allows us to take all of the plant.
Commodity risk.
Yes, understood and then when you look at driving resilience and trying to preserve value on 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 whether it.
At <unk> coming online LNG one two.
<unk> Theater 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 rollout.
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 at BMO. Please go ahead.
Hi, Thanks, Good morning couple of questions.
On the RFS four of 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 do the returns on capital compare on on that as well.
Well again.
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 would say RFS competes very similarly to previously sanctioned payment up projects and then on some of the other 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 4% to six times EBITDA.
He goes higher as we get into Greenfield and then even higher that goes into M&A. So the brownfield or the debottleneck tend to be at pretty attractive returns overall.
Okay.
And then maybe the.
Maybe a clarification on nipissing restart do you.
Do you need more contracts.
I'll not to push forward with that and maybe if you can maybe expand on how how things look in the evolution of players there.
Restart and then maybe a potential expansion at some point.
Good morning, no, we don't need incremental contracts right now obviously.
Hi, Thanks in the research that's proceeding and.
The 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 to it.
Ultimate capacity.
Okay, and then maybe one last cleanup.
Hello.
Stable.
Sure.
The loss in the quarter or is that is that more of that year end.
Sure I know you have with that agreement.
I think that it was it was a couple of different things it was the.
It was strong.
Strong <unk>.
<unk> of the acreage Chicago price there was some hedging losses there for some of the.
I guess the old rich gas premium deals that we are 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 <unk>.
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 RFS for once it's in service can you talk about what the pro forma percentage will be undertake or pay and the average duration across all red water fractionator.
No.
Okay.
Net.
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.
Significant contracts underpinning red water and we have pretty significant commercial momentum. So given this is in service two and a half years out.
I would 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 water in its entirety would be consistent with the guardrails.
Yes.
Okay.
If I can turn to the strategy and.
The decarbonization side of things.
Just given what we're seeing in some of those initiatives either they may involve a new commercial framework or one that just doesn't exist in the market.
A technology risk or for established things like renewables much weaker returns than you're used to.
No.
Do you look to change your return expectations to kind of mark to market realities.
Conventional renewables or to you.
Shifting gears thinking too.
To accept lower upfront returns or take some different risks.
And you'll get something on the residual or back half.
Yes.
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 de carbonization really is <unk> and I'll, let Stu talk to atg in what we're thinking about there, including some of our initiatives to Decarbonize our assets.
As I step back I mean.
Sure.
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 to create a significant 200 megawatt.
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 defence 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 returns as it relates to renewable power.
I just.
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 Steve to talk about more of the U S. As it relates to decarbonization.
Robert we're continuing to work with our partner to progress.
The Alberta carbon grid.
We've 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.
We will shoot some site, we will 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 de carbonization and what will that take to capture our emissions.
Global 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 to.
Continuing 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 permanent 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 then just I guess as you think about the risk or the contracted cash flows to the extent you can 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.
Yes 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.
I 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 will 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.
Yes.
Sure.