Energia
Pembina Pipeline Corporation Reports Strong Results for the First Quarter 2022, Raises 2022 Guidance and Provides Business Update
Change in First Quarter Adjusted EBITDA
In the first quarter, Pembina reported record quarterly adjusted EBITDA of $1 billion , representing a 20 percent increase over the same period in the prior year. The first quarter was positively impacted by stronger marketing results due to higher margins on NGL and crude oil sales and lower realized losses on commodity-related derivatives, combined with a higher share of profit from Aux Sable . Adjusted EBITDA also benefited from higher volumes in combination with higher tolls on the Peace Pipeline system; higher recoverable costs on the Horizon Pipeline related to extensive slope mitigation; contributions from the Prince Rupert Terminal coming into service in March 2021 ; and a higher share of profit from Veresen Midstream, due to the Hythe Developments entering service in March 2021 and higher volumes at the Dawson Assets. These positive factors were partially offset by lower contracted volumes on the Nipisi and Mitsue pipeline systems, due to the expiration of contracts; a lower contribution from Ruby Pipeline; and higher general and administrative costs, due to higher long-term incentives driven by an increase in Pembina's share price compared to the prior period and Pembina's performance relative to peers.
Change in First Quarter Earnings
In the first quarter, Pembina recorded earnings of $481 million , which represents a 50 percent increase relative to the same period in the prior year. In addition to the factors impacting adjusted EBITDA, as noted above, earnings were positively impacted by lower impairments and a higher unrealized gain on commodity-related derivatives for certain gas processing fees tied to AECO prices. First quarter earnings were negatively impacted by higher income tax expense and a lower share of profit from Ruby Pipeline.
Cash flow from operating activities of $655 million for the first quarter represents an increase of 44 percent over the same period in the prior year. The increase was primarily driven by an increase in operating results after adjusting for non-cash items, higher distributions from equity accounted investees, and a change in non-cash working capital, partially offset by increases in taxes paid, share-based compensation payments, and net interest paid. On a per share (basic) basis, cash flow from operating activities increased by 43 percent due to the same factors.
Adjusted cash flow from operating activities of $700 million represents a 20 percent increase over the same period in the prior year. The increase was due to the factors impacting cash flow from operating activities, discussed above, net of the change in non-cash working capital, taxes paid, and share-based compensation payments, partially offset by higher current tax expense and an increase in accrued share-based payments. On a per share (basic) basis, adjusted cash flow from operating activities increased by 20 percent due to the same factors.
Total volumes of 3,369 mboe/d for the first quarter represent a decrease of approximately three percent over the same period in the prior year. The decrease was the result of lower volumes in both the Pipelines and Facilities divisions due to contract expirations, offset by higher volumes on certain systems and new assets placed into service, as well as other factors as discussed in further detail below.
The first quarter of 2022 delivered a tremendous start to the year. Financial and operating results, including record quarterly adjusted EBITDA, reflect a strong contribution from Pembina's marketing business, growing volumes on many key systems and new assets recently placed into service. Our growing optimism over the future of the Western Canadian Sedimentary Basin ("WCSB") remains intact and the positive discussions we have been having with customers over the past year are translating into contracting success and long-term commitments for future volumes to support higher utilization of Pembina's existing asset base as well as accretive and capital efficient new growth projects.
Physical volumes on Pembina's conventional pipeline systems continue to grow and serve as a good proxy for Pembina's broader business and the WCSB in general. Physical volumes in the first quarter of 2022 increased nearly five percent compared to the first quarter of 2021 and that trend has continued into April, with physical volumes reaching an all-time monthly high.
Pembina is continuing to realize the financial benefits of growing volumes, however incremental volumes are also leading to constraints on certain segments of the Peace Pipeline. Therefore, we are pleased with the upcoming placement into service of the Phase VII Peace Pipeline Expansion ("Phase VII"), the reactivation of the Phase VIII Peace Pipeline Expansion ("Phase VIII") and continued construction progress on the Phase IX Peace Pipeline Expansion ("Phase IX"), each of which is discussed in more detail below and collectively will allow Pembina to continue to provide industry-leading transportation service to our producing customers in a highly capital efficient manner.
The first quarter was also highlighted by the announcement that Pembina and KKR will combine their respective western Canadian natural gas processing assets into a single, new joint venture entity. We also were pleased to announce our intention to increase Pembina's common share dividend $0.0075 per share per month, or 3.6 percent upon closing of this transaction, which we expect in the third quarter of 2022.
