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spk08: Good morning, ladies and gentlemen, and welcome to the Pamina Pipeline Corporation Q2 2023 results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, August 4, 2023. I would now like to turn the conference over to Cameron Goldaid. Please go ahead.
spk15: Cameron Goldaid Thank you, Jenny, and good morning, everyone. Welcome to PEMMADIS conference call and webcast to review highlights from the second quarter of 2023. On the call today, we also have Scott Burrows, President and Chief Executive Officer, along with members of PEMMADIS senior officer team, including Jarrett Sprote, Janet LaDuca, Stu Taylor, and Chris Sherman. I would like to remind you that some of the comments made today may be forward looking in nature and are based on PIMNA'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 see the company's MD&A dated August 3rd, 2023, where the period ended June 30th, 2023, as well as the press release Pemina issued yesterday, which are available online at Pemina.com and on both CDAR and EDGAR. I will now turn things over to make some opening remarks.
spk05: Thanks, Cam. For the second quarter, Pemina reported earnings of $363 million and adjusted EBITDA of $823 million. While we face challenges in tandem with the broader industry, Pemina's business remains strong. Poorly results reflect Pemina's resilience. In the second quarter, continued to observe growth in volumes and higher tolls on certain systems and a solid contribution for our crude oil marketing business. These positive factors were offset most notably by the impact of the wildfires in Alberta and British Columbia on Pemina's and its customers' operations, the impact of third-party outages, and reduced operating pressure on the northern pipeline system until mid-May. Second quarter results also reflect the typical seasonality in Pemina's NGL marketing business and lower NGL prices. We're hopeful that the worst of the wildfire season is behind us and are extremely grateful for all of our employees, contractors and customers in the affected areas were kept safe. Further, we did not have to incur any material fire related damage to our assets. I would again like to thank our staff and emergency response teams, customers and industry partners, as well as all emergency personnel for their diligent responses to the wildfires. Notwithstanding the short term impacts the wildfires and the northern pipeline system outage on Pemina and the broader industry, the outlook for the western Canadian sedimentary basin remains promising. Pemina'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 pipeline business where full year volumes are expected to be 4% 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 Trans Mountain Pipeline expansion, production growth in the Montney, Duvernay, and Clearwater, and the expansion of Alberta's petrochemical industry. In our existing asset base, integrated value chain, contractual agreements, and deep customer relationships, we are poised to capture new volumes and benefit from increasing asset utilization and growth projects. On the project front, we are progressing our Phase 8 Peace Pipeline expansion and our RFS4 expansion at the Redwater Complex. The Phase 8 project continues to trend on time and under budget, furthering Pemina's track record of strong project execution. In addition to Phase 8 and Redwater Ford, Pemina is actively progressing over $300 million of smaller projects, including over $200 million in other pipeline projects. These include the reactivation of the Nipiti pipeline, which is expected in the third quarter of 2023, and a Northeast BC infrastructure expansion. The Northeast BC expansion includes terminal upgrades, additional storage, and new midpoint pump stations. These are expected to be completed in the second half of 2024 and will support approximately 40,000 barrels per day of incremental capacity on the Northeast BC pipeline system. This capacity is needed to fulfill customer demand and given an expectation for growth from the Northeast BC Montney and PEMMET has previously announced long term midstream service agreements with three premier Northeast BC Montney producers for the transportation and fractionation of liquid. On our Cedar LNG project, we continue to make great progress. Subsequent to the quarter on July 6, Cedar LNG received its LNG facility permit from the BC Energy Regulator. This is another major regulatory milestone that follows the receipt of the Environmental Assessment Certificate from the BC Environmental Assessment Office, a positive decision statement from the Federal Minister of Environment and Climate Change, and a pipeline permit for the Cedar LNG pipeline connection to the Coastal GasLink pipeline. Collectively, these reflect the key permitting milestones for Cedar LNG. Cedar LNG also signed incremental non-binding MOUs with investment-grade counterparties for long-term liquid fraction services and are now fully subscribed in relation to the project's total capacity. Work towards the signing of definitive agreements is ongoing. Cedar LNG elected to progress a second feed process for the floating LNG vessel in late 2022, and it's been waiting for that work to progress to the same stage as the original feed. In conjunction with detailed commercial discussions and ongoing negotiations between LNG Canada and Coastal GasLink, this has resulted in the anticipated final investment decision being revised the fourth quarter of 2023. Finally, during the quarter, Pamela released its 2022 sustainability report, which provides updates on the advances made in the ESG focus areas of governance, energy transition and climate, employee well-being and culture, health and safety, responsible asset management and Indigenous and community engagement. The 2022 sustainability reports captures a continued progress on Pemina's ESG targets, including greenhouse gas emissions intensity reductions and equity diversity and inclusion. With respect to GHGs, Pemina remains on track to meet a 30 by 30 emission intensity reduction target. As well, in relation to Pemina's diversity targets, women now represent 45% of the independent members of our board and 35% of our executive team, exceeding the goals we set. We are proud of the progress we have made to date on Pemina's sustainability initiatives and look forward to continuing the journey. The latest report is available on our website. I will now turn things over to Cam to discuss in more detail the financial highlights of the second quarter of 2023. Thanks, Scott.
