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spk11: 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.
spk17: 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.
spk02: 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.
spk11: Certainly. At this time, I'll just remind people, if you do want to ask a question, press star, then the number one on your telephone keypad. And your first question comes from Jeremy Tonnet from J.P. Morgan. Jeremy, your line's open.
spk15: Good morning. Morning. Just wanted to check, you know, we're a couple months into the year here, right? And we've had the kind of the production... cuts in Alberta play out a little bit here and commodity prices moved a bit. Just wondering, you know, how these developments stack up versus when you contemplate your guide, if this is kind of in line with what you were expecting or if there's any kind of, you know, changes in your, you know, where you see things landing in the upper end or lower end of the guide or any color you could provide on that would be helpful.
spk12: Thanks, Jeremy. This is Jason from the Pipelines Division. I think the curtailments are really focused on the producers who produce crude oil over 10,000 barrels a day. It has an impact on some of the heavy oil producers. We're not on our oil sands pipes. We've seen a bit of a reduction in volume, but those pipelines are operated on a cost of service that doesn't really have a direct impact on our guidance. In terms of the impact on our conventional systems, we're not expecting to see a very material impact to those production volumes. As you recall, those are mostly NGL conventional crudes and condensates. The conventional crudes are generally not impacted by the curtailments because the magnitude is over 10,000 barrels a day of production, and then the condensate isn't expected to be directly impacted.
spk15: Gotcha.
spk17: Overall, on the guidance, like anything on a month-to-month basis, there's a few puts and takes, but there's nothing that's materially changed since the time that we put out the guidance to impact that range.
spk15: Gotcha. That's great. I was also kind of thinking on the marketing side, just given how commodity prices have changed and relative spreads have changed, Does that kind of impact your outlook or how much marketing could make up within the guidance this year?
spk17: You know, but I think, you know, if you step back for a second, you think about the diversity of our marketing business and all the optionality that we have. For every spread that tightens, there tends to be something else where we can make some money. So, you know, when we set the guidance as you move through December, maybe the marketing business would have come down. But as we've moved through February, it's come back up. So we're comfortable with where the marketing is versus where we set the budget back at the end of November.
spk15: That's helpful. Thanks. And then if I look at the balance sheet, Scott noted 23% FFO to debt. Clearly, things are trending up here. I'm just wondering, is the target here an upgrade? Would it make sense? Sure. Is that what you're kind of targeting here, or do you see kind of more growth effects from Verizon? You just want to have flexibility, or would it make sense to kind of step up the dividend a bit here? Just wondering how you see these options trending given, you know.
spk17: So with our guardrail being strong BBB, we're really targeting something around kind of 18%, 19% FFO to debt, which is at the high end of the BBB range. and our debt to EBITDA of 3.75 to 4.25. This year, obviously, with an outperformance of the business, it brought those metrics into ranges that were stronger than what we were targeting. But I think we're comfortable with that because as we move forward, we obviously have a very heavy capital spend. As Mick pointed out, another $5.5 billion of capital still to spend with many more projects that we're potentially considering. So it's more about positioning ourselves because, of course, with the multi-year build-out, two or three years into those projects, you reach peak leverage with no EBITDA. And we want to make sure that the lower end, at that kind of peak leverage, that we're still in the triple B range. So we're more positioning ourselves to go into a capital spend from a position of strength than we are chasing an upgrade.
spk15: That's helpful. Thanks. And maybe just the last one. Alliance and Bearish and Midstream, you know, it seems like they perform quite nicely in the quarter. Just wondering, if there was anything that was one-time beneficial in nature or you see this kind of trajectory of growth sustainable?
spk12: Jeremy, this is Jason again. Alliance continues to perform really well. It's generally chock-full on a daily basis, has been since we've become a part owner of that asset. There's certain swings in differentials between Chicago and Alberta in certain scenarios where some of the IT volume generates some incremental uptick in revenue there, but it's nothing that I would say would be materially different than what you would expect.
spk15: Great. That's helpful. That's it for me. Thanks for taking my question. Thanks.
spk11: And your next question comes from Linda from TD Securities. Linda, your line's open.
spk00: Thank you. I'm wondering if you've assessed the impact of the accelerated CCA incentives announced by the government of Canada in November on your cash tax outlook in 2019 and 2020 and how we might think about that going forward.
