Q3 2024 Pembina Pipeline Corp Earnings Call
Good morning, ladies and gentlemen and welcome to the Pemba Nut Pipe Line Corporation Q3 2024 Results Conference Call.
at the time of lunch I know it's an only mode.
Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Wednesday, over 26, 2024. I will now return a conference over to Dan Tucunel, VP of Capital Markets. Please go ahead.
Dan Tucunel: Thank you, Joanna. Good morning, everyone. Welcome to Pemmoner's Conference Call and Red Cat Pass to review highlights from the third quarter of 2024.
Dan Tucunel: On the call today we have Scott Burroughs, President and Chief Executive Officer and Cameron Goldade, Senior Vice President and Chief Financial Officer, along with other members of Pemena Senior Officer Leadership Team including Jared Sprout, Janet Ludukov, Stutaler, Chris Sherman and Ava Bishop.
Dan Tucunel: I would like to remind you that some of the comments made today may be forward looking in nature and are based on Pemmonos current expectations estimates, judgments and projections.
Dan Tucunel: Ford-looking statements we make press are implied today are some strict risks and uncertainties which could cause actual results to differ materially from expectations.
Some of the information provided refers to an on-gap measure.
Dan Tucunel: to learn more about these forward-looking statements and non-gab measures. Please see the company's MDNA, dated November 5th, 2024, for the period ended September 30, 2024, as well as the press release seminar issued yesterday.
Dan Tucunel: All of these materials are available online at peminothercom and on both C++ and that car. I will now turn things over to Scott to make some opening remarks.
Scott: Thanks, Dan. We were pleased yesterday to report our third quarter results. I lighted by adjusted EBITDA of $1.019 billion in adjusted cash worth from operating activities of $724 million or $25 per share.
Scott: Peminot's police to deliver a record financial year reflecting the positive impact of recent acquisitions, growing volumes in western Canadian sedimentary basin, and a strong contribution from the marketing business.
Scott: The camel discussed further in a moment. We have narrowed our 2024 adjusted evidog guidance range by 25 million on either end. To 4.225 billion to 4.325 billion dollars.
Dan Tucunel: In addition to solid financial results, the third quarter was highlighted by three notable transactions.
Dan Tucunel: The first was the acquisition of the remaining 14.6% interest in Oct. 7, U.S. operations, resulting in fully consolidate ownership of all the Oct. 7 assets. This transaction allows further simplification of our corporate reporting and it has our long-term service offering from the Oct. 7 assets.
Dan Tucunel: In addition, PGI, jointly owned by Pemmon and KTR, entered into two exciting transaction with growth focus companies operating in the Monteney and New Guinea.
Dan Tucunel: The first transaction with WhiteCap includes the acquisition of a 50% interest in WhiteCap's GameOb complex and obligation to fund future-lethor area infrastructure development.
Dan Tucunel: Further, the second transaction TGI entered into agreements with Baron that included the acquisition of Baron's Gold Creek in car area oil batteries and support for future infrastructure development. We are pleased to close this transaction, effective October 9th 2024, and look forward to growing alongside Baron in the years to come.
Dan Tucunel: Under the Agreement with Baron, PGI has committed to fund up to $300 million of future infrastructure, and we are pleased to be progressing a new battery in associated pipelines, representing more than half of the funding commitment. More details will be provided upon completion of upcoming engineering films.
Dan Tucunel: Through these two transactions, we are realizing the vision set for the creation of PGI in 2022. We were successful with White Captain Baron because we have a unique ability to provide tailored and value added solutions to support the specific needs of our customers.
Dan Tucunel: The opportunities arising from the creation of PGI have attractive economics and are expected to enhance asset utilization, enable future volume capture, and benefit Pemina's full value chain.
Dan Tucunel: Portions of the NECC midpoint pump station expansion have been completed. We are on track to be fully complete by year end. Notably, that project is trending under its $90 million budget, and while a smaller project, it is another example of Pemina's strong project execution.
Dan Tucunel: As well, we continue to advance further expansions to support volume growth in northeast BC and are pleased that the CER has determined our application for the Taylor to Gordondale expansion is complete and we can proceed to the assessment phase.
Dan Tucunel: At our RFS4 expansion, site clearing activities have been completed, while engineering and procurement activities and site construction continue.
