Pembina Pipeline Corporation (NYSE:PBA) Q2 2023 Earnings Call Transcript

Pembina Pipeline Corporation (NYSE:PBA) Q2 2023 Earnings Call Transcript August 4, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the Pembina Pipeline Corporation Q2 2023 Results Conference Call. At this time all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. This call is being recorded on Friday, August 04, 2023. I would now like to turn the conference over to Cameron Goldade. Please go ahead.

Cameron Goldade: Thank you, Jenny, and good morning everyone. Welcome to Pembina’s conference call and webcast to review highlights from the second quarter of 2023. On the call today we also have Scott Burrows, President and Chief Executive Officer, along with members of Pembina’s Senior Officer team including; Jaret Sprott, Janet Loduca, 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 Pembina’s current expectations, estimates, judgments, and projections. Forward-looking statements we may express or imply 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 MD&A dated August 03, 2023, for the period ended June 30, 2023, as well as the press release Pembina issued yesterday, which are available online at pembina.com and on both SEDAR and EDGAR. I will now turn things over to Scott to make some opening remarks.

Scott Burrows: Thanks Cam. For the second quarter, Pembina reported earnings of $363 million and adjusted EBITDA of $823 million. Where we face challenges in tandem with the broader industry, Pembina’s business remains strong. Early results reflect Pembina’s resilience. In the second quarter we continued to observe growth and volumes and higher tolls on certain systems and a solid contribution for our crude oil marketing business. These positive factors were offset most notably by the impact of the wildfires in Alberta and British Columbia on Pembina’s and its customer’s operations; the impact of third-party outages; and reduced operating pressure on the Northern Pipeline system until mid-May. Second quarter results also reflect a typical seasonality in Pembina’s NGL marketing business and lower NGL crises.

We are hopeful that the worst of the wildfire season is behind us and are extremely grateful for all of our employees, contractors, and customers in the affected areas were kept safe. Further, we did not have to incur any material fire-related damage to our assets. I would again like to thank our staff and emergency response teams, customers and industry partners, as well as all emergency personnel for their diligent responses to the wildfires. Notwithstanding the short-term impacts of the wildfires and the Northern Pipeline system outage on Pembina and the broader industry, the outlook for the Western Canadian Sedimentary Basin remains promising. Pembina’s operations have returned to normal and through the first month of the third quarter volumes have been strong, reflecting levels from earlier in the year, prior to the Northern Pipeline system outage and the wildfires.

We expect continued volume growth throughout the second half of 2023, including in the conventional pipelines business where full year volumes are expected to be 4% higher than the prior year. Further, volume growth is expected to continue through the rest of the decade based on certain industry-wide developments, including most notably, additional egress through various West Coast LNG projects and the TransMountain Pipeline expansion; production growth in the Montney, Duvernay and Clearwater; and the expansion of Alberta’s petrochemical industry. Given our existing asset base, integrated value chain, contractual agreements, and deep customer relationships, we are poised to capture new volumes and benefit from increasing asset utilization and growth projects.

On the project front, we are progressing our Phase VIII Peace Pipeline expansion and our RFS IV expansion at the Redwater Complex. The Phase VIII project continues to trend on time and under budget, furthering Pembina’s track record of strong project execution. In addition to Phase VIII and Redwater IV, Pembina is actively progressing over $300 million of smaller projects, including over $200 million in other pipeline projects. These include the reactivation of the Nipisi Pipeline, which is expected in the third quarter of 2023 and a Northeast BC infrastructure expansion. The Northeast BC expansion includes terminal upgrades, additional storage, and a new mid-point pump station. These are expected to be completed in the second half of 2024 and will support approximately 40,000 barrels per day of incremental capacity on the Northeast BC Pipeline System.

This capacity is needed to fulfill customer demand, given an expectation for growth from the Northeast BC Montney, and Pembina’s previously announced long-term midstream service agreements with three premier Northeast BC Montney producers for the transportation and fractionation of liquids. On our Cedar LNG project, we continue to make great progress. Subsequent to the quarter on July 6, Cedar LNG received its LNG facility permit from the BC Energy Regulator. This is another major regulatory milestone that follows the receipt of the Environmental Assessment Certificate from the BC Environmental Assessment Office, a positive decision statement from the Federal Minister of Environment and Climate Change, and a pipeline permit for the Cedar LNG pipeline connection to the Coastal GasLink pipeline.

Collectively, these reflect the key permitting milestones for Cedar LNG. Cedar LNG also signed incremental non-binding MOUs, with investment-grade counterparties for long-term liquid fraction services and are now fully subscribed in relation to the project’s total capacity. Work towards the signing of definitive agreements is ongoing. Cedar LNG elected to progress a second feed process for the floating LNG vessel in late 2022, and it’s been waiting for that work to progress to the same stage as the original feed. In conjunction with detailed commercial discussions and ongoing negotiations between LNG Canada and Coastal GasLink, this has resulted in the anticipated final investment decision being revised in the fourth quarter of 2023. Finally, during the quarter Pembina released its 2022 Sustainability Report, which provides updates on the advances made in the ESG focus areas of governance, energy transition and climate, employee well-being and culture, health and safety, responsible asset management and Indigenous & Community Engagement.

