- 2022 adjusted EBITDA of $3.35 to $3.55 billion and a 2022 capital investment program of $655 million.
- Cash flow from operating activities is expected to exceed dividends and the capital investment program in 2022. As such, Pembina expects to allocate up to the first $200 million of the excess towards common share repurchases, with the balance available for incremental capital investment if sanctioned, debt repayment, or additional distribution to shareholders.
- The estimated capital cost of Peace Pipeline Expansion Phase VII (“Phase VII”) has been revised lower by $110 million, to $665 million, and the expected in-service date has been advanced to mid-2022.
- Executed an agreement with a second Montney producer for liquids transportation service for volumes from development of the producer’s northeast British Columbia (“NEBC”) Montney acreage.
- Successfully contracted 76 percent of the capacity on Alliance Pipeline (“Alliance”), which was set to expire on October 31, 2022, with an average contract length of nearly four years.
- Set additional environmental, social and governance (“ESG”) targets related to employee equity, diversity and inclusion, with a focus on advancing representation of women and other underrepresented groups at all levels of the organization.
- Continue to progress pre-final investment decision development activities for the Cedar LNG project (“Cedar LNG”).
As we close out 2021 and look ahead to 2022, it is with a continued sense of optimism at what is possible for Pembina and its stakeholders. Our energy producing customers continue to generate significant discretionary cash flow, consolidate smaller companies, thereby improving their execution capabilities and overall credit profiles, and strengthen their balance sheets. Pembina is poised to benefit from a promising outlook for the NEBC Montney and Alberta Duvernay areas, as well as through feedstock demand growth from a resurgent Alberta petrochemical industry, as evidenced by recent third-party project announcements with support from the Government of Alberta’s petrochemical diversification program.
As we strive towards our vision to be the leader in delivering integrated infrastructure solutions and connecting customers to global markets, Pembina is also taking steps to reduce its environmental footprint, enhance employee equity, diversity and inclusion, and partner with Indigenous communities in the development of Canadian energy projects. We are excited about these initiatives and our strong commitment to ESG is being demonstrated by the ambitious new projects, partnerships and targets we have announced this year.
Recent open seasons on Alliance have enhanced its contractual profile. An open season completed at the end of September, for capacity in the 2021/2022 gas year, was nearly three times oversubscribed, resulting in Alliance being essentially fully contracted for the 2021/2022 gas year, beginning November 1, 2021. An additional open season was recently completed for longer-term capacity, including the 2022/2023 gas year, which begins November 1, 2022. As a result of the open season and contract renewal efforts, 76 percent of the full path capacity set to expire October 31, 2022 was successfully contracted on terms with an average contract length of nearly four years, beginning November 1, 2022. The desire of shippers to secure longer-term capacity over exercising their annual renewal rights highlights the value of Alliance’s reliable and highly competitive access to mid-western U.S. gas markets, and as a conduit to the Gulf Coast and its robust liquefied natural gas market. The results of both recent open seasons, along with improved market fundamentals, support the prospects for additional contracting over the coming months.
Peace Pipeline Expansions
In response to customer demand for services, including to accommodate volume growth in the NEBC Montney, Pembina continues to pursue a measured, capital efficient, economic, and orderly expansion of its Peace Pipeline System.
- Phase VII continues to trend under budget and ahead of schedule. As such, the capital cost estimate for the project has been revised lower, by $110 million, to $665 million, reflecting highly effective project management, favorable weather conditions and well performing contractors. Phase VII is now anticipated to be in service in mid-2022.
- The Phase VIII Peace Pipeline Expansion (“Phase VIII”) remains deferred. Initial contracts supporting the project remain intact and customers continue to signal plans that will necessitate the incremental capacity. Value engineering work is ongoing, and Pembina continues to evaluate this project in discussions with its producing customers. Due to ongoing uncertainty around development timing in NEBC stemming from ongoing discussion between the British Columbia government and First Nations communities, a reactivation decision previously expected in the fourth quarter of 2021 is now expected in the first half of 2022.
- The Phase IX Peace Pipeline Expansion (“Phase IX”) will add capacity in the northwest Alberta-to-Gordondale, Alberta corridor to accommodate increased activity in the NEBC Montney play. Construction on a pump station has commenced and clearing activity for the pipeline is expected to begin in January 2022. Phase IX remains on-time and on-budget with an estimated cost of approximately $120 million and an expected in-service date in the second half of 2022.
