Q3 2023 Pembina Pipeline Corp Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Pembina Pipeline Corporation Q3, 2023 results conference call. At this time all lines are in a listen only mode.
During 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.
This call is being recorded on Friday November 22, 23, I would now like to turn the conference over to Kevin <unk> Chief Financial Officer. Please go ahead.
Thank you Julie and good morning, everyone.
Welcome to <unk> conference call and webcast to review highlights from the third quarter of 2023.
On the call with me today are Scott Burrows, President and Chief Executive Officer, along with other members of <unk> Senior leadership team, including Jersey, Sproat genital 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 <unk> current expectations estimates judgments and projections.
Forward looking statements, we may express 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 to learn more about these forward looking statements and non-GAAP measures. Please see the company's management discussion and analysis dated November <unk> 2023.
The period ended September 32023, as well as the press release issued yesterday, which are 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.
Kim we're pleased yesterday to report our third quarter results, which included earnings of $346 million and record quarterly adjusted EBITDA of just over $1 billion. The record quarter reflects the strength of permanent business, including growing volumes and rising utilization across many systems along with another strong contribution from <unk>.
<unk> marketing business, where its first half results were impacted by wildfires in northern pipeline outage, we believe the third quarter to more accurately reflect the underlying positive momentum in the western Canadian sedimentary basin. This is demonstrated most notably by the nearly 6% year over year increase in third quarter volumes in the conventional pipeline business.
Given year to date results and our outlook for the fourth quarter. We have raised our 2023 adjusted EBITDA guidance range to $3 75 billion to $3 85 billion.
And Campbell address that more fully in a moment.
On the commercial front, we signed new long term contracts for 25000 barrels per day on the peace pipeline system and at a rate of water complex. We extended an existing 25000 barrel per day contract that was set to expire in 2027 and now runs through 2032.
Further we continue to advance discussions with customers related to the ongoing contracting of the recently announced RFS for expansion.
On October three 2023, we reactivated the approximately 100000 barrel per day nepenthe pipeline system to serve customers in a rapidly growing Clearwater oil play. The reactivation was supported by significant long term commitment with an anchor customer and given the outlook for continued growth in the Clearwater discussions continue with several producers in the area regarding potential additional long term.
On the major project front, we continue to progress our phase a peace pipeline expansion and our RFS for expansion of the Red water complex, most notably the phase eight project capital budget is being revised lower by $55 billion to $475 million. The revised cost reflects highly effective project management and execution favorable weather conditions in <unk>.
<unk> contractor relationships, we will continue to bring new pump stations into service before year end and expect the pipeline to be in service in the first half of 2024, our experience with <unk> is another example, supporting <unk> and his track record of strong project execution.
And we continue to progress our Cedar LNG project with our partner at the highest of the nation.
The remaining final investment decision deliverables continue to progress, including finalizing the lump sum engineering procurement and construction contract the definitive liquefaction tolling agreements the eastern project agreements with postal gasoline can LNG, Canada as well as project financing target continues to be by the end of 2023, however, given the need to align multiple work streams.
He may move into early 2024.
And finally, given the volume of public and stakeholder interest in HCM ex divestment process as it pertains to <unk> I would like to clarify our perspective on the situation.
In 2021, Kevin I was honored to have been selected by Western indigenous pipeline group or W. IPG as its industry partner get farm shut pathway and indigenous led partnership in pursuit of ownership in the Trans Mountain pipeline.
The federal government recently initiated the first phase of the Trans mountain divestiture process to progress their commitment to meaningful indigenous economic participation in the asset. There is no defined timeline for completion of this phase and either Schmitt pathways are permanent is eligible to participate in our first phase.
Subsequent phase for the sale of the remaining equity interest is still undefined based on public information. The earliest the divestment of the assay could likely occur at the end of 2024, and there appears to be outstanding regulatory construction and tooling issues that post further schedule cost and divestment timing uncertainty.
Like any other prudent commercial purchasers requires the many outstanding issues related to the project to crystallize in order to prudently and appropriately assess the opportunity and determine next steps.
As we evaluate any potential role in the <unk> process or just like any other organic or M&A opportunity you can expect <unk> to maintain its financial discipline and commitment to the financial guardrails, including maintaining a strong balance sheet and strong triple B credit rating as we have in the past.
Kevin It continues to have a robust portfolio of in strategy investment opportunities and any opportunity internal or external will have to compete for capital against alternative uses.
I'll now turn things over to Cam to discuss in more detail the financial highlights for the third quarter of 2023.