Guidance Update
Pembina has raised its 2022 adjusted EBITDA guidance range to $3.45 to $3.6 billion (previously $3.35 to $3.55 billion ). Relative to Pembina's initial guidance, the revised outlook for 2022 primarily reflects stronger marketing results, as a result of higher expected NGL and crude oil prices, partially offset by higher realized hedging losses. In addition, the revised outlook reflects the removal of Ruby Pipeline adjusted EBITDA from April 1 through the remainder of 2022 pending resolution of the Chapter 11 process, as well as the impact of a higher long-term share-based incentive expense given the increase in Pembina's share price. Current guidance does not include the impact of the Newco transaction.
Cash flow from operating activities is expected to exceed dividends and the capital investment program in 2022. As previously disclosed, Pembina expects to allocate a portion of the excess towards common share repurchases, with the balance available for incremental capital investment, debt repayment, or additional distribution to shareholders. As of the current date and including shares repurchased in December 2021 , Pembina has completed $58 million towards its 2022 target.
Northeast British Columbia ("NEBC") Producer Commitments
Pembina has entered into a 20-year midstream services agreement for the transportation and fractionation of liquids from ConocoPhillips Canada's ("CPC") Montney development in NEBC. Under the arrangement, which was preceded by the previously announced exclusivity agreement, and subject to certain exclusions, CPC has dedicated liquids production from the majority of its acreage within the liquids-rich NEBC region of the Montney resource play. Any new firm transportation and fractionation services provided by Pembina in respect of liquids production will be supported by long-term, take-or-pay agreements at competitive market rates.
"ConocoPhillips Canada continues to pursue innovative solutions to improve netbacks and overall returns," said ConocoPhillips Canada president Bij Agarwal. "We value our established mutually beneficial working relationship with Pembina and look forward to working together to realize the full potential of our significant Montney asset."
Pembina is in the process of building out its network of pipeline capacity with its phased Peace Pipeline expansions, which will provide CPC and NEBC region producers with liquids egress when required. Under the dedication, further infrastructure development remains contingent upon CPC requesting service, as well as any environmental and regulatory approvals that may be required. Beyond the Phase VII, Phase VIII and Phase IX expansions, no significant additional capital expenditures are expected to initially be required to transport incremental volumes. Longer-term capital requirements will be aligned with the scope and timing of CPC's development.
In addition, as previously disclosed, Pembina recently executed a new agreement with a second Montney producer, which commits to Pembina volumes from a multiphase development of the producer's NEBC Montney acreage, on a take-or-pay basis, upon the acreage being developed. The agreement provides the producer with certainty of transportation egress from this key area for their future development and access to the remainder of Pembina's integrated value chain.
Finally, Pembina has finalized commercial terms with a third leading Montney producer regarding significant long-term NEBC volume commitments and expects commercial agreements to be signed by mid-2022.
"These agreements are exciting opportunities to further strengthen Pembina's relationship with premier NEBC producers in a strategically important region. They highlight Pembina's advantages in the face of increasing competition for Montney volumes and demonstrate the value our customers continue to place on our already in-place assets, strong track record of safety and reliability, competitive fees and integrated service offering," said Pembina's Jaret Sprott , Senior Vice President & Chief Operating Officer.
Pembina is poised to benefit from a promising outlook for NEBC development. As a result of these long-term commitments and the agreements that have been executed, or are anticipated to be executed later this year, Pembina expects to have secured the transportation rights to a significant portion of forecasted future growth in the NEBC Montney, which collectively will support improved utilization of its existing assets as well as capital efficient expansion projects into the future.
Peace Pipeline Expansions
As a result of the commitments secured and ongoing conversations with other customers, Pembina is pleased to be reactivating the previously deferred Phase VIII, which will enable segregated pipeline service for ethane-plus and propane-plus NGL mix from the central Montney area at Gordondale, Alberta , into the Edmonton, Alberta area for market delivery. Based on the significant long-term commitments from leading NEBC producers discussed above, we have clear visibility to the demand for incremental capacity in this region and as a result we are confident in the decision to reactivate Phase VIII at this time.
The scope of Phase VIII has been optimized to align with current system constraints and forecasted future demand and redeploys certain infrastructure from the original Phase VII project scope. Phase VIII will include new 10 and 16-inch pipelines, totaling approximately 150 kilometers, in the Gordondale to La Glace corridor of Alberta , as well as additional new mid-point pump stations and terminal upgrades located throughout the Peace Pipeline system. This project will add approximately 235,000 barrels per day ("bpd") of incremental capacity between Gordondale, Alberta and La Glace, Alberta , as well as approximately 65,000 bpd of capacity between La Glace, Alberta and the Namao hub near Edmonton, Alberta .
