Q2 2023 Pembina Pipeline Corporation Earnings Call
Good morning, ladies and gentlemen.
Okay.
Pipeline Corporation Q2, 2022 results conference call at this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Anytime you can just call it require immediate assistance. Please press star zero for operator. This call is being recorded on Friday August four 2023.
I'd now like to turn the conference over to Kevin <unk>. Please go ahead.
Thank you Jenny and good morning, everyone.
Welcome to kind of this conference call and webcast to review highlights from the second quarter of 2023.
On the call today, we also have Scott Burrows, President and Chief Executive Officer, along with members of the senior officer team, including <unk>, Janet with Duke Stu Taylor and Chris Sherman.
I would like to remind you that some of the comments made today may be forward looking in nature and are based on permanent current expectations estimates judgments and projections forward looking statements. We may 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 refers to non-GAAP measures to learn more about these forward looking statements and non-GAAP measures. Please see the company's MD&A dated August <unk> 2023 for the period ended June 32023, as well as the press release permit issued yesterday, which are available online at <unk> dot com and on.
Both SEDAR and Edgar I will now turn things over to make some opening remarks, thanks, Ken for.
For the second quarter, <unk> reported earnings of $363 million and adjusted EBITDA of $823 million, while we face challenges in tandem with the broader industry permanent business remained strong quarterly results reflect permanent resilience in the second quarter can you is there a growth in volumes and higher tolls on certain systems and a solid <unk>.
Attribute for our crude oil marketing business. These positive factors were offset most notably by the impact of the wildfires in Alberta, and British Columbia on permanent customers operations.
<unk>, a third party outages and reduced operating pressure on the northern pipeline system until mid May.
Second quarter results also reflect the typical seasonality in permanent NGL marketing business and lower NGL prices.
We are hopeful that the worst of the wildfire season is behind US and are extremely grateful for all of our employees contractors and customers in the affected areas are kept safe further we did not.
We did not have any material fire related damage to our assets I would again like to thank our staff and emergency response teams customers and industry partners as well as all emergency personnel for their diligent responses to the wildfires.
Notwithstanding the short term impacts of the wildfires in the northern pipeline system outage on <unk> and the broader industry the outlook for the Western Canadian sedimentary basin remains promising 10 minutes operations have returned to normal and through the first month of the third quarter volumes have been strong reflecting levels from earlier in the year prior to the northern pipeline system outage and a wildfires we.
Continued volume growth throughout the second half of 2023, including in the conventional pipeline business, where full year volumes are expected to be 4% higher than the prior year.
Further volume growth is expected to continue through the rest of the decade based on certain industry wide development, including most notably additional egress through various west coast LNG projects and the Trans Mountain pipeline expansion production growth in the Montney Duvernay and Clearwater any expansion of Alberta petrochemical industry exists.
Existing asset base integrated value chain contractual agreements at deep customer relationships, we are poised to capture new volumes and benefit from increasing asset utilization and growth projects.
<unk> front, we are progressing our phase eight peace pipeline expansion and our RFS for expansion at the Red water complex FHA project continues to trend on time and under budget furthering Perm and his track record of strong project execution.
In addition to phase eight and Red water Fort Kevin is actively progressing over $300 million of smaller projects, including over $200 million and other pipeline projects. These include the reactivation of the <unk> pipeline, which is expected in the third quarter of 2023 and in northeast BC infrastructure expansion in the northeast.
The expansion includes terminal upgrade additional storage and new midpoint pump station. These are expected to be completed in the second half of 2024 and will support approximately 40000 barrels per day of incremental capacity on the northeast BC pipeline system. This capacity as needed to fulfill customer demand given an expectation for growth from the north east.
Montney and payment as previously announced long term midstream service agreements with three Premier northeast BC Montney producers for the transportation and fractionation of liquids.
On our Cedar LNG project, we continue to make great progress subsequent to the quarter on July six Cedar LNG received its LNG facility permit from the BC energy regulator. This is another major regulatory milestone that follows the receipt of the environmental assessment certificate from the BC Environmental assessment office, a positive decision statement from the federal.
Minister of environment, and climate change and our pipeline permit for the Cedar LNG pipeline connection to the coastal gas pipeline collector.
Collectively these reflect the key permitting milestones for Cedar LNG.
Cedar LNG also sign incremental non binding Mou with investment grade Counterparties for long term liquid fraction services and are now fully subscribed in relation to the project's total capacity work towards the signing of definitive agreements is ongoing.
