Pembina Pipeline Corporation reports results for the second quarter 2023 and declares quarterly common share dividend

All financial figures are in Canadian dollars unless otherwise noted. This news release refers to certain financial measures and ratios that are not specified, defined or determined in accordance with Generally Accepted Accounting Principles (“GAAP”), including net revenue; adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”); adjusted cash flow from operating activities; adjusted cash flow from operating activities per common share; and proportionately consolidated debt-to-adjusted EBITDA. For more information see “Non-GAAP and Other Financial Measures” herein.

CALGARY, Alberta–(BUSINESS WIRE)–Pembina Pipeline Corporation (“Pembina” or the “Company”) (TSX: PPL; NYSE: PBA) announced today its financial and operating results for the second quarter of 2023.

Highlights

• Second Quarter Results – reported earnings of $363 million and adjusted EBITDA of $823 million.
• Guidance – 2023 adjusted EBITDA guidance range has been narrowed to $3.55 billion to $3.75 billion (previously $3.5 billion to $3.8 billion).
• Cedar LNG – Cedar LNG has received its LNG Facility Permit from the BC Energy Regulator. In addition, Cedar LNG has signed incremental non-binding Memorandums of Understanding and is fully subscribed in relation to the project’s total capacity. A final investment decision is now expected in the fourth quarter of 2023.
• Environmental, Social & Governance (“ESG”) – in June, Pembina released its 2022 Sustainability Report, which provides updates on key ESG focus areas and its continued progress towards ESG targets.
• Common Share Dividend – the board of directors declared a common share cash dividend for the third quarter of 2023 of $0.6675 per share, to be paid, subject to applicable law, on September 29, 2023, to shareholders of record on September 15, 2023.
• Common Share Repurchases – during the second quarter, Pembina repurchased approximately 1.2 million common shares at a total cost of $50 million.
• Strong Balance Sheet – at June 30, 2023, the ratio of proportionately consolidated debt-to-adjusted EBITDA was 3.5 times and Pembina expects to exit the year with a ratio of 3.4 to 3.6 times. During the quarter, Pembina paid down approximately $450 million of proportionately consolidated debt, using proceeds from the sale of PGI’s interest in the Key Access Pipeline System (“KAPS”) and cash flow from operating activities.

Financial and Operational Overview

Financial and Operational Overview by Division

For further details on the Company’s significant assets, including definitions for capitalized terms used herein that are not otherwise defined, refer to Pembina’s Annual Information Form for the year ended December 31, 2022 filed at www.sedarplus.ca (filed with the U.S. Securities and Exchange Commission at www.sec.gov under Form 40-F) and on Pembina’s website at www.pembina.com.

Financial & Operational Highlights

Adjusted EBITDA

Pembina reported second quarter adjusted EBITDA of $823 million, representing a $26 million or three percent decrease over the same period in the prior year.

Second quarter results reflect the resilience of Pembina’s business, the benefit of continued growth in volumes and higher tolls on certain systems, and a solid contribution from the crude oil marketing business, offset by the typical seasonality in Pembina’s NGL marketing business and lower NGL prices in the quarter. In addition, second quarter results reflect the impact of wildfires in Alberta and British Columbia on Pembina’s and its customer’s operations; the impact of third-party outages; and reduced operating pressure on the Northern Pipeline system until mid-May. The impacts to second quarter adjusted EBITDA from the reduced operating pressure on the Northern Pipeline system and wildfires were approximately $23 million and $24 million, respectively. Finally, second quarter results also include various other revenue deferrals and costs with an aggregate impact of $21 million to adjusted EBITDA.

Pipelines reported adjusted EBITDA of $501 million for the second quarter, representing a $22 million or four percent decrease compared to the same period in the prior year, reflecting the net impact of the following factors:

• lower revenues resulting from the reduced operating pressure on the Northern Pipeline system;
• lower revenues due to the impacts of wildfires and third-party outages;
• higher revenues on the Peace Pipeline system and Cochin Pipeline due to higher tolls;
• lower revenues from Alliance Pipeline as the second quarter of 2022 included the sale of linepack inventory, combined with seasonal contracts being replaced by firm contracts at lower regulated rates, and lower interruptible volumes driven by a narrower AECO-Chicago natural gas price differential; and
• a deferred recognition of flow-through capital charges on the Peace Pipeline system.