Scott as Scott noted Tim in our reported third quarter adjusted EBITDA of one point or two 1 billion, which represents a $54 million or 6% increase over the same period in the prior year.
In pipelines factors impacting the quarter, primarily included higher revenues due to higher volumes on certain assets and higher tolls due to inflation, primarily on the Cochin pipeline and peace pipeline system. Those were partially offset by lower contribution from alliance higher integrity spending and higher repairs and maintenance costs.
In facilities factors impacting the quarter included the Pgi transaction and strong performance from the former energy transfer, Canada plants and the Dawson assets.
As well as a gain resulting from a contract renewal with an asset now recognized as a finance lease.
In marketing and new ventures third quarter results reflect the net impact of a lower contribution from our stable as a result of lower NGL prices.
Lower natural gas and crude oil margins lower realized losses on commodity related derivatives and higher margins on NGL sales.
Finally in the corporate segment third quarter results reflect higher labor expenses, including higher incentives higher information technology expenses, and partially offset by lower consulting and higher shared service revenue.
Earnings in the third quarter were $346 million.
Representing a 148 $3 billion or 81% decrease over the same period in the prior year. The decrease was primarily due to the $1 1 billion gain on the Pgi transaction recognized in the third quarter of 2022.
In addition to the factors impacting adjusted EBITDA earnings were impacted by higher depreciation.
Net unrealized loss on commodity related derivatives compared to an unrealized gain in the third quarter of 2022.
And the provision at all Sable and lower legal fees.
Total volumes of 339 8 million barrels per day for the third quarter represent a decrease of approximately 1% over the same period in the prior year.
Volume decreases were attributable.
So the facilities division, which were partially offset by increases in our pipelines division.
The change includes the net impact of the disposition of the E. One and E six assets at our Empress facility.
Higher volumes at the peace and northern in Drayton Valley Pipeline's.
Lower volumes at the Red water complex at younger due to planned outages in the third quarter of 2023 and increased gas processing volumes, primarily at the former <unk> plants and the Dawson assets.
Adjusting for the impact of the <unk> disposition total volumes in the quarter would have grown by approximately 2% over the third quarter of 2022.
Based on the results through the first three quarters and the outlook for the remainder of the year. Kevin has raised its 2023 adjusted EBITDA guidance.
Range to $3 75 to $3 $85 billion from a previous range of $3 five 5% to $3 $75 billion.
The revised range reflects the stronger than expected results in the third quarter across all divisions.
As well as the current outlook for commodity prices and an expectation of continued volume growth in the fourth quarter.
Based on our 2023 guidance cash flow from operating activities is expected to exceed dividends and capital expenditures today's pembina has repurchased $50 million of common shares and paid down proportionately consolidated debt by approximately $300 million using proceeds from the sale of <unk> interest in the kaps pipeline as well as cash flow from operating.
Activities.
We will continue to evaluate the merits.
Debt repayment relative to additional share repurchases for the remainder of the year.
At September 32023 based on the trailing 12 months the ratio of proportionally consolidated debt to adjusted EBITDA was three four times reflective of our strong balance sheet and supporting a strong triple B credit rating.
I'll now turn things back to Scott. Thanks, Tim in closing we are enthusiastic about our business given the current momentum in the WCS B and expect continued volume growth through the end of 2023 and into 2020 for our broader outlook remains unchanged as we see the potential for significant growth driven by near term catalysts, including new egress from the West coast.
LNG projects and the Trans mountain pipeline expansion as well as potential new developments in Alberta petrochemical industry, given the scope and reach of its assets and existing long term commercial agreements Kevin is uniquely positioned to capture new volumes and benefit from this growth as we work to successfully close out 2023 and plan for 2024, we cannot.
Be more excited for what's ahead for <unk> and its stakeholders. Thank you for joining US. This morning. Operator. Please go ahead and open up the line for questions.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star followed by the one on your Touchtone phone. If you would like to withdraw your question. Please press the star followed by the two if youre using a speakerphone. Please 50 headset before pressing any keys one moment. Please for your first question.
This question comes from Jeremy Tonet from Jpmorgan. Please go ahead.
Good morning.
Thanks, Jeremy.
Just wanted to start off with the guidance raise if I could.
Just wanted to see if there's anything in the third quarter that was strong in non repeating because if I look at what it implies a fourth quarter. It looks like <unk> is kind of flattish versus <unk>. Yet I think you noted a number of tailwind and plus marketing is usually stronger in <unk>. So just trying to get a sense for how that all mixes together.
How you think about I guess base business growth at this point I think you had talked about mid single digit EBITDA growth is.
Something that was possible.
