Pembina Pipeline Corporation (NYSE:PBA) Q1 2024 Earnings Call Transcript

Pembina Pipeline Corporation (NYSE:PBA) Q1 2024 Earnings Call Transcript May 10, 2024

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Operator: Good morning ladies and gentlemen and welcome to Pembina Pipeline Corporation First Quarter 2024 Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Friday, May 10th, 2024. I would now like to turn the conference over to Dan Tucunel, Vice President of Capital Markets. Please go ahead.

Dan Tucunel: Thank you, Alan. Good morning everyone. Welcome to Pembina’s conference call and webcast to review highlights for the first quarter of 2024. On the call today we also have Scott Burrows, President and Chief Executive Officer; and Cameron Goldade, Senior Vice President and Chief Financial Officer; along with other members of Pembina’s leadership team including Jaret Sprott, Janet Loduca, Stuart Taylor, and Chris Scherman. I would like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina’s current expectations, estimates, judgments, and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties which could cause actual results to differ materially from expectations.

Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see the company’s management’s discussion and analysis dated May 9, 2024, for the period ended March 31st, 2024, as well as the press release Pembina issued yesterday, which are available online at pembina.com and on both, SEDAR and EDGAR. I will now turn things over to Scott to make some opening remarks.

Scott Burrows: Thanks Dan. Our strong first quarter was highlighted by record adjusted EBITDA of $1.044 billion, which provided a great start to 2024 and built upon our great momentum from the second half of 2023. In addition, recent industry developments and company successes have further bolstered our enthusiasm for the future of Pembina. On April 1st, 2024, we announced the completion of the Alliance and Aux Sable acquisition. We are excited to further enhance our business by increasing our ownership in these unique and world-class assets. The Alliance and Aux Sable acquisition aligns with Pembina’s strategy for growing and strengthening our existing franchise and providing greater exposure to resilient end-use markets and lighter hydrocarbons.

We executed this transaction with discipline and accretively to our financial guardrails. In conjunction with the acquisition closing, Pembina updated its 2024 adjusted EBITDA guidance range to $4.05 billion to $4.3 billion, which at the midpoint represents a $300 million increase over the previous range. The revised outlook for 2024 primarily reflects the incremental contribution from increased ownership of Alliance and Aux Sable as well as stronger outlook in the marketing business due to wider frac spreads. As previously announced, during the first quarter, Pembina entered into a long-term agreement with Dow Chemical to supply and transport up to 50,000 barrels per day of ethane to support the recently announced construction of a new integrated ethylene cracker derivatives facility at Fort Saskatchewan.

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Q&A Session

Dow’s Path2Zero project is an important development for the industry, representing a significant increase to the current ethane demand in Alberta. Given Pembina’s existing leading ethane supply and transportation business and extensive and integrated value chain, there are multiple opportunities for the company to benefit from this new development through both the existing asset base and new investment opportunities. Finally, Pembina recently announced significant achievements in the development of the proposed Cedar LNG project, including securing long-term commercial agreements and issuing a notice to proceed to its engineering, procurement, and construction contractors. Following these critical milestones, Cedar LNG and Pembina’s partner, the Haisla Nation, have commenced their respective financing processes in advance of the final investment decision, which is expected by June 2024.

On the major project front, the Phase VIII Peace Pipeline expansion has entered the commissioning stage and start-up is expected this month. As well, the RFS IV expansion at the Redwater Complex on the Northeast BC midpoint pump station expansion are proceeding as planned. And during the first quarter, Pembina Gas Infrastructure approved an expansion at the Wapiti gas plant that will increase natural gas processing capacity by 115 million cubic feet per day. Additionally, Pembina continues to evaluate further expansions to support volume growth in Northeast BC, including new pipelines and terminal upgrades on the Northeast BC pipeline and downstream systems between Taylor, British Columbia and Gordondale, Alberta. On April 23rd, 2024, Pembina filed its project application with the Canadian Energy Regulator.