spk15: As Scott noted, Pemina reported second quarter adjusted EBITDA of $823 million, which represents a $26 million or 3% decrease over the same period of the prior year. The combined impact of second quarter adjusted EBITDA use operating pressure on the northern pipeline system and wildfires was approximately 47. Finally, second quarter results also include various other revenue deferrals and costs with an impact of $21 million to adjusted EBITDA. In pipelines, additional factors impacting the quarter primarily included higher revenues on the peace system and coaching pipeline due to higher tolls, and lower revenues from Alliance Pipeline as the second quarter of 2022 included the sale of line pack inventory combined with seasonal contracts being replaced by firm contracts at lower regulated rates and finally lower interruptible volumes driven by the narrower ACO to Chicago natural gas price differential. In facilities, additional factors impacting the quarter included the PGI transaction and strong performance from the former Energy Transfer Canada plants and the Dawson assets, as well as lower realized gains on commodity-related derivatives associated with a commodity derivative contract. In marketing and new ventures, second quarter results reflect lower crude oil margins resulting from lower prices across the crude oil complex and lower NGL margins as a result of lower propane and lower beating prices. Realized gains on commodity-related derivatives for the quarter compared to losses during the second quarter of 2022. and a lower contribution for MoxABLE as a result of lower NGDL prices. Finally, in the corporate segment, second quarter results reflect higher shared service revenue and higher general and administrative expense and other expense, which included lower long-term incentive costs. Earnings in the second quarter were $363 million, representing a $55 million or 8% decrease over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, earnings were impacted by lower depreciation, lower unrealized gain on commodity-related derivatives, and lower net finance costs. Total volumes of 3.187 million BOE per day for the second quarter represent a decrease of approximately 5% over the same period in the prior year. Volume decreases were attributable to both the pipelines and the facilities divisions, including most notably the net impact of the reduced operating pressure on the northern pipeline system lower volumes at the younger facility and the red complex due to the reduced operating pressure on the northern system the impact of the wildfires the disposition of the empress one and emperor six assets at our empress facility higher volumes at the former etc plant and the dawson assets and higher volumes on eggs Adjusting for the impact of the Empress 1 and Empress 6 disposition, the reduced operating pressure on the northern pipeline system and the wildfires volumes in the quarter would have grown by approximately 5% over the second quarter of 2022. Based on results through the first half and the outlook for the remainder of the year, PIM has narrowed its 2023 adjusted EBITDA guidance range to $3.55 to $3.75 billion from the previous range of $3.5 to $3.8 billion. The revised range reflects the current outlook for commodity prices and an expectation of significantly stronger volumes in the second half of the year. Based on our 2023 guidance, cash flow from operating activities is expected to exceed dividends and capital expenditures. To date, BEMNA has repurchased $15 million of common shares and reduced proportionally consolidated debt by approximately $600 million. We will continue to evaluate the merits of debt repayment relative to additional share repurchases for the remainder of the year. At June 30th, 2023, based on the trailing 12 months, the ratio of proportionally consolidated debt to adjusted EBITDA was 3.5 times. M&A expects to exit the year with a ratio of 3.4 to 3.6 times, reflective of our strong balance sheet and supporting our strong BBB credit rating. I'll now turn things back to Scott.
spk05: Thanks, Cam. In closing, I'd like to reinforce that Pemina's business continues to perform very well. Pemina's outlook for meaningful medium-term volume growth in the WCSB remains unaltered, and we are poised to benefit through increased utilization across our asset base and through new growth projects. We continue to diligently execute our strategy within our financial guardrails while returning capital to shareholders and positioning ourselves to fund future growth. Thank you for joining us this morning and for your continued support. Jenny, please go ahead and open up the line for questions.
spk08: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchstone phone. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. Your first question is from Jeremy Tonnage from JP Morgan. Please ask your question.
spk03: Hi, good morning.
spk05: Good morning, Jeremy.
