All financial figures are approximate and in Canadian dollars unless otherwise noted. This news release refers to adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), which is a financial measure that is not defined by Generally Accepted Accounting Principles (“GAAP”). For more information see “Non-GAAP Measures” herein.
CALGARY, Jan. 7, 2020 /CNW/ – Pembina Pipeline Corporation (“Pembina” or the “Company”) (TSX: PPL; NYSE: PBA) along with Petrochemical Industries Company K.S.C. (“PIC”) of Kuwait, is pleased to announce that Canada Kuwait Petrochemical Corporation (“CKPC”) has executed a lump sum engineering, procurement and construction (“EPC”) contract related to the construction of the propane dehydrogenation (“PDH”) facility within its integrated PDH and polypropylene (“PP”) upgrading facility (“PDH/PP Facility”). With this contract, CKPC has fixed approximately 60 percent of the cost of the PDH/PP Facility thus far. In conjunction with execution of the lump sum contract, the Company also announces an update to its share of the capital cost for the PDH/PP Facility and project timing.
Following execution of the lump sum EPC contract and with cost certainty for approximately 60 percent of the project cost, Pembina has revised its proportionate share of the capital cost of the PDH/PP Facility, including the 100 percent directly-owned supporting facilities, to $2.7 billion. The increase over the prior estimate is associated with the PDH facility, which is now fixed under the lump sum EPC contract. The revised capital cost estimate will not affect Pembina’s previously announced 2020 capital budget. CKPC now expects the PDH/PP Facility to be placed into commercial service in the second half of 2023.
“When faced with the proposition of trading returns for risk, Pembina has consistently chosen certainty and downside protection, particularly in new platforms or new businesses. Our relentless pursuit of a lump sum contract for the PDH facility reflects our disciplined and prudent approach to capital allocation,” said Mick Dilger, Pembina’s President and Chief Executive Officer. Mr. Dilger added, “This project is highly strategic for Pembina and our producer customers in the Western Canadian Sedimentary Basin. It offers a new demand source for domestically produced propane and supports ongoing development of Canada’s world-class hydrocarbon resources.”
CKPC has selected Heartland Canada Partners, a 50/50 partnership between Fluor Canada Ltd. (“Fluor”) and Kiewit Construction Services ULC (“Kiewit”) as the EPC contractor for the PDH facility. Both companies bring extensive EPC track records for safety, quality and delivery in the petrochemical space in Canada. The contractor selection process for the PP facility is ongoing.
Since initially announcing its intention to pursue the PDH/PP Facility, Pembina has been steadfast in its approach to de-risking the project, including: obtaining a 50 percent partner that is a world leader in petrochemicals; lump sum EPC contracting to mitigate capital cost risk; and securing at least 50 percent of its adjusted EBITDA from the project under fee-based arrangements. To date, Pembina has secured more than 40 percent of its adjusted EBITDA under fee-based arrangements and is in ongoing discussions with potential customers to increase the percentage above 50 percent.
Calgary-based Pembina Pipeline Corporation is a leading transportation and midstream service provider that has been serving North America’s energy industry for 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; is growing an export terminals business; and is currently constructing a petrochemical facility to convert propane into polypropylene. 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.