Cedar LNG elected to progressive second feed process for the floating LNG vessel in late 2022, and it's been waiting for that work to progress to the same stage as the original Cid in conjunction with detailed commercial discussions and ongoing negotiations between LNG, Canada and coastal gasoline. This has resulted in the anticipated final investment decision being revised the fourth quarter of 2002.
Three.
Finally during the quarter kind of in our released its 2022 sustainability report, which provided updates on the advances made in ESG focus areas of governance energy transition in climate employee well being and culture health and safety.
Responsible asset management, and indigenous and community engagement.
Tuesday inability reports captures the continued progress on permanent ESG targets, including greenhouse gas emissions intensity reductions and equity diversity and inclusion with respect to <unk> permanent remains on track to meet at 30 by 30 emission intensity reduction target as well in relation dependent as diversity targets women now represent 45% of the.
Members of our board at 35% of our executive team exceeding the goals we set.
The progress we've made to date on permanent sustainability initiatives and look forward to continuing the journey. The latest report is available on our website I will now turn things over to Kam to discuss in more detail the financial highlights of the second quarter of 2023. Thanks, Scott as Scott noted Tim in our reported second quarter, adjusted EBITDA of $823 million, which represents a.
$26 million or 3% decrease over the same period of the prior year the.
The combined impact.
EBITDA.
Operating on the northern pipeline system and wildfires was approximately 47.
Finally second quarter results.
Various of the revenue deferrals and costs with an act of $21 million to adjusted EBITDA.
In pipelines additional factors impacting the quarter, primarily included higher revenues on the <unk> system in Cochin pipeline due to higher tolls and lower revenues from alliance pipeline as the second quarter of 2022 included the sale of line pack inventory.
Bind with seasonal contracts being replaced by firm contracts at lower regulated rates and finally, lower interruptible volumes driven by the narrow where they go to Chicago natural price natural gas price differential.
In facilities additional factors impacting the quarter included the Pgi transaction and strong performance from the former energy transfer candidate plants and the Dawson assets as well as lower realized gains on commodity related derivatives associated with the commodity derivative contract.
In marketing and new ventures.
Second quarter results reflect.
Margins, resulting from lower prices across the crude oil complex and lower NGL margins as a result of lower propane and lower prices.
Realized gains on commodity related derivatives for the quarter compared to losses during the second quarter of 2022.
The lower contribution from our stable as a result of for NGL prices.
Finally in the corporate segment second quarter results reflect higher shared service revenue and higher general and administrative expense and other expense, which included lower long term incentive costs.
Earnings in the second quarter were $363 million, representing a $55 million or 8% decrease over the same period in the prior year.
In addition to the factors impacting adjusted EBITDA earnings were impacted by lower depreciation and lower unrealized gain on commodity related derivatives and lower net finance costs.
Total volumes of $3 187 million Boe per day for the second quarter represent a decrease of approximately 5% over the same period in the prior year.
Volume decreases were attributable to both the pipelines and facilities divisions, including most notably the net impact of the reduced operating pressure on the northern pipeline system.
Lower volumes at the younger facility and the rich complex due to the reduced operating pressure on the northern system.
The impact of the wildfires the disposition of the <unk> wanted to temper six assets at our river facility.
Higher volumes at the former ETP plant and the Dawson assets and higher volumes on eggs.
Adjusting for the impact of the <unk> disposition.
<unk> operating pressure on the northern pipeline system and the wildfires volumes in the quarter would have grown by approximately 5% over the second quarter of 2022.
Based on results through the first half and the outlook for the remainder of the year. Kevin has narrowed its 2023 adjusted EBITDA guidance range to $3 55 to $3 75 billion.
From the previous range of three 5% to $3 8 billion.
The revised range reflects the current outlook for commodity prices and an expectation of significantly stronger volumes in the second half of the year.
Based on our 2023 guidance cash flow from operating activities is expected to exceed dividends and capital expenditures to date <unk> has repurchased $50 million of common shares and reduced proportionately consolidated debt by approximately $600 million.
We will continue to evaluate the merits of debt repayment relative to additional share repurchases for the remainder of the year.
At June 32023 based on the trailing 12 months the ratio of proportionally consolidated debt to adjusted EBITDA was three five times M&A.
<unk> expects to exit the year with a ratio of three four to three six times reflective of our strong balance sheet and supporting our strong triple B credit rating I'll now turn things back to Scott.
Thanks, Kim and closing I would like to reinforce the permanent just continues to perform very well 10 minutes outlook for meaningful medium term volume growth in the WCS B remains unaltered and we are poised to benefit through increased utilization across our asset base and through new growth projects, we continue to Israel.
Our strategy within our financial Guardrails, while returning capital to shareholders and positioning ourselves to fund future growth.