The 2022 Sustainability Reports captures the continued progress on Pembina’s ESG targets, including greenhouse gas emissions intensity reductions and equity, diversity and inclusion. With respect to GHGs, Pembina remains on track to meet its ’30 by 30′ emissions intensity reduction target. As well, in relation to Pembina’s diversity targets, women now represent 45% of the independent members of our Board and 35% of our Executive Team, exceeding the goals we set. We are proud of the progress we have made to date on Pembina’s sustainability initiatives and look forward to continuing the journey. The latest report is available on our website. I will now turn things over to Cam, to discuss in more detail the financial highlights of the second quarter of 2023.

Cameron Goldade : Thanks, Scott. As Scott noted, Pembina reported second quarter adjusted EBITDA of $823 million, which represents a $26 million or a 3% decrease over the same period in the prior year. The combined impacts of second quarter adjusted EBITDA from the reduced operating pressure on the Northern Pipeline system and wildfires was approximately 47 [ph]. Finally, second quarter results also include various other revenue deferrals and costs with an aggregate impact of $21 million to adjusted EBITDA. In pipelines, additional factors impacting the quarter primarily included higher revenues on the Peace system and Cochin Pipeline due to higher tolls, and lower revenues from Alliance Pipeline as the second quarter of 2022 included the sale of linepack inventory, combined with seasonal contracts being replaced by firm contracts at lower regulated rates, and finally lower interruptible volumes driven by the narrower AECO-Chicago natural gas price differential.

In facilities, additional 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 lower realized gains on commodity-related derivatives associated with a commodity derivative contract. In Marketing & New Ventures, second quarter results reflect lower crude oil margins, resulting from lower prices across the crude oil complex, and lower NGL margins as a result of lower propane and lower butane prices. Realized gains on commodity-related derivatives for the quarter compared to losses during second quarter of 2022, and a lower contribution from Aux Sable as a result of our NGL prices. Finally, in the corporate segment, second quarter results reflect higher shared service revenue and higher general and administrative expense and other expense, which included lower long-term incentive costs.

Earnings in the second quarter were $363 million, representing a $55 million or 8% decrease over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, earnings were impacted by lower depreciation, lower unrealized gain on commodity-related derivatives and lower net finance costs. Total volumes of 3.187 million BOE per day for the second quarter represented a decrease of approximately 5% over the same period in the prior year. Volume decreases were attributable to both the pipelines and the facilities divisions, including most notably the net impact of the reduced operating pressure on the Northern Pipeline system, lower volumes at the Younger facility and the Redwater Complex to the reduced operating pressure on the Northern system, the impact of the wildfires, the disposition of the Empress I and Empress VI Assets at our Empress facility, higher volumes at the former ETC plant and the Dawson Assets and higher volumes on AEGS.

Adjusting for the impact of the Empress I and Empress VI disposition, the reduced operating pressure on the Northern pipeline system and the wildfires, volumes in the quarter would have grown by approximately 5% over the second quarter of 2022. Based on results to the first half and the outlook for the remainder of the year, Pembina has narrowed its 2023 adjusted EBITDA guidance range to $3.55 billion to $3.75 billion from the previous range of $3.5 million to $3.8 billion. The revised range reflects the current outlook for commodity prices and an expectation of significantly stronger volumes in the second half of the year. Based on our 2023 guidance, cash flows from operating activities is expected to exceed dividends and capital expenditures.

To date, Pembina has repurchased $50 million of common shares and reduced proportionally consolidated debt by approximately $600 million. We will continue to evaluate the merits of debt repayment relative to additional shared purchases for the remainder of the year. At June 30, 2023, based on the trailing 12 months, the ratio of proportionally consolidated debt to adjusted EBITDA was 3.5x. M&A expects to exit the year with a ratio of 3.4x to 3.6x reflective of our strong balance sheet and supporting our strong BBB credit rating. I’ll now turn things back to Scott.

Scott Burrows : Thanks, Cam. In closing, I’d like to reinforce that Pembina is continuing to perform very well. Pembina’s outlook for meaningful medium-term volume growth in the WCSB remains unaltered, and we are poised to benefit through increased utilization across our asset base and through new growth projects. We continue to vigilantly executive our strategy within our financial guardrails while returning capital to shareholders and positioning ourselves to fund future growth. Thank you for joining us this morning and for your continued support. Jenny, please go ahead and open up the line for questions.