And finally, we are pleased to have raised our quarterly common share dividend by $0.025 per share or 3.4%, beginning with the dividend to be paid in June. The increase reflects the continued growth of Pembina’s fee-based business, which is benefiting from rising volumes and increasing utilization across many of its assets. We recognize the importance of our sustainable, reliable and growing dividend to our shareholders, and we are proud of our long track record in this regard. It has been a very strong start to 2024, and we look forward to continuing the momentum. I will now turn things over to Cam to discuss some more detail of the financial highlights for the first quarter.

Cameron Goldade: Thanks Scott. As Scott noted, Pembina recorded record first quarter adjusted EBITDA of $1.044 billion, this represents a 10% increase over the same period in the prior year. In pipelines, factors impacting the first quarter primarily included higher revenues and volumes on the Peace Pipeline system, the Northern Pipeline system outage in the first quarter of 2023, which had an impact of $40 million with no similar impacts for the first quarter of 2024. The reactivation of the Nipisi pipeline and higher contribution from Alliance pipeline related to higher tolls on seasonal contracts. In facilities, factors impacting the first quarter included higher volumes at the Redwater complex and younger compared to the first quarter of 2023 as the prior period was impacted by $14 million due to the Northern Pipeline system outage and higher operating expenses.

In marketing and new ventures, first quarter results reflected the net impact of higher contribution from Aux Sable due to wider frac spreads and the new third-party marketing arrangement, change in the provision related to financial assurances for Cedar LNG, and realized losses on NGL-based derivatives in the first quarter of 2024 compared to realized gains in the first quarter of 2023. Finally, the corporate segment was impacted by higher general and administrative costs, net of lower long-term incentive costs. Earnings in the fourth quarter were $438 million. This represents a 19% increase over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, earnings in the first quarter were impacted by unrealized losses on renewable power purchase agreements and on crude oil-based derivatives compared to unrealized gains in the first quarter of 2023 and lower income tax expense.

Pipeline volumes of 2.6 million barrels per day in the first quarter represent a 5% increase compared to the same period in the prior year. The increase was primarily due to higher volumes on the Peace Pipeline system resulting from earlier recognition of take-or-pay deferred revenue and the impact of the Northern Pipeline system outage in the first quarter of 2023, combined with the reactivation of the Nipisi pipeline. Facilities volumes of 0.8 million barrels per day in the first quarter of 2024 represent a 12% increase compared to the same period in the prior year. The increase was primarily due to higher volumes at the Redwater complex and younger as the first quarter of 2023 was impacted by the Northern Pipeline system outage combined with higher interruptible volumes on certain PGI assets.

Pembina continues to generate significant cash flow after dividends and maintain its strong balance sheet. At March 31st, 2024, based on the trailing 12 months, the ratio of proportionally consolidated debt to adjusted EBITDA was 3.4 times, below the low end of its target range. I’ll now turn things back to Scott.

Scott Burrows: Thanks Cam. For a few years now, Pembina has been highlighting key developments within the Western Canadian energy industry that we believe will catalyze a wave of growth that will benefit Pembina, its customers and all Canadians. These developments include LNG projects on Canada’s West Coast, the growth of Alberta’s petrochemical industry and the TransMountain pipeline expansion. All of us at Pembina wish to join the rest of industry and many others across Canada in celebrating the first of these to reach the finish line. The recent completion and shipment of first oil on the TransMountain pipeline expansion. This project brings much needed new egress capacity for oil producers, providing greater access to global markets, and full value for Canada’s energy resources, while helping to ensure responsibly produced energy is available to meet growing global demand.

In closing, I want to remind you that Pembina will hold its Annual Meeting of Common Shareholders today at 2 P.M. Mountain Time, 4 P.M. Eastern. It will be a virtual-only meeting conducted via live audio webcast. Participants are recommended to register for the virtual webcast at least 10 minutes before the presentation start time. Further, Pembina will hold our 2024 Investor Day in Toronto on May 16th, beginning at 8:30 Eastern Time. Our team is excited to provide an overview of the business and discuss in greater detail our strategy and the outlook for the company amidst truly transformational changes underway in the Western Canadian energy industry. A live webcast of the event will be available on Pembina’s website, and participants are encouraged to register well in advance.