NEBC Producer Commitments
As previously announced earlier in 2021, Pembina has entered into an exclusivity agreement with, and concurrently provided an irrevocable offer for, midstream services to a premiere NEBC Montney producer. The exclusivity agreement provides a bridge to negotiation of definitive agreements for transportation and fractionation (“T&F”) of a material volume of liquids and NGL mix from certain NEBC Montney lands. Negotiations have progressed well, and Pembina and the producer expect to execute definitive agreements in early 2022. All new firm T&F services provided under the proposed arrangement would be supported by long-term, take-or-pay agreements.
In addition, Pembina recently executed a new agreement with a second Montney producer, which commits to Pembina volumes from a multiphase development of the producer’s NEBC Montney acreage, on a take-or-pay basis, upon the acreage being developed. The agreement provides the producer with certainty of transportation egress from this key area for their future development and access to the remainder of Pembina’s integrated value chain.
Cedar LNG Project
In partnership with the Haisla Nation, development of Cedar LNG continues to progress. Cedar LNG will have a liquefaction capacity of approximately three million tonnes per annum of LNG and will source natural gas from the Montney resource play in NEBC. Cedar LNG will be the largest First Nation-owned infrastructure project in Canada and by utilizing renewable power as its primary energy source, will have one of the cleanest environmental profiles of any LNG facility in the world. Front end engineering and design (“FEED”) activities are currently underway and will continue through 2022. Early FEED work has already identified opportunities to optimize the site layout, thereby considerably reducing the project footprint and local area disturbance.
Hythe Deep Cut
Veresen Midstream is evaluating the opportunity to construct a 200 million cubic feet per day (“mmcf/d”) deep cut NGL extraction facility (“Hythe Deep Cut”) at the Hythe Gas Plant. As previously announced, Veresen Midstream has secured an option from two key customers for NGL extraction rights on up to 750 mmcf/d of natural gas. The design would leverage Pembina’s existing Saturn I/II design and enable recovery of approximately 6,000 barrels per day (“bpd”) of propane-plus, as well as the ability to recover approximately 8,500 bpd of ethane for minimal incremental capital. With existing connectivity between the Hythe Gas Plant and Peace Pipeline, the extracted NGL would be transported, fractionated and marketed by Pembina. A final investment decision on the Hythe Deep Cut is expected in the first half of 2022.
Based on the Company’s expectations and outlook for 2022, Pembina is anticipating adjusted EBITDA of $3.35 to $3.55 billion. Relative to 2021, adjusted EBITDA next year is expected to be impacted largely by the following factors:
- Continued strength in NGL pricing and lower realized losses on commodity-related derivatives; the Company has hedged approximately 50 percent of its 2022 frac spread exposure, excluding Aux Sable, offset by higher average cost of inventory.
- Higher volumes on existing assets within the conventional pipelines and gas processing businesses.
- Contributions from assets to be placed into service in 2022 including Phase VII, Phase IX and Empress Cogeneration.
- Higher volumes at Veresen Midstream’s Dawson Assets and a full-year contribution from assets placed into service in the Facilities Division in 2021, including Hythe Developments and Prince Rupert Terminal.
- Higher integrity costs and other operating expenses, a portion of which are not recoverable from customers.
- Lower contribution from select assets due to contract expirations.
- Increased spending on continuous improvement initiatives to support long-term cost reduction efforts.
Current income tax expense in 2022 is anticipated to be $325 to $375 million, as Pembina will continue to benefit from the availability of tax pools from assets recently placed into service. After adjusting for the 2021 current tax expense on the termination fee payment related to the proposed acquisition of Inter Pipeline Ltd., the year-over-year increase reflects primarily higher current tax expense on increased earnings.
Pembina’s 2022 adjusted EBITDA may be directly impacted by certain commodity prices and foreign exchange rates, amongst other items, including the impact of Pembina’s hedging program as follows:
|Key Variable||Impact on Adjusted EBITDA
|AECO ± $0.50 CAD/GJ||± 39|
|Propane ± $0.10 USD/usg||± 38|
|Foreign Exchange Rate ± $0.05 USD/CAD||± 37|
|Share Price ± $5.00 CAD/share||± 11|
2022 Capital Investment
Pembina’s 2022 capital program is expected to be allocated as follows:
|($ millions)||2022 Budget (1)|
|Marketing & New Ventures Division||$40|
|Contributions to Equity Accounted Investees & Advances to Related Parties||$90|
|Capital Expenditures and Contributions to Equity Accounted Investees & Advances to Related Parties||$655|
|(1) Capital budget shown in Canadian dollars based on a forecasted average USD/CAD exchange rate of 1.27.|
Pembina’s Pipelines Division capital investments will be primarily related to the construction of Phase VII and Phase IX, in addition to remaining capital to be spent on projects previously placed into service and smaller growth projects, including various new laterals and terminals.
