Transformational quarter with multi-billion capital
program now largely in service and closed the acquisition of
Veresen
All financial figures are in Canadian dollars unless noted
otherwise.
CALGARY, Nov. 2, 2017 /PRNewswire/ - Pembina Pipeline
Corporation ("Pembina" or the "Company") (TSX: PPL; NYSE: PBA)
announced today its financial and operating results for the third
quarter of 2017.
Operational and Financial Overview
|
|
|
|
|
($ millions,
except where noted)
|
|
3 Months
Ended September
30 (unaudited)
|
|
9 Months
Ended
September 30 (unaudited)
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Conventional
Pipelines revenue volumes (mbpd)(1)(2)
|
|
780
|
|
643
|
|
722
|
|
654
|
Oil Sands & Heavy
Oil contracted capacity (mbpd)(1)
|
|
1,060
|
|
975
|
|
1,060
|
|
975
|
Gas Services revenue
volumes net to Pembina (mboe/d)(2)(3)
|
|
171
|
|
149
|
|
171
|
|
131
|
Midstream Natural Gas
Liquids ("NGL") sales volumes
(mbpd)(1)
|
|
123
|
|
136
|
|
140
|
|
136
|
Total volume
(mboe/d)(3)
|
|
2,134
|
|
1,903
|
|
2,093
|
|
1,896
|
Revenue
|
|
1,041
|
|
970
|
|
3,692
|
|
3,014
|
Net
revenue(4)
|
|
532
|
|
427
|
|
1,537
|
|
1,250
|
Operating
margin(4)
|
|
403
|
|
317
|
|
1,165
|
|
959
|
Gross
profit
|
|
270
|
|
246
|
|
927
|
|
731
|
Earnings
|
|
107
|
|
120
|
|
446
|
|
335
|
Earnings per common
share – basic (dollars)
|
|
0.22
|
|
0.25
|
|
0.97
|
|
0.73
|
Earnings per common
share – diluted (dollars)
|
|
0.22
|
|
0.25
|
|
0.96
|
|
0.73
|
Adjusted
EBITDA(4)
|
|
365
|
|
287
|
|
1,031
|
|
847
|
Cash flow from
operating activities
|
|
302
|
|
247
|
|
990
|
|
791
|
Cash flow from
operating activities per common share – basic
(dollars)(4)
|
|
0.75
|
|
0.63
|
|
2.47
|
|
2.05
|
Adjusted cash flow
from operating activities(4)
|
|
314
|
|
250
|
|
897
|
|
694
|
Adjusted cash flow
from operating activities per common share – basic
(dollars)(4)
|
|
0.78
|
|
0.64
|
|
2.24
|
|
1.80
|
Common share
dividends declared
|
|
205
|
|
188
|
|
601
|
|
547
|
Preferred share
dividends declared
|
|
19
|
|
20
|
|
57
|
|
50
|
Dividends per common
share (dollars)
|
|
0.51
|
|
0.48
|
|
1.50
|
|
1.42
|
Capital
expenditures
|
|
341
|
|
537
|
|
1,525
|
|
1,292
|
Acquisition
|
|
|
|
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended
September 30 (unaudited)
|
9 Months Ended
September 30 (unaudited)
|
|
|
2017
|
2016
|
2017
|
2016
|
($
millions)
|
|
Revenue(5)
|
Operating Margin(4)
|
Revenue(5)
|
Operating Margin(4)
|
Revenue(5)
|
Operating Margin(4)
|
Revenue(5)
|
Operating Margin(4)
|
Conventional
Pipelines
|
|
232
|
174
|
183
|
121
|
617
|
455
|
535
|
376
|
Oil Sands & Heavy
Oil
|
|
51
|
36
|
49
|
36
|
155
|
108
|
148
|
103
|
Gas
Services(5)
|
|
88
|
66
|
72
|
52
|
267
|
202
|
189
|
135
|
Midstream(5)
|
|
161
|
125
|
122
|
106
|
498
|
394
|
378
|
338
|
Corporate
|
|
|
2
|
1
|
2
|
|
6
|
|
7
|
Total
|
|
532
|
403
|
427
|
317
|
1,537
|
1,165
|
1,250
|
959
|
(1)
|
mbpd is thousands of
barrels per day.