For joining us this morning and for your continued support.
Kenny. Please go ahead and open up the line for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear with retail comps acknowledging your request questions will be taken in the order received should you wish to cancel your request. Please press <unk>.
Star followed later too.
Your first question is from Jeremy tonnage from Jpmorgan. Please ask your question.
Hi, good morning.
Good morning, Jeremy.
Just wanted to dive into the fundamentals a little bit more be could curious what youre seeing as far as.
Producer customer conversations and expectations for drilling activity here as it relates to your footprint given recent developments and also competitive pressures just wondering if you could give us updated thoughts as far as what type of volume growth trajectory you could see over the near or medium term.
Yes, Jeremy I'll start and I'll, let Gerry jump in if he wants to add some incremental color, but I think I think based on our comments.
In the prepared remarks, you would've seen it we're pretty optimistic about volume growth across the basin, we're still expecting roughly 4% growth on the conventional pipeline system.
It's very customer specific though but when you go through many Q2 reports you would've seen increased activity not only throughout this year, but also into into the upcoming years, obviously theres been some pretty.
Decent sized projects sanctioned in northeast BC.
Many of those we have under contract today. So we do have visibility beyond 2024 into 'twenty five 'twenty six so we remain optimistic around volume growth within the basin as well as our ability to capture that on our systems.
Ill just add to that Jeremy so pre normal pre wildfires really what we're hearing from customers was gas egress was becoming their their largest constraint here.
Here in Western Canada since then.
Sorry.
First of the worst pardon me about two Bcf of gas come offline. That's now just under one Bcf so but just over a bcf has come back. So we are seeing in kind of like the short term.
Some of our customers are taking advantage if they had gas.
By taking advantage of that.
Incremental space.
The third party guys congrats pipeline.
Positive thoughts for permanent some of our customers and then I think in the very short term what we've seen is June July and August .
Very high demand.
Services here in Western Canada, which is obviously a great.
Gotcha, that's effectively will be coming on over the next.
Two to three months as our customers tie those wells and so that as Scott said, it's looking positive.
Got it that's very helpful. There and then just wanted to shift gears towards Cedar LNG.
And moving back a quarter to <unk>, just wondering if you could peel back the onion, a little bit more on the drivers and the shift of the timing there how much is factors under your control versus not under your control, but the timing shift in confidence level at this point in getting to the finish line.
Hey, Jeremy it's do we.
We remain very confident with the schedule that we proposed here to looked at Cedar in the in the fourth quarter of 2023, the largest reason for our move and as stated is we elected to kick off an alternate feed.
That was done with the intent to obviously is to create some competitive pressure and to do from a capital cost perspective, and do you have to do the best industry practice to have some competing bids and some pressure on the EPC firms.
That work is ongoing.
We're pushing to get both of these EPC firms bids before we kick off a repricing.
Here, so that work is continuing as we expected.
It's a bit later than we had originally.
Originally anticipated and that's resulted in us pushing that back there continues to be other other ongoing negotiations that are out there, but the larger reason is our choice to elect with the second feed and to get those time debt to come in simultaneously for us to review.
Got it that's very helpful. Thanks, and just a last one real quick here, we've seen some major moves among midstream competitors, both in Canada as well as potential consolidation in the U S. And just wondering if you could provide us any updated thoughts I guess on permanent views as far as any strategic outlook here.
Spinning consolidating tuck ins or anything else would be helpful to get updated thoughts on.
Hey, Jeremy its Tim here, I mean, I think as.
As we've always said.
We look at opportunities to enhance the.
The asset base and the portfolio and really as we.
Released kind of the refreshed or the reviewed strategy.
Earlier this year from the results of the work we did last year.
That really anchors, how we look at any investment whether it's organic external any any other sort of strategic investments.
I think obviously, we're pretty excited about some of the organic investments that we've got you mentioned SEDAR.
There's a number of other things that we're working on.
And of course, we're going to look at.
Look at other opportunities as they are available.
Frankly, the list of opportunities that are available at the moment I think are pretty narrow.
Which would actually be additive to our business. So.
I think we'll sort of look at things as they come up and continue to be disciplined as we always have.
But nothing has really changed on that.
Got it so would it be fair to say and interested pms, probably the main thing under consideration and not really much else out there given the narrow list is as you described.
Well, it's certainly the biggest.
I would say that obviously, we have been public about our partnership with W. IPG and continue to be very proud of being selected as their operating partner and I think as we've said in the past I mean as far as we know that yes. It is not for sale at the moment so.
We'll continue to.