Q&A Session

Follow Pembina Pipeline Corporation (NYSE:PBA)

Operator: Thank you. [Operator Instructions]. Your first question is from Jeremy Tonet from J.P. Morgan. Please ask your question.

Jeremy Tonet : Hi, good morning.

Scott Burrows: Good morning, Jeremy.

Jeremy Tonet : Just wanted to dive into the fundamentals a little bit more if we could. Curious what you’re seeing as far as producer customer conversations and expectations for drilling activity here. As it relates to your footprint given recent developments and also competitive pressure, just wondering if you could give us updated thoughts as far as what type of volume growth trajectory you could see over the near or medium term.

Scott Burrows: Jeremy, I’ll start and I’ll let Jaret jump if it wants to add some incremental color. But I think based on our comments in the prepared remarks, you would have seen that we’re pretty optimistic about volume growth across the basin. We’re still expecting roughly 4% growth on the conventional pipeline system. I do think its very customer specific though, but when you go through many Q2 reports, you would have seen increased activity, not only throughout this year, but also into the upcoming years. Obviously there’s been some pretty decent sized projects sanctioned in Northeast BC. Many of those we have under contract today, so we do have visibility beyond 2024 into ‘25 and into ‘26. So we remain optimistic around volume growth within the basin, as well as our ability to capture that off our systems.

Jaret Sprott : It’ll just add to that Jeremy. So pre-wildfires, really what we were hearing from customers was, gas egress was becoming their largest constraint here in Western Canada. Since then, we saw at the worst of the worst, about 2 bcf of gas come offline. That’s now just under bcf, so just over a bcf has come back. So we are seeing in kind of like the short term. Some of our customers are taking advantage if they had gas behind pipes taking advantage of that to incremental, I’ll call it IT [ph] space on third party gas egress pipeline. So that’s the thoughts for the Pembina and some of our customers. And then, I think in the very short term what we’ve seen is June, July and August have had very high demand for fracing [ph] services here in Western Canada, which is obviously a great sign of that production. That’s expected it will be coming on over the next two to three months as our customers tie those wells in. So as Scott said, it’s looking positive.

Jeremy Tonet : Got it. That’s very helpful there. And then just want to shift gears towards Cedar LNG and moving the FID back a quarter to 4Q. Just wondering if you could peal back the onion a little bit more on the drivers and the shift of the timing there. How much is factors under your control versus not under your control for the timing shift and confidence level at this point and getting to the finish line?

Stuart Taylor : Hey Jeremy, it’s Stu. We remain very confident with the schedule that we propose to look at FID Cedar in the fourth quarter of 2023. The largest reason for our move and as stated is, we elected to kick off an alternate feed. That was done with the intent to obviously create some competitive pressure, and to do you know from a capital cost perspective and to do the best industry practice to have some competing bits and some pressure on the EPC firms. That work is ongoing. We are pushing to get both of the DPC firm’s bids we kick off a repricing here. So that work is continuing as we expected. It’s a bit later than we had originally anticipated and that’s resulted in us pushing that back. There continues to be other ongoing negotiations that are out there, but the larger reason is our choice to elect with the second feed and to get those timed and to come in simultaneously for us to review.

Jeremy Tonet : Got it. That’s very helpful, thanks. And just a last one real quick here. We’ve seen some major moves among mainstream competitors, both in Canada as well as potential consolidation in the U.S. and just wondering, if you could provide us any updated thoughts I guess on Pembina’s views as far as any strategic outlook here, spinning, consolidating, tuck-ins or anything else would be helpful to get updated thoughts on.

Cameron Goldade : Hey Jeremy, it’s Cam. I think as we’ve always said, we look at opportunities to enhance the asset base and the portfolio. And really, as we released kind of the refreshed or the reviewed strategy earlier this year, from the results of the work we did last year, that really anchors how we look at any investment, whether it’s organic, external, any other sort of strategic investments. I think obviously, we’re pretty excited about some of the organic investments that we’ve got. You mentioned Cedar, there’s a number of other things that we’re working on. And of course, I mean we’re going to look at other opportunities as they’re available. Frankly, the list of opportunities that are available at the moment, I think are pretty narrow, which would actually be added up to our business. So, I think we’ll sort of look at things as they come up and continue to be disciplined as we always have, but nothing has really changed on that.

Jeremy Tonet : Got it. So, would it be fair to say an interest in TMX is probably the main thing under consideration and not really much else out there, given the narrow list as you described?

Cameron Goldade : Well, it’s certainly the biggest. I would say that obviously we’ve been public about our partnership with WIPG and continue to be very proud as of being selected as their operating partner. And I think as we’ve said in the past, I mean as far as we know that, the asset is not for sale at the moment, so we’ll continue to do work and obviously stick to our guardrails and if and when that becomes available, we’ll evaluate it, but so far no action.

