CIBC commentsFirst Look: 2022 EBITDA Guidance In Line But CAPEX Light
The company reported an underwhelming 2022 growth capital spending program, but in-line EBITDA guidance. This is partly offset by the announcement of potential buybacks and the lowered cost of the Phase VII project.
Guidance: The company announced 2022 adjusted EBITDA guidance of $3.35B to $3.55B, in line with our estimate of $3.42B and consensus of $3.49B. Fifty percent of the frac spread (excluding Aux Sable) has been hedged, a consistent strategy over the last number of years.
Capex And Capital Allocation: The 2022 total capital investment program is very light at $655MM, compared to our estimate of $1.275B and consensus of $1.0B. Favourable project execution has reduced the cost for the Phase VII Peace Pipeline Expansion by $110MM, to $665MM, and the in-service date now advanced to mid-2022. The Phase VIII Peace Pipeline Expansion remains deferred at this time, with a reactivation decision now expected in H1/22. The Phase IX Peace Pipeline Expansion project remains on time and on budget with an estimated cost of $120MM and an in-service date in H2/22. The company also announced the first $200MM of excess cash flow to be allocated to share repurchases during the first half of 2022, as cash flow from operating activities is expected to exceed dividends and capex in 2022. Any additional excess cash flow will be allocated towards incremental capex, debt repayment, or additional distributions. Pembina’s board typically evaluates dividend increases in May of each year and was non-committal on dividend increases with this announcement but noted it will continue to evaluate the merits of dividend growth as 2022 evolves.
Business Updates: A previously announced exclusivity agreement with a NEBC Montney producer is expected to be converted to definitive agreements in early 2022. The company entered into an agreement with a second Montney producer for liquids transportation services on a take-or-pay basis, upon the acreage being developed. The company also successfully contracted 76% of the capacity on Alliance Pipeline that was set to expire in late 2022. The average term is nearly four years. Alliance is also essentially full for the 2021/22 gas year.
ESG Updates: The company has set additional ESG targets related to employee equity, diversity and inclusion, with a focus on advancing representation of women and other underrepresented groups at all levels of the organization. These additional targets include initial targets of 35% women in the workforce by 2025, 30% women in leadership by 2022, 45% diversity in the workforce by 2025 and 40% diversity in leadership by 2025.