To do work and obviously stick to our guard rails, and if and when that becomes available we'll evaluate it but so.
So far so far no action.
Got it that's very helpful. Thank you.
Okay.
Thank you. Your next question is from Rob Hope from Scotia Bank. Please ask your question.
Good morning, everyone. Two follow up questions, maybe first on the conventional volume outlook. You did note that it was going to increased 4% this year.
Volumes on the conventional system had been down in the first half. So when you take a look at achieving that 4% growth in 2023 is that pro forma the wildfire impacts could we see a.
Makeup.
Lost volumes.
In the back half of the year or is this really just given the amount of growth that youre seeing that system right now that will carryover into 2024.
Hey, Rob It's Jaret, you basically nailed it so although we were slightly under in the first half of the year due to the reasons that you noted we do see that strong growth in the second half just like you mentioned.
And Rob it's Kevin I'll just.
Add in that obviously.
The second half always has the typical profile to it when we're talking volumes were talking revenue volume. So as you look at our disclosure.
Got more slightly more volumes or recognize volumes deferred for Q2 than we did last year, so a little bit of a.
Our revenue tailwind there in Q2, but as Jerry said, we're also seeing strong strong outlook on the physical side as well to supplement that.
Alright, I appreciate that especially on the color on revenue versus actual volumes.
Then as a follow up on the <unk>.
Pathways partnership.
And the opportunity there.
When this was set up as a 50 50 JV between yourself and the Wip G. But the environment has really changed how do we think about the size of the potential opportunity there as well as the potential financing opportunities specifically.
Is 50% still the bogey or something much smaller than that 20% to 25% more likely with the potential that you could use some hybrids and some asset sales to finance it.
Yes, thanks for the follow up.
It's a really good point is as you mentioned.
That partnership was structured we were less than half of the current size of the investment than it is today. So.
I do think we.
We think about things here from a portfolio perspective.
What size of certain asset types, we want in our portfolio and that's not only commodity or.
Commercial.
It's the customer portfolio, it's the market access it's all these points that we think about from a portfolio perspective of our asset base. So.
When we do think about that that asset in light of a larger potential gross investment size, we do.
Things largely similar from prepayment is that investments. So when you talk about sort of a smaller than 50% investment.
I would say that that's where our heads are at.
As we think about this asset under the current circumstances.
The pin it down to an exact number.
Tougher, but I think that sort of 20% to 30% range is probably where you get to the same sort of.
Asset investment size for Pembina.
The right scope on it and then in terms of financing I think what we've said is obviously our commitment to the financial guardrails.
And our strong triple B rating and there is a lot that goes behind that but obviously, we recognize that.
Over history strong balance sheet has been a strategic advantage.
And when it's when it's not it's obviously, a big distraction a hindrance and so we're absolutely focused on maintaining that strong balance sheet.
But also recognizing that as part of that there is potentially some creativity required for an asset such as this and so we're exploring different avenues for financing.
Two obviously.
Keep the investment in our business within our financial Guardrails, but also deliver a strong value accretive investment.
If that isn't available. Obviously, then we will continue to be disciplined as we have in the past.
So we've got lots of other opportunities.
Thank you.
Thank you. Your next question is from Linda <unk> from TD Securities. Please ask your question.
Thank you just looking at Cedar LNG recognizing that thank.
Thank you have been working on this for a while how might we think of.
Your creativity potentially around financing that and ensuring that stays within the guardrails, where do you see project financing and what might be the cadence.
Spend and might that caused you to high grade any other potential investments.
Sure.
Okay.
<unk> again, yes.
Yes. Thank you.
One of the things, we really love about Cedar. Obviously in addition to the strategic aspect of it I mean, we've always really thought that LNG with a fantastic strategic fit for our company.
The really nice thing about Cedar is obviously the scale of it.
Obviously, a three 3 million tonnes and an associated capital cost, obviously fits very nicely for a company the scale of Pembina.
And so when we look at it.
Do you think about the nature of those commercial agreements long term agreements backed by investment grade Counterparties, obviously, thats a highly financeable asset we are exploring.
<unk> finance for that.
With with a commensurate leverage structure.
And so when you when you when you look at that relative to permanent free cash flow generation of.
Last year it was.
Getting rid of the onetime impacts around $1 billion of cash flow after dividends and so if you're if you stretch that forward. We're in a very strong funding position going forward.
<unk> for Cedar on the current time frame really wouldn't accelerate until the 2025 2026 timeframe. So.
But we see it.
Very readily financeable within our existing liquidity sources existing cash flow and frankly at that timing works really well with the cadence of the other projects. We've got going on obviously phase. It comes online next year Red water four comes online in the first half of 2026.
