Published by Todd Bush on December 11, 2023
All financial figures are in Canadian dollars unless otherwise noted. This news release refers to certain financial measures and ratios that are not specified, defined or determined in accordance with Generally Accepted Accounting Principles ("GAAP"), including adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"); and proportionately consolidated debt-to-adjusted EBITDA. For more information see "Non-GAAP and Other Financial Measures" herein.
CALGARY, Alberta--(BUSINESS WIRE)--Pembina Pipeline Corporation ("Pembina" or the "Company") (TSX: PPL; NYSE: PBA) announced today its 2024 financial guidance and provided a business update.
Highlights
The predictability and resilience of Pembina's business is being demonstrated once again in 2023 with the expectation of another record setting financial year. Strong results reflect growing volumes and rising capacity utilization across many key systems. In Pembina's conventional pipelines business, which is a proxy for the broader WCSB, second half 2023 volumes are expected to be five percent higher than the same period in 2022. The investments Pembina has made in recent years, including various expansions of the Peace Pipeline system and the transaction to form PGI have created the capacity to accommodate rising throughput, leading to highly accretive growth in Pembina's business. In addition, Pembina's growing platform and favourable commodity prices and price spreads have allowed its marketing business to outperform the historical average.
Momentum within the WCSB is expected to continue into 2024 and beyond and Pembina is well positioned to benefit from what it expects to be a transformational period in the Canadian energy industry. Over the next several years, Pembina sees the potential for mid-single digit annual volume growth across the WCSB, driven by near term catalysts, including up to approximately 2.8 billion cubic feet per day of new natural gas export capacity from new West Coast LNG projects, 590,000 bpd of new crude oil export capacity from the expected completion of the Trans Mountain Pipeline expansion, as well as potential new developments in the Alberta petrochemical industry, including Pembina’s expectation of more than 100,000 bpd of incremental ethane demand associated with Dow Inc.'s recent decision to build a new 1.8 million metric tonne per annum integrated ethylene cracker and derivatives facility in Fort Saskatchewan.
Given the scope and reach of its assets, highly economic expansion opportunities, existing long-term contracts, and agreements with three premier NEBC producers, Pembina is uniquely positioned to capture new volumes and benefit from the growth in the WCSB. Pembina will continue to invest in infrastructure to serve customers and enhance its integrated value chain, while also pursuing opportunities in the new ventures portfolio that align with the Company's strategy to enhance access to global markets and better align its future with the transition to a lower-carbon economy. Specific highlights include:
The project is expected to cost approximately $70 million (net to Pembina) with an estimated in-service date in the first half of 2026, subject to receipt of regulatory and environmental approvals. This is Pembina's third co-generation project following the successful development of cogeneration facilities at the Redwater Complex and Empress NGL Extraction Facility.
Additionally, Pembina continues to evaluate further expansions to support NEBC volume growth, including new pipelines and terminal upgrades within the NEBC Pipeline system and downstream systems between Taylor, British Columbia and Gordondale, Alberta. Pembina recently filed its project notification with the Canadian Energy Regulator in respect of the interprovincial portion of these expansions. These expansions would accommodate increased customer demand anticipated from growing production volumes within the NEBC Montney in the second half of the decade, drive higher utilization on the Peace Pipeline system, and allow Pembina's NEBC customers to access premium markets.
Pembina is anticipating adjusted EBITDA of $3.725 billion to $4.025 billion in 2024. Relative to 2023, the major factors driving the outlook for 2024 adjusted EBITDA include:
Excluding the contribution from the Marketing & New Ventures segment, the midpoint of the guidance range reflects an approximately four percent increase in fee-based adjusted EBITDA, relative to the forecast for 2023.
The lower and upper ends of the guidance range are framed primarily as a function of 1) commodity prices and the resulting contribution from the marketing business; 2) uncommitted volumes on key systems; and 3) the U.S./Canadian dollar exchange rate.
Current income tax in 2023 is forecast to be approximately $330 million. Relative to the original 2023 current tax guidance of $340 million to $395 million that Pembina provided in December 2022, the revised forecast reflects higher-than-expected earnings offset by lower-than-expected taxable income from partnerships. Current income tax expense in 2024 is anticipated to be $295 million to $345 million as Pembina will continue to benefit from the availability of tax pools from assets recently placed into service.
Pembina's 2024 adjusted EBITDA may be directly impacted by market-based prices as follows:
Key Variable | 2024 Guidance Midpoint Assumption |
Sensitivity | Impact on Adjusted EBITDA |
---|---|---|---|
AECO / Station 2 Natural Gas (CAD/GJ) (2) | $2.96 | ± $0.50 | ± 15 |
Chicago Natural Gas (USD/MMbtu) | $3.62 | ± $0.50 | ± 19 |
Mont Belvieu Propane (USD/usg) | $0.70 | ± $0.10 | ± 42 |
Foreign Exchange Rate (USD/CAD) | $1.38 | ± $0.05 | ± 48 |
Pembina Share Price (CAD/share) | ± $1.00 | ± 4 |
(1) Includes the impact of Pembina's hedging program.