Good morning, Jeremy its Jan here.
I mean, obviously the third quarter reflected a.
A couple of different things that were particular to it first of all we did have a turnaround in a couple of our facilities. Typically Q3 is a an active turnaround season, but obviously, we did have a major turnaround.
Our RFS one facility during the quarter that was one piece the second piece would obviously be the gain that we recognized on the conversion of a contract to a finance lease at Vancouver wharves. Upon renewal that was sort of in the range of about $15 million and so there's a couple of things there.
Contribute the two of those things together I mean, I think we're probably down to splitting hairs a little bit when after after those two things but.
I'd say that we are we are seeing.
As much as you know in some elements of the of the marketing business.
We're approaching cautiously as we sort of look at propane inventories for the balance of the year.
Obviously, the vault volatility in the crude complex and what we've seen there continues to show strong results month month after month.
We continue to see strong strong volumes and strong spreads in the transmission assets, particularly on the <unk> side, and so and obviously and in.
The gas and pipelines operations of the conventional pipelines operations, we continue to see our customers coming strongly out of sort of the I guess the headwinds of 2023, namely some operational upsets in the the wildfires and frankly, it's been an opportunity for some of our customers for example.
Our customers in North East BC, some have been able to to optimize their assets and secure our interruptible gas takeaway, which otherwise wouldn't have been available.
All of them too.
Uh huh.
<unk> produced more than they otherwise would've so a few different things there have contributed to it.
And then obviously you know a couple of things in Q3 that were nonrecurring the only other thing I'd add there is we typically have a higher <unk>.
Tegra <unk> spent and in Q4, just due to areas of the basin that need frozen ground to access so that we tend to typically have a slightly higher.
Opex spend in Q4.
Got it that's very helpful. Thank you for that.
And just wanted to pivot here towards capital allocation and wanted to get latest thoughts from you guys on that we're in a bit of a higher interest rate environment now than we were last time, we talked and just wondering how that influences I guess your thought process at the same time.
Permanent leverage seems to be really tracking quite nicely lower here. So just wondering how this all kind of mixes together in your mind at this point.
Yeah.
US Jeremy like unlike many have sort of seen this coming for a while and.
And we've been preparing for it so and it goes all the way back to our strategy around managing the balance sheet not only the leverage but how we ladder our debt maturities we were very focused.
For a very long time on on setting up our debt tower in a very ratable fashion. So we don't have more than generally five or $600 million, which is sort of six 7% of our maturities coming due every year. We've always turned out our maturities are generally as long as possible and so when you look at our maturities in this environment, we've got $600 million.
$650 million coming due in January of 'twenty 'twenty four.
As you've seen us use the lion's share of our free cash flow to reduce debt. It's consistently been the same message from our perspective. We're in these high rate environments that we've got free cash flow. There is a there is a benefit firstly to having a very strong balance sheet and also an economic advantage of using that cash flow, especially with interest rates and.
Cost of debt the way they are that said, we have consistently tested that against.
Obviously, the capital investments that we've been making and we've got some very attractive returning and very low risk projects that we've been investing in but we've also been opportunistic and stepped into the market and acquired shares from time to time, we obviously did so last year. We did so this year at varying points and we continue to monitor that and I would say that at the moment our R. R.
Sort of base case is still to continue to use that cash flow towards reducing debt. Because we think it continues to be an advantage obviously we've seen.
Balance sheets and leverage ratios and the demand from investors for that trend down in our sector over time, and so we want to continue to to heed that.
That piece from our investors and make sort of strong risk risk balance sheet.
Decisions or ongoing basis.
Got it that's very very helpful. One last one if I could should we be expecting I guess.
24 look in December or might that wait for kind of cedar at this point and what are the final I guess gating items to Peter at.
At this point, if you could just expand a bit more on that.
Why don't we start with do you answering the second question and then we'll circle back to your first one.
Hey, Jeremy.
Yes, I mean, I think as Scott stated, we're continuing to push to complete all of the deliverables for the sooner project in 2023.
Can assure you that we're putting our backs into that process, but good response with the counterparts.
To complete all of that work.
Yes.
It's a large project complex agreements that were taking our time and working our way through.
Again, we expect to be completed in 2023, we have to complete all that work prior to kicking off and going for our project finance.
Unfortunately, where we're coming up on year, Ed at the same time and vacation so.
We remain optimistic to complete the <unk>.
Liberals for Cedar and then just it'll be timing for our project finance process, which may move us into 'twenty four.
And Jeremy just started to your original question I mean, I think at this stage, we see no reason to sort of move off our typical timeline for sort of the outlook for 2024.