Capital investments in the Facilities Division will be focused on completion of Empress Co-generation Facility.
Marketing and New Ventures Division capital investments include the cost of line fill for Phase VII and Phase IX and advancing Pembina’s portfolio of unsecured development opportunities, including Alberta Carbon Grid.
Spending within the Corporate segment is primarily targeted at information technology enhancements to further the Company’s continuous improvement initiatives to support long-term cost reduction efforts.
Contributions to Equity Accounted Investees & Advances to Related Parties primarily relate to development of Cedar LNG and contributions to Veresen Midstream.
The Company’s 2022 capital program includes:
- $125 million of non-recoverable sustaining capital to support safe and reliable operations.
- $60 million for administrative capital including technology and commercial systems investments.
2022 Capital Allocation
Pembina has a proven track record of generating long-term shareholder value through capital investment and over the long term will continue to prioritize allocating capital to growth projects with attractive risk-adjusted returns. Cash flow from operating activities is expected to exceed dividends and the capital investment program in 2022. Pembina expects to allocate up to the first $200 million of excess cash flow to common share repurchases during the first half of the year, representing approximately one percent of the Company’s common shares. Additional cash flow will be available for incremental capital investment if sanctioned, debt repayment, or additional distribution to shareholders. Pembina will also continue to evaluate the merits of dividend growth relative to other opportunities for capital allocation as 2022 evolves, particularly in consideration of the dividend yield on Pembina’s common shares.
Pembina expects to remain firmly within its financial guardrails with ample liquidity. Leverage metrics are expected to remain within the ranges for a strong ‘BBB’ credit rating with a debt-to-adjusted EBITDA ratio of 3.4 to 3.6 times.
Additional Environmental, Social and Governance Targets
Committed to diversity, equal opportunity and ensuring a safe and inclusive workplace, Pembina is pleased to announce the following employee equity, diversity and inclusion targets. These targets support the work being done across the organization to advance ESG priorities, including to increase the representation of women and other underrepresented groups at all levels of the organization. Pembina is committed to achieving the following targets over the next three years:
- 35 percent women in the overall workforce by 2025.
- 30 percent women in executive leadership by 2022.
- 45 percent overall diversity in the workforce by 2025.
- 40 percent overall diversity in executive leadership by 2025.
The targets announced today are in addition to previously announced Board diversity targets including:
- To maintain gender diversity of Board representation of at least 30 percent.
- That at least 40 percent of the independent directors be individuals who belong to one of the four designated groups in the Employment Equity Act: Indigenous persons, people with disabilities, people who are visible minorities, and women.
Building on a strong foundation, these targets are an important next step in the Pembina’s work to integrate sustainable business practices throughout the Company.
Conference Call & Webcast
Pembina will host a webcast and conference call on Wednesday, December 8, 2021 at 9:00 a.m. MT (11:00 a.m. ET) where the Company’s executive team will provide a general business update, including progress on environmental, social and governance priorities, and outline the Company’s 2022 outlook. Randy Findlay, Chair of Pembina’s Board of Directors will also be joining the call to provide a message from the Board. The conference call dial-in numbers for Canada and the U.S. are 647-792-1240 or 800-437-2398. A recording of the conference call will be available for replay until December 15, 2021 at 11:59 p.m. ET. To access the replay, please dial either 647-436-0148 or 888-203-1112 and enter the password 6464560.
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:
https://produceredition.webcasts.com/starthere.jsp?ei=1499099&tp_key=9492e908e4 in your web browser. Shortly after the call, the presentation and an archive of the webcast will be posted on Pembina’s website for a minimum of 90 days at https://www.pembina.com/investors/presentations-events/.
Calgary-based Pembina Pipeline Corporation is a leading transportation and midstream service provider that has been serving North America’s energy industry for more than 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; and is growing an export terminals 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 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.
Purpose of Pembina:
To be the leader in delivering integrated infrastructure solutions connecting global markets:
- Customers choose us first for reliable and value-added services.
- Investors receive sustainable industry-leading total returns.
- Employees say we are the ’employer of choice’ and value our safe, respectful, collaborative and inclusive work culture.
- Communities welcome us and recognize the net positive impact of our social and environmental commitment.
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.