Canaccord Infrastructure -- Pipelines
$1B OF ADDITIONAL GROWTH PROJECTS SECURED
Investment recommendation
Pembina Pipeline announced its intention to proceed with a $1 billion expansion on several NGL infrastructure assets. The expansion entails twinning its Saturn deep cut facility, twinning its Redwater Fractionator and expanding capacity on its Peace/Northern NGL System. Although the projects have been previously discussed by Pembina management, final investment decisions on each of the projects were subject to signing long term commercial agreements with producers, which the company has now achieved. Once completed (expected by the end of 2015), the new projects are expected to add $125-135 million of incremental fee-for-service EBITDA annually with a potential further $10-30 million annually of product margin EBITDA from NGL sales. Of the potential $10-30 million of annual product margin EBITDA, about $10 million is expected to be driven from fee-for-service arrangements. The new projects highlight the company’s existing asset location advantage, in addition to owning vertically integrated infrastructure assets along the hydrocarbon value chain which allows the company to maximize the value of its assets from growing volumes in the region. The company’s strong growth portfolio now stands at ~$3 billion in committed projects which are expected to be placed into service between 2013 and 2015, with an additional ~$1 billion of uncommitted projects that the company is currently pursuing. Importantly, the company is conducting an open season for additional crude oil, condensate and NGL pipeline expansions between Taylor, BC and the Edmonton Fort Saskatchewan areas of Alberta, which may lay the groundwork for additional pipeline capacity expansions and potentially new pipelines. The company expects to provide more details on the open season in the near future. To reflect the incremental value added from the new committed projects, we are increasing our DCF derived target price by $3 to C$35.00. We are maintaining our BUY rating.