So I think you can expect something in likely in the December timeframe.
Got it that's helpful I'll leave it there thanks.
Your next question comes from Robert <unk>.
CIBC. Please go ahead.
Hi, Good morning, just a clarification on Cedar LNG. It sounds to me that any time pressure you're facing is related really just to the.
Complexity of the various work streams, rather than something in the macro environment like low pricing or.
Hang out or.
Financing availability.
The time pressure is that correct.
Yes, that's our view Rob again, we continue to make great progress and work through it.
Agreements or multiple work streams.
Just all lineup simultaneous so.
It's the process.
We remain confident as it is.
Support the project.
Great.
We saw the contra.
Contract additional piece, but what does the producer development activity in northeast BC mean for you.
Montney growth in demand for permanent infrastructure.
Do you have those.
Important agreements with key producers when do you expect those will start to contribute.
Further demands on your infrastructure.
So I'd say from permanent perspective, we continue to be extremely optimistic.
North East BC, especially as we're starting to see positive signs towards LNG phase, one completion, and obviously our confidence around Cedar LNG. So we've started to.
Look at the system as we disclosed last quarter and into this quarter. We continue some northeast BC developments, including expansion of our northeast BC pipeline.
A new a new pump station when we look at the agreements we have with with the various producers most of that volume tends to show up in 'twenty five and 26.
And then through the rest of the decade, but as we move through the end of this year and into 'twenty. Four we are starting to see signs of people preparing for LNG, Canada. So we remain optimistic for volume growth in 2024, but a lot of the kind of larger scale agreements, we signed really go into it.
Fact in 'twenty five 'twenty six.
Just to add to that Rob that pump station in the terminal work that Scott was mentioning in northeast B C. I think that comes on in the latter half of 'twenty four that's kind of out of roughly 40000 barrels of capacity to our system.
And then once phase eight is up and running which will be roughly Q.
Q2 of 'twenty four.
We're expecting that that 40000 barrels of incremental capacity to be able to flow all the way into the Edmonton Fort Saskatchewan market.
Yes.
That's helpful and then just.
As you look for.
To advance RFS for.
You have one extension of.
Contract at Red water, but in general do you think is possible in terms of Bob.
What kind of term you cannot.
And your contract.
First maybe I'll just talk a little bit about the execution of RFS for so it's going extremely well.
Still planning on having that on in the first half of 2026 capital is still trending in the right direction. It's obviously a little bit different than building a pipeline, it's different equipment different vendors you're building in a different location.
So we're expecting that to still trend on budget. We've done all the earthworks to date when we had our RFS for shutdown that Cam mentioned earlier, we've got 15.
Tie ins.
<unk> executed during that shut down which is great work by the team.
On the contracting front, Rob we look at this as an entire complex, we don't really look at each individual frac anymore.
But it's highly contracted and.
People want tenure bright people or people need to get their barrels frac because if you can't track your barrel you can't freeze your gas and condensate and oil.
It's pretty critical to our customers that they have that certainty to be able to break that NGL mix apart and put it into a salable product. So with that said there is high demand.
I'm not worried about the asset being full of them.
I'm really focused on making sure that RFS for and the team is on when we need it for our customers demand and then the commercial teams are worrying about.
The next expansion.
Thank you very much.
Thanks, Rob.
Your next question comes from Robert Kwan from RBC Capital markets. Please go ahead.
Thank you good morning.
If I can just.
<unk> are asking about how you're thinking about your cash flow generation, specifically you pointed out your free cash flow positive.
As you go forward and just some of the larger projects I can see here.
Do you see being free cash flow positive.
Or at least neutral as a strategy or is this mark just a byproduct of a bit of a lull in the capex opportunities.
Yes.
Well, Rob as you know last year and this year, we were both free cash flow positive and so part of the strategy is kind of aligned around capital allocation with always.
Repairing our balance sheet for what could be a slightly heavier capital spend and so.
We've we consciously done that over the last two years I think it spoke to our confidence around the visibility we had to future growth.
As we sit here today, we still expect to be free cash flow positive or neutral kind of going into 2020 for now should we sanction.
Few more projects that may push us slightly and when I say slightly I mean slightly into free cash flow negative, but I think what's important is to look at that over a couple year period versus any one given year, because we have been free cash flow positive for two years preparing ourselves for potentially a heavier capital spend now for that to happen. We obviously.
After sanction a few more projects. So we're not in that position today, we're still looking to be free cash flow positive or neutral next year, but it could tip slightly if we sanction a few projects.
Got it.
