Q2 Earnings Released https://www.pembina.com/media-centre/news/details/135516/ CALGARY, AB, Aug. 5, 2021 /CNW/ - Pembina Pipeline Corporation ("Pembina" or the "Company") (TSX: PPL) (NYSE: PBA) announced today its financial and operating results for the second quarter of 2021.
Highlights - Updated 2021 adjusted EBITDA guidance range by raising the low end; adjusted EBITDA is now expected to be $3.3 to $3.4 billion
- Second quarter and year-to-date adjusted EBITDA of $778 million and $1.6 billion
- Volumes across Pembina's pipeline systems and facilities continue to rise, reflecting the impact of higher commodity prices and strong Western Canadian Sedimentary Basin fundamentals
- The second quarter was highlighted by the announcement of three transformational partnerships, including a partnership with the Haisla Nation to develop the proposed Cedar LNG Project and Chinook Pathways, a partnership with Western Indigenous Pipeline Group to pursue ownership of the Trans Mountain Pipeline, as well as a vision for the Alberta Carbon Grid
- Terminated arrangement agreement with Inter Pipeline on July 25 and subsequently received a $350 million termination fee
Executive Overview We continue to see considerable positive momentum in our business including a second quarter highlighted by exciting developments charting Pembina's future path. A combination of rising volumes across many parts of our business, project reactivations, a more than $5 billion development portfolio of highly probable and highly economic growth projects, and a number of transformational announcements demonstrate that Pembina remains very well positioned.
Recent Activity & Guidance Update Activity in the Western Canadian Sedimentary Basin ("WCSB") continues to benefit from strengthening commodity prices across all the products within Pembina's integrated value chain – crude oil, condensate, natural gas, and natural gas liquids – and this has enhanced our confidence in our 2021 outlook. Based on year-to-date results and the outlook for the remainder of the year, Pembina has updated its 2021 Adjusted EBITDA guidance range to $3.3 to $3.4 billion. Relative to Pembina's initial guidance, the revised outlook for the full year is based on stronger than expected fundamental marketing results, as a result of significantly higher NGL prices and higher marketed NGL volumes, partially offset by significant realized hedging losses. Further, the positive impact from modestly higher volumes across many of Pembina's pipeline systems and facilities is being partially offset by a number of factors including a stronger than expected Canadian dollar relative to the U.S. dollar, higher operating costs and integrity spending in the conventional and oil sands pipelines businesses, and lower contributions from certain assets. In addition, the revised outlook reflects higher general and administrative expense due to Pembina's rising share price and the resulting increase in long-term incentive compensation costs.
The Company has hedged approximately 50 percent of its 2021 frac spread exposure, excluding Aux Sable, with these hedges having been systematically entered into throughout 2019 and 2020. Further, the Company has now hedged approximately 25 percent of its 2022 frac spread exposure, excluding Aux Sable, and expects to reach its target of 50 percent by the end of the third quarter of 2021.
Stronger commodity prices and rising volumes mean Pembina's customers are in ever-better financial positions, generating significant free cash flow and improving their balance sheets, with many reaching their leverage targets earlier than expected. This sets the stage, we believe, for increased drilling activity and increased capital spending by producers into 2022, with positive implications for Pembina's business.
A positive outlook for the WCSB and customer demand for incremental service led to the reactivation during the quarter of Phase IX Peace Pipeline Expansion ("Phase IX") to support customers' long-term development plans while furthering product segregation on the Peace Pipeline system. Further decisions on Phase VIII Peace Pipeline Expansion and Prince Rupert Terminal Expansion are expected later this year and early next year, respectively. The same outlook also supports our confidence in the development of a portfolio of growth projects totaling more than $5 billion with compelling rates of return.
Termination of Proposed Inter Pipeline Transaction On July 25, Pembina terminated the arrangement agreement providing for the proposed acquisition by Pembina of Inter Pipeline Ltd. ("Inter Pipeline"). In connection with the termination, Inter Pipeline subsequently paid Pembina the $350 million termination fee provided for in the agreement.