|
(2)
|
Revenue volumes are
equal to contracted plus interruptible volumes.
|
(3)
|
Revenue volumes
converted to mboe/d (thousands of barrels of oil equivalent per
day) from million cubic feet per day ("MMcf/d") at 6:1
ratio.
|
(4)
|
Refer to "Non-GAAP
Measures."
|
(5)
|
The amounts presented
for Midstream and Gas Services consist of net revenue (revenue less
cost of goods sold including product purchases). Refer to "Non-GAAP
Measures."
|
Highlights
- Record Conventional Pipelines' revenue volumes during the third
quarter of 780 mbpd, representing a 13 percent increase compared to
692 mbpd in the second quarter of 2017 and a 21 percent increase
compared to 643 mbpd in the third quarter of 2016. Results for the
third quarter of 2017 reflect a full quarter of contribution from
Pembina's Phase III pipeline expansion ("Phase III Expansion")
which was placed into service at the end of the second
quarter;
- Gas Services generated solid quarterly revenue volumes of 1,024
MMcf/d in the third quarter of 2017, an increase of 15 percent
compared to the third quarter of 2016 and remained relatively flat
compared to the second quarter of 2017, despite third-party
curtailments in the natural gas market which occurred during the
third quarter of 2017;
- Generated third quarter and year-to-date earnings of
$107 million and $446 million, an 11 percent decrease and 33
percent increase, respectively, over the same periods of the prior
year;
- Realized adjusted EBITDA of $365
million during the third quarter and $1,031 million year-to-date during 2017, 27
percent and 22 percent higher than the third quarter and first nine
months of 2016, respectively;
- Cash flow from operating activities was $302 million and $990
million for the three and nine months ended September 30, 2017 compared to $247 million and $791
million for the same periods in 2016, an increase of 22
percent and 25 percent, respectively. Adjusted cash flow from
operating activities increased by 26 percent and 29 percent to
$314 million and $897 million in the third quarter and first nine
months of 2017 compared to the respective periods in 2016;
- On a per share (basic) basis during the three and nine months
ended September 30, 2017, cash flow
from operating activities increased 19 percent and 20 percent,
respectively, compared to the same periods of the prior year;
- Realized one full quarter of cash flow from the assets placed
into service at the end of the second quarter, which are continuing
to ramp up, including the Company's Phase III Expansion, a third
fractionator at Redwater and the
Canadian Diluent Hub; and
- On October 2, 2017, Pembina
closed the previously announced acquisition of Veresen Inc.
("Veresen") and increased the common share dividend by 5.9
percent.
Executive Comments
"This quarter marked an inflection point in Pembina's history,"
said Mick Dilger, Pembina's
President and Chief Executive Officer. "Pembina embarked on an
unprecedented suite of growth projects in 2013 and since the
beginning of 2015, we have placed over $5
billion of new fee-for-service assets into service. The
largest component of this growth program, being the Phase III
Expansion, the third Redwater
fractionator and the Canadian Diluent Hub, were placed into service
at the end of the second quarter. The third quarter of 2017
represented the first full quarter of cash flow contribution from
these assets – which we continue to expect to ramp up over future
quarters. Pembina's robust financial position provides a strong
platform to pursue our next suite of growth projects."
"Thanks to the newly in-service assets, we've set a revenue
volume record in our Conventional Pipelines business on a quarterly
and year-to-date basis, which have contributed to reaching new
financial records including adjusted EBITDA, adjusted cash flow
from operating activities and adjusted cash flow from operating
activities per share," continued Mr. Dilger.
"As volumes continue to ramp up on the recently in-service
assets, our financial position will strengthen and our adjusted
cash flow from our operating activities per share will continue to
grow."
"On October 2, 2017, we closed the
acquisition of Veresen – marking a transformational moment for our
company," said Mr. Dilger. "With increased size and scale, greater
diversification and a broader service offering, the future is
bright for Pembina. Going forward, we are capable of pursuing
expanded growth opportunities in support of continued value
creation for our shareholders. Given the strong financial position
of the combined company, we were also proud to have increased the
dividend for a second time this year."