(2) In addition, Pembina has asymmetric exposure to AECO natural gas prices through a commercial contract with a customer, where Pembina benefits as AECO price rises but does not have downside risk relative to AECO pricing at October 31, 2023.
Pembina's 2024 capital program is expected to be allocated as follows:
($ millions) | 2024 Budget (1) |
---|---|
Pipelines Division | $380 |
Facilities Division | $323 |
Marketing & New Ventures Division | $7 |
Corporate | $40 |
Capital Expenditures | $750 |
Contributions to Equity Accounted Investees | $130 |
Capital Expenditures and Contributions to Equity Accounted Investees |
$880 |
(1) Capital budget shown in Canadian dollars based on a forecasted average USD/CAD exchange rate of 1.38.
The 2024 capital investment program reflects approximately $100 million of deferrals of capital expenditures from 2023 into 2024 due to project reprioritization and execution timing.
Pipelines Division capital expenditures primarily relate to the construction of the Phase VIII Peace Pipeline Expansion and the NEBC MPS Expansion; development spending on potential future projects, including new pipelines and terminal upgrades within the NEBC Pipeline system and downstream systems between Taylor, British Columbia and Gordondale, Alberta; and investments in smaller growth projects, including various laterals and terminals.
Capital expenditures in the Facilities Division primarily relate to construction of the RFS IV Expansion, smaller growth projects and sustaining capital spending.
Capital expenditures within the Marketing and New Ventures Division and the Corporate segment are primarily targeted at information technology enhancements to further the Company's continuous improvement aspirations.
Contributions to Equity Accounted Investees primarily relate to contributions to PGI to fund development of the K3 Cogeneration Facility, as well as development activities for the Alberta Carbon Grid.
In addition to the 2024 capital investment program detailed above, Pembina is in development of additional growth projects that could increase the program by up to $280 million. This includes approximately $210 million related to pre-FID contributions for Cedar LNG and approximately $70 million related to growth projects to accommodate growing WCSB volumes and incremental demand for transportation and gas processing services.
Further, Cedar LNG recently achieved a significant milestone with the signing of a heads of agreement ("HOA") with Samsung Heavy Industries Co., Ltd. ("SHI") and Black & Veatch Corporation. The HOA provides Cedar LNG, on an exclusive basis with SHI and Black & Veatch, secure access to shipyard capacity to meet Cedar LNG's target commercial operations date. The parties expect to finalize a lump sum engineering, procurement, and construction agreement prior to year end, which will provide Cedar LNG with the necessary services to construct the project, subject to a positive FID. In connection with, and following execution of, the lump-sum engineering, procurement, and construction agreement, Pembina expects to take additional steps and will be required to provide letters of credit to progress upstream infrastructure projects prior to an FID. Such letters of credit, net to Pembina, are currently expected to be up to $200 million, which may become payable in the case of a negative FID. In conjunction with a positive FID, these letters of credit will be transferred to Cedar LNG.
Cedar LNG continues to progress the key project deliverables, including finalizing the lump-sum engineering, procurement, and construction contract, definitive liquefaction tolling agreements, and inter-project agreements with Coastal GasLink and LNG Canada. Given the complexity and sequencing of aligning the multiple work streams required to facilitate the project financing, an FID is now expected by the end of the first quarter 2024.
Throughout 2022 and 2023, Pembina has generated substantial free cash flow, which has been allocated to strengthening the balance sheet and returning capital to shareholders. During this time, Pembina has raised the quarterly common share dividend by six percent, repurchased approximately $400 million of common shares, and redeemed $300 million of preferred shares. Over the same period, Pembina has paid down debt, reducing leverage below the low end of its target range in anticipation of funding future capital projects.
In 2024, at the midpoint of the Company's guidance range, the approved 2024 capital program of $880 million is expected to be fully funded with cash flow from operating activities, net of dividends. Pembina expects any excess free cash flow in 2024 to be used to pay down debt and will continue to evaluate the merits of debt repayment relative to additional share repurchases, taking into account prevailing market conditions and risk-adjusted returns, as well as the funding requirements for future capital projects. Pembina’s solid financial position provides the flexibility to maintain strong leverage ratios across the guidance range and under various capital program scenarios. Pembina expects to exit 2024 with a proportionately consolidated debt-to-adjusted EBITDA ratio of 3.3 to 3.6 times.
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 an export terminals business. Through our integrated value chain, we seek to provide safe and reliable energy solutions that connect producers and consumers across the world, support a more sustainable future and benefit our customers, investors, employees and communities. For more information, please visit www.pembina.com.
>>Read more about Pembina Pipeline Corp here
Purpose of Pembina: We deliver extraordinary energy solutions so the world can thrive.
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.
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