Facilities reported adjusted EBITDA of $272 million for the second quarter, representing a $5 million or two percent decrease over the same period in the prior year, reflecting the net impact of the following factors:

• lower revenues resulting from the transfer of the majority of Pembina’s wholly-owned field-based gas processing assets to Pembina Gas Infrastructure (“PGI”) following the creation of PGI on August 15, 2022 (the “PGI Transaction”), with revenue from such assets now being accounted for in share of profit from equity accounted investees;
• higher share of profit from equity accounted investees, primarily due to the strong performance from the former Energy Transfer Canada (“ETC”) plants and the Dawson Assets; and
• lower revenue at the Younger facility and the Redwater Complex resulting from the reduced operating pressure on the Northern Pipeline system and wildfires; and
• lower realized gains on commodity-related derivatives.

Marketing & New Ventures reported adjusted EBITDA of $96 million for the second quarter, representing a $7 million or seven percent decrease compared to the same period in the prior year, reflecting the net impact of the following factors:

• lower crude oil margins resulting from lower prices across the crude oil complex and lower NGL margins as a result of lower propane and butane prices;
• realized gains on commodity-related derivatives for the quarter compared to losses during the second quarter of 2022;
• lower contribution from Aux Sable as a result of lower NGL prices;
• costs incurred in relation to an insurance contract provision connected to Cedar LNG; and
• a final arbitration award issued against CKPC.

Corporate reported adjusted EBITDA of negative $46 million for the second quarter, representing an $8 million or 15 percent increase over the same period in the prior year, reflecting the net impact of the following factors:

• higher shared service revenue;
• higher general and administrative expenses, partially offset by lower long-term incentive costs, driven by changes in Pembina’s share price and share price performance relative to peers; and
• higher other expense.

Earnings

Pembina reported second quarter earnings of $363 million, representing a $55 million or 13 percent decrease over the same period in the prior year.

Pipelines had reportable segment earnings before tax of $350 million, representing a $32 million or eight percent decrease compared to the same period in the prior year. The decrease was attributable to the factors impacting adjusted EBITDA, as noted above.

Facilities had reportable segment earnings before tax of $153 million, representing a $6 million or four percent increase over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, as noted above, the second quarter was positively impacted by lower depreciation, including the impact of the PGI Transaction.

Marketing & New Ventures had reportable segment earnings before tax of $115 million, representing a $20 million or 15 percent decrease over the same period in the prior year. In addition to the items impacting adjusted EBITDA discussed above, the decrease was related to the lower unrealized gain on commodity-related derivatives and lower net finance costs.

In addition to the changes in reportable segment earnings for each division discussed above, the change in second quarter earnings compared to the prior period was due to the net impact of higher other expenses and higher shared service revenue related to shared service agreements with joint ventures following the PGI Transaction.

Cash Flow From Operating Activities

Cash flow from operating activities of $653 million for the second quarter represents a $49 million or 8 percent increase compared to the same period in the prior year. The increase was primarily driven by an increase in the change in non-cash working capital, higher distributions from equity accounted investees, and lower taxes paid, partially offset by lower operating results and a decrease in payments collected through contract liabilities.

On a per share (basic) basis, cash flow from operating activities was $1.19 per share, representing an increase of nine percent compared to the same period in the prior year.

Adjusted Cash Flow From Operating Activities

Adjusted cash flow from operating activities of $606 million for the second quarter represents a $77 million or 11 percent decrease compared to the same period in the prior year. The decrease was largely due to the same items impacting cash flow from operating activities, discussed above, excluding the change in non-cash working capital and taxes paid, combined with higher current tax expense, partially offset by lower accrued share-based compensation payments.

On a per share (basic) basis, adjusted cash flow from operating activities was $1.10 per share, representing a decrease of 11 percent compared to the same period in the prior year.

Volumes

Total volumes of 3,187 mboe/d for the second quarter represent a decrease of approximately five percent over the same period in the prior year.

Pipelines volumes of 2,438 mboe/d in the second quarter represent a two percent decrease compared to the same period in the prior year, reflecting the net impact of the following factors:

• approximately 18 mboe/d reduction in volumes due to the reduced operating pressure on the Northern Pipeline system;
• approximately 42 mboe/d reduction in volumes due to the wildfires;
• lower interruptible volumes on the Alliance Pipeline due to the narrower AECO-Chicago natural gas price differential; and
• higher volumes at AEGS due to third-party outages in the second quarter of 2022.