"Looking ahead, we will stay focused on successfully completing
the remaining growth portfolio, further progressing our large-scale
potential project roster as well as working to integrate Veresen
and to achieve the near-term expected synergies of $75 to $100 million on a run-rate basis. We are
now positioned as a leading North American infrastructure company
able to continue delivering top-tier performance and I am excited
to realize our expected transformational results," concluded Mr.
Dilger.
New Developments in 2017 and Growth Projects Update
- On November 1, 2017, Pembina
placed its Duvernay complex into
service ahead of schedule and under budget which included its 100
MMcf/d (75 MMcf/d net to Pembina) Duvernay I plant and the
associated field hub;
- In support of the growing liquids-rich Montney resource play, Pembina placed its
northeast British Columbia
pipeline expansion and its Altares Lateral into service at the end
of October 2017 on time and on
budget;
- Pembina is continuing to progress its Phase IV and Phase V
expansions of its pipeline infrastructure. Phase IV will add
capacity between Fox Creek and
Namao, Alberta and Phase V will
add capacity between Lator and Fox Creek,
Alberta;
- On September 1, 2017, 500 mbbls
of above ground storage was placed into service at Pembina's
Canadian Diluent Hub, with an additional third-party condensate
connection expected by the end of 2017;
- As previously announced and aligned with the Phase III
Expansion, the Company's third fractionator at Redwater was placed into service;
- In October 2017, Canada Kuwait
Petrochemical Corporation, Pembina's 50/50 joint venture entity
with its partner Petrochemical Industries Company K.S.C., executed
the primary FEED contract for the proposed propane dehydrogenation
and polypropylene facility with a leading global engineering firm.
In the event of project sanctioning, the facility would be
constructed in close proximity to the Company's Redwater fractionation complex;
- Pembina continues to advance construction and commissioning of
infrastructure in support of North West Redwater Partnership's
refinery and expects to place it into service by late 2017;
- Work is continuing at Pembina's Edmonton North Terminal and its
Edmonton Delivery System, with the remaining components expected to
be placed into service by the end of 2017; and
- Pembina previously signed a non-binding letter of intent
identifying Watson Island, Prince
Rupert, as a potential site for a propane export terminal
and continues to progress consultation with key stakeholders.
Strategic Business Combination Announcement
On October 2, 2017, Pembina
announced that it completed its business combination (the
"Transaction") with Veresen pursuant to a plan of arrangement (the
"Arrangement") under Section 193 of the Business Corporations
Act (Alberta) to create one of
the largest energy infrastructure companies in Canada. Pursuant to the Arrangement, Pembina
acquired all of the issued and outstanding common shares of Veresen
valued at approximately $9.4 billion,
including the assumption of Veresen debt, the proportionate
interest in the debt of Veresen's equity accounted investments and
Veresen preferred shares (Veresen and equity accounted investee's
debt assumption is approximately $3
billion). All regulatory conditions have been satisfied
prior to closing. These conditions included termination of the
Hart-Scott-Rodino waiting period by the US Federal Trade Commission
on May 30, 2017; approval by the
Minister of Transport under the Canada Transportation Act on
June 28, 2017; and expiry of the
waiting period under the Canadian Competition Act on
September 13, 2017. With respect to
the Canadian Competition Act, Pembina continues to work with
the Commissioner of Competition and his staff post-closing relative
to the Alberta Ethane Gathering System ("AEGS"), and their review
relating to AEGS is ongoing. In conjunction with closing the
Transaction, Pembina increased its common share dividend by 5.9
percent to $0.18 per share per month
effective for the October 2017 common
share dividend.
Given the closing of the Arrangement occurred on October 2, 2017, Veresen's financial and
operating results for the third quarter of 2017 are not reflected
in Pembina's third quarter financial and operating results.