spk17: Yeah, I mean, Linda, I mean, at the highest level, it's obviously positive. In terms of giving numbers, we're still working through it. It's obviously not legislation yet. So until it's passed, you know, we would be remiss to put out or revise our guidance. If it does go through, it's notionally positive. And I think at that time, we'd obviously update our current tax expense forecast that we have out there. But I think until then, we'll just be cautious on that.
spk00: Okay, that's helpful context. Thank you. And just with respect to your phased expansions, 4 and 5 was slightly over budget, and 6 is trending a little bit over budget as well. Is it for the same systemic reason? And can we assume that, for whatever reason, those are slightly over budget, they're not systemic, and we might not see that in your subsequent phased expansions as well?
spk12: Thanks, Linda. This is Jason. So phase four and five were impacted by some weather constraints and access to certain sites, particularly on the phase five segment. We've gotten to the point with our pump stations that We're very comfortable with our ability to execute those, and we generally execute them at or below budget. The challenge sometimes is on the pipe side where weather and access conditions can be a problem, and that's really what happened with our Phase 5 portion of the project that pushed some of the costs slightly above budget. Phase 6, it's a trend. We're seeing at the time that we started the procurement on the Phase 6 project, we started to see some of the contracting services start to increase, and we've actually sort of backed off on procuring some of those services, and we're actually going out in the first quarter and looking at those again. So, you know, it's a trend. We haven't really spent a lot of the money in Phase 6 yet, so we're expecting or hoping to be able to drive those down. And then we also use those higher trend costs to forecast our 7 and 8 expansion. So we're pretty optimistic that we're well within target on those as well.
spk02: Yeah, Lynn, it's Mick. When we look forward, though, we think it's more anomalous. We think we'll have a very positive trend right now on Phase 7. Phase 8 is still a bit early to comment. you know, over the fullness of the phases, we firmly expect to be consistent with past history, which is, you know, on time and on or under budget.
spk00: That's helpful context. Thank you. And I realize that you've got a significant backlog of secured projects at this point, but I'm wondering if there is beyond, I guess, Jordan Cove, which is a focus as well, Are there any significant projects that you're starting to contemplate? There's been some rumblings that maybe you'd be interested in ethane upgrading locally in Western Canada, and might you see enough demand in your LPG export facility to consider expanding that? And how does some of the financial guardrails and your capacity as an organization, both from a financing as well as... kind of resources of people and management time affect your appetite for looking at these other projects?
spk02: Sure, I'll try to answer those six questions as quickly as I can, but good one, Linda. I think I have a future in the Parliament. So, you know, if you read the interview that Pamela did in the National Post that talked about us, in terms of ethane upgrading and the rest of the sentence in that article that wasn't printed was we were mainly interested in that as a supplier, not necessarily a partner in polyethylene. I mean, that could happen, but more as a fee-for-service supplier. You know, your original question is do we see lots of growth opportunities Man, do we ever. Every division is full of ideas and it's super exciting. We couldn't be more optimistic about the things that we can do for our customers and bring lasting advantage to our stakeholders. You're not going to be surprised when I say that everything we look at will be in the guardrails, whether it's you know, providing fee-for-service ethane, whether it's even, you know, participating in a polyethylene plant. You know we're going to be fee-for-service guys and gals. Otherwise, we just don't do it. You know how we finance. We're just going to keep doing what we have been doing, and there's going to be, you know, we have no kind of new anticipated risks or doing any kind of business that would disappoint our stakeholders.
spk00: In terms of demand for LPG, could you see one of those projects over the next little while potentially be some sort of expansion on that front? For sure.
spk02: Butane, we could see this coming, obviously. Butane is not getting good value. Propane isn't either, but we see the fix. The fix is in our LPG project, alpha gases, the two PDHs. The fix is in for propane. We need a fix for butane, clearly, and we need a fix for ethane. And maybe these government grants that are being proposed will start the fix for ethane. I don't know how they start the fix for butane yet, but that's clearly on our drawing board. We need to get our customers better butane pricing, without a doubt, and we'll put our minds to that.
spk00: Thank you. I'll jump back in the queue.
spk10: And your next question comes from Matthew Taylor of Tudor Pickering Holt.
spk11: Matthew, your line's open.
spk13: Hey, good morning. Thanks for taking my questions here. You've talked about Phase 9 there, powering up existing capacity. Just curious where discussions are to expand and think through going even further northwest of Gordondale, as Gundy and Itachi, it seems like, are increasingly talked about by producers, and that's where the focus for growth plans is.