Okay, and then I know youre going to hit your 2024 outlook at the end of the year, but just as we think about the guidance that you set for this year you.
And you've talked about optimism for volume growth into next year.
Let's hope, we don't have the wildfires or the northern outage that impacted this year.
So thats, all arguing for upward pressure, but as you pointed out you've got the wildcard on the marketing side.
Is there anything else, we need to be thinking about and just I guess as it relates to marketing.
Can you just talk about where the current environment today versus say, where we were sitting a year ago and as you were thinking about what 2023 might've looked like.
Sure, It's Chris Sherman I'll I'll.
I'll take that on.
I think as we sit as we sit here today.
And thank.
Like you were sort of framing it trying to look at 24.
Compared to what we might have been looking at a year ago I think it's a real mixed bag.
I think we're fairly optimistic on on most of the crude markets.
We don't think the backward additional will hold in.
But but there's some potential headwinds in particular on propane and propane inventories are much higher looking into 'twenty four than they were looking into 'twenty, three and I think thats something thats definitely on our radar.
But other than that I would say, it's relatively similar to a year ago.
And maybe I'll just add to that.
I think historically.
We've talked about the marketing business.
As a range of.
$2 million to $400 million and that was that was really sort of informed.
Post the re segmentation and also looking back and I think obviously, what we've observed and we're all sort of dealing with the new <unk>.
The new realities.
Sort of post Covid and how obviously energy is changing and so forth and so if you sort of look back historically at what that business has been say over the last five years ignoring this year, because we're only partially the way through.
You've obviously had three years where that business has.
Kind of generated right around $400 million of EBITDA and then you've got one.
One year of Covid, where it sort of hit the bottom of that range and then one year in 2022 for a bunch of different reasons, where obviously went well through that.
<unk> in excess of $700 million of EBITDA. So I think as we sit there and think about the long term.
The range for this business in the new realities, I think we probably need a few more data points, but certainly it feels like.
Relative to that historical range things haven't been reset a little bit.
It's probably moved upward as opposed to kind of staying constant with that range.
That's great if I can just finish with one on what youre seeing around just the nature of the discussions you're having with customers contracting trends you had a couple of contract announcements now I think you alluded to.
Additional negotiations and things are just getting tight.
Do you think we're starting to get into a bit more of a cycle here.
Where we can see additional announcements around contracting new capacity.
Extending term financing thats coming up soon.
And then.
Just a contract center, Ken various expansions in our system.
Good morning, Robert Jaret here.
Short answer is yes.
The demand I think that's we've talked about is it's extremely high revenue volumes for example on the conventional system back half to back half 'twenty three to.
'twenty two is up 6%, so we're continuing to see that.
So customers they like our service offering.
Extended reach on the conventional system for example, low operating costs high reliability access to multiple <unk>.
<unk> C D H multiple all the Fracs in Fort Saskatchewan.
A very compelling offer and I've.
I've mentioned previously the <unk>.
<unk> for the Pgi assets is extremely high we have opportunities to continue to expand there and increase utilization Alliance egress is obviously gassy grasses, obviously king right now so that assets in high demand.
Cam mentioned kocian demand with respect to spreads are fairly strong right now so a lot of tailwind so with the <unk> obviously brings.
Customer security, so lots of conversations ongoing.
That's great I appreciate the color. Thank you.
Thank you.
Your next question comes from Rob Hope from Scotiabank. Please go ahead.
Good morning, everyone.
In the release and exited through the call volumes upwards has been highlighted as a driver of our performance this year and into next year.
In the MD&A totals were also highlighted is moving up so can you maybe talk about your.
Our ability to move up tools, whether it's to kind of.
Capture higher costs or increased margins.
Yeah.
Sure, Rob I'll start with that and maybe ask Jack to chime in I think obviously first of all I'd say.
We have a very high complement of our business, which is sort of long term contracted tolls.
Many of which have.
Sort of inflator provisions built right into them, so they're a function of CPI or other inflation indexes and we see that.
In our conventional business, we see that in our transmission business.
Some of our natural gas liquids business as well.
And then obviously, we've got some contracts, where they're shorter and more evergreen.
And sort of more market facing and so those are opportunities, where we're obviously working with the customers on meeting their needs first and foremost.
And and sizing the pricing of our offering relative to the value.
So.
We most of the increases that we've seen that you saw drove the Q3 2023 variance are a function of those.
Locked in inflator mechanisms.
That would be the lion's share of it.
And just to add to that Rob would be obviously on the unregulated assets. The toll we obviously have some torque there, but our goal is really to work with our customers and we'd prefer to convert that into a longer term contract commitment with our with our customers versus.