Furthermore, pursuant to Canadian securities regulations, Veresen
will not be filing financial statements and management's discussion
and analysis for the third quarter of 2017. However, a summary of
Veresen's proportionately consolidated EBITDA for the third quarter
and nine months ended September 30,
2017 is as follows:
|
|
|
|
|
|
($ millions,
except where noted)
|
|
|
|
3 months ended
September 30
EBITDA (1)
|
9 months
ended September 30
EBITDA(1)
|
Pipelines
|
|
|
|
|
|
Alliance
|
|
|
|
77
|
238
|
Ruby
|
|
|
|
45
|
142
|
AEGS
|
|
|
|
7
|
21
|
Midstream
|
|
|
|
|
|
Veresen
Midstream
|
|
|
|
16
|
50
|
Aux Sable
|
|
|
|
25
|
43
|
Power
|
|
|
|
2
|
42
|
Corporate
|
|
|
|
(8)
|
(25)
|
Total
|
|
|
|
164
|
511
|
(1)
|
Veresen EBITDA has
been measured using US GAAP as the basis of measurement excluding
transaction costs, impact of gains and losses from foreign
exchange, derivative financial instruments and project development
spend. EBITDA for Veresen's jointly controlled businesses
represents Veresen's proportional share based on Veresen's
ownership interest, and includes consolidation adjustments.
Post-acquisition, Veresen's results will be reported under
International Financial Reporting Standards ("IFRS").
|
Alliance Pipeline ("Alliance") continued to benefit from high
demand for seasonal and interruptible services, driven by a wide
Chicago-AECO gas price differential, Alliance's high rate of
availability and outages or curtailments on other transportation
options out of western Canada.
Ruby Pipeline EBITDA continues to benefit from take-or-pay
contracts despite volumes flowing on the pipeline being negatively
impacted due to the strong competition from western Canadian
gas.
Aux Sable earnings benefited from
improved propane plus margins as well as the ability to recognize
the margin deferred in previous quarters due to the annual nature
of the counterparty margin sharing agreement underpinning this
asset.
Veresen Midstream Limited Partnership ("Veresen Midstream")
EBITDA is generated from the Hythe
and Steeprock gas processing facilities, which are governed by a
take-or-pay arrangement, as well as the Dawson natural gas
gathering and compression assets, which are on a fee-for-service
basis with a contracted mechanism that ensures the return of
capital within eight years. The Dawson assets noted lower revenues
and volumes in the quarter, primarily due to downstream outages
impacting the ability to flow gas.
Veresen also progressed a number of development opportunities
during and following the third quarter of 2017. Major new
developments and growth project updates include:
- As previously announced, the 200 MMcf/d Tower rich gas
processing plant and the 400 MMcf/d Sunrise processing plant were
both placed into service under budget and ahead of schedule in
September 2017. Combined with the
Saturn plant, where the first 200 MMcf/d processing train is
expected to be placed into service in November 2017 under budget and ahead of schedule,
Veresen Midstream will have placed 800 MMcf/d of gas processing
capacity into service during 2017. The second 200 MMcf/d train at
Saturn is expected to be placed into service in the first half of
2018;
- In September 2017, Veresen
re-contracted AEGS with its existing anchor tenants under a new,
long-term take-or-pay transportation agreement for the majority of
the existing capacity on the system effective January 1, 2019. Under the agreement, tolls have
been increased to reflect the value of the service provided to
customers; and
- On September 21, 2017, Veresen
announced that it had filed applications with the United States
Federal Energy Regulatory Commission ("FERC") for the construction
and operation of a 7.8 million tonne per annum liquefied natural
gas export terminal in Coos Bay,
Oregon, and the related Pacific Connector Gas Pipeline that
will transport natural gas from the Malin Hub in southern
Oregon to the export terminal. The
filing of the FERC application positions the project for a FERC
decision in late 2018.
Dividends
- Declared and paid dividends of $0.17 per qualifying common share for the
applicable record dates in July, August and September 2017;
- In connection with the Acquisition, Pembina increased its
monthly dividend by an additional 5.9 percent to $0.18 per common share, effective for the
dividend payable on November 15, 2017
to shareholders of record on October 25,
2017; and
- Declared and paid quarterly dividends per qualifying preferred
shares of: Series 1: $0.265625;
Series 3: $0.29375; Series 5:
$0.3125; Series 7: $0.28125; Series 9: $0.296875; Series 11: $0.359375; and Series 13: $0.359375 to shareholders of record on
August 1, 2017.
