CALGARY, AB – Pembina Pipeline Corporation (“Pembina” or the “Company”) (TSX: PPL) (NYSE: PBA) announced today its 2023 financial guidance and a business update, including the sale of Pembina Gas Infrastructure’s (“PGI”) interest in the Key Access Pipeline System (“KAPS”).
- 2023 adjusted EBITDA guidance of $3.5 to $3.8 billion and a 2023 capital investment program of $730 million. The midpoint of the guidance range reflects an approximately five percent increase in adjusted EBITDA contribution from Pembina’s fee-based business.
- Capital expenditures in 2023 are expected to be fully funded with cash flow from operating activities, net of dividends.
- Under the prevailing market conditions, and in support of future development opportunities, cash flow from operating activities in excess of dividends and capital expenditures in 2023 is expected to be directed towards debt repayment.
- PGI has entered into an agreement for the sale of its interest in KAPS for $662.5 million.
With an expected record setting financial year in 2022 drawing to a close, results continue to showcase both the resiliency and the opportunities to thrive inherent in Pembina’s business. To serve customers’ growing volumes, Pembina is focused on optimizing its existing assets by enhancing utilization while pursuing new projects to add additional capacity to its integrated value chain. Pembina is diversified across commodity types and the strategic combination of the Company’s fee-based tolling business with the commodity exposed marketing business provides natural hedges across various market cycles. Furthermore, through Pembina’s partnerships with the Haisla Nation and TC Energy Corporation, respectively, the proposed Cedar LNG project would access world markets via Canada’s West Coast and the proposed Alberta Carbon Grid would be a world-scale carbon dioxide transportation and sequestration solution to help Canada meet its greenhouse gas emission targets. In addition to advancing these important projects throughout 2023, Pembina is pleased to announce the following updates:
Nipisi Pipeline and the Clearwater Play
Pembina intends to reactivate the Nipisi Pipeline system to serve customers in the rapidly growing Clearwater oil play. Pembina is in late-stage discussions with a customer regarding a significant long-term contractual commitment for firm service and expects to finalize the agreement by the end of 2022. Discussions are underway with various other customers in the area regarding additional long-term contractual commitments. Reactivation of Nipisi is anticipated in the third quarter of 2023.
Pre-sanctioning development activities for a new 55,000 barrel per day, propane-plus fractionator at the Redwater Complex are continuing. Existing infrastructure at the Redwater Complex, including storage caverns and extensive unit train capable rail facilities, provide Pembina an advantage in being able to offer incremental fractionation capacity at a competitive cost, despite prevailing inflationary pressures. In addition to significant re-contracting of existing capacity, the recently signed commercial agreements with three leading Northeast British Columbia producers could provide significant volumes to underpin the new facility. A final investment decision is now expected in the first quarter of 2023.
|For more information on Pembina’s significant assets, including as such relate to definitions for capitalized terms used herein and not otherwise defined, refer to Pembina’s Annual Information Form (the “AIF”) filed at www.sedar.com (filed with the U.S. Securities and Exchange Commission at www.sec.gov under Form 40-F) and at www.pembina.com.|
Sale of PGI Interest in Key Access Pipeline System
PGI, which is owned 60 percent by Pembina and 40 percent by KKR’s global infrastructure funds, has through its subsidiary entered into an agreement to sell its 50 percent non-operated interest in KAPS. Under the agreement, PGI will continue to fund its share of the project costs under the current project scope until the end of 2023. The current project scope aligns with the capital cost estimate of $1 billion, net to PGI, most recently disclosed by the operator. Upon closing of the sale (“Closing”), PGI will receive cash proceeds of $662.5 million. PGI will use the proceeds to repay drawn credit facilities associated with the KAPS construction funding. Additional total equity contributions from Pembina to PGI related to KAPS funding under the current project scope are expected to be approximately $50 million between the fourth quarter of 2022 and the end of 2023. Closing is expected to occur in the first quarter of 2023 and is subject to approval by the Commissioner of Competition as well as satisfaction of other closing conditions.
Scotiabank is acting as financial advisor and Torys LLP as legal advisor to PGI. Blake, Cassels & Graydon LLP is acting as legal advisor to Pembina.
Based on the Company’s expectations and outlook for 2023, Pembina is anticipating adjusted EBITDA of $3.5 to $3.8 billion. Relative to 2022, adjusted EBITDA next year is expected to be impacted largely by the following factors:
- Higher volumes and inflation adjusted tolls on Pembina’s conventional pipelines and fractionation facilities.
- A full year contribution from PGI as well as higher volumes from PGI’s gas processing assets.
- Lower contributions from Alliance Pipeline and Ruby Pipeline, partially offset by a higher contribution from Cochin Pipeline due to higher inflation adjusted tolls, as well as higher contributions from certain smaller assets, including Vancouver Wharves and a full year contribution from the Jet Fuel Pipeline following reactivation in the third quarter of 2022.