spk02: I'll just make an opening comment and Jason will follow on. We still have capacity on Phase 8. Ink's barely dry on that press release, but there's still potential up and down our line and we're considering all possibilities for getting more producers volumes to to market, Jason.
spk12: Yeah, that's accurate. So I think bringing on phase four and five and six this year start getting us to at least keep up with our producers in terms of what they're producing. Phase seven and eight give us some running room. And then after phase eight, when we talk about phase nine, it's A lot of it's about how we operate the system and less about necessarily capacity. So we've already got, with the main lines going into Fort Saskatchewan and Edmonton, we've got the ability to power up to 1.1 million barrels a day on piece. We have room there. Seven and the phases before really created access for us to get all of the volume to Fox Creek from basically LaGlas. So when we think west of LaGlas, it's some pretty specific sort of small looping projects, pump station projects and things like that to be able to allow us to access the capacity that's east, I guess, of Gordondale. And so we are looking at those and there is a lot of activity up in that area.
spk13: Okay, that's great. And what about going further northwest? Do you still have some room on the northeast BC expansion, or would you need to look at doing some additional expansion to bring more BC volumes down as producers start focusing on Gundy and Itachi?
spk12: Yeah, we have the ability to power that lineup. It's not anywhere near its capacity at the moment, and we do have room to contract volume, but we also have room to to power that system up, we can add booster stations on it and get it up into the 100,000 barrel a day range.
spk02: And the contractual nature of that line is cost of service. So as producers can essentially manufacture their own toll collectively, as Jason says, that line gets full, the toll drops. And so the impediment people may perceive of being that far away is mitigated somewhat by tolls dropping as volumes increase out there.
spk13: Yeah, that's great, Keller. Thanks for that. And then one more question on ethane there. Do you have any potential to rethink or reverse Vantage, given we're structurally long in Canada? Obviously, it would probably need to connect into overbuilt third-party pipes. So I'm just trying to think if there's some way to get more ethane out of the province.
spk02: That's under a really long-term contract with a key shipper, so that wouldn't be our decision to make in the next, what, 15 years anyway.
spk03: But is it physically possible? Perhaps.
spk13: And then just on NGL services, I noticed an uptick in volumes there, quarter over quarter and kind of year over year. But I didn't notice kind of a corresponding marketing volume uptick. Just trying to think through that disconnect and how we should be thinking of capturing more marketing volumes through 19 as you're processing more volumes in your facility segments. I don't know the answer to that.
spk17: I think a couple things. I mean, so... Volumes that flow through the frac, you know, not all are pure frac spread barrels, which get the full margin. We have different marketing arrangements. Some we have return fees where we return back to the producers. You know, RFS 2 and 3 are under slightly different marketing arrangements than others. And I think, quite frankly, you saw prices come off pretty hard in December. So we went into, if you follow the trend of NGLs, they tended to trend up all year. There wasn't the usual seasonality factor. So you went into Q4 with, I'd say, probably higher than average COGS. And then what we saw in late November and all of December was pretty reduced pricing. And so that really squeezed margins for that month.
spk13: All right. Yeah, that's helpful color there. And just one more on the conventional business. Can you just talk about, I mean, it was marginal downtick in volumes and higher OPEX. So I'm just trying to think of the main drivers there and how you're seeing those drivers potentially play out in 19.
spk17: Yeah, I'll just make one comment and then I'll turn it over to Jason to talk. I mean, no one I think should be surprised by the higher OPEX. If you recall kind of Q2, Q3 conference calls, as everyone was asking us about the full year guidance, you know, we warned people that we had, you know, a pretty substantial integrity and geotechnical program that tends to happen in Q4 due to winter access only. So that's something that we had discussed, you know, pretty openly. So that shouldn't have caught too many people off guard. But maybe, Jason, I'll let you talk about volumes.
spk12: Yeah, I think on the volume side, it's actually more related to the IFRS treatment of volumes and make-up rights. And And, you know, as we go through the year, we make estimates of the rate that we expect people to be able to make up, you know, their shortfalls to take or pay. And really the volume difference that you're seeing, you know, in the fourth quarter versus the third quarter is really accounting adjustments, not physical volume reduction.