The project has an estimated cost of approximately $530 million , which relative to the original $500 million cost estimate, reflects the optimized scope and the net effect of cost increases due to market factors and cost savings arising from value engineering. Phase VIII is anticipated to be placed into service in the first half of 2024. Approximately $75 million had been spent on this project at the end of 2021, with an incremental $100 million expected to be spent in 2022.
Completion of the Phase VIII and Phase IX expansions will enable full segregation of LVP and HVP products along the Peace Pipeline system, thereby enabling further system optimization opportunities due to the reduction of batching and need for quality management. This optimization, along with other continuous improvement activities, could create material incremental capacity with minimal capital spending.
Construction and line fill of Phase VII are complete and final commissioning is underway. Phase VII is expected to be approximately $150 million under budget and is expected to enter commercial service on June 1, 2022 . Phase VII was constructed to provide transportation for the growing condensate supply in the WCSB and will divert condensate off of the existing LaGlace-Kakwa-Fox Creek corridor, creating additional firm capacity for Pembina's customers.
Pembina continues to have the ability to add approximately 200,000 bpd of capacity to its market delivery pipelines from Fox Creek, Alberta to Namao, Alberta through the relatively low-cost addition of pump stations on these mainlines, bringing the total capacity of the Peace and Northern pipelines to 1.3 million bpd.
Alliance Pipeline Open Season
Recent contracting success continues to highlight the value of Alliance's reliable and highly competitive access to mid-western U.S. gas markets, and as a conduit to the Gulf Coast and its robust liquefied natural gas market.
During the first quarter of 2022, Alliance offered six open seasons to the market. One of the open seasons was for Canadian long-term firm service which resulted in an incremental 75 MMcf/d of long-term firm service, with service commencing in November 2022 , for a volume averaged weighted term of 7.6 years. The remaining open seasons were for Canadian short-term firm service (terms of 364 days or less), which secured contracts at a volume weighted average toll of approximately 120 percent of long-term firm Alliance tolls in Canada for November 2022 onward.
Recent open seasons have resulted in Alliance being contracted over 90 percent for the current gas year and 75 percent for the next gas year.
Pembina will host a conference call on Friday, May 6, 2022 at 8:00 a.m. MT ( 10:00 a.m. ET ) for interested investors, analysts, brokers and media representatives to discuss results for the first quarter of 2022. The conference call dial-in numbers for Canada and the U.S. are 647-792-1240 or 800-437-2398. A recording of the conference call will be available for replay until May 13, 2022 at 11:59 p.m. ET . To access the replay, please dial either 647-436-0148 or 888- 203-1112 and enter the password 1397681.
A live webcast of the conference call can be accessed on Pembina's website at www.pembina.com under Investors / Presentation & Events, or by entering:
https://produceredition.webcasts.com/starthere.jsp?ei=1501650&tp_key=057312b160 in your web browser. Shortly after the call, an audio archive will be posted on the website for a minimum of 90 days.
The Company will hold its Annual Meeting of Common Shareholders ("AGM") on
Friday, May 6, 2022 at 2:00 p.m. MT ( 4:00 p.m. ET ). The AGM will be held as a virtual-only meeting, which will be conducted via live webcast at
https://web.lumiagm.com/#/431537915. Participants are recommended to register for the virtual webcast at least 10 minutes before the presentation start time. For further information on Pembina's virtual AGM, kindly visit www.pembina.com.
Pembina Pipeline Corporation is a leading energy transportation and midstream service provider that has served North America's energy industry for more than 65 years. Pembina owns an integrated network of hydrocarbon liquids and natural gas pipelines, gas gathering and processing facilities, oil and natural gas liquids infrastructure and logistics services, and a growing export terminals business. Through our integrated value chain, we seek to provide safe and reliable infrastructure solutions which connect producers and consumers of energy across the world, support a more sustainable future and benefit our customers, investors, employees and communities. For more information, please visit www.pembina.com.
Pembina is structured into three Divisions: Pipelines Division, Facilities Division and Marketing & New Ventures Division.
Pembina's common shares trade on the Toronto and New York stock exchanges under PPL and PBA, respectively. For more information, visit www.pembina.com .
Investor Relations: Scott Arnold , (403) 231-3156, 1-855-880-7404, e-mail: investor-relations@pembina.com, www.pembina.com