It fits really nicely with the rest of our portfolio spend perspective.
Thank you and just as a follow up looking at accessing Tidewater, maybe with the LPT and Ngls. What are you seeing in terms of customer preferences for the optionality to either rail down to the U S or.
Bring to the West coast and.
Any sort of west coast pathway.
You see that continuing to go through the Edmonton and Fort Saskatchewan area or do you see.
The merits of going direct to the West Coast. If you can just comment on flows of Ngls prospectively.
Outlook for that that would be helpful.
Sure.
It's Chris.
I think that.
Customers continue to value a bit of a portfolio.
They don't want to see everything pointed at the West coast that being said right now arbs are extremely strong.
If you look at Conway FBI differentials in Edmonton at the differentials there as there is a really positive case for going west we.
We do do think in the long term those those far east markets are going to be very attractive. So there is room for more.
Off the West coast, but we continue to hear from our from our producer base that they want to see flexibility they want to see US access the best markets are the best times and not get stuck.
But the sort of a one trick pony if you will.
I think when you talk about coming to Fort Saskatchewan.
We continue to believe there is a real advantage.
Aggregate into Fort Saskatchewan, We've got tremendous rail capability.
Out of the area like I said at least that Optionality open to go to the best markets at the Best Times, and we continue to see support for that.
Thank you.
Okay.
Thank you.
The next question is from Robert.
<unk>.
Please ask your question.
Hi events most of my questions, but I wanted to follow up on Cedar LNG, specifically with respect to.
What needs to be accomplished between LNG, Canada and coastal gas link further negotiations before you can reach up idea I assume that relates to the final tolls.
But aside from that can you just comment on the execute ability of that $8 five kilometer pipeline from the coastal gas link to the Cedar site.
You're planning to manage cost risk on that aspect of the project.
Yes, Rob it's too.
LNG, Canada and coastal gas link.
Have been.
Negotiating and finalizing their arrangements.
For a continued period of time, obviously with the announced coastal gasoline cost increase.
There is also as they move forward how that relationship is going to be managed and develops. So it is ongoing we continue to work well with LNG and with coastal gas link.
We are waiting and in some cases for them to complete some of these negotiations, but there's been good progress made.
But it is something that we need to finalize for our our connection agreements and for our transportation agreements on coastal gasoline. So we continue to work with both parties in a positive way.
As far as the execution of the pipeline.
It is.
Coming from the end of the coastal gas link.
Connection from the header.
You described it they can have nine kilometers of pipe.
Is it has to we're looking at pipeline routing.
<unk>.
On the right of way identified we've drilled our test holes to identify the terrain and the materials that we would actually be going through we remain confident of <unk> ability to execute that pipeline.
On a cost effective manner.
We have someone in working on this project that has done mountainous pipeline.
And so we priced it accordingly and have a plan to execute.
Within that pricing.
Okay. Thank you.
Thank you.
Next question is from Dan Salmon from BMO. Please ask your question.
Yeah.
Alright. Thanks.
Good morning, I just wanted to check.
The quantification of the wildfires and I.
I guess, a lesser extent Keith.
Can you walk through is that just in terms of the process not just just simply taking your volumes.
That decline and you're using a margin that's been done on that segment in the past.
That's right Ben that was based on our outlook.
Based on our outlook and where we were sort of pre fires.
I mean, obviously we.
Got it.
We've got profiles from customers and we've got we've got the outlook. There. So basically it was it was our outlook for what that would have been.
Based on on a regular operating condition.
It can also recall that there was a little bit of it on some of the systems, but most of that most of those volumes were flowing right at sort of take or pay levels. So.
It's not a lot of variability actually in it.
Okay got it.
And then maybe Sierra LNG that last question.
Yes.
Alright.
The total is being finalized.
Yes, actually I'll linked directly to <unk>.
In service.
On close though is there a link between the two.
Sorry, Ben I missed can you repeat your question.
Yes, I was just taking the flip coastal coastal gas link expected in service late this year you can see at the sanction and theater, but if it gets pushed to next year is that.
Is that linked to your sanction decision.
Lee with.
On timing.
Even if it's delayed by a year it doesn't it doesn't really impact the sanctioning decision.
Yes, our timing, we will not be impacted by.
Coastal gasoline in service date or first gas isn't until 2027.
For commissioning purposes. So we're quite we have plenty of leeway for them to complete their project of which they are making.
We're making progress on and driving forward. So yes, we have lots of thought slack built into that system.
Okay got you and maybe just the last one a couple of questions on M&A.