Dan Tucunel: Finally, the Cedar LNG project, we reached an exciting early milestone with the start of onshore construction activities, including site clearing and other civil works. Detailed engineering is underway on the floating LNG facility, and we are looking forward to the start of construction in mid-2025.
Dan Tucunel: I'll now turn things over to Cam to discuss in more detail the financial highlights for the third quarter. Thanks Scott. As Scott noted, Temada reported record third quarter adjusted EBITDA of $1.019 billion, consistent with the same period in the prior year.
Cam: While results were essentially flat period over period, we saw strong performance across most of Pembina's business primarily from the positive impacts of increased ownership of Allianz and Auxable, combined with growing volumes on certain systems and higher NGL budgets.
Dan Tucunel: However, these results were offset by headwinds we faced on one specific asset, the Ocean Pipeline, and the combined impacts of various one-time and transitory events that impacted either the current quarter or the prior period.
Dan Tucunel: In pipelines, factors impacting the third quarter variance primarily included a higher contribution from Alliance to increased ownership following the Alliance stable acquisition.
Dan Tucunel: Higher contribution from Alliance due to higher demand on seasonal contracts
Dan Tucunel: and the reactivation of the Nipissi pipeline in late 2023. These positive impacts were offset by a lower contribution from the Koshin pipeline, primarily due to lower tolls on new long-term contracts.
Dan Tucunel: Lower volumes resulting from a contracting gap from mid-July to August 1st associated with the return of line filters to certain customers.
Dan Tucunel: Lower interruptible demand resulting from narrower condensate price differential between Western Canada and U.S. Gulf Coast, and higher integrity spending.
Dan Tucunel: and lower net revenue on the peace pipeline system due to the earlier recognition of take or pay deferred revenue in the first half of 2024 compared to 2023, which more than offset higher contract volumes.
Dan Tucunel: In facilities, factors impacting the third quarter variance included the inclusion within facilities of adjusted EBITDA from Oxable following the Alliance Oxable acquisition, partially offset by a gain on the recognition of a finance lease in the third quarter of the prior year.
Dan Tucunel: In Marketing and New Ventures, the third quarter variance reflected the net impact of higher net revenue from contracts with customers due to increased ownership, interest in Auxable following the Alliance Auxable acquisition, and higher NGL margins.
Dan Tucunel: These positive impacts were offset by the impact of a 90-day unplanned outage at Auxable and lower realized gains on commodity-related derivatives.
Dan Tucunel: Finally, the third quarter corporate segment results reflect higher long-term incentive costs driven by peminous share price performance, partially offset by lower consulting costs.
Dan Tucunel: Earnings in the third quarter were $385 million. This represents an 11% increase over the same period in the prior year.
Dan Tucunel: In addition to the factors impacting adjusted EBITDA, earnings in the third quarter were impacted by unrealized losses recognized by PGI on interest rate derivative financial instruments due to falling interest rates compared to gains in the third quarter of the prior year.
Dan Tucunel: unrealized losses recognized by CDER LNG on interest rate derivative financial instruments
Dan Tucunel: Unrealized gains on NGL-based derivatives and crude oil-based derivatives compared to unrealized losses in the third quarter of the prior year.
Dan Tucunel: Larger unrealized losses on renewable power purchase agreements.
Dan Tucunel: a cost recovery related to a storage insurance settlement and higher depreciation and amortization expense and net finance costs.
Dan Tucunel: Pipeline volumes of 2.7 million barrels per day in the third quarter represent a 6% increase compared to the same period in the prior year.
Dan Tucunel: The increase was primarily due to the increased ownership interest in Alliance and the reactivation of the NIPSE pipeline.
Dan Tucunel: These factors were partially offset by lower volumes on Koshin Pipeline, the Drayton Valley Pipeline and the Peace Pipeline system.
Dan Tucunel: Lower volumes on the PEACE pipeline system were a result of earlier recognition of take or pay deferred revenue in the first half of 2024 compared to the first half of 2023, which more than offset higher contracted volumes.
Dan Tucunel: If you normalize conventional pipeline volumes for the earlier take-or-pay recognition at outages, volumes were up approximately 2% over the prior period.
Dan Tucunel: Facilities volumes of approximately 800 million barrels per day in the third quarter represent a 1% increase compared to the same period in the prior year.