Jeremy Tonet : Got it. That’s very helpful. Thank you.

Operator: Thank you. Your next question is from Rob Hope from Scotia Bank. Please ask your question.

Rob Hope : Hi. Good morning, everyone. Two follow questions. Maybe first on the conventional volume outlook. You did note that it was going to increase 4% this year. Volumes of the Conventional System have been down on the first half. So when we take a look at achieving that 4% growth in 2023, is that pro forma with the wildfire impacts? Could we see a make-up of lost volumes, in the back half of the year or is this really just given the amount of growth that you’re seeing in the system right now? That will carry over into 2024.

Jaret Sprott : Hi Rob, it’s Jaret. No, you basically nailed it. So, although we were slightly under in the first half of the year, due to the reasons that you noted, we do see that strong growth in the second half, just like you mentioned.

Cameron Goldade : And Rob, it’s Cam. I’ll just add in that. Obviously, the second half always has the typical profile to it. When we’re talking volumes, we’re talking revenue volumes. So, as you look at our disclosure, we’ve got more, slightly more volumes or recognized volumes deferred for Q2 than we did last year, so a little bit of a revenue tailwind there in Q2. But as Jaret said, we’re also seeing a strong outlook on the physical side as well to supplement that.

Rob Hope : All right, I appreciate that, especially the color and revenue versus actual volumes. And then as a follow up on the Chinook Pathways partnership and the opportunity there, when this was set up there was a 50/50 JV between yourself and the WIPG, but the environment has really changed. How do you think about the size of the potential opportunity there, as well as the potential financing opportunities specifically. Is 50% still the BOE or something much smaller in that 20% to 25% more likely with the potential that you could use some hybrids and some asset sales to finance it?

Scott Burrows: Yes, thanks for the follow-up Rob. It’s a really good point. As you mentioned, when that partnership was structured, we were less than half of the current size of the investment that it is today. So I do think we think about things here from a portfolio perspective and what size of certain asset types we want in our portfolio, and that’s not only commodity or commercial; it’s customer portfolio; it’s the market they access. It’s all these points that we think about from a portfolio perspective or asset base. So when we do think about that asset in light of a larger potential gross investment size, we do think about keeping things largely similar from Pembina at that investment. So when you talk about sort of a smaller than 50% investment, I would say that’s where our heads are at as we think about this asset under the current circumstances.

To pin it down to an exact number, it’s tougher, but I think that sort of 20% to 30% range is probably where you get to the same sort of asset investment size for Pembina, probably the right scope on it. And then, in terms of finance, I think what we’ve said is obviously a commitment to the financial guardrails and our strong BBB rating. And there’s a lot that goes behind that, but obviously we recognize that over history, a strong balance sheet has been a strategic advantage and when it’s not, it’s obviously a big distraction and a hindrance. And so we’re absolutely focused on maintaining that strong balance sheet, but also recognizing that as part of that, there’s potentially some creativity required for an asset such as this. And so, we’re exploring different avenues for financing to obviously keep the investment and our business within the financial guardrails, but also deliver a strong value of creative investment.

And if that isn’t available, obviously then we’ll continue to be disciplined as we have in the past, as we’ve got lots of other opportunities.

Rob Hope : Thank you.

Operator: Thank you. Your next question is from Linda Ezergailis from TD Securities. Please ask your question.

Linda Ezergailis: Thank you. Just looking at Cedar LNG, recognizing that you’ve been working on this for a while, how might we think of your creativity potentially around financing that and ensuring it stays within the guardrails? Would you see project financing and what might be the cadence of spend, and might that cause you to high grade any other potential investments you see?

Cameron Goldade: Hey Linda, it’s Cam again. Yes, thank you. One of the things we really love about Cedar, obviously, in addition to the strategic aspect of it, I mean we’ve always really thought that LNG was a fantastic strategic fit for our company. But the really nice thing about Cedar is obviously the scale of it. Obviously at 3 million tons and an associated capital cost, it obviously fits very nicely for a company at the scale of Pembina. And so when we look at it, when you think about the nature of those commercial agreements, long term agreements backed by investment grade counterparties, obviously that’s a highly financeable asset. We are exploring project finance for that with a commensurate leverage structure. And so when you look at that relative to Pembina’s free cash flow generation of – last year it was getting rid of the one-time impacts, around $1 billion of cash flow after dividends.

And so if you stretch that forward, we’re in a very strong funding position going forward. The spend for Cedar on the current time frame really wouldn’t accelerate until the 2025, 2026 timeframe, so. But we see it very readily financeable within our existing liquidity sources, existing cash flow. And frankly, that timing works really well with the case of the other projects we’ve got going on. Obviously Phase VIII comes online next year; Redwater 4 comes online in the first half of 2026. So it fits really nicely with the rest of our portfolio spend perspective.