Curious as you think about M&A now you have <unk>, which is 25 year.
On track.
Premium asset and then.
But our assets out there in North America that might have a shorter dated contracts.
Potentially at a lower multiple.
But what do you think that that opportunity is for you then I mean you can.
<unk> Nx high graded cash flows, but then there is there maybe an arbitrage for some of these shorter dated contracts that the market's not placing a premium on the market today.
Yes.
The way we've talked about it is is in terms of.
The strengthening of the guardrails with <unk> from a fee for service perspective in a fee for service payout ratio really will allow us more so to look at other opportunities to potentially have some minor commodity exposure.
<unk> versus <unk>.
Versus shorter term contracts, that's not something that we've currently put in to the next but obviously with our with our position in the NGL market, we like that business.
We think that we have some competitive advantages and we're really good at Ngls and so to the extent that there is opportunities that come with some incremental exposure. We can capture those once we strengthened our guardrails through the <unk> acquisition if successful.
Okay alright, thank you.
Okay.
Thank you. Our next question is from Andrew Kuske from Credit Suisse. Please ask your question.
Thanks, Good morning, maybe just addressing your various low carbon businesses, so alberta carbon grid low carbon complex and low carbon ammonia.
Maybe bookend these like how big do you think these businesses could be as part of the balance sheet with an investment opportunity on the big end and then on the low end whats sort of a toe into the water part of the business.
Yes, so if we think about those investments.
As kind of aggregate buckets.
If you are putting me on the spot I would say somewhere between two and a half to $4 billion of incremental capital that we see line of sight to potentially deploying across those asset basis now thats over the next decade to 2030, that's not immediately.
But our near term focus really is on the Alberta carbon grid and on Blue ammonia.
Which would then tie into our low carbon complex and really accelerate the profile of that asset base. So we're pretty excited about it.
Obviously the ammonia. It's early days, we just announced our partnership this quarter and we're really we're really just in the pre feed stage.
We do see a pretty pretty decent opportunity there and as as we continue to attract.
Capital towards low carbon complex, we think there'll be a snowball effect and we can attract incremental projects to that site.
I appreciate that color and maybe what that snowball effect, how do you see this entire business line working within your permanent store concept is it really like another.
Part of the slides you've got the three already is this a fourth or does this this business group sort of intersect all of the three that <unk> got now.
Yes, again I.
I think you've hit on it we know there is an opportunity for the for the platform for growth and opportunities presented at the same time <unk>.
<unk> interconnects with our existing asset base, there is opportunity to provide feedstock theres opportunity.
Two.
Our operating expertise in the area of our facility expertise and build so it does it does integrate very very well and does have opportunities for future growth in that space as well.
Maybe just an extension on that as to is it do you see the sort of conceptually like a multiplier that you had offer red water where they.
You gave a lot of growth across different business lines.
At the same conceptual thing for the lower carbon business.
Yes.
Is that potential.
<unk>.
We will continue to fall or permanent Guardrails, I think we always look at it as a a tolling model and not be in the commodity space. So it's got a fit for us, they're red water and working with our marketing team and our expertise in the LPG space allowed us to probably go a bit further and offer more extension and back into the business here, we're probably.
<unk>.
Bit more limited to a tolling in OSB all services arrangement.
Looking at the markets and getting marketing help from others more in that international space.
Okay. Thank you I appreciate the color.
Okay.
Thank you. Your next question is from Robert Kwan from RBC capital. Please ask your question.
Hey, good morning.
Whether it's cedar potentially other sizable investments can you just.
To refresh the types of returns that you're seeking or do you want to look at it from a build multiple perspective that works and then just as it relates to leverage the leveraged guard rail.
And specifically the top end is that top end farmer would you be willing to exceed it for a period of time.
Also maybe just confirming that you are committed to continuing to look at that guardrail in the proportionate consolidated basis.
Okay.
Hey, Rob.
I would say that the types of returns that we're seeing I mean, obviously.
In the past through the latter half of the last decade, I think are our experience was build multiples in the range of sort of six to eight times.
Overall, and obviously the brownfield ones towards the lower end of that range and sometimes.
Below that the greenfield ones in most cases towards the upper end of the range and of course as I mentioned before our portfolio is important.
To sort of keep that blended multiple in the right range.
And hopefully keep.
Keep it to the lower end.
I would say that in our in our current outlook with our existing projects, we're not far off that.
Probably still sort of in that 7% to nine times multiple changes and obviously the nine times multiple ranges are.
Of those opportunities, where there is very low risk embedded in them long term contracts high grade counterparties.
Some of the opportunities at the lower end of that spectrum are the.
