Pembina Pipeline Corporation Reports Third Quarter 2018 Results

Pembina Pipeline Corporation Reports Third Quarter 2018 Results

PR Newswire

CALGARY, Alberta, Nov. 1, 2018

Pembina reports strong third quarter results with record volumes and a tripling of earnings over the prior year.

All financial figures are in Canadian dollars unless noted otherwise.

CALGARY, Alberta, Nov. 1, 2018 /PRNewswire/ -- Pembina Pipeline Corporation ("Pembina" or the "Company") (TSX: PPL; NYSE: PBA) announced today its financial and operating results for the third quarter of 2018.

Operational and Financial Overview





3 Months Ended September
30

9 Months Ended September
30

($ millions, except where noted)

(unaudited)

(unaudited)


2018

2017(1)

2018

2017(1)

Revenue

2,045

1,045

5,827

3,684

Net revenue(2)

742

536

2,130

1,529

Share of profit from equity accounted investees(3)

110

282

Gross profit

585

274

1,664

919

Earnings

334

111

910

438

Earnings per common share – basic (dollars)(4)

0.60

0.23

1.62

0.95

Cash flow from operating activities

481

302

1,582

990

Cash flow from operating activities per common share – basic (dollars)(2)

0.95

0.75

3.14

2.47

Adjusted cash flow from operating activities(2)

523

314

1,611

897

Adjusted cash flow from operating activities per common share – basic (dollars)(2)

1.03

0.78

3.20

2.24

Common share dividends declared

288

205

842

601

Dividends per common share (dollars)

0.57

0.51

1.67

1.5

Preferred share dividends declared

30

19

91

57

Capital expenditures

291

341

870

1,525

Proportionately Consolidated Financial Overview(2)(5)

Total volumes (mboe/d)(6)

3,465

2,514

3,378

2,391

Operating margin(2)

810

413

2,354

1,173

Adjusted EBITDA(2)

732

369

2,120

1,023

(1)

Financial results reported for all 2017 periods have been restated to reflect the Corporate Reorganization and adoption of IFRS 15.

(2)

Refer to "Non-GAAP Measures".

(3)

Includes Investments in Equity Accounted Investees - Alliance, Aux Sable, Ruby, Veresen Midstream, CKPC, Grand Valley and Fort Corp. See "Unaudited Supplementary Information" for definitions of equity accounted investees.

(4)

Earnings per share - basic is calculated using earnings attributable to common shareholders adjusted for the after-tax amounts of preferred share dividends.

(5)

See "Unaudited Supplementary Information".

(6)

Total revenue volumes. Revenue volumes are physical volumes plus volumes recognized from take-or-pay commitments. Volumes are stated in mboe/d, with natural gas volumes converted to mboe/d from MMcf/d at a 6:1 ratio. Volumes for 2017 have been restated to reflect the Corporate Reorganization.

 

Financial and Operational Overview by Division





3 Months Ended September 30

9 Months Ended September 30


(unaudited)

(unaudited)


2018

2017 (1)

2018

2017 (1)

($ millions)

Total
Volumes (2)

Gross
Profit

Operating
Margin (3)

Total
Volumes (2)

Gross
Profit

Operating
Margin (3)

Total
Volumes (2)

Gross
Profit

Operating
Margin (3)

Total
Volumes (2)

Gross
Profit

Operating
Margin (3)

Pipelines Division

2,593

338

469

1,840

166

213

2,517

954

1,336

1,726

428

553

Facilities Division

872

149

223

674

103

143

861

419

661

665

293

410

Marketing & New Ventures Division(4)

91

111

3

55

281

347

191

203

Corporate

7

7

2

2

10

10

7

7

Total

3,465

585

810

2,514

274

413

3,378

1,664

2,354

2,391

919

1,173

(1)

Financial results reported for all 2017 periods have been restated to reflect the Corporate Reorganization and the adoption of IFRS 15 (see disclosure under "Changes in Reporting" in the third quarter 2018 MD&A).

(2)

Pipelines and Facilities Divisions are revenue volumes which are physical plus volumes recognized from take-or-pay commitments. Volumes are stated in mboe/d, with natural gas volumes converted to mboe/d from MMcf/d at a 6:1 ratio. Volumes for 2017 have been restated to reflect the Corporate Reorganization.

(3)

Refer to "Non-GAAP Measures".

(4)

Marketed NGL volumes are excluded from Total Volumes to avoid double counting. Refer to "Marketing & New Ventures Division" in the third quarter 2018 MD&A for further information.

 

Financial Highlights

Pembina achieved another strong quarter with increasing volumes leading to robust earnings and Adjusted EBITDA.  These results were largely driven by a $10 billion increase in assets year-over-year from the acquisition of Veresen Inc. ("Veresen") in 2017 ("Veresen Acquisition"), new assets placed into service following a large-scale capital program driving growing revenue volumes, widening NGL frac spreads and volatility across the crude oil complex.  These factors contributed to:

Operational Highlights

Executive Overview

Pembina's strategy and business model continue to prove out as once again we have achieved strong financial results.  Resiliency in our business comes from a combination of serving long-lived, economic hydrocarbons and ensuring strong commercial frameworks.  As well, the Company is realizing the strategic benefits of our marketing business which continues to experience solid results in the current environment.

The prospects for future growth, both within the base business and further extensions of our value chain, remain robust.  "We are as rich in growth opportunities as we have ever been, which is a testament to both our customers and the underlying attractiveness of the WCSB," stated Mick Dilger, Pembina's President and Chief Executive Officer.

