Pembina Pipeline Corporation Q4 FY2024 earnings call

Management Statement and Operational Highlights:

• Financial Performance: Fourth quarter earnings were $572 million, record adjusted EBITDA of $1.254 billion, and record adjusted cash flow from operating activities of $922 million or $1.59 per share. Full - year 2024 earnings were $1.874 billion, record adjusted EBITDA of $4.408 billion, and record full - year adjusted cash flow from operating activities of $3,265 million or $5.70 per share.
• Acquisitions and Business Developments: Positive impact of recent acquisitions, growing volumes in Western Canadian Sedimentary, and strong contribution from marketing business. Highlights included fully consolidating ownership of Alliance and Aux Sable, positive FID on Cedar LNG project, completion of Phase VIII Peace Pipeline expansion, two PGI transactions, and entering a 50,000 barrel per day ethane supply agreement with Dow. Also, new business updates on Greenlight Electricity Centre and securing sole extraction rights from Yellowhead mainline.
• Project Progress: Continuing to progress various in - flight construction projects expected to enter service in 2026, including RFS IV expansion, Wapiti plant expansion, and K3 cogeneration facility. Looking forward to start of construction of Cedar LNG's floating vessel in mid - 2025. Evaluating portfolio of opportunities for ethane supply and additional expansions for conventional pipelines.

Segment Performance:

• Pipelines: Fourth - quarter factors included higher contribution from Alliance due to increased ownership and higher demand for seasonal contracts, but were offset by earlier recognition of take - or - pay deferred revenue and lower net revenue on the Cochin pipeline. Full - year 2024 pipelines contributed to strong results.
• Facilities: Fourth - quarter factors included inclusion of Aux Sable and higher contribution from PGI due to higher revenue from oil batteries and volume at certain PGI assets. Full - year facilities also contributed to strong results.
• Marketing and New Ventures: Fourth - quarter results reflected higher net revenue from customer contracts due to increased ownership interest in Aux Sable, higher NGL margins, and lower realized gains on commodity - related derivatives. Full - year marketing and new ventures were part of the strong overall performance.
• Corporate: Fourth - quarter results were higher than prior period due to lower incentive costs. Full - year 2024 earnings were $1.874 billion, record adjusted EBITDA was $4.408 billion, and record full - year adjusted cash flow from operating activities was $3,265 million or $5.70 per share. Total volumes in the fourth quarter were 3.67 million barrels per day, an increase of 6% over the prior year.

Guidance:

• 2025 adjusted EBITDA is expected to be in the range of $4.2 to $4.5 billion, considering seasonality in the business (marketing business seasonality, repair and integrity work seasonality, Alliance interruptible profile).
• For the Greenlight project, it is a phased development with construction FID targeting sometime in 2026 and construction through to 2029 - 2030, with Pembina's share being 50% on a go - forward basis. The run rate of free cash flow after dividends available for investment is in the range of about $1.25 billion to about $1.5 billion per year, which lines up with the investment opportunities.
• For the Cedar LNG project, there has been strong response from potential acquirers of capacity, and they are working through the process of shortlisting and detailed negotiations with counterparts.

Risks:

• Seasonality: Seasonality in the business, such as in the marketing business, repair and integrity work, and Alliance interruptible profile, can impact results.
• Market Volatility: Volatility in the market can affect the outlook for WCSB volume growth.
• Greenlight Project Costs: Risk of cost overruns in the Greenlight project, although Pembina has done due diligence on Kineticor.
• Tariffs: Tariffs in NGL marketing can pose risks, although efforts are being made to position for it.
• Western Pipeline System: Western Pipeline system is old, requiring increasing capital to maintain operability, and abandonment application is in process with immaterial financial impact but substantial internal work required.

Q: Hey, good morning, everyone. I was just hoping to maybe start on the rights to the NGLs off the Yellowhead mainline project. I'm trying to think about what kind of commercial and growth opportunities that might create for you. I'm trying to think of this maybe along the lines of additional frac capacity or export doc capacity.

A: Good morning, A.J. Jaret here. Thanks for the question. So yeah, like Scott mentioned in his opening remarks, we were awarded exclusive extraction rights on the Yellowhead mainline, which will go into service kind of the latter half of 2027 based on public disclosure. We estimate we could build probably something in the neighborhood of maybe 500 million a day of extraction capacity resulting in approximately 25,000 barrels of NGL extraction. So what we're doing right now, A.J., is we're just evaluating our two supply portfolios of C2, one which we've been fairly public with lately supporting Dow's net to zero cracker. Just evaluating how would this C2 fit into our overall portfolio. So that's ongoing and we expect to have a little bit more information on that probably at the May call. But then obviously -- so that's the C2 component of the opportunity. And then with the C3+, obviously, we're actively building RFS IV, which is an incremental 55,000 barrels of C5 or C3+ extraction capacity fractionation. These barrels, we could just shift it across the river and put that into our existing frac capacity if we're not fully contracted and that would be very complementary to our marketing NGL book today. We have a large portfolio of C3+. It'd be very complementary to that. And Chris and his team, they would continue to find the best market for those products, either domestically into the United States and/or internationally through West Coast exports. Scott did mention through the acquisition of Aux Sable and closing that here this summer, Pembina does have a nice contiguous block of land right adjacent to a Dow's cracker and that will be the terminus essentially of where we would put our extraction facility. We have access to the AEGS pipeline. That's the Alberta ethane gathering system right there and then the Redwater fractionation complex where we would most likely send our C3+ from this is just across the river and we have existing pipelines that go back and forth between today. So we have operations in the area. We have actually between Shanahan, Younger and Empress, we have well over 3 Bcf of this type of operation. So we're well versed in how to build, operate these types of assets. Also, I was just going to also mention that the Alliance pipeline, Scott mentioned the opportunity there as it comes in close proximity to Greenlight, but also the Alliance pipeline goes right through this plot of land. So there'd be further evaluation down the road about potentially if we ever wanted to do straddling that pipeline down the road. So that's an option as well.

Q: Good morning. Thank you for taking my questions. Related to the NGLs off of the Yellowhead mainline and the potential 500 MMcf per day straddle facility, can you talk about what kind of capital requirement that could entail? And as it translates to potentially 25,000 barrels per day of NGL with a significant C2 component, how much of the 25,000 could be C2 to supplement your 50,000 barrel per day supply agreement? And then between that the 300 and the $300 million de - ethanizer, how much of the 50,000 could those two pieces comprise? Would just love to get more details of the quantitative makeup of the 50,000 barrels per day as you see it.

A: Okay. Yeah, I'm going to try to unpack those in orders. So I think the first question was with respect to cost. An asset of this size, we believe would be in that neighborhood of $400 million to $500 million. Now this is fairly preliminary. We would -- we're obviously going to be doing a significant amount more work with respect to the engineering and as we progress through our gating system here at Pembina, but that's the rough order of magnitude. With respect to the composition of that 25,000, you would expect to be roughly, call it, 50% of that would be ethane, the remainder would be your C3+ component. And then how does it fit into our overall portfolio? So that's what we're talking about right now is we have our existing supply agreements. There's also demand for future expansions in Alberta. Dow has been very public about Phase 3, et cetera. So we're just evaluating right now. Do we put these barrels into part of our existing supply portfolio or do we make this part of the incremental? You mentioned RFS III de - ethanizer, we've been fairly public about that. There is an opportunity there to -- we have existing barrels in our portfolio that we can add to the incremental demand. There is new opportunities such as the RFS III DF and then there's these barrels. So it's a little bit too early and premature to be talking about the actual details, but expect to provide a lot more color at our May conference call.