spk03: Just want to dive into the fundamentals a little bit more if we could. Curious what you're seeing as far as producer-customer conversations and expectations for drilling activity here as it relates to your footprint given recent developments and also competitive pressures. Just wondering if you could give us updated thoughts as far as what type of volume growth trajectory you could see over the near or medium term.
spk05: Jeremy, I'll start and I'll let Jared jump in if he wants to add some incremental color. But I think, you know, I think based on our comments in the prepared remarks, you would have seen that we're pretty optimistic about volume growth across the basin. We're still expecting roughly 4% growth on the conventional pipeline system. You know, I do think it's very customer specific though, but when you go through many Q2 reports, you would have seen Increased activity, you know, not only throughout this year, but also into into the upcoming years. Obviously, there's been some pretty decent sized projects sanctioned in Northeast BC. Many of those we have under contract today. So we do have visibility beyond 2024 into 25 and into 26. so we remain optimistic around volume growth within the basin as well as our ability to capture that on our systems.
spk07: You know, just add to that, Jeremy. So pre-wildfires, you know, really what we were hearing from customers was gas egress was becoming their largest constraint here in Western Canada. Since then, we saw at the worst of the worst, pardon me, about two BCF of gas come offline. That's now, you know, just under a BCF. So just over a BCF has come back. So we are seeing in kind of like the short term. Some of our customers are taking advantage if they had gas behind taking advantage of that, that incremental space on on 3rd party gas address pipeline. That's the positive thoughts that are permanent. Some of our customers. And then I think in the very short term, what we've seen is June, July and August have had very high demand for public services here in West Canada, which is. obviously a great sign that that production, you know, as expected, will be coming on over the next, you know, two to three months as our customers tie those wells in. So that's Scott said, it's looking positive.
spk03: Got it. That's very helpful there. And then just want to shift gears towards Cedar LNG and moving the FID back a quarter to 4Q. Just wondering if you could peel back the onion a little bit more on the drivers and the shift of the timing there. How much is factors under your control versus not under your control for the timing shift and confidence level at this point in getting to the finish line.
spk02: Hey, Jeremy, it's Stu. You know, we remain very confident with the schedule that we proposed here to, you know, look to FID Cedar in the fourth quarter of 2023. The largest, you know, reason for our move and as stated is, you know, we elected to kick off an alternate feed. You know, that was done with the intent to obviously to create some competitive pressure And to do from a capital cost perspective and to do the best industry practice to have some competing bids and some pressure on the EPC firms. That work is ongoing. We are pushing to get both of the EPC firms bids before we kick off a repricing. So that work is continuing as we expected. It's a bit later than we had originally anticipated, and that's resulted in us pushing that back. There continues to be other ongoing negotiations that are out there, but the larger reason is our choice to elect with the second feed and to get those time to come in simultaneously for us to review.
spk03: Got it. That's very helpful there. Thanks. And just the last one real quick here. major moves among midstream competitors, both in Canada as well as potential consolidation in the U.S., and just wondering if you could provide us with any updated thoughts, I guess, on, you know, Pembina's views as far as any, you know, strategic outlook here, you know, spinning, consolidating, tuck-ins, or anything else would be helpful to get updated thoughts on.
spk15: Hey, Jeremy. It's Cam here. I mean, I think You know, as we've always said, you know, we look at opportunities to enhance the asset base and the portfolio. And really, you know, as we released kind of the refreshed or the reviewed strategy earlier this year from the results of the work we did last year, you know, that really anchors how we look at any investment, whether it's organic external uh any any other sort of strategic investments uh you know i think obviously we're pretty excited about some of the organic investments that we've got you know you mentioned cedar uh there's there's a number of other things that we're working on and of course i mean we're going to look at uh look at other opportunities as as they're available um you know frankly the the list of opportunities that are available at the moment uh i think are are pretty narrow uh you know which which would actually be additive to our business. So I think we'll sort of look at things as they come up and continue to be disciplined, as we always have. But nothing has really changed on that.
spk03: Got it. So would it be fair to say an interest in PMX is probably the main thing under consideration and not really much else out there, given the narrow list, as you described?
spk15: Well, it's certainly the biggest. I would say that obviously we've been public about our partnership with WIPG and continue to be very proud of being selected as their operating partner. And I think, as we've said in the past, I mean, as far as we know that the asset is not for sale at the moment. So we'll continue to to do work and obviously stick to our guardrails and if and when that becomes available, we'll evaluate it. But so far, no action.
spk03: Got it. That's very helpful. Thank you.
spk08: Thank you. Your next question is from Rob Hope from Scotiabank. Please ask your question.