Third Quarter 2017 Conference Call & Webcast
Pembina will host a conference call on Friday, November 3,
2017 at 8:00 a.m. MT (10:00 a.m. ET) for interested investors,
analysts, brokers and media representatives to discuss details
related to the third quarter of 2017. 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 November 10, 2017 at
11:59 p.m. ET. To access the replay,
please dial either 416-849-0833 or 855-859-2056 and enter the
password 15481006.
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:
http://event.on24.com/r.htm?e=1307572&s=1&k=FDC4D235F6A00EF6BE8D08BC522465AB in
your web browser. Shortly after the call, an audio archive will be
posted on the website for a minimum of 90 days.
About Pembina
Calgary-based Pembina Pipeline
Corporation is a leading transportation and midstream service
provider that has been serving North
America's energy industry for over 60 years. Pembina owns
and operates an integrated system of pipelines that transport
various products derived from natural gas and hydrocarbon liquids
produced primarily in western Canada. The Company also owns and operates gas
gathering and processing facilities and an oil and natural gas
liquids infrastructure and logistics 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 working with its community and aboriginal neighbours,
while providing value for investors in a safe, environmentally
responsible manner. This balanced approach to operating ensures the
trust Pembina builds among all of its stakeholders is sustainable
over the long term. Pembina's common shares trade on the
Toronto and New York stock exchanges under PPL and PBA,
respectively. Pembina's preferred shares also trade on the
Toronto stock exchange. For more
information, visit www.pembina.com.
Forward-Looking Statements and Information
This document contains certain forward-looking statements and
information (collectively, "forward-looking statements"), including
forward-looking statements within the meaning of the "safe harbor"
provisions of applicable securities legislation, that are based on
Pembina's current expectations, estimates, projections and
assumptions in light of its experience and its perception of
historical trends. In some cases, forward-looking statements can be
identified by terminology such as "schedule", "will", "expects",
"estimate", "potential", "planned", "future", "continue" and
similar expressions suggesting future events or future
performance.
In particular, this document contains forward-looking
statements, including certain financial outlook, pertaining to,
without limitation, the following: Pembina's corporate strategy;
anticipated adjusted EBITDA projections for 2018 and financial
performance expectations resulting from Pembina's capital
expenditures; completion of, and the potential future benefits and
impacts of the Transaction including the timing thereof; planning,
construction, capital expenditure estimates, schedules, expected
capacity, incremental volumes, in-service dates, rights, activities
and operations with respect to planned new construction of, or
expansions on existing pipelines, gas services facilities,
fractionation facilities, terminalling, storage and hub facilities,
facility and system operations and throughput levels; anticipated
synergies between assets under development, assets being acquired
and existing assets of the Company; the future level and
sustainability of cash dividends that Pembina intends to pay its
shareholders, including the expected dividend increase upon
completion of the Transaction; and expected future cash flows and
the sufficiency thereof.
The forward-looking statements are based on certain
assumptions that Pembina has made in respect thereof as at the date
of this news release regarding, among other things: oil and gas
industry exploration and development activity levels and the
geographic region of such activity; the success of Pembina's
operations and growth projects; prevailing commodity prices and
exchange rates and the ability of Pembina to maintain current
credit ratings; the availability of capital to fund future capital
requirements relating to existing assets and projects; future
operating costs; geotechnical and integrity costs; that any
third-party projects relating to Pembina's growth projects will be
sanctioned and completed as expected; that any required commercial
agreements can be reached; that all required regulatory and
environmental approvals can be obtained on the necessary terms in a
timely manner (including in respect of the Transaction); that
counterparties will comply with contracts in a timely manner; that
there are no unforeseen events preventing the performance of
contracts or the completion of the relevant facilities that there
are no unforeseen material costs or liabilities, or other
significant events relating to the completion of the Transaction;
that there are no unforeseen material costs relating to the
facilities which are not recoverable from customers; prevailing
interest and tax rates; prevailing regulatory, tax and
environmental laws and regulations; maintenance of operating
margins; the amount of future liabilities relating to lawsuits and
environmental incidents; and the availability of coverage under
Pembina's insurance policies (including in respect of Pembina's
business interruption insurance policy).