Dan Tucunel: The increase was primarily due to the Alliance on Sable acquisition.
Dan Tucunel: lower volumes at the Redwater Complex and at Younger, and lower volumes on certain PGI assets due to the earlier recognition of take-or-pay deferred revenue in the first half of 2024 compared to the prior year, which more than offset higher PGI interruptible volumes.
Dan Tucunel: Turning to our outlook for the full year, Pemina has narrowed its 2024 adjusted EVA DOT guidance range to $4.225 billion to $4.325 billion.
Dan Tucunel: Further, we are currently trending towards the midpoint of the guidance range based on prevailing forward commodity prices and the outlook for fourth quarter volumes.
Dan Tucunel: Through the first three quarters of the year, conventional pipeline volumes have been modestly impacted by various permanent and third-party outages, and lower-than-expected interruptible volumes on certain systems.
Dan Tucunel: leading to a slightly moderated volume growth.
Dan Tucunel: in 2024 than originally expected. However, the broader outlook for growth in a WCSB and Teminus business remains strong and the revised guidance is based on an expectation for the fourth quarter of higher interoperable volumes on certain systems and the impact of new contracts.
Dan Tucunel: At September 30th, based on the trailing 12 months, the ratio of proportionally consolidated debt to adjusted EBITDA was 3.6 times, which is at the low end of the target range.
Dan Tucunel: It's important to note, however, that given the April 1st closing date of the Alliance on Sable acquisition, the ratio includes all of the data associated with the transaction that is currently only capturing two quarters of EBITDA contribution.
Dan Tucunel: On a normalized basis, this ratio would be approximately 3.4 times. I'll now turn things back to Scott.
Scott Burroughs: Thank you, Cam.
Scott Burroughs: The first three quarters of 2024 has been tremendously exciting, highlighted by acquisitions and major project announcements.
Scott Burroughs: as well as the continued momentum from industry-wide growth catalysts.
Scott Burroughs: including the Trans Mountain Pipeline expansion, the near start-up of LNG Canada, new petrochemical facilities, and new or expanded LPG export capacity.
Scott Burroughs: As we work hard to close out the year strongly, our attention is also turned to 2025 and beyond, and how Pemina can continue to capitalize on the opportunities arising from this growth and deliver long-term and sustainable value for our shareholders. Thank you for joining us this morning. Operator, please go ahead and open up the line for questions.
Speaker Change: 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 a prompt that your hand has been raised. If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: Your first question comes from Jeremy Tonette at J.P. Morgan. Please go ahead.
Jeremy Tonette: Hi, good morning.
Speaker Change: Morning, Jeremy.
Jeremy Tonette: Just want to start off with the conventional segment if I could I think you'd mentioned 2% period over period growth there
Speaker Change: I think as some of the market, maybe we're expecting a little bit higher growth there. Just wondering if you could touch on a bit more dynamics as you see it there and the outlook into 25 and you know the potential for mid-single-digit growth, I guess based on your producer-customer conversation.
Speaker Change: Yeah, I'll let Cam clarify the 2% comment. You know, when we look out towards the end of the year, we're still looking at kind of a 4% exit-to-exit growth rate on the conventional system. Again, the third quarter was impacted by Pemina and third-party turnarounds. But as we look forward to Q4, we're also seeing third-party facilities come online. So that 4% within that has some embedded growth from third-party facilities coming online, Jeremy. And then as we look out towards...
Speaker Change: 2025 you know we're still finalizing our 2025 budget and we'll have more to say in December but we're still feeling confident in that four to six percent physical volume growth rate in 2025
Speaker Change: And, you know, we're seeing that today in October. Volumes in October were quite strong compared to September. Now, some of that is new growth. Some of that is just normalized operations and those volumes returning to the system.
Speaker Change: So that's kind of more of the bigger picture. Cam, do you want to just clarify your 2% comment? Yeah, sure. Jeremy, just to clarify the 2% comment in my prepared remarks, if you sort of look at Q3 over Q3, the taker pay recognition and the outages
Speaker Change: You know, collectively, we're worth a little under 60,000 barrels a day of impact there, so that gets you to the 2% when you normalize for that. Obviously, looking forward, you know, Scott explained that well, how we see that in excess of the 2%.