spk07: Good morning, everyone. Two follow-up questions. Maybe first on the conventional volume outlook, you did note that it was going to increase 4% this year. Volumes on the conventional system have been down in the first half, so when we take a look at achieving that 4% growth in 2023, is that proform of the wildfire impacts? Could we see a make-up of lost volumes in the back half of the year, or is this really just given the amount of growth that you're seeing in the system right now that will carry over into 2024? Hi Rob, it's Jared. No, you basically nailed it. So, you know, although we were slightly under in the first half of the year due to the reasons that you noted, we do see that strong growth in the second half, just like you mentioned.
spk15: Yeah, and Rob, it's Cam. I'll just add in that obviously you know, the second half always has the typical profile to it. When we're talking volumes, we're talking revenue volumes. So as you look at our disclosure, we've got more, slightly more volumes or recognized volumes deferred for Q2 than we did last year. So a little bit of a revenue tailwind there in Q2. But as Jared said, we're also seeing strong outlook on the physical side as well to supplement that.
spk07: All right, I appreciate that, especially the color and revenue versus actual volumes. And then as a follow-up on the Chinook Pathways partnership and the opportunity there, you know, when this was set up, it was a 50-50 JV between yourself and the WIPG, but the environment has really changed. How do you think about the size of the potential opportunity there as well as the potential financing opportunities, you know, specifically, you know, Is 50% still the BOVI or something much smaller in that 20 to 25% more likely with the potential that you could use some hybrids and some asset sales to finance it?
spk15: Yeah, thanks for the follow-up, Rob. You know, it's a really good point. As you mentioned, you know, when that partnership was structured, you know, we were less than half of the current size of the investment that it is today. I do think we think about things here from a portfolio perspective and what size of certain asset types we want in our portfolio. And that's not only commodity or commercial. It's the customer portfolio. It's the market they access. It's all these points that we think about from a portfolio perspective of our asset base. When we do think about that asset in light of a larger potential gross investment size, things largely similar from Pemina's net investment. So when you talk about sort of a smaller than 50% investment, I would say that's where our heads are at as we think about this asset under the current circumstances. To pin it down to an exact number, it's tougher. But yeah, I think that sort of 20% to 30% range is probably where you get to the same sort of asset investment size for Pemina. probably the right scope on it. And then, you know, in terms of finance, I think what we've said is obviously a commitment to the financial guardrails. and our strong BBB rating. And there's a lot that goes behind that. But obviously, you know, we recognize that, you know, over history, a strong balance sheet has been a strategic advantage. And when it's not, it's obviously a big distraction and a hindrance. And so we're absolutely focused on maintaining that strong balance sheet. But also recognizing that as part of that, you know, there's potentially some creativity required for an asset such as this. And so, you know, we're exploring different avenues for financing to obviously keep the investment in our business within the financial guardrails, but also deliver a strong value of creative investment. If that isn't available, obviously, then we'll continue to be disciplined, as we have in the past, as we've got lots of other opportunities.
spk10: Thank you.
spk09: Thank you.
spk08: Your next question is from Linda Ezregalis from TD Securities. Please ask your question.
spk00: Thank you. Just looking at Cedar LNG, recognizing that you've been working on this for a while. How might we think of your creativity potentially around financing that and ensuring it stays within the guardrails? Would you see project financing and what might be the cadence of spend and might that cause you to high grade any other potential investments you see?
spk15: Hey, Linda, it's Cam again. Yeah, thank you. You know, one of the things we really love about Cedar, obviously, in addition to the, you know, the strategic aspect of it, we've always really thought that LNG was a fantastic strategic fit for our company. But the really nice thing about Cedar is obviously the scale of it. Obviously, at 3 million tons and an associated capital cost, you know, it obviously fits very nicely for a company, the scale of Pemina. And so when we look at it, you know, when you think about the nature of those commercial agreements, long term agreements backed by investment grade counterparties, obviously, that's a highly financeable asset. You know, we are exploring project finance for that with, you know, with a commensurate leverage structure. And so, you know, when you when you when you look at that relative to Pemina's free cash flow generation of, you know, Last year, it was getting rid of the one time impacts around a billion dollars of cash flow after dividends. And so if you if you stretch that forward, we're in a very strong funding position going forward. The spend for Cedar on the current time frame really wouldn't accelerate until the 2025-2026 timeframe. But we see it very readily financeable within our existing liquidity sources, existing cash flow. And frankly, that timing works really well with the case of the other projects we've got going on, obviously. Phase 8 comes online next year. Redwater 4 comes online in the first half of 2026. So it fits really nicely with the rest of our portfolio spend perspective.