spk17: Yeah, like we recognized quite a bit more in Q3 versus Q4. If you would have averaged those two IFRS recognitions, you would be roughly the same quarter over quarter absent a marginal uptick in OpEx due to integrity. So I'd say it's more noise than anything fundamentally or structurally wrong with the business.
spk13: Great. Thanks, everyone, for taking my questions.
spk11: Your next question comes from Patrick Kenny of National Bank Financial. Patrick, your line is open.
spk08: Hey, good morning, guys. I'll let you off easy here and just stick to two questions. First one, just on the contracting efforts for Jordan Cove, given the level of interest here exceeds the capacity of the plant, is this process through the rest of Q1 simply a bidding war amongst the off-takers and you're just letting that process play out, or are these customers waiting for certain milestones yet, either on capital cost estimates pipeline regulatory progress or, you know, any other state-level support that still might need to be firmed up?
spk07: Patrick, it's Stu. It's essentially we're turning paper with all of the parties and working through that. There's nothing on the commercial side that we're waiting for milestones. The first one done is, you know, the prize is to get the agreements done as fast as we can. We continue to progress all the commercial conversations at the same time.
spk08: Okay, that's great. And the second question, now that KKR has a new partner in the mountain, are you wondering if that changes anything for Veris and Midstream with respect to appetite for future growth or perhaps does this increase the tension around the ownership structure? Just trying to get a sense as to whether or not anything has changed for Veris and Midstream since that deal was announced a month or so ago.
spk04: Hey, Pat. Jared here. Right now, no, it doesn't increase, I would say, the tension within our partnership. You know, Verison Midstream is really focused northwest of Grand Prairie and in northeast BC with a fairly large footprint with a, you know, great long-term 30-year area of dedication. In down where the new entity is, I would say that gets more into Pemina's traditional processing and liquids transportation business. But no, based on your original question, we don't see, you know, increased tensions or, you know, crossing over of borders there.
spk02: Yeah, like VMLP is an exploitation-focused entity right now within the area dedication. So, you know, they are not focused on, you know, new geographic areas at all. And so if you think about the height project that was, you know, exploiting existing capacity and And we're sweating those assets to make them as profitable as we can with full support from our partner, KKR. But it's not a growth mandate.
spk08: Got it. Appreciate those comments, guys. Thanks.
spk11: Your next question comes from Rob Hope from Scotiabank. Rob, your line is now open.
spk05: Good morning, everyone. Just maybe a follow-up on Pat's question there. We have seen some producers talk a bit more openly about willing to shed some assets. Just want to get your sense of the M&A market in Western Canada right now and whether or not there are some pieces of infrastructure that could be of interest to you.
spk02: Not surprisingly, we do look at everything. What we ask ourselves when assets are for sale is, does this make us better or just bigger? It really is an important question. If buying something just makes us bigger, not better, even if it's slightly accretive, it may not be compelling to us. We're more focused on things that diversify us at a higher level of customer service, great synergies, reduce risk, enhance our guardrails, things like that. Just adding, for example, more and more gas plants, particularly ones where we already transport the liquids and provide fractionation services, so on and so forth, may be a little less interesting to us than and projects which have the characteristics that I just outlined.
spk05: All right, thank you for that. And then just as a follow-up, turning attention to Jordan Cove, appreciate the commentary on the contracting there, but when you look at that project over the next year, what do you think the key choke points are and what do you think will be the impediments to an FID there?
spk07: Robert, Stu, So we continue to progress the regulatory process. Our teams continually are in contact with both the federal and the state permitting bodies. We're answering questions. We're progressing all the conversations. We are, again, hoping to have our commercial ranges completed here in the first quarter. We've talked about an equity sale-down process, which we will kick off very soon after that, and progress that, we hope, quickly. There isn't a choke point or a bottleneck. At this point, we're continuing to anticipate our FERC draft EIS here in the next few weeks, followed up by the actual certificate in 2019. And those things are all on track for what our expectations are.
spk03: Thank you.
spk11: Your next question comes from Robert Cattelier from CIBC Capital Markets. Robert, your line's open.
spk01: There's been a bit of a senior management change at Chevron, and there's been some other producers leaving the base. I wonder if there's been any change to the outlook of the rollout and the pace of the program you have with Chevron for the DuVernay.
spk04: Robert Jarrett here. No, everything is business as usual. We're currently executing the first expansion for the Creo 1. We announced in Q4-18 the next phase of CREA-2 and no insured order, no change.