Higher it all has to be to be honest.
Thank you.
And then just regarding the comments that 2024, it could be a heavier casually here some sudden.
<unk> come to fruition.
When you take a look at the development backlog, how do you look at pacing other smaller organic projects or mid sized projects in the context of theater potentially trans mountain.
I wanted to get a better sense of how youre thinking about pacing capital with some larger unknowable variables out there.
Yes for the most for the most part our capital programs driven by our customer needs and.
As a as a service provider, we do our best to match the capital expansions to our producers' needs, So first and foremost.
There's not really a lot of pacing in the conventional side of the business I'd say, we're just trying to get ahead of volume growth that we see so that that spend kind of happens on a natural cadence I'd say driven by driven by customer demand.
When it comes to 2024, obviously, it's a big year for RFS for.
In terms of in terms of capital spend as well as finishing off of phase eight as we as we talk about our backlog.
You can imagine as we sanction incremental projects either through the last two months of this year or into 2020 for most of those projects that potentially could be sanctioned won't have a very heavy capital spend in 2020 for most of most of that capital will be into 'twenty five 'twenty six onwards. So.
I don't want I don't want people to over index on 2024, I think the comment really was.
Based on what we see today will.
We will be there be free cash flow positive or neutral in 2024.
Based on what we know today as we sanction new projects most of that spend will be in 'twenty five onwards, other than potentially cedar obviously, we sanctioned cedar there will be some equity contributions into the joint venture.
In 2024, so it's really theater that might tip to 2024 slightly into.
Free cash flow slightly negative and when I say slightly negative I'm talking a $100 million, we're not talking $600 million. So just to be clear. It's we see that is extremely modest and based on history. It could even go back to positive just based on the timing of spend and so when we go out 2025 onwards.
We will if we see that we'll have a lot more visibility into the future capital spend.
And then we'll backfill it with your organic capital in and I want to just go back to Robert Kwan.
Free cash flow being free cash flow positive or neutral is certainly something that that we strive to do over the long term balancing that with what we see is really solid organic.
Good returning projects in the base business.
Thank you.
Your next question comes from Ben <unk> from BMO. Please go ahead.
Hi, Thanks, maybe just keeping on the free cash flow conversations can you.
Clarify.
Passive highlighted.
Highlighted self funding.
<unk> 2 billion.
That was the number previously Vijay definition, you've communicated today that doesn't does not include the <unk>.
So you can add onto new projects.
Yes, that's right I mean, when we're talking to free cash flow positive free cash flow neutral, we're talking about that strictly as cash flow from operating activities less dividends less capital.
Not talking about the additional investment capacity that would come from from incremental leverage on top of it.
Okay got it.
I will now.
Also national not gone to the quarter, specifically the transaction volumes up 6%.
Record for the quarter can you talk about volume this maybe from the perspective.
<unk> versus.
The capacity and then.
Any sense or ability to maybe Gregg commented with take or pays that plugs into the quarter from the first half.
It's a tricky question to answer Ben because obviously you know there is first of all we've got a diverse portfolio of assets and in some cases.
Some cases, there's there's more white space than others, obviously like our our alliance and our cogent assets are flowing very very close to capacity and in fact.
We've we've sort of worked with customers there to try and find as much capacity as possible.
Obviously, the Frac business as we've talked about for quite a while in which drove RFS for was getting tight across the board based on wise.
And our assets we're no different.
Then when you were zero and specifically on the conventional business.
We talk about Kenny capacity in a generic form it but really it sort of varies by segment and where where the volumes come into the pipe and what volumes come in I think one of the one of the value for the benefits of our system and our offering is obviously, we do transports.
All product types meeting.
Ethane plus propane plus condensate and crude and we can provide service you know all the way from northeast B C down into Edmonton.
And obviously you know as as our system is built out over time, you size it appropriately to the customers' requirements and so there's there's various capacities various sizing of pipe various pumping configurations across the board. It's not a simple answer I think you can look at at the capacity that we've disclosed publicly for the conventional business.
Yes.
We've been quite clear about that that's really sort of.
Sort of.
The duvernay in effectively.
We always talk about that as the bottom of the funnel and that's that's the main governor obviously upstream of that in the different straws. It does vary across the board.
Okay. Thanks, and then.
To close off on some comments you had on T Max and timing of that.
Askmen.
You're indicating late 'twenty for us.
Is that reference to.
Transaction announcement versus close in.
You also get the sense that the government needs clarity on the first phase.
Moving over to the second phase.