Facilities volumes of 749 mboe/d in the second quarter represent a 14 percent decrease compared to the same period in the prior year, reflecting the net impact of the following factors:

• the disposition of Pembina’s interest in the assets comprising the Empress I Plant, Empress I Expansion Plant, and the Empress VI Plant (collectively, “E1 and E6”), in exchange for a processing agreement that provides Pembina the right to first priority for gas processing at all Plains Midstream-operated assets at Empress.
• approximately 39 mboe/d reduction in volumes at the Younger facility and the Redwater Complex due to the reduced operating pressure on the Northern Pipeline system;
• approximately 16 mboe/d reduction in volumes due to the wildfires; and
• increased gas processing volumes, primarily at the former ETC plants and the Dawson Assets.

Excluding the impact of the disposition of Pembina’s interest in the E1 and E6 assets at Empress, Facilities volumes would have decreased by two percent compared to the same period in the prior year. Also excluding the impacts of the reduced operating pressure on the Northern Pipeline system and wildfires, Facilities volumes would have increased by five percent compared to the same period in the prior year.

Marketed NGL volumes of 163 mboe/d in the second quarter represent a seven percent decrease compared to the same period in the prior year, reflecting reduced ethane sales as a result of lower supply volumes from the Redwater Complex due to the reduced operating pressure on the Northern Pipeline system.

Quarterly Common Share Dividend

Pembina’s board of directors has declared a common share cash dividend for the third quarter of 2023 of $0.6675 per share, to be paid, subject to applicable law, on September 29, 2023, to shareholders of record on September 15, 2023. The common share dividends are designated as “eligible dividends” for Canadian income tax purposes. For non-resident shareholders, Pembina’s common share dividends should be considered “qualified dividends” and may be subject to Canadian withholding tax.

For shareholders receiving their common share dividends in U.S. funds, the cash dividend is expected to be approximately U.S. $0.5006 per share (before deduction of any applicable Canadian withholding tax) based on a currency exchange rate of 0.7499. The actual U.S. dollar dividend will depend on the Canadian/U.S. dollar exchange rate on the payment date and will be subject to applicable withholding taxes.

Quarterly dividend payments are expected to be made on the last business day of March, June, September and December to shareholders of record on the 15th day of the corresponding month, if, as and when declared by the board of directors. Should the record date fall on a weekend or on a statutory holiday, the record date will be the next succeeding business day following the weekend or statutory holiday.

Executive Overview

In the second quarter, Pembina faced challenges associated with wildfires throughout Alberta and British Columbia. The impact was felt across the industry as roughly two billion cubic feet per day of natural gas production was temporarily shut in. We are pleased not to have incurred any material fire-related damage to our assets and all employees and contractors in the affected areas were kept safe while the Company worked to ensure they received the personal and professional support they needed. Pembina extends its sincere thanks to our staff and emergency response teams, customers, and industry partners, as well as all emergency personnel for their diligent response to the wildfires.

In addition, in mid-May, following approval from the Alberta Energy Regulator, Pembina safely resumed normal service on the Northern Pipeline system at full operating rates.

Notwithstanding the short-term impacts of the wildfires and the Northern Pipeline system outage on Pembina and the broader industry, the outlook for the Western Canadian Sedimentary Basin (“WCSB”) remains promising. Pembina’s operations have returned to normal and through the first month of the third quarter volumes have been strong, reflecting levels from earlier in the year, prior to the Northern Pipeline system outage and the wildfires. We expect continued volume growth throughout the second half of 2023, including in the conventional pipelines business where full year volumes are expected to be four percent higher than the prior year. Further, volume growth is expected to continue through the rest of the decade based on certain industry-wide developments, including most notably, additional egress through various West Coast LNG projects and the TransMountain Pipeline expansion; production growth in the Montney, Duvernay, and Clearwater; and an expansion of Alberta’s petrochemical industry. Given its existing asset base, integrated value chain, contractual agreements, and deep customer relationships, Pembina is poised to capture new volumes and benefit from increasing asset utilization and growth projects.

Pembina has narrowed its 2023 adjusted EBITDA guidance range to $3.55 billion to $3.75 billion (previously $3.5 billion to $3.8 billion). The revised range reflects year-to-date results, an expectation of stronger volumes in the second half of the year and the current outlook for commodity prices.

