Energia
Pembina Pipeline Corporation Reports Second Quarter Results
CALGARY, AB , Aug. 6, 2020 /CNW/ - Pembina Pipeline Corporation ("Pembina" or the "Company") (TSX: PPL) (NYSE: PBA) announced today its financial and operating results for the second quarter of 2020.
Pembina continues to demonstrate its resilience even during the challenging environment created by the COVID-19 pandemic and concurrent decline in global energy prices.
Management believes that Pembina's second quarter financial and operational results reflect the full impact of the ongoing COVID-19 pandemic and the concurrent decline in global energy prices. While much uncertainty remains, based on management's evaluation of current market conditions and the COVID-19 dynamic, the expectation is that the second quarter will be the quarter most impacted by these events in 2020. The outlook for the remainder of the year is more positive as economies around the world have entered various stages of re-opening and global energy prices have rebounded significantly from the lowest levels seen during this crisis.
Despite the challenging environment there are notable positives:
In Pembina's conventional pipeline business, the second quarter saw an approximately nine percent decrease in physical volumes compared to an average of the prior two quarters. Systems such as Peace, which are underpinned by a high degree of take-or-pay contracts, were slightly less impacted and systems without those contractual underpinnings, such as Drayton Valley , were slightly more impacted. Overall, physical volumes reached their lows in early May, at levels approximately 16 percent below the average levels from the prior two quarters. This represents a decrease of approximately 135,000 barrels per day ("bpd"), resulting from a combination of producer shut-ins and advancement of turnarounds and maintenance work. For Pembina, this low point was relatively short-lived and since early May, physical volumes in the conventional pipeline business have been steadily improving, albeit still approximately seven percent below first quarter levels. With stronger commodity prices driving higher interruptible volumes, and the placement into service of the Phase VI Peace Pipeline Expansion, physical volumes in the second half of the year are expected to continue to improve.
The marketing business endured one of the toughest periods in its history during the second quarter. The crude oil component of the business has been negatively impacted by reduced crude oil activities due to lower prices and tighter price differentials. Similarly, the NGL component of the business has seen relatively strong natural gas prices combined with weaker NGL prices, resulting in narrower frac spreads. With weaker NGL prices during the quarter, Pembina took the proactive approach to store additional NGL volumes, with the intent to monetize those volumes during the upcoming winter of 2020-2021. Fortunately, the recovery in both crude oil and NGL forward prices from second quarter lows continues to look more favourable.
Pembina has hedged 50 percent of its NGL frac spread exposure for 2020, excluding Aux Sable, and these hedges were entered into systematically throughout 2019 at prices higher than those experienced to date in 2020. This has resulted in significant realized hedging gains in the year-to-date results and provides ongoing protection for the remainder of the year. To date, Pembina has hedged approximately 40 percent of its 2021 frac spread exposure, excluding Aux Sable. The 2021 hedges have been entered into throughout 2019 and 2020 and therefore reflect a combination of higher and lower frac spread environments but overall, provide protection against further narrowing of 2021 frac spreads. Pembina intends to continue to execute on its 2021 derivative program through the third quarter of 2020 with an intent to hedge approximately 50 percent of its 2021 frac spread exposure, excluding Aux Sable.
During the first quarter, the Company took the unprecedented, but prudent, step to defer $4.5 billion of capital projects, reducing its 2020 capital investment plans by between $900 million and $1.1 billion . At the midpoint of 2020, Pembina is on track to realize a reduction in its capital investment plan of approximately $1.1 billion . Challenging weather conditions and COVID-19 related precautions and delays resulted in capital cost overruns in 2020 of approximately $100 million . Additionally, during the second quarter Pembina added approximately $90 million of additional growth capital investment into 2020. These investments are accretive, commercially-supported projects in key focus areas. Pembina's 2020 capital program is now expected to total approximately $1.5 billion .
Looking beyond 2020, Pembina remains focused on growing the business and meeting its customers' needs. Pembina continues to evaluate its portfolio of both new and deferred projects for conditions under which they can commence.
The Phase VII, VIII and IX Peace Pipeline Expansions will continue to be evaluated based on customer needs and an assessment of future transportation requirements in the Western Canadian Sedimentary Basin, including greater stability in volumes and prices and a clearer forecast of basin activity. In the interim, Pembina is well positioned to handle all customers' volumes, with approximately 250,000 bpd of currently available physical capacity on the Peace and Northern systems and the option to provide additional low-cost solutions such as targeted minor capital projects to meet specific producers' needs.