The brownfield opportunities the integration opportunities.
Just kind of the typical stuff that we know and do quite well. So I would say that for us that's been part of the strategy and with the asset base that we have in sort of the connectivity between them, we continue to see opportunities around that in that range.
As it relates to <unk>.
As it relates to leverage and our thoughts on that I would say that we've obviously got.
Our commitment out there to a strong triple B rating as we've long talked about in our financial guardrails.
But.
Which frankly is a is really a ultimately anchored in our rating agency methodology in the way they look at it but we we sort of take the simplistic view of saying Leverages leverage and there is an appropriate amount of leverage for an asset wherever it sits and that's obviously why we talk about the consolidated leverage.
We've had a guard rail there are a range of sort of three five to 400 a quarter.
I would say that as the industry has evolved.
In the interest rate environment has obviously changed.
The high end of that range is probably something we would shy away from at the moment I think we pretty consistently hear from the market and as we said earlier that strong balance sheet and strong leverage as an advantage and so even kind of getting above that four times.
It's probably going to start to give us heartburn.
But yes, I would say we do continue to look at that on a on a proportionally consolidated basis.
And.
And obviously sticking to that leverage commitment is something that's been part of our success and don't see any reason to change that.
Got it as it relates to just the short term leverage.
Small changes quarter kind of three four to $3 six and I think previously you were at $3 30 to $3 six it's not a big deal, but just is that EBIT.
Changing or is this maybe a bit of an indication of a bias towards share buybacks, just given the current share price versus debt repayment.
No I just think it was narrowed off it was basically based off of our guidance range and obviously with the narrowing of the guidance range.
Due to rounding the three six obviously didn't move but just due to rounding the three three went to $3 four as we lowered the top end of that guidance range. So it's really the narrowing of the EBITDA range versus anything else Robert.
Got it okay, and just last just coming back to that.
Question or your answer.
And the timing of the <unk> for Cedar versus coastal gasoline I get the timing is when you are projects being online.
And you could have a CGM delay, but when do you want to see coastal gasoline completely.
Cannot fully complete just given what's going on and the other is there still is some tall finalization based on.
The cost on <unk>, So how do you protect yourself on where that final toll.
Goes.
Before you commit to the <unk>, Inc.
Sure Robert.
Again, those negotiations are ongoing.
Again the work between <unk>.
<unk> and LNG, Canada, they're looking at that the negotiation of the existing base pipeline is complete we know what our tool is the next phase is the expansion to add the compression.
That is required and so that's ongoing and that those negotiations are underway.
Those will be completed here in the next little while.
We expect to have that done in our transportation agreements, we would have in hand as we make.
Got it so you need to see though that happen before.
Sure.
Yes, we need to be able to tell our offtake customers in the whole who will ultimately be the holders of the capacity on CGM whats the whats the transportation agreement going to look like.
Okay, So you're tied to the tariff that youre comfortable on mechanical completion.
Yes, mechanical completion of the phase one and then we need a compression addition to get our capacity for the Cedar.
Okay Cedar service.
Okay. Thank you very much.
Okay.
Thank you once again that is star one should you wish to ask a question. Your next question is from Patrick Kenny from National Bank Financial Please ask your question.
Hey, good morning.
It's been about a year since you closed the pgi transaction.
Wonder if you can comment on how integration is going relative to your initial expectations.
And also as.
Vehicle created to unlock growth.
Thinking about.
Term landscape surrounding the origin for Emma.
M&A opportunities.
Pgi's footprint.
Okay.
You cut out, but I think we got to get to the question, which was around integration and organic and other opportunities at the asset base. So.
I think from a from an integration perspective, it's gone as planned maybe slightly below budget.
Obviously.
A lot of a lot of time and effort in the field to get the plants independent systems.
But the opportunity growth continues to expand there and I'll, maybe turn it over to Jared I mean, we're pretty pleased with that both the volume growth we've seen at those assets, but as well as now that we've had as you said our hands on the wheel for a year, we're really starting to see not only opportunities at that asset base, but opportunities and synergies across the gas plan.
So maybe I'll turn it over Jarrett.
Thanks, Pat good morning.
Maybe I'll just break it down into a couple of buckets one is the <unk>.
<unk> processing assets, they're performing as we would have expected. Obviously, we have we had pretty good line of sight into that.
The Dawson assets, which we acquired in incremental working interest in specifically the CRP Cutbank Ridge partnership in that area. What we're seeing there is that that is exceeding our expectations even through the various midstream lens the.
The performance of those wells.
The partnership or drilling then Theyre public that's public information is outstanding.