Jeremy Tonette: got it okay thank you so maybe some kind of turnaround noise in the quarter but I guess your longer-term outlook unchanged for mid-single-digit growth if I got that correctly
Speaker Change: Correct.
Speaker Change: And then maybe just, you know...
Speaker Change: pivoting over to Alliance now having full ownership of the asset if you could talk a bit more I guess as far as your outlook for what you can do there how you can better optimize over time as legacy contracts roll and you know could there be growth the Bakken or otherwise just wondering you know what's possible at this point
Speaker Change: Good morning, Jeremy. It's Jared here. Yeah, so integration continues to go extremely well, not only with the Alliance asset, but on the Auxable asset as well. And then when we look at the synergies,
Speaker Change: Those also were going as planned, kind of the shorter term synergies. Longer term, you know, what we're hearing from our shippers and potential shippers is they continue to value the service offering. They very much like the high reliability that the asset
Speaker Change: provides to the shippers here in Western Canada and the Bakken, and demand for the asset remains extremely high.
Speaker Change: We are engaged, obviously, with our shippers, talking to them about how we can meet incremental demands.
Speaker Change: either full path or, you know, other opportunities, either out of the Balkan into the Chicagoland area, or maybe some interprovincial opportunities into Fort Saskatchewan or where other demand for gas is required.
Speaker Change: So just kind of working through those right now, but very encouraged with the conversations and you know, just really trying to understand where the shippers want their gas to go and how we can unlock that value for them.
Speaker Change: Got it. That's great to hear. That's it for me. Thank you.
Speaker Change: Thank you. The next question comes from
Speaker Change: with ARC there was secured prior to the start of construction and with construction at least partly underway now. I assume that the risk profile for Cedar has decreased. So should we think about, you know, future offtake contracts that you sign on Cedar carrying a higher rate to reflect that there's lower risk on the project now?
Speaker Change: You know, I think the interesting point is upon FID of CDER, the interest in the project has increased, just given that it's, you know, real in people's eyes now versus, you know, prior to FID, I think people were waiting to see that decision. So I think between the FID decision, as well as continued progress on
Speaker Change: the CGL expansion, people have more confidence in the project, in the in-service date, the profile of that. And what that's led to is increased interest. And with that increased interest, we do believe that coupled with the fact that this will be a scarce resource in terms of...
Speaker Change: some of the only uncontracted LNG capacity off the west coast of Canada that it should garner a premium. So that's certainly something that we're thinking about. We have term sheets out in front of potential offtakers and we are in discussions.
Speaker Change: As we noted in the press release, we expect those to continue into early 2025, but we are having good discussions.
Speaker Change: Got it
Speaker Change: And then, you know, on M&A, you've been active on the M&A front recent quarters, especially at TGI. But we've seen, you know, midstream valuations move higher over the past few months. Can you maybe help us understand how the bid-ask spread has evolved? Are you seeing actionable opportunities that reasonable multiples that meet your return thresholds? Or is it getting harder to find accretive deals?
Speaker Change: I think given the transactions we did in 2024, we're focused right now on closing and integrating
Speaker Change: The acquisitions, you know, we're not we're not out actively pursuing M&A opportunities.
Speaker Change: We'll always look at something. If it comes for sale, we don't control the timing, so I'd say we're in reactive mode, not proactive mode, just because we have enough on our plate to integrate and capture the value from the previous acquisitions.
Speaker Change: Thank you.
Speaker Change: Morning everyone. Just one question for me. Can you give us an update on the athene opportunities as you move through the year, the increasingly clear...
Speaker Change: a better definition of the next phase of opportunities.
Speaker Change: You were kind of breaking up, but I just want to repeat, you were talking about the ethane opportunities, I think, with respect to probably our Dow Supply Agreement. Unfortunately, it's a little bit more of the same story. We continue just to evaluate the entire portfolio of our ethane supply.
Speaker Change: You know, we have kicked off, you know, what we call internally Gate Zero and Gate One funding to progress engineering, pre-feed work, and those types of things on various opportunities. And 2025, you know, in the first half of 2025 is where we'll sit down as a management team and really go through those opportunities and start to progress.
Speaker Change: which ones will go through Gate 2 and Gate 3, so you'll see a little bit more probably in the latter half of 2025. And then the majority of that capital, obviously, in 2025 will be spent in that engineering and pre-fee phase. 2026, 2027 when those assets come on screen is where you'll see the majority of that capital being deployed.