Yes, I would say that those comments are based on what we've seen publicly coming out of Trans mountain. So it's not necessarily our specific view, it's it's what we've seen publicly.
Trans Mountain.
In terms of your second question.
I think that that's a question for the government we have no special insight.
But I would just say that.
To your point and to our message I mean that is one of the many uncertainties.
That underlies this.
This asset in this.
This situation and so you can just throw that in with the mix.
I'd say Ben is as this.
As this has transpired.
The more time has gone on the more market seems to want some sort of certainty, but at the same time on the actual asset level, there seems to be more uncertainty and so I think that was that was the point in the message as I understand people want more certainty, but the fact of matter is as time has gone on there's just that much more uncertainty around this file.
Okay understood. Thank you.
Okay.
Your next question comes from Patrick Kenny from National Bank Financial. Please go ahead.
Yeah, Hey, guys.
Just on the the Dow chemical opportunity with their potentially around the corner.
Could you just update us on what the potential scope of investment could look like.
Around your Fort Saskatchewan footprint or surrounding eggs and vantage.
Just how we can think about the timing of capital spend as well as potential in service dates.
Pat Jaret here, so I won't give a specific dollar amount, but I can talk about the opportunity. So obviously, we're a very large mover of the ethane molecule either through the <unk>.
<unk> plus.
That goes into Fort Saskatchewan that gets fracked at various fracs, including RFS and then also vantage in eggs that supplies the pet Chem industry here in Alberta, So obviously with an incremental theyre talking.
100 to 120000 barrels publicly.
Of ethane demand.
We will need to rig depending on where their demand is coming from we will need to obviously evaluate eggs expansion.
Potentially for Pembina RFS III, we built that with the ability to put a D. S tower on the backend.
Make it looked like RFS II RFS one.
Opportunities in.
In Empress.
Straddles et cetera. So.
<unk>, obviously has a lot of deep cuts I think we probably have.
But the majority of field based deep cuts that are doing residue gas extraction.
Kind of in Western Canada, So that's core to our business, we know how to do it.
We have alignment with the right contract is be able to do those things pipeline expansions are right in our wheelhouse. So.
With all that said there is going to be a lot of opportunity for pembina to participate.
Hope that there is a positive that baidu not only for <unk>, but the rest of our industry in our province in our country, it's going to be extremely positive and then further to that I think theyre talking.
That we'd probably have to start deploying capital in that 26 timeframe to start getting ready for that.
Assuming like an 18 month build for a deep cut gas plant and stuff I think the real wildcard right now Pat has a lot of the equipment is we're seeing electrical equipment transformers that are being consumed in data.
Ada centers and stuff like that the long lead for these types of things are extremely long but.
It's well within the time period to build a world scale net zero cracker.
Got it thanks for that.
And then maybe just sticking with the pet Chem theme here, so just with Heartland now up and running.
I know theres a lot of moving parts.
And you touched on the propane inventory picture into next year, but.
Any change to.
Your marketing strategy going forward into next year around propane and then.
Maybe just playing the hypothetical here, but.
If an opportunity does come up to own a portion or all of the facility.
The stack up as a strategic fit.
First to say, the Tms opportunity or other egress type assets that might share.
<unk> loose from your larger pipeline peers.
It's Chris I can talk about the propane strategy with Heartland up and running there is no real real change to our strategy, we continue to be big fans of.
Access to the west coast and to <unk>.
And the global markets as well, we think we think heartland and helps the market generally as well so.
No changes for us now that it's up and running as far as a marketing.
Plan.
Who is who has taken the question on <unk>.
Yeah, Pat I'll take the second one I mean, I think to be honest.
We're happy to see as Chris said that asset up and running and contributing to incremental propane demand for the province quite frankly, we haven't spent a lot of time thinking about that lately because we've been we've been waiting for it to get up and running and I don't mean that in a negative way I just mean that.
These projects are complex and they take a while to get up and running in terms of where it stacks strategically.
We get asked obviously about M&A all the time and we continue to to say that we're in reactive mode not proactive mode right now.
We are very happy with our organic backlog and are focused on executing that.
Hopefully getting cedar across the line and executing so we will react if something comes to the market.
And evaluate it just like we would any other opportunity, but we are not proactively out trying to shake the trees right now.
Okay. That's great guys. Thanks for the comments.
But.
Your next question comes from Linda <unk>.
From city Cowen. Please go ahead.
Thank you maybe we can just expand on kind of the decision set in terms of optimizing.
Your capital allocation between.
Longer lead time strategic build out that might be lower multiple.
