Pembina Pipeline Corp. Ordinary Shares (Canada)

Good morning. My name is Adam, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Pembina Pipeline Corporation fourth quarter results conference call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star, then the number one on your telephone keypad. And if you do want to remove yourself from the question queue, just press the pound key. Thank you. I'd now like to turn the call over to your host, Scott Burrows, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, Adam. Good morning, everyone, and welcome to Pemina's conference call and webcast to review highlights from the fourth quarter and the full year of 2018. I'm Scott Burrows, Pemina's Senior Vice President and Chief Financial Officer. On the call with me today are Mick Gilger, Pemina's President and Chief Executive Officer, Jason Boone, Senior Vice President and Chief Operating Officer, Pipelines, Jared Sprott, Senior Vice President and Chief Operating Officer, Facilities, and Stu Taylor, Senior Vice President Marketing and New Ventures. Before we start, I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Pemina'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 refer to the company's various financial reports which are available at Pemina.com and on both CDAR and EDGAR. Pemina once again delivered strong quarterly financial and operational performance. Adjusted EBITDA was $715 million, a 6% increase compared to the same period last year. The increase was driven by strong demand on existing assets and increased utilization on assets placed into service in the pipelines and facilities divisions, in addition to a realized gain on commodity-related derivative financial instruments in the marketing and new ventures divisions. While earnings of $368 million during the quarter was a 17% decrease when compared to the same period last year, this was largely due to a one-time increase in deferred tax expense relative to the fourth quarter last year, which was positively impacted by the one-time impact of U.S. tax reforms. A strong fourth quarter contributed to record financial results for the full year. On an annual basis, 2018 earnings of $1.3 billion was 45% higher than 2017. Adjusted EBITDA was 67% higher. at $2.8 billion and adjusted cash flow from operations per share was 31% higher at $4.27 per share. All three metrics set new records for Pemina. These results were driven by the full year contribution from assets included in the acquisition of Veriston in October of 2017, in addition to $4.8 billion of new projects placed into service throughout 2017. Further, the year-over-year increase was realized broadly across the organization. with all three divisions, pipelines, facilities, and marketing and new ventures contributing to our growth. We have delivered these record results while remaining firmly within our financial guardrails. In 2018, fee-based cash flow comprised approximately 85% of adjusted EBITDA. Our dividend was supported by 75% of our fee-based cash flows. Roughly 77% of our credit exposure is with investment-grade and secured counterparties, and we are well above our strong BBB credit rating. with a ratio of FFO to debt of approximately 23%. As well, we finished the year with a ratio of proportionally consolidated debt to adjusted EBITDA of approximately 3.5 times, below the lower bound of our target of 3.75 to 4.25 times, positioning us very well for the next wave of capital spending. Recall that in December, we announced a 2019 capital program of $1.6 billion and 2019 adjusted EBITDA guidance range of $2.8 to $3 billion. Finally, I want to note that when comparing where we are now to where we were 10 years ago, we have grown our volumes by 180%, cash flow per share by 171%, and our dividend per share by 50%. Over the same 10-year period, shareholders have realized a total return of about 380% or 17% per year, assuming a reinvestment of their dividends. We are proud of the results we've achieved over this period and look forward to continuing to deliver for our shareholders. Now, I will turn things over to Mick to share his perspective on 2018 and our strategy to access global markets.

Good morning, everyone. Thanks, Scott. 2018 was, you know, simply said, an outstanding year for Pemina. We placed approximately 900 million of projects into service and secured over 1.8 billion of new capital projects. In 2019, we have already added Phase 8 Peace Pipeline expansion as well as sanctioned our PDHPP facility, bringing our total capital backlog of secured projects to about $5.5 billion. In 2018, we saw the first full year of contribution from the Verison acquisition. The acquisition was transformational for Pemina, and we are realizing the strategic and financial benefits of the combination. The Verison acquisition was designed to offer Pemina greater diversification and ultimately provide our customers a more comprehensive service offering. I was very pleased to see this vision come together with the Hype Development Project announced in November. This was the first truly integrated deal utilizing Pemina's full value chain, including natural gas gathering and processing at Bearston Midstream, transmission on Alliance Pipeline, liquid transportation on Peace Pipeline, and fractionation at Redwater. Integration is at the heart of Pemina's strategy, and we are keen to add more deals like this in the future. The prospects for future growth, both within the base business and our further extensions of the value chain, are strong. Our customers continue to approach their businesses as we do with a long-term outlook. They are planning for continued investment many years into the future and are looking ahead for egress security. We are able to deliver timely and reliable solutions for our customers and our growth prospects remain bright. Finally, I want to touch on the next evolution in Semina's corporate strategy, which we announced in May of 2018, seeing the move towards accessing global markets. We are pursuing new developments that will contribute to ensuring that hydrocarbons produce where we operate and reach the highest value markets throughout the world. In the past year, we began construction of our Prince Rupert LPG export terminal and continue to progress our work on Jordan Coal. But, of course, the highlight is the recent approval of our $4.5 billion integrated PDHPP facility with our partners, PIC of Kuwait. Through this project, we will capitalize on Alberta's abundant supply of propane and undertake value-added processing that benefits all eminent stakeholders, the province of Alberta, and indeed all of Canada. By partnering with PIC, we combine the relative strength of each party and substantially mitigate the risk of Pemina's entry into this new market. And as promised, we will develop this project firmly within Pemina's publicly stated guardrails. We have already achieved a level of fee-for-service of 40%, and expect that Pemina's adjusted EBITDA from this project, and based on ongoing negotiations, we're confident in achieving our stated goal of 50%. Through the Prince Rupert Terminal, our PDH-PP joint venture, and ongoing progress on Jordan Coal, I'm pleased that we've been able to take such meaningful steps in our efforts to secure global market pricing for our customers, and we are excited to continue the development of these and other projects. In closing, I'd once again like to thank all stakeholders for their support. We're proud of what we've accomplished in 2018 and very excited for the year ahead. With that, I'll wrap things up. Operator, please go ahead and open up the line for questions.