spk01: Okay, and just on the producer side, there's the red water case and the abandonment liabilities and things like that. And there's also IFRS-16. I'm wondering if IFRS-16 is going to require producers to capitalize GMP arrangements or whether the red water case will limit access to debt and maybe curtail capital spending a bit. Do you have a take on that?
spk17: Yeah, I think when it comes to IFRS 16, maybe just start there. I can't speak to what's going to happen to the E&P space. From our own perspective, we have certain assets that'll be leases that'll go on the balance sheet, and we have some less or arrangements as well. So we're still finalizing all of that analysis and we'll probably update the market with our Q1 results just on the overall impact, the pluses and the minuses of that. But I can't speak from a producer's perspective. In terms of the red water abandonment, and I'm assuming you're talking to the liability of abandoned wells. Those are not, that's not anything that's come up in our conversations to date. I'm looking around the room to my colleagues to see if they've had any of those discussions with their customers Certainly I haven't heard anything. Garrett, Jason? No. No feedback.
spk01: Okay. And just my last question here is more of a curiosity. The press release referenced creativity a few times. Does this refer to commercial structures sort of trading lower fees for extending a term or things like that? Or what are you referring to with the creativity reference?
spk02: Well, Two things. Really, it's the creativity, I think, of our customers. I mean, if you look back, you know, to say middle of 2014, and you said, you know, we're going to have a growing basin. I mean, we keep expanding peace. So the basin's growing. And if you would have said, you know, we're going to have a rapidly growing basin at these kinds of commodity prices, people would have said you're crazy. And so the creativity of our customers to... persevere with top capital markets and top pricing. I think our hats are off to them and we're going to do everything we can to improve their netbacks, which brings us to our creativity. Taking on a global strategy and getting propane onto tidewater, converting propane into polypropylene, a brand new market. We hope to slay butane at some point. And we want to supply ethane to make sure that that product isn't kept in the gas stream and sold based on methane pricing. So I think we can take a little bit of credit for being creative as well to change the face of the basin.
spk01: Okay. You've mentioned butanes a couple times now. What are the options as you see them for it to increase other than expanding LPG capacity?
spk02: We're in the early stages of that, Robert, so more to come. But when products trade down like they do, it attracts attention. So even if it's not Pemina, I'm sure there are other companies working on how to solve that.
spk01: Okay, fantastic. Thanks.
spk10: Your next question comes from Andrew Kuski from Credit Suisse.
spk11: Andrew, your line's open.
spk06: Thank you. Good morning. Mick, I think you've mentioned sort of a few times the number of market dislocations that exist in Western Canada and how Pemina could graciously fix some of those challenges. I guess if you sort of step back a little bit and you think about just your business development capital that you allocate to opportunities, how do you divide it among sort of down the fairway kind of projects that are really network extensions of your existing asset base versus the amount of capital you allocate to really the bigger, bolder, lower probability things that are maybe complete business extensions or brand new opportunities? How do you think about that?
spk02: Well, that's actually the topic of our next strategy session and our executive strategy session as well as the board because, you know, it's tough. I think you're trying to balance a bunch of things, you know, your ratio of, project spending for large capital projects like Jordan Cove. You have to keep that ratio of spending on those to your overall EBITDA at a minimum. But yet the flip side is you have to do things that are going to make a difference to your company and to the base. There's that trade-off. There's trade-off on geographic base and diversity, currency diversity. So should PAMA be spending more money, for example, in the Bakken or elsewhere in the U.S. to diversify, which may not be quite as accretive as doing things in our backyard where we leverage our entire value chain. So those interplays are what is both difficult but also exciting. The great news for Pemina is, you know, Scott talked about the balance sheet. You know, we have, thanks to all you folks, we have a strong share price. And so we have options to do, you know, many things that make sense at the same time. And so if we are confronted with Numerous opportunities. We may do them all. We're in a very good spot.
spk06: I appreciate that. And maybe just thinking on the core business again, realistically, when we look out the next five years, how many more piece expansions are possible and how many more redwaters are possible? The numbers just keep going up and up and up on the expansion capability given the nature of the basin itself.