But kind of delayed contributions versus maybe.
<unk> two opportunistic M&A that that falls in your lap.
Do you expect to see more opportunities given what's going on in the broader markets with your peers.
And can you also help us understand kind of how.
Now you might be.
Not constrained by access to capital, but what your capacity might be for tuck in acquisitions, including whether you potentially leverage any sort of relationships you have with indigenous groups and other partners too.
To buy certain business.
<unk> or packages through our consortium's.
It's Tim.
I think one of the one of the benefits of the work that we undertook last year, which culminated in I guess, what you'd call sort of a re a re stamp of refresh a re validation of our strategy was.
A really defined set of parameters.
Both sort of qualitatively, but also internally quantitatively to sort of to sort of judge investments, where we wanted to spend our time and capital and so I would say that is.
As a team as an organization we have a much clearer perspective today than we ever have on on where we wanted to be spending time and what sort of.
What sort of gravitates to the top of the list in terms of where we put our capital and those really are founded on those four pillars.
We've spoken about publicly.
So when we when we look at those things.
At the same time, we continue to want to build a growing enterprise two.
To generate dividend growth for our shareholders.
Opportunities for our employees and value for our communities and so to do that obviously, you need a balanced portfolio of opportunities, which are meaningful over time and generate growth and obviously you need to be able to sort of recycle capital and recycle cash quickly to be able to generate that growth and I think that's a little bit of what you see.
In our portfolio as we look out for the next two to three years, which is obviously, we've got something really really important really strategically important really meaningful in cedar as an opportunity longer term. We've got some other sort of early stage opportunities in the new ventures group, which could be really interesting, but are sort of still at the earlier stages and then you start.
Got the type of projects that we've done for for decades.
Like pipe expansions like Fracs like Debottleneck on those assets and those are sort of the projects that that churn capital more quickly I mean, I think that one of the benefits of M&A. Obviously is that you sort of acquire cash.
So immediately.
But at the same time it does place.
I need on the organization to integrate.
It's a new item and so you have to sort of weigh that against the opportunities that you have internally and the focus and thats. What we continue to do so I think in this environment obviously.
Capital has gotten more expensive and I think rates of return have to follow that after move in concert to continue to generate positive economic value and I think we see that obviously, there's been consolidation among our customers.
<unk> seen less less probably actual activity on a relative sense in the infrastructure side, how that shakes out over the next few years I guess remains to be seen but we really like the way we're positioned we really like.
Our organic portfolio as Scott mentioned and if there's opportunities that we can we can add which are additive to all those strategic pillars. Our complement a number of them. Then obviously, we'll take a look at it but I think obviously first and foremost the returns have to be there to justify it and this type of environment.
And you have to be able to sort of integrate and pulled those in without without putting additional strain and getting your eye off the core the ball.
Of your core business.
Thank you and just as a follow up in the West Pembina has mused about.
Potentially entering a new geography at scale.
Recognizing that some basin diversification might have some strategic value.
But balancing that with your incumbency in Western Canada, How do you think about the long term possibility of that and then in terms of like strategic imperative of pivoting to an energy transition do you see the possibility to maybe leapfrog or accelerate that transition through a strategic asset.
Acquisition that of course.
At your guardrails.
I would say no to both of those.
Think we updated our strategy last year.
And through that we continue to be.
Here over the next little while last year this year and into next year very focused on.
The <unk> DSP, we continue to see volume growth, we are extremely optimistic on the montney and what that means and especially as we start to see database and get rid of some egress constraints through LNG phase, one and <unk> and potentially the Dow chemicals projects that we are very focused on the <unk>.
<unk> right now and Thats, where were spending our time and effort as it relates to energy transition I think we've been pretty clear that we will look at.
At projects that complement our existing asset base or help our customers Decarbonize. So we are we are not out looking at any sort of major acquisition. In fact, we're not looking at any acquisitions at all in the energy transition space. We like the couple of organic projects that we have and we're going to continue to pursue those.
<unk>.
Great. Thank you.
And there are no further questions at this time I will turn the call back over to Scott Burrows for closing remarks.
Well thanks, everyone. I appreciate you, taking the time to listen to our call today. Thanks to all of our employees, who contributed to our fantastic quarter I'll just leave it with one note that we the one thing that we are really positive about the quarter is the resilience of the business and the contribution from all of our <unk>.
<unk> not only did we have a strong marketing quarter, but we also had an extremely strong quarter in our pipelines and our facilities Division and I think it just speaks to the strength of our business overall and so we're pretty excited for the remainder of this year and 2024. So thanks everyone.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
[music].