The industrial logic of a combined Pembina and Inter Pipeline remains unparalleled and the value creation between certain of our assets is impossible to replicate by any other entity. While we are disappointed with this outcome, we will continue to seek opportunities for growth through focused acquisitions. Pembina remains optimistic about its future, including the profitability of our existing business given foreseeable sector tailwinds, as well as with tremendous flexibility to pursue an ever increasing and more diverse set of opportunities for growth, some of which we were able to highlight and advance during this process.
Transformational Partnerships and ESG Pembina recently announced three significant and transformational partnerships that combine fundamentally strong business opportunities with compelling environmental, social and governance ("ESG") attributes: a partnership with the Haisla Nation to develop the proposed Cedar LNG Project; a partnership with TC Energy Corporation to jointly develop the Alberta Carbon Grid, a world-scale carbon transportation and sequestration system; and Chinook Pathways, a partnership with Western Indigenous Pipeline Group to pursue ownership of the Trans Mountain Pipeline, following completion of the construction of the Trans Mountain Expansion project. Collectively, these partnerships support Pembina's global market access strategy, allow for meaningful Indigenous participation in Canadian energy development, and provide an important large-scale infrastructure platform needed for Alberta-based industries to effectively manage their greenhouse gas emissions and contribute positively to a lower-carbon economy. Together they will further enable the responsible development of Canadian energy, strengthening Canada's reputation and providing a decades-long runway to continued development of oil and gas resources that the world needs. We are proud of our work with our communities and our role in creating meaningful solutions that can deliver results that matter.
In closing, what has emerged over the course of an exciting past few months reflects continued progress towards a clear vision for Pembina's future. Our ambitions are being realized and we look forward to continuing to build out our diversified and integrated value chain, providing an exceptional customer service offering, including global market access for their products. At the same time, we remain committed to providing industry-leading total shareholder returns, including a stable and growing dividend, and furthering our ESG strategy in service of our employees, communities, customers and investors.
Projects and New Developments(1) Pipelines:
- During the quarter, Pembina reactivated Phase IX, which will add capacity in the northwest Alberta-to-Gordondale, Alberta corridor to accommodate increased activity in the northeast British Columbia ("NEBC") Montney play. The project has a revised estimated cost of approximately $120 million, which reflects the addition of a Wapiti-to-Kakwa corridor pump station offset by cost savings identified through value engineering. Phase IX has an expected in-service date in the second half of 2022.
- Pembina continues to progress its Phase VII Peace Pipeline Expansion ("Phase VII"), which includes a new 20-inch, approximately 220 km pipeline and two new pump stations or terminal upgrades. Phase VII will add approximately 160,000 barrels per day of incremental capacity upstream of Fox Creek, accessing capacity available on the mainlines downstream of Fox Creek. All major procurement activities were completed by the end of the second quarter and construction is underway and progressing according to schedule. The project has a capital budget of $775 million and has an expected in-service date in the first half of 2023.
- The previously announced Phase VIII Peace Pipeline Expansion ("Phase VIII") remains deferred. Initial contracts supporting the project remain intact and customers continue to signal plans which will necessitate the incremental capacity. Value engineering work is ongoing and Pembina continues to evaluate this project in discussions with its producing customers with a reactivation decision expected in the fourth quarter of 2021.
- In support of Phase IX and the potential reactivation of Phase VIII, Pembina has entered into an exclusivity agreement with, and concurrently provided an irrevocable offer for, midstream services to a premiere NEBC Montney producer. The exclusivity agreement provides a bridge to negotiation of definitive agreements for transportation and fractionation of a material volume of liquids and NGL mix from certain NEBC Montney lands. Pembina and the producer will work together over the next few months to develop and execute definitive agreements by the end of 2021. All new firm transportation and fractionation services provided under the proposed arrangement would be supported by long-term, take-or-pay agreements. Prior to deferral, Phase VIII had an associated capital cost of approximately $500 million but Pembina expects this level of investment to decrease given cost and scope improvements.