spk02: Well, we're about five further than I thought we would be already. So, honestly, I really believe that we are only just getting started in the Montney and the Duvernay. You know, if we have, you know, three or four Chevron-type deals in the basin and, you know, LNG maybe shall not be in the last LNG project, we're just getting started. I mean, the resource is abundant. So, you know, if the Duvernay is like the Eagleford and it rockets up to 500,000 or a million barrels a day, we're just getting started. So the resource is there. We just have to get some of these export pipes, export terminals built, and then we're just getting started. So we are thinking very long term. I mean, you think about What we're trying to do with Phase 8 and Phase 9 to have four completely segregated pipelines to, as Jason said, operate the pipelines much more efficiently, need less storage, less product contamination, and all hopefully ending up with lower tolls as well due to operating and capital efficiencies. We are planning for growth way beyond Phase 8. That was great.
spk11: Thank you. And your next question comes from Robert Kwon of RBC Capital Markets.
spk16: Robert, your line's open. Great. Good morning. Mick, maybe if I can just kind of start and continue on the pipeline side of things. Just first, in terms of bringing on Phase 4 and Phase 5, your system was quite full. I think you had volumes being trucked around and on some other parts of the system. Can you just talk about how the volumes have ramped up on 4 and 5, but feeding kind of that into the whole phase nine discussion. What are you seeing just out there in terms of early indications, general customer sentiment, particularly given some of the competitive options out there?
spk02: Yeah, I'm going to let Jason answer that question. The only thing I'm going to say is, you know, it is always very tough on us and our producers when we can't be ready fast enough. And, you know, we had a situation like that where we couldn't quite get all our producers condensate to CRW until we got expansions done. And we really sincerely try our hardest to stay ahead of that. But, of course, it's a give and take. You need commitments to spend capital, and sometimes the commitments are a little slow. And the rate at which producers can drill now, you know, they get a six-well pad and hundreds and hundreds of fracks. They can bring on volumes immediately. so quickly, more quickly than we can react given the regulatory constraints we have. So we are trying very hard to stay ahead of that. And one of the nice things about going from being a 10 to a 20 to a 30, hopefully to a $40 billion company is we can start to front run some of that capacity and engineering, which we're starting to have the balance sheet to do. So we never let our producers down.
spk12: So just maybe... directly to the first part of your question about ramp up, I'd say, you know, if you think about it, it was the end of December that we brought those on stream. So talking about ramp up is a little bit premature, I would say. But the volumes are continuing to grow and we continue to talk to customers all across our base. And I do think phase seven and eight, you know, give us some breathing room to mix points and And our next round of sort of expansion will be smaller and more trying to access some of the capacity that that gives us. So I think we're in a good spot right now in terms of being able to quickly get to those volumes. I'd also say we're optimistic about the way things are going on our Phase 7 and 8 projects already from the perspective of regulatory and in that part of the world as well. So I think all things are looking positive from that point of view.
spk16: That's great. And if I can just finish with a couple of smaller cleanups. Scott, you mentioned you're still assessing IFRS 16, so I assume that your EBITDA guidance does not include the impact of the expected IFRS 16 on at least the EBITDA side of things? That's correct, Robert. Okay. And then on Alliance, just looking at the quarter, they're distributed quite a bit less than the cash it generated, which is a little out of line with prior quarters. I'm just wondering if something is going on there, if there's a change in the distribution policy.
spk17: No, not that there's no change. I mean, the way that that pipeline pays out is typically the cash gets paid out two months after the EBITDA is seen. So, you know, despite a strong EBITDA performance in Q4, those distributions likely show up in Q1 of 2019. So some of it's just timing. Okay.
spk03: Even though the distribution in Q4 was lower than prior quarters? Correct. Okay. Okay. Thank you.
spk10: And your next question comes from Jeremy Toney of JP Morgan.
spk11: Jeremy, your line's open.
spk15: Thanks for squeezing me in for a follow-up here. I just want to kind of build off some of the points you discussed here in the call and you talked about since you're in Austin last May. You talk about wanting to, you know, extend the value chain, you know, further down and get the molecule to premium markets to enhance producer netbacks there. And, you know, just kind of thinking out loud, would it ever make sense to, you know, build more pipes kind of further south crossing the border and get the molecule on pipes there? into more of the U.S. markets? I realize it's a long distance and probably costly, but I wanted to ask, would it ever make sense to pair up with the U.S. players south of the border to try to provide that type of solution?