Speaker Change: you know, bringing assets out of the ground.
Speaker Change: Sounds like we may have lost Rob.
Speaker Change: Operator, maybe we can go to the next question.
Speaker Change: Thank you. The next question comes from Maryse Choi at RBC Capital Markets. Please go ahead.
Maryse Choi: Thanks and good morning, everyone. If I could just come back to see the LNG.
Maryse Choi: I think you mentioned that there has been increases.
Maryse Choi: interest.
Maryse Choi: from the offtaker perspective, and an update might come instead in early 2025.
Maryse Choi: Obviously, these are complex discussions and do take time, but could you elaborate a little bit on how the discussions have generally evolved over recent months, be that in terms of the terms, the conditions, the volumes, or even the competitive tension amongst the potential counterparties?
Speaker Change: Hi, it's Stu. So, you know, our conversations continued, have been ongoing for the, you know, the past year. You know, we've regrouped and looked at, as Scott described, you know, the opportunity, the de-risking of the opportunity, and have picked up conversations with...
Speaker Change: NOCs and IOCs who we were talking to previously. We've added additional counterparts in those conversations. Term sheets are out to those parties. At the same time, we've been in conversations with
Speaker Change: So we've been pushing those conversations, looking to get these term sheets out to people. Both parties now have, all the parties have term sheets.
Speaker Change: and those term sheets.
Speaker Change: are reflective of similar terms that were in the ARC arrangement but with some minor changes that have been warranted. It's an iterative process and we'll be having further conversations in 2024 and as described, we'll be looking to close on those conversations in 2025.
Speaker Change: Got it. Now if I could just switch over to a comment earlier about interruptible volumes on certain systems. I think the guidance includes some recovery of these volumes in Q4 and could just elaborate a little bit more about these volumes and, you know, how sustainable these are beyond the quarter.
Speaker Change: Yeah, exactly like what Scott was saying, you know, seeing stronger.
Speaker Change: stronger physical volumes and revenue volumes into the fourth quarter.
Speaker Change: You know, the IT barrel, you know, we do, we do outlook components of that. It's really around depending on which customer is, is really ramping up and how quickly they're ramping up that brings that IT barrel, but we are anticipating, obviously, a bit of a rebound into the quarter in Q4 with respect to that.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from Robert Cattelier from CIBC. Please go ahead.
Robert Cattelier: Hey, good morning. Maybe I can start with a higher level issue here. I'm curious what you think the BC election result and changes at the Blueberry River First Nation mean for your growth plans in BC?
Speaker Change: a smooth transition. We've been working closely with the folks in the BC government with the Blueberry River First Nation and others and we think this will be again just a smooth transition and the continued
Robert Cattelier: effort to continue to implement the agreement between the two parties.
Speaker Change: Okay, maybe a question for Cam.
Speaker Change: ...guidance to the work stoppage at the West Coast ports and how significant is that to your Q4 results?
Cam: It's fairly minimal. You know, right now we had the work stoppage previously. I can't remember exactly when that was, maybe last year, but it is somewhat immaterial to our Q4 outlook.
Speaker Change: Okay and then lastly, how are you seeing development change in the DuVernay given that there's been some recent turnover in some of the key lands there?
Speaker Change: Once again, Jared here.
Cam: We see that recent transaction, you know, upon closing as being extremely positive.
Cam: Obviously, the potential acquirer is a very prudent and technical savvy producer. The previous owner, we had a wonderful relationship with Chevron and continue to have so. But they were typically only allocating one, one and a half rigs on a calendar year basis.
Cam: And, you know, we've had some early conversations with.
Cam: with Canadian National Resources just kind of outlining at high level how the how the contract works and we're really excited about you know their understanding of the resource and you know kind of their get up and go to get after it and you know probably allocate more drilling rigs to the space. So, thank you very much for your time today and we look forward to seeing you next time.
Cam: You know, we're expecting to see some higher utilizations in the future, that's for sure. We're excited.
Speaker Change: Okay, thanks everyone.
Speaker Change: Thank you. The next question comes from Ben Pham at BMO. Please go ahead.
Ben Pham: Can you comment on how the new toll compares to your original underwriting assumptions? Can you also talk about top-down key factors that were driving the renegotiations?
