Energia
Pembina Pipeline Corporation Reports Results for the Second Quarter 2021 and Updates 2021 Guidance
Change in Second Quarter Adjusted EBITDA
Pembina reported adjusted EBITDA of $778 million for the second quarter, one percent lower than the same period in the prior year. Higher margins on NGL and crude oil sales and the positive impact of higher marketed NGL volumes were offset by an increase in the realized loss on commodity-related derivatives. In addition, the year-over-year decrease was largely due to lower revenue at Edmonton South Rail Terminal, due to an $11 million non-recurring leasing adjustment made in the second quarter of 2020; the impact of a lower U.S. dollar exchange rate; higher power costs, a portion of which were not recoverable in revenue; and higher general and administrative expense. These factors were offset by strong performance from existing assets along with Prince Rupert Terminal, Empress Infrastructure and Duvernay III being placed into service in Facilities, and higher interruptible volumes on the Peace Pipeline system. Higher general & administrative expense was largely due to higher long-term incentive costs driven by Pembina's increasing share price in the second quarter of 2021 compared to a decreasing share price in the second quarter of 2020, partially offset by a reduction in salaries and wages.
Change in Second Quarter Earnings
Pembina reported earnings of $254 million for the second quarter, two percent lower than the same period in the prior year. In addition to the factors impacting adjusted EBITDA, as noted above, earnings were positively impacted by a lower unrealized loss on commodity-related derivatives and lower current tax expense as a result of lower taxable income, combined with the reduction of the Alberta corporate tax rate from 10 to 8 percent effective July 2020. Earnings in the second quarter also were negatively impacted by lower income received associated with the Canadian Emergency Wage Subsidy program, an increase in acquisition related costs, lower share of profit from Ruby, and an increase in net finance costs due to second quarter losses on non-commodity-related derivative financial instruments compared to gains recognized in the second quarter of 2020.
Cash flow from operating activities of $584 million for the second quarter was a decrease of nine percent over the same period in the prior year. The decrease was driven primarily by an increase in taxes paid due to higher tax installments given the COVID-related deferrals in 2020, an increase in net interest paid, and a decrease in operating results, as discussed above, after adjusting for non-cash items. These factors were partially offset by a decreased change in non-cash working capital. On a per share (basic) basis, cash flow from operating activities for the second quarter also decreased by nine percent compared to the same period in the prior year due to the same factors.
Adjusted cash flow from operating activities of $538 million was eight percent lower compared to the same period in the prior year. The decrease is due to the same factors impacting cash flow from operating activities, discussed above, net of the increase in taxes paid and change in non-cash working capital, and an increase in accrued share-based payment expense, driven by Pembina's increasing share price in the second quarter of 2021 compared to a decreasing share price in the second quarter of 2020. On a per share (basic) basis, adjusted cash flow from operating activities for the second quarter also decreased by eight percent due to the same factors.
Total volumes of 3,500 mboe/d for the second quarter represents an approximately two percent increase over the same period in the prior year. The increase was the result of higher volumes in Pipelines, as discussed in further detail below.
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.
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.
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.
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.
Pipelines:
Facilities:
Marketing & New Ventures:
Pembina will host a conference call on Friday, August 6, 2021 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 2021. 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 13, 2021 at 11:59 p.m. ET . To access the replay, please dial either 416-849-0833 or 855-859-2056 and enter the password 3757059.
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=1354428&tp_key=2545fc3b28 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 more than 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; and is growing an export terminals business. 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.
Purpose of Pembina:
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 , Manager Investor Relations, (403) 231-3156, 1-855-880-7404, E-mail: investor-relations@pembina.com, www.pembina.com