spk00: Thank you. And just as a follow-up, looking at accessing Tidewater maybe with LPG and NGLs, what are you seeing in terms of customer preferences for the optionality to either rail down to the U.S. or... bring to the West Coast and any sort of West Coast pathway, do you see that continuing to go through the Edmonton, Port Saskatchewan area or do you see the merits of going direct to the West Coast? If you can just comment on flows of NGLs prospectively and your outlook for that, that would be helpful.
spk14: Sir, it's Chris. I think that, you know, customers continue to value a bit of a portfolio. They don't want to see everything pointed at the West Coast. You know, that being said, right now, ARBs are extremely strong. And so if you look at Conway FDI differentials and Edmonton FDI differentials, there's a really positive case for going West. We do think in the long term, those far east markets are going to be very attractive. So there is room for more off the west coast. But we continue to hear from our producer base that they want to see flexibility. They want to see us access the best markets at the best times and not get stuck with a sort of one trick pony, if you will. I think when you talk about coming to Fort Saskatchewan, we continue to believe there's a real advantage to aggregate into Fort Saskatchewan. We've got tremendous rail capability out of the area. Like I said, it leaves that optionality open to go to the best markets at the best times, and we continue to see support for that.
spk09: Thank you. Thank you.
spk08: Your next question is from Robert Cattelier from CIDC. Please ask your question.
spk01: Hi, you've answered most of my questions, but I wanted to follow up on Cedar LNG specifically with respect to what needs to be accomplished between LNG Canada and Coastal GasLink for their negotiations before you can reach FID. I assume that relates to the final tolls. And aside from that, can you just comment on the executability of that eight and a half kilometer pipeline from the Coastal GasLink to the Cedar site? and how you're planning to manage cost risk on that aspect of the project?
spk02: Yeah, Robert, Stu. Yeah, I mean, LNG Canada and Coastal GasLink can, you know, have been, you know, negotiating and finalizing their arrangements um for a continued period of time obviously with the the announced coastal gasoline cost increase um there's also you know as they move forward how that relationship is going to be managed and developed so it's ongoing uh we continue to work well with lng and with coastal gas link uh we are waiting in in some cases for them to complete some of these negotiations but there's been good progress made But it is something that we need to finalize for our connection agreements and for our transportation agreements on Coastal GasLink. So we continue to work with both parties in a positive way. As far as the execution of the pipeline, it is, you know, we're coming from the end of the Coastal GasLink connection from the header. As you described it, eight and a half, nine kilometers of pipe. We're looking at pipeline routing, we've right away identified, we've drilled our test holes to identify the terrain and the materials that we would actually be going through. We remain confident of Pemina's ability to execute that pipeline. in a cost-effective manner. We have someone working on this project that has done mountainous pipelines install, and so we've priced it accordingly and have a plan to execute within that pricing.
spk01: Okay, thank you.
spk08: Thank you. Your next question is from Ben Phan from BMO. Please ask your question.
spk06: Hi, thanks. Good morning. I just wanted to check the quantification of the wildfires and I guess Luscious Extent piece. Can you walk through, is that just in terms of the process, is that just simply taking the volumes that have declined and you're using a margin that's been earned on that segment in the past?
spk15: That's right, Ben. That was based on our outlook. That was based on our outlook and where we were sort of pre-fires. Obviously we've got profiles from customers and we've got the outlook there. So basically it was our outlook for what that would have been based on a regular operating condition. And you can also recall that, you know, there was a little bit of IT on some of the systems, but most of that, most of those volumes were flowing right at sort of take or pay levels. So, you know, it's not a lot of variability actually in it.
spk06: Okay, I got it. And maybe, Sierra, I want to do that last question. I know you mentioned some of the tolls being finalized. Is sanction at all linked directly to in-service on Coastal? Is there a link between the two?
spk02: Sorry, Ben, I missed. Can you repeat your question?
spk06: Yeah, I was just thinking with Coastal, Coastal GasLink expected in-service late this year, you can tee up a sanction on Cedar, but if it gets pushed to next year, is that... Is that linked to your sanction decision or there's enough leeway on timing that even if it's delayed by a year, it doesn't re-impact the sanctioning decision?
spk02: Yeah, our timing will not be impacted by coastal gas links and service dates. Our first gas isn't until 2027 for commissioning purposes, so we're quite We have plenty of leeway for them to complete their project of which they're making progress on and driving forward. So, yeah, we have lots of slack built into that system.