spk02: We're just learning the BAC and we're learning where does product go after BoxAble processes it. It still is early days, you know, we've been focused hard in the fourth quarter and the first quarter with PDH and Phase 8 and doing engineering for Phase 9 and those kinds of things. So, you know, I know we've been saying it for a long time, but we are looking at, you know, projects like you're describing at other geographic locations, but our success in other areas is keeping us a bit too busy. But, you know, we feel we've brought in just some terrific people through Alliance. And, Jeremy, you know, we're operating OxAble. We're starting to get to know those folks, and they're super impressive. And they have had ideas for a long period of time that they haven't been able to execute yet. And so Jared and Jason are collaborating closely to see what's possible all along that corridor where we believe we have a good franchise and a position of strength and what can be done around those assets. So I think it's promising for us to be looking in those areas.
spk15: Gotcha. Understood on the aux table side, but just curious on an Edmonton South NGL pipeline that's probably cost prohibitive?
spk02: The thing with NGLs, Jeremy, it's the same with a West Coast NGL discussion, is to build a long-haul pipeline, you kind of need a half a million barrels a day just to make the economies of scale work. The entire propane market in Western Canada is about 200, so You just don't tend to have the economies of scale. The only pipeline that met that description was Koshin when it was moving propane south, and now it's in higher value molecule service. And so that's just not easy. I know it looks good on a map, but when you do the math on the economies of scale with 100 or, let's be optimistic, 200,000 barrel a day NGL pipe, the math just doesn't work. You're better off railing.
spk15: Understood.
spk02: That's helpful. Thank you.
spk11: Your next question comes from Ben Pham of BMO. Ben, your line's open.
spk14: Okay, thanks. On that data point, propane, 200,000 barrels a day, how does that look supply-demand in Western Canada 2025? You're adding in your PDHPP plant. Is there room for for an expansion there or new export facilities?
spk02: You know, there's a ton of propane, butane, and ethane being left in the gas stream right now. So, you know, those numbers can grow dramatically and swiftly if people choose to take them out of the gas stream. You know, Pemina hasn't really built a deep cut plant for, what, five, six years here, you know, because the value hasn't been there. it kind of goes back to price signal. If the price signal for propane, butane, ethane changes in Alberta, those molecules are readily available. So it's kind of, if you can get the price, which hopefully conversion from propane to polypropylene nets back a higher propane price, the producers will get the right signal and want to deep cut their gas streams and or drill additional liquids rich wells. So again, the resource is massive. I'm never worried about running out of propane, butane or ethane. It just needs the right price signal. So when you look at that $200,000, that could be a lot more if we just had decent pricing for a short while. And hopefully we're doing the right things as an industry, at least I can say with confidence on propane right now to create that price signal.
spk14: Okay, thanks for that. And you had also a comment earlier around heading to strategic planning and growth, and it sounds like there's a lot of things looking at right now, and you certainly weighted against your self-funding model, $1 to $2 billion. But I wanted to clarify, does it sound like that $1 to $2 billion, that's not going to necessarily constrain you with growth and that you could look to you know, preferred shares, turn on a drip, external equity if good growth opportunities arise?
spk02: You know, we can always raise equity for terrific projects. I don't think we feel constrained by that necessarily, particularly now that, you know, we're, again, we've got a share price that's starting to come into the range of fair value, albeit on the low side still. So when you're trading at $40, you should be trading at $50. It just hurts to raise equity. Scott and Cam are vigilant in making sure we don't have dilution, and the $2 billion avoids that. But it's not necessarily a ceiling. It's a guideline. Scott, do you want to add anything?
spk17: I think it's well said. I mean, right now, as you guys well know, we're tapped out from a preferred share basis, but we will be looking to change our our threshold at our upcoming AGM, which would allow us access to incremental preferred shares if we get approval for that resolution.
spk14: Okay, thanks. And my last one, I want to clean up.
spk03: Are you able to share your recent frack spread sensitivity?
spk17: Yeah, I think that's something that we'll usually update with our investor day, so I might just pause that until our investor day.
spk14: Okay. All right. Sounds good. Thank you, everybody.
spk17: Thank you.
spk02: Well, everybody, thanks for your support. Hopefully, you feel even better about the story that we sure do, seeing some uptick in share prices that's raised everybody's spirits, which were a bit down at the end of last year, and just counting on us to keep doing what we've been doing. So thank you for your support.
spk09: and then
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