Linda Ezergailis: Thank you. And just as a follow-up, looking at accessing Tidewater, maybe with LPG and NGLs, what are you seeing in terms of customer preferences for the optionality to either rail down to the U.S. or bring to the West Coast and any sort of West Coast pathway. Do you see that continuing to go through the Edmonton, Fort Saskatchewan area or do you see the merits of going direct to the West Coast? If you can just comment on flows of NGLs prospectively and your outlook for that, that would be helpful.

Chris Sherman: Sure. Hey Linda, it’s Chris. I think that customers continue to value a bit of a portfolio. They don’t want to see everything pointed at the West Coast. That being said, right now ARBs are extremely strong, and so if you look at Convoy FBI differentials and Edmonton FBI differentials, there’s a really positive case for going west. We do think in the long term, those Far East markets are going to be very attractive. So there is room for more off the West Coast. But we continue to hear from our producer base that they want to see flexibility. They want to see us access the best markets at the best times and not get stuck with a sort of one-trick pony if you will. I think when you talk about coming to Fort Saskatchewan, we continue to believe there’s a real advantage to aggregate into Fort Saskatchewan.

We’ve got tremendous rail capability out of the area. Like I said, it leaves that optionality open, to go to the best markets at the best times, and we continue to see support for that.

Linda Ezergailis: Thank you.

Operator: Thank you. Your next question is from Robert Catellier from CIBC. Please ask your question.

Robert Catellier: Hi. You’ve answered most of my questions, but I wanted to follow up on Cedar LNG, specifically with respect to what needs to be accomplished between LNG Canada and Coastal GasLink, further negotiations before you can reach FID. I assume that relates to the final tolls, but aside from that, can you just comment on the executability of that eight and a half kilometer pipeline from the Coastal GasLink to the Cedar site and how you’re planning to manage cost risk on that aspect of the project?

A – Stuart Taylor: Yes Robert, it’s Stu. Yes, I mean LNG Canada and Coastal GasLink have been negotiating and finalizing on their arrangements for a continued period of time, obviously with the announced Coastal GasLink cost increase. There’s also, as they move forward, how that relationship is going to be managed and developed, so it’s ongoing. We continue to work well with LNG and with Coastal GasLink. We are waiting in some cases for them to complete some of these negotiations, but there’s been good progress made, but it is something that we need to finalize for our connection agreements and for our transportation agreements on Coastal GasLink, so we continue to work with both parties in a positive way. As far as the execution of the pipeline, it is – we’re coming from the end of the Coastal GasLink connection from the header.

As you described it, eight and a half, nine kilometers of pipe. It is – it has to – we’re looking at pipeline routing. We’ve right away identified, we’ve drilled our test holes to identify the terrain and the materials that we would actually be going through. We remain confident of Pembina’s ability to execute that pipeline in a cost-effective manner. We have someone working on this project that has done mountainous pipelines in install, and so we’ve priced it accordingly and have a plan to execute within that pricing.

Robert Catellier: Okay, thank you.

Operator: Thank you. Your next question is from Ben Pham from BMO. Please ask your question.

Ben Pham: Hi, thanks. Good morning. I just wanted to check the quantification of the wildfires and I guess less this extent piece. Can you walk through, is that just – in terms of the process, is that just simply taking your volumes that have declined and you’re using a margin that’s been earned on that segment in the past?

A – Scott Burrows: That’s right, Ben. That was based on our outlook. That was based on our outlook and where we were sort of pre-fires. Obviously, we’ve got profiles from customers and we’ve got the outlook there. So basically, it was our outlook for what that would have been based on a regular operating condition. And you can also recall that there was a little bit of IT on some of the systems, but most of that, most of those volumes were flowing right at sort of take or pay levels. So it’s not a lot of variability actually in it.

Ben Pham: Okay, I got it. And maybe Cedar LNG, that last question, is I know you mentioned some of the tolls being finalized. Is sanction at all linked directly to in-servicing on Costal? Is there a link between the two?

A – Scott Burrows: Sorry, Ben. I missed. Can you repeat your question?

Ben Pham: Yes. I was just thinking with Costal, Costal GasLink expected in-service late this year, you can tee up a sanction on Cedar, but if it gets pushed to next year, is that linked to your sanction decision or there’s enough leeway on timing that even if it’s delayed by a year, it doesn’t really impact the sanctioning decision?

A – Scott Burrows: Yes, our timing will not be impacted by Costal GasLink’s in-service state. Our first gas isn’t until 2027 type for commissioning purpose, so we’re quite – we have plenty of leeway for them to complete their project, of which they are – you know they are making progress on and driving forward. So yes, we have lots of slack built into that system.