Regarding Canada Kuwait Petrochemical Limited Partnership's ("CKPC") PDH/PP Facility, the project team has substantially completed the activities to safely and cost-effectively defer the project. The fabrication of critical long-lead items has continued, and key talent and knowledge have been retained, all to preserve project value for an efficient potential re-start. Pembina and its joint-venture partner continue to evaluate a number of factors related to the project. First, a necessary condition is that the safety of all personnel can be assured. Second, while the immediate incremental costs associated with COVID-19 were contained by the decision to defer the project, the future and ongoing risks need to be understood and priced into the project cost estimate. Third, the full impact of COVID-19 on the global economy and future demand for polypropylene remains uncertain and needs to be carefully evaluated. Fourth, with both Federal and Provincial governments, as well as our project financing syndicate, indicating extensions have, or will be, granted, we remain confident that the original investment parameters can be re-confirmed. Finally, the project restart is subject to CKPC Management Committee approval and each partners' board approval.
The Prince Rupert Terminal Expansion and the Empress Co-generation Facility are progressing to be in a position for a potential re-start and we are adding other projects to this list, which could expand or extend Pembina's existing value chain and customer service offering.
The capital project deferrals discussed above ensure Pembina will maintain liquidity and leverage levels to preserve its strong financial position even in the event of a prolonged downturn. Pembina further enhanced its liquidity position during the second quarter by terming out approximately $850 million of debt drawn on the Company's credit facility and establishing a new $800 million revolving credit facility. Following the early redemption in July of $200 million of senior notes originally due in 2021, Pembina's liquidity position currently stands at $2.8 billion . With no debt maturities for the balance of 2020 and $600 million of maturities distributed throughout 2021, Pembina's liquidity position is ample.
The recent debt issuances, at a weighted average term to maturity of 17 years and a rate of approximately 3.2 percent, provided a strong endorsement from a broad cross section of the debt capital markets. Combined with the recent affirmation of Pembina's BBB credit rating by both Standard & Poor's and DBRS Limited, this validates the Company's strong financial position. The previously announced initiatives on non-core asset sales in the range of $200 to $500 million is progressing as planned. Pembina expects to be able to provide more details with the release of the Company's third quarter results in the fall.
The first half of 2020 has seen Pembina rise to an unprecedented challenge, reacting quickly and effectively in service of its stakeholders. Pembina's growth and diversification over recent years, combined with an unwavering commitment to its financial guardrails, ensured the Company was well positioned for a black swan event such as COVID-19. As a result of the decisive intervention taken early in the pandemic, Pembina expects to deliver financial results within its original guidance range and exit 2020 in a strong financial position. This will allow the Company to resume its deferred capital projects and continue its long track record of growth and providing its customers with exceptional value through its unmatched integrated value chain. As our employees begin a prudent transition back to our offices, we expect things to continue to normalize and we feel fortunate, all things considered.
Pipelines:
Facilities:
Marketing & New Ventures:
Pembina will host a conference call on Friday, August 7, 2020 at 8:00 a.m. MT ( 10:00 a.m. ET ) for interested investors, analysts, brokers and media representatives to discuss results for the second quarter of 2020. The conference call dial-in numbers for Canada and the U.S. are 647-427-7450 or 888-231-8191. A recording of the conference call will be available for replay until August 14, 2020 at 11:59 p.m. ET . To access the replay, please dial either 416-849-0833 or 855-859-2056 and enter the password 8295027.
A live webcast of the conference call can be accessed on Pembina's website at www.pembina.com under Investor Centre/ Presentation & Events, or by entering:
https://produceredition.webcasts.com/starthere.jsp?ei=1290104&tp_key=f940364325 in your web browser. Shortly after the call, an audio archive will be posted on the website for a minimum of 90 days.
Pembina is a leading transportation and midstream service provider that has been serving North America's energy industry for 65 years. Pembina owns an integrated system of pipelines that transport various hydrocarbon liquids and natural gas products produced primarily in western Canada. The Company also owns gas gathering and processing facilities; an oil and natural gas liquids infrastructure and logistics business; is growing an export terminals business; and is developing a petrochemical facility to convert propane into polypropylene. Pembina's integrated assets and commercial operations along the majority of the hydrocarbon value chain allow it to offer a full spectrum of midstream and marketing services to the energy sector. Pembina is committed to identifying additional opportunities to connect hydrocarbon production to new demand locations through the development of infrastructure that would extend Pembina's service offering even further along the hydrocarbon value chain. These new developments will contribute to ensuring that hydrocarbons produced in the Western Canadian Sedimentary Basin and the other basins where Pembina operates can reach the highest value markets throughout the world.
Pembina is structured into three Divisions: Pipelines Division, Facilities Division and Marketing & New Ventures Division.