Cam: Yeah, sure. Dan, it's Tan here. I'll take the first part. So, I think, obviously,
Cam: When you look at the variance that we saw in Q3, you know, sort of period over period, I mean, there's a handful of things as we outlined in the disclosure that contributed to that.
Cam: Obviously, the new toll framework, the revised firm tolls, that is about a $20 million a quarter impact and obviously the biggest single piece of the variance quarter over quarter.
Cam: We talked about, obviously, this nuance in the contract where, with the foundational shippers, you know, on the initial term, having provided line fill,
Cam: You know, we were required to return the line filled to them and effectively, you know, they shipped under that for for that period in July.
Cam: That, along with the incremental integrity work for the quarter, was about another $12-$14 million impact, and we'd obviously characterize those as unusual or one-time events.
Cam: And then lastly, the IT revenue portion in the quarter.
Cam: was affected by, you know, both the combination of the spreads, which are a consistent driver, but also, you know, we had a temporary outage of one tank.
Cam: associated with that asset, which put a natural limit on the ability to move.
Cam: Interruptible Volumes
Cam: You know, that really took up the balance of the variance, and so as we look forward to that asset, you know, I think, you know, we're obviously happy to have it recontracted. I'll let Jared speak the dynamics of that exercise, but obviously we see something that would exclude those one-time or extraneous events as we look forward.
Speaker Change: Just on the contract, you know, obviously our macro view of condensate demand in Western Canada is very strong.
Speaker Change: be it from the Chicagoland area, the Gulf Coast.
Cam: through Koshen Southern Lights.
Cam: and, you know, obviously the domestic supply here from Western Canada.
Cam: So...
Cam: You know, looking at those dynamics and then recall when we took over this asset, the asset, I'm going to use some round numbers here, could do roughly 90,000 barrels a day of throughput.
Cam: Since then, we've taken that over and, you know, our technical services team has applied their expertise and, you know, we can relatively do significantly more than 100,000 barrels a day.
Cam: So taking that into consideration that we have more white space to offer for IT when, you know, when spreads are strong, you know, the overall macro view that demand is strong for the asset, looking at our customers on the oil sands side and the buyers in Edmonton, you know, and just
Cam: Working through, we haven't talked about the tenure of the contracts, and obviously longer term contracts with specific counterparties, you know, we can offer a little bit of a total discount in exchange for those longer term contracts. So, when you take all of those into consideration, we're pleased with the contracts that we executed and the counterparties in which we executed them with.
Cam: And we have that incremental white space today with us expanding capacity that we can go out to the market and sell on a little bit of a shorter term basis. And we believe overall, long term, the spreads will support
Cam: And we're really happy with us having the asset full on a physical basis every day. And yeah, overall happy with our acquisition and where we've recontracted it at.
Speaker Change: Okay, thanks for that comment. Sure, I would just...
Speaker Change: And sorry, just for a moment, I think on Kosh, and one thing I should close out by saying is it's important to remember that, you know, when we acquired that asset originally, you know, it was flowing about 85 to 90,000 BUI a day and through the work that we've done, you know, great work by the operations team.
Speaker Change: We've obviously increased the capacity of that asset, provide more egress and more access to condensate for our customers and obviously more opportunities for Pemina. We've grown that capacity meaningfully in terms of that size. Capacity is obviously well north of 100,000 barrels a day today. Some days closer to 110 or 115. That's obviously helped support the underwriting thesis for the original acquisition.
Speaker Change: Okay, I got it. So we should really look at not just, I mean, obviously look at quarter over quarter, but also look at the initial volumes. Okay, that's good. And then I know no comment on tenor, but once it's up for renewal again.
Speaker Change: Can coaching technically be converted to an oil pipeline or reverse or that's not even in the cards at all, longer term?
Speaker Change: I think the demand for condensate imports and the supply for the oil sands will continue to be strong enough, maybe one day, but it's not something we're looking at today.
Speaker Change: Okay, I got you. And may I just, one cleanup, one in a piece, and there's reference to the $1.5 million deferred revenues booked in earlier.
Speaker Change: Are you suggesting that under your prior accounting policies, the piece would have been up $15.15 million more than in the third quarter results?
Speaker Change: What I'm suggesting, Ben, is that in the past years, you know, with less track record on the data, we would have deferred.