spk06: Okay, gotcha. And maybe just the last one, a couple of questions on M&A and TMX. And I'm more curious as you think about M&A now, you have TMX, which is 25-year contract, so premium assets. You got a couple other assets out there in North America that might have a shorter dated contract with potentially lower multiple. What do you think the best opportunity is for you then? I mean, you can take TMX, high graded cash flows, but then is there maybe an arbitrage for some of these shorter dated contracts that the market's not placing a good premium on in the market today?
spk05: Yeah, Ben, I think the way we've talked about it is, is in terms of the strengthening of the guardrails with from a fee for service perspective and a fee for service payout ratio. Really would allow us more so to look at other opportunities that potentially have some minor commodity exposure versus versus. shorter term contracts. That's not something that we've currently put into the mix, but obviously with our position in the NGL market, we like that business. You know, we think that we have some competitive advantages and we're really good at NGLs. And so to the extent that there's opportunities that come with some incremental exposure, we can capture those once we strengthened our guardrails through the TMX acquisition, if successful.
spk06: Okay, thank you.
spk08: Thank you. Your next question is from Andrew from Credit Suisse. Please ask your question.
spk13: Thanks. Good morning. Maybe just addressing your various low-carbon businesses, so Alberta Carbon Grid, the low-carbon complex, and low-carbon ammonia. Maybe bookend these. How big do you think these businesses could be as part of the balance sheet or the investment opportunity on the big end and then on the low end? What's sort of the toe into the water part of the business?
spk05: Uh, yeah, so so if we think about those investments, you know, as kind of aggregate buckets, you know, if you're putting me on the spot, I'd say somewhere between. 2 and a half to 4Billion dollars of incremental capital that we see line of sight to potentially deploying across those asset bases. Now that's over. The next decade to 2030, that's not not immediately, but our near term focus really is on the Alberta carbon grid and on blue ammonia. Which would then tie into our low carbon complex and really accelerate the profile of that asset base. So we're pretty excited about it. Obviously, the ammonia is early days. We just announced our partnership this quarter. And we're really just in the pre-feed stage. But we do see a pretty decent opportunity there. And as we continue to attract capital towards low-carbon complex, we think there'll be a snowball effect and we can attract incremental projects to that site.
spk13: I appreciate that, Keller. And maybe with that snowball effect, how do you see this entire business line working within your Pemina store concept? Is it really like another... part of the slide, you've got the three already. Is this a fourth or does this business group sort of intersect all of the three that you've got now?
spk02: Yeah, Stu, and again, I think you've hit on it. There's an opportunity for the fourth, a platform for growth and opportunities presented. At the same time, it interconnects with our existing asset base. There's opportunity to provide feedstock. There's opportunity to our operating expertise in the area, our facility expertise and build. So it does integrate very, very well and does have opportunities for future growth in that space as well.
spk13: Maybe just an extension on that, Stu. Do you see this sort of conceptually like a multiplier that you had off of Redwater where it gave a lot of growth across different business lines? Is that the same conceptual thing for the carbon business?
spk02: Yeah, it has that potential. We will continue to follow Pembina's guardrails. I think we always look at it as a tolling model and not to be in the commodity space. So it's got a fit for us there. Redwater and working with our marketing team and our expertise in the LPG space allowed us to probably go a bit further and offer more extension and back into the business. here we're probably you know a bit more limited to a tolling and and osbl services arrangement um you know looking at the markets and getting marketing help from others more in that international space okay thank you appreciate the color thank you your next question is from robert kwan from rbc capital please ask your question good morning um whether it's you know cedar potentially other
spk04: sizable investments. Can you just refresh the types of returns that you're seeking, or if you want to look at it from a build multiple perspective, that works. And then just as it relates to leverage, the leverage guardrail and specifically the top end, is that top end firm or would you be willing to exceed it for a period of time? Also, maybe just confirming that you're committed to continuing to look at that guardrail in a proportionate consolidated basis.
