Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pembina Pipeline Corp (PBA, Financial) reported record adjusted EBITDA of $1.091 billion, a 33% increase over the same period in the prior year.
- The company achieved record adjusted cash flow from operating activities of $837 million and record adjusted cash flow per share of $1.44.
- Pembina Pipeline Corp (PBA) raised its 2024 adjusted EBITDA guidance range to $4.2 billion to $4.35 billion, reflecting a $100 million increase at the midpoint.
- The acquisition of the remaining 14.6% interest in Aux Sable US operations from Williams has been completed, simplifying corporate reporting and enhancing long-term opportunities.
- The Phase VIII Peace Pipeline Expansion has been brought into service, marking the culmination of a more than $4 billion expansion program driven by growing customer demand.
Negative Points
- The company experienced some incremental inflation over and above expectations in the latter half of 2023, impacting project costs.
- There were higher general and administrative expenses impacting the second quarter results.
- Unrealized losses recognized by PGI on interest rate derivative financial instruments compared to gains in the second quarter of 2023.
- Larger unrealized losses on renewable power purchase agreements and NGL-based derivatives compared to gains in the second quarter of 2023.
- Higher depreciation and amortization, net finance costs, and acquisition and integration fees impacted earnings in the second quarter.
Q & A Highlights
Q: Just want to dial in on the acquisitions a little bit more. Aux Sable alliance here it seems like they're outperforming our expectations and just wondering if you could talk a bit more, I guess, about the outperformance in really curious about looking forward. I guess it seems like full ownership would bring new opportunities to Pembina and how that kind of impacts, I guess the marketing opportunities as well. Just any more color on how we should think about what's possible there going forward.
A: Jeremy, a lot of the strength really was driven at the Aux Sable level. Obviously, the low gas price and high NGL prices had a strong impact on that business. As we pointed out in our comments, we'd obviously like a little higher gas price for all of our producing community and hopefully add to increased drilling. But in the short term here, that low gas price has really led to strong frac spreads across the business, especially at Aux Sable. When you go back to our acquisition, presentation and thesis, we talked about some of the longer term synergies more towards the end of the decade. And we think having full control of Aux Sable will allow us to continue to capture those and give us a leg up in terms of capturing those. It's a little too early to start talking about what exactly those are in terms of where we're headed, but we're actively working and planning on those today.
Q: In the release, I think there's language that highlights the expectations for 6% and 4% conventional and gas processing volume growth, respectively, in 2024. I'm just wondering, is this a similar trajectory you kind of see in the near term post 2024 in general at a high level? And I guess my question is, if you're expecting kind of the mid-single digit growth, is this filling latent capacity on the system, or is this more capital intensity, effectively, how much capital investment will be required to attain that kind of mid-single digit growth, mid cycle as could be possible?
A: Hey, Jeremy, it's Jaret here. So first I'll talk a little bit about what we're seeing kind of in 2024 with respect to our conventional volume growth. And then I'll touch on PGI just for a second. So you saw in our, I think in our press release, we dropped it from roughly 9% to 6%. That really equates to approximately, it's not that much material amount of volume, it's roughly 30,000 barrels. And what we did see in the first half of the year, which you'll probably recall from the previous quarters, was we saw a significant reduction in volumes in January here in Western Canada with some extreme weather that obviously set a lot of our customers back, and they really didn't, really didn't make that up. We saw a larger turnaround season kind of in that May, June than we expected from some of our third parties. All of the PGI turnarounds went as expected, and the Phase VIII went that commissioning went extremely well. And then we had a short unplanned outage at our Frac complex, specifically RFS I, that restricted some C2 plus volume. So that's a big portion of the overall reduction. And then the latter half of the year, across a couple of hundred receipt points in the conventional system. It's really just timing of development that we're seeing from our customers. It's not that they're not drilling in these liquid rich areas, it's just that forecasting of when the volumes are coming on, that kind of leads into there's been some public disclosure recently around some drier gas either being shut in or not completed. We're not really seeing the effects of that. As you know, the majority of our PGI assets, all of our PGI assets, they produce significantly liquids rich gas. And you're actually seeing that in the overall revenue volume increase in PGI. I think we talked from 3% to 4%, 4% to 5%. We're seeing, and we haven't brought on any new gas plants. So we're seeing really strong gas growth where we have lots of condensate and lots of NGLs, which is extremely positive. And I think one of the features of our footprint is that we don't process a lot of the drier gas. With all that said, our overall thesis for Western Canadian liquids growth hasn't really changed in that mid digit as we think about latent capacity versus expanded capacity when you're in Alberta now that Phase VIII is in service, kind of Gordondale follow the map all the way down to Fox Creek into Edmonton, that's going to be latent capacity use and or pump station. No more linear assets required to get those volumes into the Edmonton market. And then as you go west of Gordondale into Northeast BC, that's where we'll require some incremental pipelines, etcetera. So that's kind of the distinction. And that's kind of all been built into our three year capital forecast and all part of our three year cash flow per share guidance that we gave at investor day. Anything else to add, Kim or Scott?
Q: Maybe just on Cedar, if you can give us an update here in terms of reassigning the capacity that you hold with third parties, are you seeing strong interest from customers there? What's the timeline to announce that contract? And also, how committed are you to kind of reassigning that entire 1.5 mtpa and could you keep more of it and end up marketing more than 0.3 mtpa with your marketing group?
A: Hi, it's Stuart. So we're now following the FID announcement and progress. We are ramping up our marketing efforts, looking at the remaining capacity of Cedar. I will say that as our project became more real with the FID announcement, our interest is high. We've been working with a number of potential off takers that we've had conversations for a long period of time, but we do have some renewed and new interest coming in as well. So we're excited and optimistic of progressing those conversations to completion with a target to have as much of that completed in 2024. So we're optimistic and excited and continue to make progress with potential offtakers.
Q: Just maybe quickly on the Alliance and Aux Sable consolidation. I know there's some accounting noise in there, but maybe you can just walk us through the headline, $600 million loss on disposal of your equity interest, and maybe what that means for your corporate effective tax rate going forward.
A: Hey, Pat, it's Cam here. You just made our accounting teams day with the question. It's not a really straightforward explanation, other than to say that the accounting standards are pretty clear about how you have to treat a step acquisition. You basically have to act as if you've disposed what you've got as the equity accounted investment, and then realize the entire fair value acquisition like you would any other acquisition. So obviously, you do the fair value on the existing interest and mark that to market. Obviously, I think what's important in recognizing that accounting is that there's an offsetting deferred tax recovery on that de-recognition, which effectively nets you to about zero or so. It's about a
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