- A lower contribution from the marketing business, including a lower contribution from crude oil marketing given the outlook for lower prices and narrower price differentials; a lower contribution from natural gas liquids (“NGL”) marketing due to narrower margins as a result of lower NGL prices and a higher average cost of inventory, partially offset by lower realized losses on commodity-related derivatives; and a lower contribution from Aux Sable. Pembina has hedged approximately 50 percent of its 2023 frac spread exposure, excluding Aux Sable. For 2023, the weighted average price of Pembina’s frac spread hedges, excluding transportation and processing costs, is approximately C$45 per barrel, which compares to the prevailing 2023 forward price at the end of November of approximately C$41 per barrel and the weighted average hedge price in 2022 of approximately C$44 per barrel.
Excluding the contribution from the Marketing & New Ventures segment, the midpoint of the guidance range reflects an approximately five percent increase in adjusted EBITDA, relative to the corresponding expected 2022 adjusted EBITDA. Pembina’s core, fee-based business is expected to benefit from higher tolls, growing volumes and increasing utilization across its assets in the Western Canadian Sedimentary Basin. While Pembina expects another strong contribution from its Marketing & New Ventures segment, results are expected to moderate relative to 2022, based on the current commodity price outlook, namely narrower crude oil and NGL price spreads.
The lower and upper ends of the guidance range are framed primarily as a function of: 1) the contribution from the marketing business; 2) the year-over-year change in uncommitted volumes on key systems; and 3) the U.S./Canadian dollar exchange rate.
Current income tax in 2022 is forecast to be approximately $230 million. The reduction from the original 2022 current tax guidance of $325 million to $375 million that Pembina provided in December 2021 is largely due to certain deferrals of current taxes from 2022 to 2023 and beyond, partially offset by higher-than-expected earnings. Current income tax expense in 2023 is anticipated to be $340 million to $395 million as Pembina will continue to benefit from the availability of tax pools from assets recently placed into service. The year-over-year increase primarily reflects certain deferrals of current taxes from 2022 to 2023, partially offset by the impact of the joint venture transaction to create PGI.
Pembina’s 2023 adjusted EBITDA may be directly impacted by market-based prices as follows:
|Key Variable||2023 Guidance
|Sensitivity||Impact on Adjusted EBITDA
|AECO Natural Gas (CAD/GJ)||$4.55||± $0.50||± 11(2)|
|Mont Belvieu Propane (USD/usg)||$0.86||± $0.10||± 37(2)|
|Foreign Exchange Rate (USD/CAD)||$1.36||± $0.05||± 33(2)|
|Pembina Share Price (CAD/share)||$44.98(1)||± $5.00||± 18|
|(1)||Closing share price on October 31, 2022.|
|(2)||Includes the impact of Pembina’s hedging program.|
2023 Capital Investment
Pembina’s 2023 capital program is expected to be allocated as follows:
|($ millions)||2023 Budget (1)|
|Marketing & New Ventures Division||$10|
|Contributions to Equity Accounted Investees||$90|
|Capital Expenditures and Contributions to Equity Accounted Investees||$730|
|(1)||Capital budget shown in Canadian dollars based on a forecasted average USD/CAD exchange rate of 1.36.|
Pipelines Division capital expenditures will be primarily related to the construction of the Phase VIII Peace Pipeline Expansion, reactivation of the Nipisi Pipeline, spending on projects previously placed into service, and investments in smaller growth projects, including various laterals and terminals.
Capital expenditures in the Facilities Division will be focused primarily on sustaining capital spending.
Marketing and New Ventures Division capital expenditures relate to advancing Pembina’s portfolio of unsecured development opportunities.
Spending within the Corporate segment is primarily targeted at information technology enhancements to further the Company’s continuous improvement initiatives.
Contributions to Equity Accounted Investees primarily relate to pre-FID development activities for Cedar LNG and contributions to Aux Sable and PGI, funding of certain appraisal and engineering activities for the Alberta Carbon Grid, and in respect of KAPS construction funding.
The Company’s 2023 capital program includes:
- $155 million of non-recoverable sustaining capital to support safe and reliable operations.
- $60 million related to digitization, technology, and systems investments, which will serve to enhance operational efficiency.
Strong 2022 results to-date have allowed Pembina to generate substantial free cash flow, which has been allocated to strengthening the balance sheet and returning capital to shareholders. In 2022, Pembina raised the dividend by 3.6 percent, remains on target to repurchase $350 million of common shares, redeemed $300 million of preferred shares, and reduced leverage to the low end of its target range. In 2023, cash flow from operating activities is once again expected to exceed dividends and the capital investment program. Pembina currently expects excess free cash flow in 2023 to be used to pay down debt, further strengthening the balance sheet and preparing the Company to fund future capital projects. Pembina has a proven track record of generating long-term shareholder value through capital investment and will continue to prioritize allocating capital to growth projects which offer attractive risk-adjusted returns and align with Pembina’s financial guardrails. As in 2022, Pembina will continue to evaluate the merits of debt repayment relative to share repurchases over the course of the year, taking into account prevailing market conditions and risk-adjusted returns.