spk15: Hey, Rob. I would say that the types of returns that we're seeing, I mean, obviously, in the past, through the latter half of the last decade, I mean, I think our experience was build multiples in the range of sort of six to eight times overall and obviously you know the brownfield ones towards the lower end of that range and sometimes even below that the greenfield ones in most cases towards the upper end of the range and of course as I mentioned before a portfolio is important to sort of keep that blended multiple in the right range and hopefully keep it to the lower end I would say that, you know, in our current outlook with our existing projects, you know, we're not far off that. We're probably still sort of in that seven to nine times multiple ranges, and obviously the nine times multiple ranges are reflective of those opportunities where there's very low risk embedded in them, long-term contracts, you know, high-grade counterparties. Some of the opportunities at the lower end of that spectrum are the brownfield opportunities, the integration opportunities, kind of the typical stuff that we know and do quite well. So I would say that for us, you know, that's been part of the strategy and with the asset base that we have and sort of the connectivity between them, we continue to see opportunities around that and in that range. As it relates to As it relates to leverage and our thoughts on that, I would say that we've obviously got a commitment out there to a strong BBB rating, as we've long talked about, and the financial guardrails, which frankly is really a ultimately anchored in a rating agency methodology and the way they look at it. But we, you know, we sort of take the simplistic view of saying, you know, leverage is leverage and there's an appropriate amount of leverage, you know, for an asset wherever it sits. And that's obviously why we talk about fortunately consolidated leverage. You know, we've had a guardrail there, a range of sort of three and a half to four and a quarter. You know, I would say that as the industry has evolved and And the interest rate environment has obviously changed. The high end of that range is probably something we would shy away from at the moment. I think we pretty consistently hear from the market. And as we said earlier, that strong balance sheet and strong leverage is an advantage. And so even kind of getting above that four times is probably going to start to give us heartburn. But yeah, I would say we do continue to look at that on a proportionally consolidated basis. And obviously sticking to that leverage commitment is something that's been part of our success and don't see any reason to change that.
spk04: Got it. As it relates to just the short-term leverage, small change this quarter, kind of 3.4 to 3.6. And I think previously you were 3.3 to 3.6. It's not a big deal, but just is that even... changing, or is this maybe a bit of an indication of a bias towards share buybacks, just given the current share price versus debt repayment?
spk05: No, I just think it was basically based off of our guidance range and obviously with the narrowing of the guidance range, just due to rounding the 3.6 obviously didn't move, but just due to rounding the 3.3 went to 3.4 as we lowered the top end of that guidance range. So it's really the narrowing of the EBITDA range versus anything else, Robert. Got it. Okay.
spk04: And just last, just coming back to that, the question or your answer, on the timing of the FID for Cedar versus Coastal GasLink. I get the timing of when your project would be online and you could have a CGL delay, but wouldn't you want to see Coastal GasLink completely, you know, mechanically complete just given what's going on? And the other is there still is some toll finalization based on the cost on CGL. So how do you protect yourself on where that final toll is? goes before you commit to the FID.
spk02: Robert, again, those negotiations are ongoing. Again, the work between CGL and LNG Canada They're looking at that the negotiation of the existing base pipeline is complete. We know what our toll is. The next phase is the expansion to add the compression that is required. And so that's ongoing and that those negotiations are underway. We're hoping those will be completed here in the next little while. We expect to have that done in our transportation agreements we would have in hand as we make FID.
spk04: Got it. So you need to see, though, that happen before the FID.
spk02: Yeah, we need to be able to tell our offtake customers and the who ultimately be the holders of the capacity on CGL. What's the what's the transportation agreement going to look like?
spk04: OK, so you're tied to the tariff, but you're comfortable on mechanical completion.
spk02: Yeah, mechanical completion of the phase one, and then we need a compression addition to get our capacity for the CEEDAR service.
spk10: Okay, thank you very much.
spk08: Thank you. Once again, that is star one, should you wish to ask a question. Your next question is from Patrick Tenney from National Bank Financial. Please ask your question.
spk12: Good morning. It's been about a year since you closed the PGI transaction. I'm wondering if you can comment on how integrated it's gone relative to your initial expectations and also as a vehicle created to unlock growth, thinking about the term landscape surrounding the M&A opportunities around PGI's footprint.
spk05: I think you cut out, but I think that we got the gist of the question, which was around integration and. Organic and other opportunities at the asset base. So, you know, I think from from an integration perspective, it's gone as planned, maybe slightly below budget. Obviously. Um, you know, a lot of a lot of time and effort in the field to get the plants independent systems. Um, but the, the opportunity growth continues to expand there and I'll maybe turn it over to Jared. I mean, we're pretty pleased with. With both the volume growth we've seen at those assets, but as well as now that we've had, as you said, our hands on the wheel for a year. We're really starting to see not only opportunities at that asset base, but opportunities and synergies across the gas plants. So maybe I'll turn it over to Jared.