During the second quarter, consistent with our track record of disciplined capital allocation, Pembina paid down approximately $450 million of proportionately consolidated debt, using proceeds from the sale of PGI’s interest in the KAPS and cash flow from operating activities. Pembina also repurchased approximately 1.2 million common shares at a total cost of $50 million.

Full year 2023 cash flow from operating activities is expected to exceed dividend payments and capital expenditures and the common share repurchases to date. Pembina will continue to evaluate the merits of debt repayment relative to additional share repurchases, taking into account prevailing market conditions and risk-adjusted returns, as well as the need to fund future capital projects.

At June 30, 2023, the ratio of proportionately consolidated debt-to-adjusted EBITDA was 3.5 times and Pembina expects to exit the year with a ratio of 3.4 to 3.6 times, supporting a strong BBB credit rating.

Environmental, Social & Governance

During the quarter, Pembina released its 2022 Sustainability Report, which provides updates on the advances made in the ESG focus areas of Governance, Energy Transition & Climate, Employee Well-being & Culture, Health & Safety, Responsible Asset Management, and Indigenous & Community Engagement.

The 2022 Sustainability Report captures the continued progress on Pembina’s ESG targets, including greenhouse gas (“GHG”) emissions intensity reductions and equity, diversity and inclusion. With respect to GHGs, Pembina remains on track to meet its ’30 by 30′ emissions intensity reduction target. In 2022, Pembina implemented a number of improvements to reduce absolute emissions, including completion of the Empress Cogeneration facility, as well as many efficiency enhancements, such as pump replacements and optimizations, pipeline flow rate optimizations, engine conversions from rich-burn to lean-burn, fugitive leak repairs, and several other initiatives. These actions resulted in an absolute annual reduction of approximately 60,000 tonnes of GHG emissions. As well, in relation to Pembina’s diversity targets, women now represent 45 percent of the independent members of our board and 35 percent of our executive team, exceeding the goals we set.

Pembina’s sustainability reporting has been designed to provide transparency and disclosure on its ESG performance and has been developed using guidance from leading reporting standards, including the Sustainability Accounting Standards Board (SASB) and with reference to the Global Reporting Initiative (GRI). Where applicable, reporting also includes references to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). For example, in 2022, as part of the work we completed to refresh our corporate strategy, we undertook robust scenario planning to evaluate the potential implications of changes in the rate of decarbonization and energy demand both at the global and regional scale. By evaluating our business performance against a range of potential energy futures we were able to test the resilience of our business and establish strategic priorities to ensure the business will thrive through 2030 and beyond. This resulted in alignment on strategic priorities including a focus on environmental leadership to sustain, decarbonize, and enhance our businesses and investing in the energy transition to improve the basins in which we operate.

We are proud of the progress we have made to date on Pembina’s sustainability initiatives and look forward to continuing the journey.

The 2022 Sustainability Report is available at www.pembina.com/sustainability.

Projects and New Developments

Pipelines

• The Phase VIII Peace Pipeline expansion will enable segregated pipeline service for ethane-plus and propane-plus NGL mix from Gordondale, Alberta, which is centrally located within the Montney trend, into the Edmonton area for market delivery. The project includes new 10-inch and 16-inch pipelines, totaling approximately 150 kilometres, in the Gordondale to La Glace corridor of Alberta, as well as new mid-point pump stations and terminal upgrades located throughout the Peace Pipeline system. Phase VIII will add approximately 235,000 bpd of incremental capacity between Gordondale, Alberta and La Glace, Alberta, as well as approximately 65,000 bpd of capacity between La Glace, Alberta and the Namao hub near Edmonton, Alberta. Pipe manufacturing is complete and mainline construction activities have commenced. One pump station has been completed, with two additional pump stations expected to be completed in the second half of 2023. The project has an estimated cost of approximately $530 million and is trending on time and under budget. Phase VIII is expected to enter service in the first half of 2024.

• Pembina is actively progressing over $200 million in other pipeline projects, including a northeast British Columbia (“NEBC”) infrastructure expansion, the reactivation of the Nipisi Pipeline, which is expected in the third quarter of 2023, various laterals and tie-ins, and other projects to support ongoing system upgrades facilitating producer capture and improving market access.

Contacts

Investor Relations
(403) 231-3156
1-855-880-7404
investor-relations@pembina.com
www.pembina.com

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