Ben Pham: Okay, got you. And maybe just a last one, a couple of questions on M&A and TMX, and I’m more curious, as you think about M&A now, you have TMX, which is a 25 year contract, so premium assets. And then you got a couple of other assets out there in North America that might have a shorter dated contract with potentially lower multiple. Like what’s – what do you think that best opportunity is for you then? I mean, you can take TMX high-grade to your cash flows, but then is there I mean an arbitrage for some of these shorter dated contracts that the market’s not placing a good premium in the market today.

A – Jaret Sprott: Yes Ben, I think the way we talked about it is in terms of the strengthening of the guardrails with TMX from a fee for service perspective and a fee for service pay-out ratio. Really it will allow us more so to look at other opportunities that potentially have some minor commodity exposure versus shorter term contracts. That’s not something that we currently put into the mix, but obviously with our position in the NGL market, we like that business. We think that we have some competitive advantages and we’re really good at NGLs, and so to the extent that there’s opportunities that come with some incremental exposure, we can capture those once we strengthened our guardrails through the TMX acquisition if successful.

Ben Pham: Okay. All right, thank you.

Operator: Thank you. Your next question is from Andrew Kuske from Credit Suisse. Please ask your question.

Andrew Kuske: Thanks, good morning. Maybe just addressing your various low-carbon businesses, so Alberta carbon grid, the low-carbon complex and low-carbon ammonia. Maybe book end these, like how big do you think these businesses could be as part of the balance sheet or the investment opportunity on the big end and then on the low end, what’s sort of the toe into the water part of the business?

A – Scott Burrows: Yes. So if we think about those investments, as kind of aggregate buckets, if you’re putting me on the spot, I’d say somewhere between $2.5 billion to $4 billion of incremental capital that we see line of sight to potentially deploying across those asset bases. Now that’s over the next decade to 2030, that’s not immediately. But our near-term focus really is on the Alberta carbon grid and on blue ammonia, which would then tie into our low-carbon complex and really accelerate the profile of that asset base. So we’re pretty excited about it. Obviously, the ammonia is early days. We just announced our partnership this quarter, and we’re really just in the pre-feed stage, but we do see a pretty decent opportunity there. And as we continue to attract capital towards low-carbon complex, we think there’ll be a snowball effect, and we can attract incremental projects to that site.

Andrew Kuske: I appreciate that color, and maybe with that snowball effect, how do you see this entire business line working within your Pembina store concept? Is it really like another part of the slide? You’ve got the three already? Is this a fourth or does this business group sort of intersect all of the three that you’ve got now?

A – Stuart Taylor: Yes, it’s Stu. Again, I think you’ve hit on it. We know there’s an opportunity of for the fourth, the platform for growth, and opportunity is presented at the same time it interconnects with our existing asset base. There’s opportunity to provide feed stock, there’s opportunity to our operating expertise in the area, facility expertise and build. So it does integrate very, very well, and does have opportunities for future growth in that space as well.

Andrew Kuske: Maybe just an extension on that, Stu. Do you see this sort of conceptually like a multiplier that you had off of Redwater, where it gave a lot of growth across different business lines? Is that the same conceptual thing for the low carbon business?

A – Stuart Taylor: Yes, it has that potential, where we will continue to follow Pembina’s guardrails. I think we always look at it as a tolling model and not to be in the commodity space. So it’s got a fit for us there. Redwater and working with our marketing team and our expertise in the LPG space. A lot of us probably go a bit further and offer more extension and back into the business. Here we’re probably, a bit more limited to a tolling and always be all serves the arrangement, looking at the markets and getting marketing help from others more than that international space.

Andrew Kuske: Okay. Thank you. I appreciate the color.

Operator: Thank you. Your next question is from Robert Kwan from RBC Capital. Please ask your question.

Robert Kwan: Hey, good morning. Whether it’s Cedar, potentially other sizeable investments, can you just refresh the types of returns that you’re seeking or if you want to look at it from a build multiple perspective that works. And then just as it relates to leverage, the leverage guardrail and specifically the top end, is that top end firmer? Would you be willing to exceed it for a period of time, also maybe just confirming that you’re committed to continuing to look at that guardrail on a proportion of consolidated basis?

Jaret Sprott: Hey Rob. I would say that, the types of returns that we’re seeing, I mean obviously in the past, through the latter half of the last decade, I mean I think our experience was build multiples in the range of sort of six to eight times overall and obviously the Brownfield ones towards the lower into that range and sometimes even below that, the Greenfield ones in most cases towards the upper end of the range. And of course as I mentioned before, portfolio is important to sort of keep that blended multiple in the right range and hopefully keep it to the lower end. I would say that in our current outlook with our existing projects, we’re not far off that. We’re in the same range, we’re probably still sort of in that 7x to 9x multiple ranges and obviously the 9x multiple ranges are reflective of those opportunities where there’s very low risk embedded in them, long-term contracts, high-grade counterparties.