spk07: Yeah, thanks. Thanks, Pat. Good morning. Maybe I'll just break it down into a couple of buckets. One is the Pemina processing assets, they're performing as we would have expected. Obviously, we have we had pretty good line of sight into that. The Dawson assets, which we acquired an incremental working interest in, specifically the CRP Cutbank Ridge Partnership. In that area, what we're seeing there is that that is exceeding our expectations, even through the Barrison midstream lens. The performance of those wells that the partnership are drilling, that's public information, is is outstanding um the development and the activity going into the startup of coastal gas link we're seeing that ramp up and you know maybe a little bit more gas than we had expected which is great obviously that's a processing totally model so that's kind of the one bucket and then the incremental etc portion that we acquired 60 percent of um that is um exceeding our our our model expectations um we're just seeing a lot of of gas getting drilled into our white space which is great um i think now that the team you know it's been roughly a year here coming up on august 15th there is a lot of optimization opportunities just we're not able to speak to those specifically right now but as we move through sanctioning gates we will we'll disclose those and then on the um i think i mentioned last quarter on the call that there's a significant amount of expansion opportunities through the PGI platform across the three different businesses that we can find not only for gas processing and liquid handling but also on the GHG reductions obviously our processing business contributes a significant amount of our GHGs and the team has a lot of opportunities there to work with our customers to lower their carbon tax while deploying capital and lowering permanent emissions. So that's kind of how I'd sum it up. So positive.
spk12: Okay, perfect. Thank you. And then I wanted to check in as well with respect to your exposure to Alberta power prices. I know the 100 megawatt garden plane PPA kicks in here right away. But I guess full form of that contract, can you remind us what your net exposure is? to the grid would be relative to total power consumption. Also, if you're looking to sign additional renewable off-take agreements beyond that, just as part of your plan to reduce scope to emissions. If so, how you might be thinking about achieving your goals in light of Alberta's announcement to take a pause on approving any further renewable developments in the province. Thanks.
spk05: Yeah, Pat, I mean, I'm not going to get into specifics with our usage, but you would have you would have seen obviously over the last two years. We would have signed two different renewable power agreements to to really capture a significant portion of our net exposure to to the power prices. In addition to that, we obviously commissioned our cogen at Empress.
spk04: and in addition to looking at a few different cogent opportunities across our asset base, we also have small solar going in at Amherst as well.
spk05: We are actively managing our exposure to the Pemina fully owned exposure to the power grid. In addition to that, a large portion of our OpEx flow through, but we're working really hard to reduce power where necessary and optimize the use to that because obviously we want as low of OpEx as possible for our customers. So we're really focused on optimizing power use across the asset base because the volatility we've seen in the power prices is obviously a significant line item for PEM and our customers. So we're doing everything in our power to look at reducing reducing that usage but just circling back as it relates to uh our net exposure we're mostly protected on that through some of the ppas we've signed and some of the other initiatives we've been undertaking and just on top of that you know scott mentioned you know obviously we're working to to utilize less consumption which obviously supports lower optics for our customers but lower scope to admissions
spk07: Chris' team, Chris Sherman has an energy management team and also a lot of work internally on peak power price avoidance. So with our, obviously our P system, Pat, you know, we have a lot of storage at various places. We don't have to be continuously pumping when prices, you know, $900 a megawatt. So being very proactive on when do we need to be storing and when should we be pumping? And that's all run out of our Sherwood Park Control Center. So that's been a huge win for our customers as well.
spk12: That's really good color, guys. Appreciate that. Sorry, just one follow-up question on the Alberta carbon grid, if I could. So we've seen a bit of a slowdown on the capture side of the equation with respect to some government support coming to fruition. Wondering if that's translating into any slowdown on your end in the development process of ACG. I guess if there's just any update on that. timing related to a potential FID or in service state, that would be great.
spk02: Yeah, Pat, maybe just to just re-emphasize where we're at. So we have We've been busy. We have an appraisal permit from the government of Alberta. That has allowed us to be out. We've bought seismic and reprocessed it. We've shot additional seismic over our proposed sequestration site. That work has been completed. We are in the process of getting ready to drill our evaluation well. That will be drilled. here in the second half of 2023. You know, essentially that work upon completion and some evaluation of the results will allow us to prove up that we have a sequestration site. So we've had preliminary conversations with offtakers. Sorry, not offtakers, of use of the sequestration. There remains interest. You know, it's competitive. It's a little bit still out there. Our work has largely been focused on proving up our site and initial conversations. Once we get that move into 2024, we'll ramp up the commercial conversations upon proof that we actually have something that we can use and sell. We haven't changed our FID date or any of that timing at this point.
spk10: Okay, that's great. Thanks, everybody. Have a great long weekend.
spk09: There are no further questions at this time. Please proceed.
spk05: Thanks, everyone. Really appreciate you calling in on a Friday before a long weekend. Obviously, as we said in our prepared remarks, a challenging quarter, but we remain optimistic through the back half of this year. So everybody have a great long weekend. Stay safe and have a good rest of your summer.
spk10: Thank you.
spk09: Thank you, ladies and gentlemen. The conference has now ended.
spk08: Thank you all for joining. You may all disconnect.
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