Speaker Change: You would have seen a $17 million tailwind in Q3 of 2024 had it not been for that sort of timing change.
Ben: I got your, so there wasn't anything else notable outside of that impacting the piece?
Speaker Change: Not more than what we said originally, so obviously there was that piece, there was some outages that also affected this quarter. Those were the two biggest effects.
Speaker Change: Okay. All right. Got it. Thank you.
Ben: Thank you. The next question comes from A.J. O'Donnell at CPH. Please go ahead.
A.J. O'Donnell: Hey, good morning, everyone. Thanks for taking my question. I'm just wondering if I could go to the marketing business for a second. I think results were pretty strong despite seeing
A.J. O'Donnell: An unplanned outage at the AuxAble facility. I was just wondering if you could comment about your outlook for frack spreads going forward given where AECO prices are headed into the winter. Thanks.
A.J. O'Donnell: It is Chris Sherman. You know, you know, I think we expect a little bit more of the same here.
A.J. O'Donnell: Obviously, challenges, we're still waiting on winter in most markets, and I think, you know, as we look through to 2025, there's definitely some things we're watching. LMG Canada is coming on.
A.J. O'Donnell: We're watching it go gas in that sense. We've got some incremental Gulf Coast rack capacity coming on without a lot of incremental egress So we're watching that as well, but but remain fairly constructive in particular because gas price
Speaker Change: Okay, thanks for that. Just one maybe on the Taylor to Gordondale project. I was curious if you could just give us a little bit more explanation on kind of what's going on there and what's needed during the assessment phase to kind of get that project moving along. Thanks.
Janet Ludukov: Yeah, hi, good morning again. It's Janet. So in September, the CER
Janet Ludukov: We'll issue this completeness determination. So essentially what that does is it kicks off a 430-day review process. So we'll be in the midst of that responding to information requests. We expect hearings to happen this summer.
A.J. O'Donnell: and a decision from the CER later next year.
A.J. O'Donnell: And then that will kick it over to the governor and council, who will have 90 days to make a decision from there.
A.J. O'Donnell: So, the process is underway and we look forward to working with the CER and the other intervenors to answer their questions. There's obviously a high demand for this project, and so we expect the process to move forward.
A.J. O'Donnell: And then just talking on the execution side, we continue to, you know, meet with landowners.
A.J. O'Donnell: due to the engineering, archaeology digs, all of our regulatory work.
A.J. O'Donnell: you know, Indigenous Community Capacity Agreements, working with our customers. So we continue to spend real dollars on the asset as well and starting to order some long lead equipment in anticipation for the approval to meet our our customers on stream dates. So things are going really well.
Speaker Change: Appreciate the details. Thanks, everyone.
Speaker Change: Thank you. The next question comes from Anthony Linton at Jeffries. Please go ahead.
Anthony Linton: Hey, good morning guys and thanks a lot for taking my questions. If you look at the two infrastructure deals you did already this year, I think those were relatively well telegraphed by their respective producers.
Anthony Linton: Just wondering if you're able to give us a sense on, you know, how your conversations with customers are progressing today and the potential opportunity set that you might see there moving forward.
Speaker Change: Are you asking in relation to future M&A opportunities?
Speaker Change: I mean, I would say our conversations with producers in general
Anthony Linton: are positive in terms of volume growth, again, based on some of the macro changes that we see from an egress perspective. I think people are relatively.
A.J. O'Donnell: bullish you know especially when you look at where the Canadian dollar is and the value of condensate which drives a lot of value across our system I think overall just in general the discussions are generally positive you know again as it relates to to M&A
A.J. O'Donnell: You know, we're very focused on integrating the assets that we've acquired in 2024.
A.J. O'Donnell: You know, aren't in kind of active discussions on similar transactions, not to say that we won't be if opportunities arise, but that's, that's not part of the conversation today. Most of the conversation today is generally around future volume growth and how we can meet those needs through gas plants, pipe and frack.
Speaker Change: Got it. Okay, that's helpful. And then maybe just one follow-on question, just with those transactions with Pemina taking more of, call it a financial partner role than an operating role, does it change how you think about the strategy on the facilities side of the business? And is that, I assume that's more driven by the producers than from Pemina. Is that the right way to think about it?
Speaker Change: Morning, Jared here. Yeah, if you if you think about these two specific acquisitions that we just did with Baron and Whitecap, one closed and one waiting on closing.