Some of the opportunities at the lower end of that spectrum are the Brownfield opportunities, the integration opportunities, kind of the typical stuff that we know and do quite well. So, I would say that for us, that’s been part of the strategy and with the asset base that we have and sort of the connectivity between them, we continue to see opportunities around that, in that range. As it relates to leverage and our thoughts on that, you know I would say that we’ve obviously got a commitment out there to a strong BBB rating, as we’ve long talked about and the financial guardrails, which frankly is really ultimately anchored in a rating agency methodology and the way they look at it. But we sort of take the simplistic view of saying, leverage is leverage and there’s an appropriate amount of leverage for an asset wherever it sits and that’s obviously why we talk about works in the consolidated leverage.

We’ve had a guardrail. There are a range of sort of 3.5 to 4.25. I would say that as the industry has evolved and the industry environment has obviously changed, the high end of that range is probably something we would shy away from at the moment. I think we pretty consistently hear from the market and as we said earlier, that strong balance sheet and strong leverage is an advantage and so even kind of getting above that 4x is probably going to start to give us hard burn. But yes, I would say we do continue to look at that on a proportionally consolidated basis and obviously sticking to that leverage is something that’s been part of our success and don’t see any reason to change that.

Robert Kwan: Got it. As it relates to just the short term leverage, small changes quarter, kind of 3.4 to 3.6, and I think previously you were 3.3 to 3.6, it’s not a big deal. But just, is that EBITDA changing or is this maybe a bit of an indication of a bias towards share buyback just given the current share price versus debt repayment.

Cameron Goldade: No, I just think it was narrowed off of, it was basically based off of our guidance range and obviously with the narrowing of the guidance range, just due to rounding – the 3.6 obviously didn’t move. But just due to rounding the 3.3 went to 3.4 as we lowered the top end of that guidance range. So it’s really the narrowing of the EBITDA range versus anything else Robert.

Robert Kwan: Got it, okay. And just last, just coming back to that some, the question or your answer on the timing of the FID for Cedar versus Coastal GasLink. I get the timing of when your project will be online, and you could have a CGL delay, but would you want to see Coastal GasLink completely – mechanically complete just given what’s gone on. And the other is, there still is some toll finalization based on the costs on CGL. So how do you protect yourself on where that final toll goes, before you commit to the FID?

Cameron Goldade: Robert, we’re – again, those negotiations are ongoing. Again, the work between CGL and LNG Canada, they are looking at that. The negotiation out of the existing base pipeline is complete. We know what our toll is. The next phase is the expansion to add the compression that is required, and so that’s ongoing and those negotiations are underway. We’re hoping those will be completed here in the next little while. We expect to have that done and our transportation agreements we would have in hand as we make FID.

Robert Kwan: Got it. So you need to see though that happened before the FID.

Cameron Goldade: Yes, we need to be able to tell our off-take customers in the – who are ultimately the holders of the capacity in the CGL, what’s the transportation agreement going to look like.

Robert Kwan: Okay, so you’re tied to the tariff, but you’re comfortable on mechanical completion.

Cameron Goldade: Yes, mechanical completion of the Phase 1 and then we need a compression addition to get our capacity for the Cedar service.

Robert Kwan: Okay, thank you very much.

Operator: Thank you. [Operator Instructions]. Your next question is from Patrick Kenny from National Bank Financial. Please ask your question.

Patrick Kenny: Good morning. It’s been about a year since you closed the PGI transaction. I am wondering if you can comment on how integrated has going to relative to your initial expectations. And also, as a vehicle created to unlock growth, in about the term landscape surrounding the [inaudible] or M&A opportunities around PGI’s footprint.

Scott Burrows: I think you cut out, but I think that we got the just to the question, which was around integration and organic and other opportunities at the asset base. So, I think from an integration perspective, it’s gone as planned, maybe slightly below budget. Obviously, a lot of time and efforts in the field to get the plants into Pembina’s Systems, but the opportunity growth continues to expand there, and I’ll maybe turn it over to Jaret. I mean, we’re pretty pleased with both the volume growth we’ve seen at those assets. But as well as now that we’ve had, as you said, our hands on the wheel for a year, we’re really starting to see not only opportunities at that asset base, but opportunities and synergies across the gas plants, so maybe we’ll turn it over Jaret.

Jaret Sprott : Yes, thanks Pat. Good morning. Maybe I’ll just break it down into a couple of buckets. One is the Pembina processing asset, they are performing as we would have expected. Obviously, we had a pretty good line of sight into that. The Dawson assets which we acquired in incremental working interest, and specifically the CRP Cup Anchorage Partnership, in that area what we’re seeing there is that, that is exceeding our expectations even through the [inaudible] midstream lens. The performance of those wells that the partnership are drilling, and they are public, that’s public information, is outstanding. The development and the activity going into the start-up of Coastal GasLink, we’re seeing that ramp up, and maybe a little bit more gas than we had expected, which is great.