Facilities:
- Pembina continues to progress Empress Cogeneration Facility. The facility will use natural gas to generate up to 45 megawatts of electrical power, reducing overall operating costs by providing power and heat to the existing Empress NGL Extraction Facility. All the power will be consumed on site, supplying approximately 90 percent of the site's power requirements. Further, this project will contribute to annual greenhouse gas emission reductions at Empress NGL Extraction Facility through the utilization of co-generation waste heat and low-emission power generated. Pembina anticipates a reduction of approximately 90,000 tonnes of carbon dioxide equivalent per year based on the current energy demand of Empress NGL Extraction Facility. Construction commenced in May 2021. The project has a capital budget of $120 million with an expected in-service date in the fourth quarter of 2022.
- Prince Rupert Terminal Expansion remains deferred. Engineering of the expansion is well advanced and Pembina expects to make a final investment decision in the first quarter of 2022.
Marketing & New Ventures:
- Pembina's New Ventures group continues to advance business opportunities in petrochemicals, liquefied natural gas ("LNG") and low-carbon energy. New Ventures is focused on developing opportunities that integrate into Pembina's core businesses, while progressing projects that will extend Pembina's value-chain and benefit stakeholders. During the second quarter of 2021, Pembina announced a strategic partnership agreement with the Haisla First Nation to develop the proposed Cedar LNG Project, a floating LNG facility strategically positioned to leverage Canada's abundant natural gas supply and British Columbia's growing LNG infrastructure to produce industry-leading low–carbon, low-cost Canadian LNG for overseas markets. The Cedar LNG Project will be the largest First Nation-owned infrastructure project in Canada and will have one of the cleanest environmental profiles in the world. In addition, during the quarter, Pembina and TC Energy Corporation announced their intention to jointly develop the Alberta Carbon Grid, a world-scale carbon transportation and sequestration system, which will enable Alberta-based industries to effectively manage their greenhouse gas emissions, contribute positively to Alberta's lower-carbon economy and create sustainable long-term value for Pembina and TC Energy stakeholders.
Financing - On June 1, 2021, Pembina redeemed all of the 10 million issued and outstanding Cumulative Redeemable Minimum Rate Reset Class A Preferred Shares, Series 13 (the "Series 13 Class A Preferred Shares") for a redemption price equal to $25.00 per Series 13 Class A Preferred Shares.
- On April 28, 2021, DBRS Limited upgraded its ratings to 'BBB (high)' in respect of Pembina's senior unsecured medium-term notes, 'BBB (low)' in respect of Pembina's Fixed-to-Fixed Rate Subordinated Hybrid Notes (the "Series 1 Subordinated Notes") and 'Pfd-3 (high)' in respect of each issued series of Pembina's Class A Preferred Shares, other than the Class A Preferred Shares, Series 2021-A, which are deliverable to the holders of the Series 1 Subordinated Notes following the occurrence of certain bankruptcy or insolvency events in respect of Pembina.
- During the quarter, Pembina extended its revolving and operating credit facilities to June 2026 and May 2022, respectively.
Dividends - Pembina declared and paid dividends of $0.21 per common share in April, May and June 2021 for the applicable record dates.
- Pembina declared and paid quarterly dividends per Class A Preferred Share of: Series 1: $0.306625; Series 3: $0.279875; Series 5: $0.285813; Series 7: $0.27375; Series 9: $0.268875; Series 13: $0.359375; and Series 21: $0.30625 to shareholders of record as of May 3, 2021. Pembina also declared and paid quarterly dividends per Class A Preferred Share of: Series 15: $0.279; Series 17: $0.301313; and Series 19: $0.29275 to shareholders of record on June 15, 2021. Pembina also declared and paid quarterly dividends per Class A Preferred Share of Series 23: $0.328125; and Series 25: $0.3250 to shareholders of record on April 30, 2021.