Speaker Change: Customers are going to really focus on
A.J. O'Donnell: you know, their wellhead to their oil batteries, and we'll really focus on what we do well, on processing natural gas, natural gas liquids.
A.J. O'Donnell: transporting those and then obviously getting them through the frack and getting their condensate into markets.
A.J. O'Donnell: So it's not really a change at all, you know, all of their liquids are going to flow onto a PEM and operated system and through the value chain and all of their gas is going to go through PEM and operated gas plants and gas facilities. So it doesn't really change our philosophy at all. They're really good at those types of things, so they should do that and we'll stick to what we're really good at.
Speaker Change: Okay, got it. That's helpful. Thank you very much.
Speaker Change: Thank you. The next question comes from Manav Gupta at UBS. Please go ahead.
Manav Gupta: Good morning, guys. A quick question. Any update that you have on the progress you're making at Redwater Complex expansion and Vapati expansion? Thank you.
Manav Gupta: Good morning.
Speaker Change: Yes, so the Redwater 4 expansion physically continues to go extremely well. It was just up there a couple weeks ago. Things are really coming out of the ground, so I'm excited to see that on a project execution side.
Manav Gupta: With respect to the white space we have, with respect to recontracting,
Manav Gupta: Recall that RFS4 was essentially kicked off due to obviously high demand from from our upstream
Manav Gupta: customers, but it's primarily due to three of the really big Montigny dedications that we have in Northeast B.C.
A.J. O'Donnell: That's allowed us to get that project off the ground and then we have, you know, X percent of white space.
A.J. O'Donnell: That X percent of white space we are...
A.J. O'Donnell: Fractionation Services
A.J. O'Donnell: due to the fact that we're actively building a new C++ facility.
A.J. O'Donnell: We have other contracts that we just haven't been public about that we've executed. So it's going extremely well. Demand is high.
Speaker Change: Obviously, Chris just talked about ACO is low, so our customers are trying to extract every barrel of NGL out of the gas stream that they can due to the strong frack spreads here in Western Canada. So all in all, we're extremely happy with the project. It's going extremely well in execution and on the commercial side.
Speaker Change: Thank you. And the next question comes from Patrick Kenney at National Bank Financial. Please go ahead.
Patrick Kenney: Thank you. Good morning, guys. Just back to Cedar LNG, and apologies if I missed it, but any thoughts or comments around this litigation challenging the patent infringement? Or if you see any risk to the construction schedule as this legal process plays out?
Speaker Change: Good morning, it's Jan again. You know,
Speaker Change: As we've said before, the Steelhead patent is not something that we are concerned about. We don't believe that the CEDAR project infringes on the patent or that the patent is valid. There's currently a...
A.J. O'Donnell: a challenge that it has been ruled invalid in Canada. Steelhead has challenged that and that appeal is going to be heard shortly. So no, we don't anticipate any impacts to construction or in service state for the project.
Speaker Change: Okay, thanks for that. And then just maybe on the NGL marketing front.
Speaker Change: I was just curious how your team is managing this relatively warm start to Q4 across North America, I guess with respect to sales volumes and, you know, how protected you might be on the hedging front relative to prior winters.
Speaker Change: Yeah, it's Chris.
Chris Sherman: A good portion of our NGL, proprietary NGL comes out of our frat spread business and we're about 50% hedged for the rest of the year on that and about 25% through 2025. As far as
A.J. O'Donnell: strategy goes, you know, we've got a fairly robust portfolio, but a good portion of it is pointed at the West Coast. And so we're benefiting right now from that, from that Far East.
A.J. O'Donnell: pricing advantage and and you know we try to structure it such that we're taking advantage of
A.J. O'Donnell: of that wherever possible, especially in the kind of market we're looking at right now. So
A.J. O'Donnell: NGL season and recontracting season sort of upon us but as we're working through it we're definitely paying a lot of attention to the West Coast.
Speaker Change: Okay, that's great, thank you.
Speaker Change: Thank you. We have no further questions. I will turn the call back over to Scott Burroughs for closing comments.
Scott Burroughs: Thanks everybody, we look forward to finishing the year strong. Thanks for your time, thanks to our employees for all their efforts, thanks to our shareholders for your continued support. Thanks everyone.
Speaker Change: Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.