Obviously, that’s a processing tolling model, so that’s kind of the one bucket. And then the incremental ETC portion that we acquired 60% of, that is exceeding our model expectations. We’re just seeing a lot of gas getting drilled into our white space, which is great. I think now that the team – it’s been roughly a year as we’re coming up on August 15. There is a lot of optimization opportunities, just we’re not able to speak to those specifically right now, but as we move through sanctioning gates, we will disclose those. And then on the – I think I mentioned last quarter on the call that there’s a significant amount of expansion opportunities through the PGI platform across the three different businesses that we can find. Not only for gas processing and liquids handling, but also on the GHG reductions.

Obviously, our processing business contributes a significant amount of our GHG’s and the team has a lot of opportunities there to work with our customers to lower their carbon tax, while deploying capital and lowering scope to emissions. So that’s kind of how I’d sum it up. Go positive.

Patrick Kenny: Okay. Perfect. Thank you. And then I wanted to check in as well with respect to your exposure to Alberta power prices. I know the 100 megawatt Garden Plain, PPA kicks in here right away. But I guess, full form of that contract, can remind us of what your net to the grid would be relative to total power consumption. And then also if you’re looking to sign additional renewable off-take agreements beyond that, just as part of your plan to reduce scope to emissions. And if so, how you might be thinking about achieving your goals in light of Alberta’s announcement to take a pause on approving any further renewable developments in the province. Thanks.

Jaret Sprott: Yes Pat, I mean, I’m not going to get into specifics with our usage, but you would have seen, obviously over the last two years, we would have signed two different renewable power agreements to really capture a significant portion of our net exposure to the power prices. In addition to that, we obviously commissioned our co-gen at Empress and in addition to looking at different co-gen opportunities across our assets base. We also have small solar going in at Empress as well. So we are actively managing our exposure to – the Pembina wholly owned exposure to the power grid. In addition to that, a large portion of our OpEx is flow through, but we’re working really hard to reduce power where necessary and optimize the use to that, because obviously we want as little OpEx as possible for our customers.

So we’re really focused on optimizing power use across the asset base, because the volatility we’ve seen in the power prices is obviously a significant line item for Pembina and our customers. So we’re doing everything in our power to look at reducing that usage. But, just circling back, as it relates to part of our net exposure, we’re mostly protected on that through some of the PTAs we’ve signed and some of the other initiatives we’ve been undertaking.

Scott Burrows: And just on top of that, you know Scott mentioned obviously we’re working to utilize less consumption, which obviously supports lower OpEx for customers, but lower scope to emissions. Chris’s team, Chris Sherman has an energy management team, and also a lot of work internally on peak power price avoidance. So with that obviously are Piece system that – you know we have a lot of storage at various places. We don’t have to be continuously pumping when price is $900 a megawatts. So being very proactive on when do we need to be storing and when should we be pumping? And that’s all run out of our Sherwood Park Control Centre. So that’s been a huge win for our customers as well.

Patrick Kenny: Okay, that’s really good color guys. I appreciate that. Sorry, just one follow-up question on the Alberta Carbon Grid if I could. So we’ve seen a bit of a slowdown on the capture side of the equation, with respect to some government support coming to fruition. Wondering if that’s translating into any slowdown on your end in the development process of ACG. I guess, if there’s just any update on timing related to potential FID or our in-service state, that would be great.

Cameron Goldade: Pat, maybe just to re-emphasize where we’re at. So we’ve been busy. We have an appraisal permit from the government of Alberta. Now that has allowed us to be out. We’ve bought seismic and reprocesses. We’ve shot additional seismic over our proposed sequestration site. That work has been completed. We are in the process of getting ready to drill our evaluation well. That will be drilled here in the second half of 2023. Essentially that work upon completion and some evaluation of the results will allow us to prove up that we have a sequestration site. So, we’ve had preliminary conversations with off-takes, sorry not off-takes – of use of the sequestration, the remains interest. It’s competitive. It’s a little bit still out there.

Our work has largely been focused on proving up our site and initial conversations. Once we get that moving to 2024, we’ll ramp up the commercial conversations upon proof that we actually have something that we can use and sell. We haven’t changed our FID days or any of that timing at this point.

Patrick Kenny: Okay, that’s great. Thanks everybody. Have a great long weekend.

Scott Burrows: You as well.

Operator: There are no further questions at this time. Please proceed.

Scott Burrows: Thanks everyone. I really appreciate you calling it on a Friday before a long weekend. Obviously, as we said in our prepared remarks, a challenging quarter, but we remain optimistic through the back half of this year. So everybody have a great long weekend. Stay safe and have a good rest of your summer. Thank you.

Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.

Follow Pembina Pipeline Corporation (NYSE:PBA)