Although Pembina believes the expectations and material
factors and assumptions reflected in these forward-looking
statements are reasonable as of the date hereof, there can be no
assurance that these expectations, factors and assumptions will
prove to be correct. These forward-looking statements are not
guarantees of future performance and are subject to a number of
known and unknown risks and uncertainties including, but not
limited to: the regulatory environment and decisions; the impact of
competitive entities and pricing; labour and material shortages;
reliance on key relationships and agreements; the strength and
operations of the oil and natural gas production industry and
related commodity prices; non-performance or default by
counterparties to agreements which Pembina or one or more of its
affiliates has entered into in respect of its business; actions by
governmental or regulatory authorities including changes in tax
laws and treatment, changes in royalty rates or increased
environmental regulation; the inability to meet the remaining
conditions to completion of the Transaction, in a timely manner or
at all; the failure to realize the anticipated benefits or
synergies of the Transaction following closing due to the factors
set out herein, integration issues or otherwise, fluctuations in
operating results; adverse general economic and market conditions
in Canada, North America and worldwide, including
changes, or prolonged weaknesses, as applicable, in interest rates,
foreign currency exchange rates, commodity prices, supply/demand
trends and overall industry activity levels; ability to access
various sources of debt and equity capital; changes in credit
ratings; counterparty credit risk; technology and security risks;
and certain other risks detailed from time to time in Pembina's
public disclosure documents available at
www.sedar.com, www.sec.gov and through
Pembina's website at www.pembina.com.
This list of risk factors should not be construed as
exhaustive. Readers are cautioned that events or circumstances
could cause results to differ materially from those predicted,
forecasted or projected. The forward-looking statements contained
in this document speak only as of the date of this document.
Pembina does not undertake any obligation to publicly update or
revise any forward-looking statements or information contained
herein, except as required by applicable laws. Readers are
cautioned that management of Pembina approved the financial outlook
contained herein as of the date of this press release. The purpose
of the 2018 Adjusted EBITDA projection is to provide investors with
an indication of the value to Pembina of capital projects that have
been and will be brought into service in 2017, and the closing of
the Transaction on 2018 full-year financial results. Readers should
be aware that the information contained in the financial outlook
contained herein may not be appropriate for other purposes. The
forward-looking statements contained in this document are expressly
qualified by this cautionary statement.
Non-GAAP Measures
In this news release, Pembina has used the terms net revenue,
operating margin, adjusted earnings before interest, taxes,
depreciation and amortization (Adjusted EBITDA), Veresen EBITDA,
adjusted cash flow from operating activities, cash flow from
operating activities per common share and adjusted cash flow from
operating activities per common share (also known as "cash flow per
share" and "adjusted cash flow per share") and total enterprise
value, which do not have any standardized meaning under IFRS
("Non-GAAP Measures"). Since Non-GAAP financial measures do not
have a standardized meaning prescribed by GAAP and are therefore
unlikely to be comparable to similar measures presented by other
companies, securities regulations require that Non-GAAP financial
measures are clearly defined, qualified and reconciled to their
nearest GAAP measure. Except as otherwise indicated, these Non-GAAP
measures are calculated and disclosed on a consistent basis from
period to period. Specific adjusting items may only be relevant in
certain periods. Veresen EBITDA has been calculated as defined in
the table provided. The intent of Non-GAAP measures is to provide
additional useful information respecting Pembina's financial and
operational performance to investors and analysts and the measures
do not have any standardized meaning under IFRS. The measures
should not, therefore, be considered in isolation or used in
substitute for measures of performance prepared in accordance with
IFRS.
Other issuers may calculate these Non-GAAP measures
differently. Investors should be cautioned that these measures
should not be construed as alternatives to revenue, earnings, cash
flow from operating activities, gross profit or other measures of
financial results determined in accordance with GAAP as an
indicator of Pembina's performance. For additional information
regarding Non-GAAP measures, including reconciliations to measures
recognized by GAAP, please refer to Pembina's management's
discussion and analysis for the period ended September 30,
2017, which is available online at www.sedar.com,
www.sec.gov and through Pembina's website at
www.pembina.com.
SOURCE Pembina Pipeline Corporation