The development on the activity going into the startup of coastal gas link, we're seeing that ramp up and maybe a little bit more guests than we had expected which is great. Obviously.
Processing totally model. So that's kind of one bucket and then the incremental DTC portion that we acquired 60% of that is.
Exceeding our model expectations.
Just seeing a lot of gas.
Gas getting drilled into our white space, which is great.
Now that the team it's been roughly a year here coming up on August 15th Theres, a lot of optimization opportunities just were not able to speak to those specifically right now, but as we move through sanctioning gates, we will we will disclose those and then on the.
I think I mentioned last quarter on the call that there's a significant amount of expansion opportunities through the pgi platform.
Across the three different businesses that we buy not only for gas processing and liquids handling but also on the GHT reductions obviously are processing business contributes a significant amount of our <unk> and the team has a lot of opportunities there to work with our customers to lower their.
Carbon tax, while deploying capital and lowering that minimizes emissions. So that's kind of how I'd sum it up.
So positive.
Okay perfect. Thank you and then.
I wanted to check in as well with respect to your exposure to Alberta power prices.
100 megawatt garden plane.
Kicks in here right away.
I guess pro forma that contract can you remind us what your net.
Your to the grid would be.
Yes.
Relative to total power consumption.
And then also if youre looking to sign additional renewable off take agreements.
Beyond that just as part of your plan to reduce scope two emissions and if so how you might be thinking about achieving your goals in light of Alberta is announcement to take a pause on approving any further renewable developments in the province.
Okay.
Yes.
I'm not going to get into specifics with their usage, but you wouldn't you would've seen obviously over the last two years.
We would have signed two different renewable power agreements.
To really capture a significant portion of our net exposure to power prices.
And to that we obviously.
Commissioned our co Gen at Empress and.
And looking at different opportunities across our asset base. We also have small solar going at Empress as well.
We're actively managing our exposure to two.
That depends on our wholly owned exposure to the power grid in addition to that.
A large portion of our Opex is slow with you, but we're working really hard to reduce power where necessary and optimize the usage of that because obviously, we want as low a opex as possible for our customers. So we're really focused on optimizing power use across the asset base because the volatility we've seen in the Powerpoint.
This is obviously a significant line item for payment in our customers. So we're doing everything in our power to look at it you're saying reduced usage, but just circling back as it relates to <unk>.
Our net exposure.
<unk> protected on that through some of the Ppas, we signed and some of the other initiatives we've been undertaking.
And just on top of that Scott mentioned, obviously were working to utilize less consumption, which obviously supports lower opex of our customers, but lower scope two emissions Chris.
Chris's team, Chris Chris Sherman has an energy management team and also a lot of work internally on peak power price avoidance, so with our obviously our <unk> system.
We have a lot of storage at various places.
We don't have to be continuously pumping when prices $900 a megawatt so very being very proactive on when do we need to be storing and when should we be pumping and thats all run out of our Sherwood.
Sure what part control centers, so that's been a huge win for our customers as well.
Okay. That's really good color guys I appreciate that.
And sorry, just one follow up question on the Alberta carbon credit if I could.
So we've seen a bit of a slowdown on the capture side of the equation.
As respect to some government support coming to fruition I'm wondering if that's translating into any slowdown.
Year end and the development process of ACG.
Yes.
If there's just any update on timing related to a potential <unk> or in service date that would be great.
Yes, Pat maybe just.
Just to reemphasize, where we're at so we have.
<unk> been busy we have an appraisal permit from the government of Alberta.
That has allowed us to be out.
Bought seismic reprocessed, which we've shot additional seismic over our proposed sequestration site that work has been completed.
We are in the process of getting ready to drill our evaluation well that will be drilled here.
In the second half of 2023, essentially that work upon completion and some evaluation of the results will allow us to prove up that we have a sequestration site.
So we've had preliminary conversations with off takers.
Certainly not off takers of abuse of the sequestration there remains interest.
It's competitive.
A little bit still out there our work has largely been focused on.
Proving up our site and initial conversations once we get that move into 2024, we'll ramp up the commercial conversations upon.
Proof that we actually have something that we can use in cell.
We haven't changed our RFID date R&D of that timing at this point.
Okay. That's great. Thanks, everybody have a great long weekend.
Well.
Okay.
Okay.
There are no further questions at this time. Please proceed.
Thanks, everyone really appreciate you calling in on Friday before a long weekend, obviously as we as we said in our in our prepared remarks.
Challenging quarter, but we remain optimistic through the back half of this year. So everybody have a great long weekend stay safe and have a good rest of your summer. Thank you.
Okay.
Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.