As previously announced, Pembina was pleased this quarter to update its 2018 Adjusted EBITDA guidance range to $2.75 to $2.85 billion, up from $2.65 to $2.75 billion. "Pembina's base business is performing extremely well. We are seeing increased throughput on our conventional pipelines and fractionators, strong results from the assets acquired previously from Veresen and higher marketing revenues due to strong NGL frac spreads and oil price volatility," said Scott Burrows, Senior Vice President and Chief Financial Officer.

Pembina's strategy of accessing global markets also continues to unfold. Early construction work is underway at the Company's Prince Rupert LPG Export Terminal; we received a United States Federal Energy Regulatory Commission ("FERC") Notice of Schedule and based on that notice, we anticipate a final FERC decision on the proposed Jordan Cove LNG project ("Jordan Cove") in November of 2019; and we have made substantial progress on the proposed propane dehydrogenation plant and polypropylene upgrading facility ("PDH/PP facility"), with front end engineering design ("FEED") activities completed and a final investment decision expected by year end.

Mr. Dilger concluded, "We are operating a strong and growing base business while extending our value chain by pursuing three exciting projects to access global markets, and we are doing so within our financial guardrails. Our strong business performance has contributed to setting new operational and financial records in each quarter this year, and our future opportunities are numerous and exciting," concluded Mr. Dilger.

New Developments and Growth Projects Update

New Infrastructure Announcement

Pipelines Division

Facilities Division

Marketing & New Ventures Division

Financing

Changes in Reporting

Given the enhanced scale and scope of Pembina's business and considering the future needs of both the Company and the energy industry, Pembina's management structure was reorganized, effective January 1, 2018, into three Divisions: Pipelines, Facilities and Marketing & New Ventures ("Corporate Reorganization"). Accordingly, the Company's financial reporting format has changed to better align with the new structure.

Pembina also retrospectively adopted IFRS 15 Revenue from Contracts with Customers ("IFRS 15"), effective January 1, 2018. While this change is not expected to have a material impact on annual revenue recognition, it has resulted in a change in timing for quarterly revenue recognition.

For the third quarter, $37 million of take-or-pay revenue in excess of physical deliveries has been collected and deferred and revenue of $60 million related to take-or-pay deferral was recognized during the period.

For the nine months ending September 30, 2018, $107 million of take-or-pay revenue in excess of physical deliveries has been collected and deferred in addition to the $8 million that had been deferred at January 1, 2018. Revenue of $112 million related to take-or-pay deferral was recognized during the period, and the outstanding deferral as at September 30, 2018 was $3 million

Financial results reported for all 2017 periods have been restated to reflect the Corporate Reorganization and the retrospective adoption of IFRS 15.

Dividends

Third Quarter 2018 Conference Call & Webcast

Pembina will host a conference call on Friday, November 2, 2018 at 8:00 a.m. MT (10:00 a.m. ET) for interested investors, analysts, brokers and media representatives to discuss details related to the third quarter 2018 results. The conference call dial-in numbers for Canada and the U.S. are 647-427-7450 or 888-231-8191. A recording of the conference call will be available for replay until November 9, 2018 at 11:59 p.m. ET. To access the replay, please dial either 416-849-0833 or 855-859-2056 and enter the password 7697531. A live webcast of the conference call can be accessed on Pembina's website at pembina.com under Investor Centre, Presentation & Events, or by entering: https://event.on24.com/wcc/r/1652776/3F954F3630A028629E570FDCB6625739 in your web browser. Shortly after the call, an audio archive will be posted on the website for a minimum of 90 days.

UNAUDITED SUPPLEMENTARY INFORMATION

Three Months ending September 30, 2018

Financial results reported for all 2017 periods have been restated to reflect the Corporate Reorganization and the adoption of IFRS 15.

Pipelines Division






3 Months Ended September 30

(unaudited)

Conventional
Pipelines

Transmission
Pipelines

Oil Sands

Pipelines

Total

($ millions, except where noted)

2018

2017(4)

2018

2017(4)

2018

2017(4)

2018

2017(4)

Financial Overview









Revenue(1)

320

214

47

23

61

58

428

295

Operating expenses(1)

65

55

11

5

23

21

99

81

Share of profit from equity accounted investees

65

65

Realized loss on commodity-related derivative financial instruments

1

1

Unrealized gain on commodity-related derivative financial instruments

(1)

(1)

Depreciation and amortization included in operations

39

37

9

6

8

5

56

48

Gross profit

216

122

92

12

30

32

338

166

Proportionately Consolidated Financial Overview(2)









Revenue Volumes (mboe/d)(3)

946

715

571

38

1,076

1,087

2,593

1,840

Operating Margin(1)(2)

255

158

176

18

38

37

469

213

(1)

Includes Inter-Divisional transactions. See note 13 to the Interim Financial Statements.

(2)

Refer to "Non-GAAP Measures".

(3)

Revenue volumes are physical volumes plus volumes recognized from take-or-pay commitments.

(4)

Financial results reported for all 2017 periods have been restated to reflect the Corporate Reorganization and the adoption of IFRS 15.

 

Facilities Division





3 Months Ended September 30

(unaudited)

Gas Services

NGL Services

Total

($ millions, except where noted)

2018

2017(4)

2018

2017(4)

2018

2017(4)

Financial Overview







Revenue(1)

136

105

241

125

377

230

Net revenue (2)

134

103

110

88

244

191

Operating expenses(1)

44

32

32

22

76

54

Share of profit from equity accounted investees

16

2

18

Depreciation and amortization included in operations

24

18

13

16

37

34

Gross profit

82

53

67

50

149

103

Proportionately Consolidated Financial Overview(2)







Revenue Volumes (mboe/d)(3)

669

486

203

188

872

674

Operating Margin(1)(2)

141

71

82

72

223

143

(1)

Includes Inter-Divisional transactions. See note 13 to the Interim Financial Statements.

(2)

Refer to "Non-GAAP Measures".

(3)

Revenue volumes are physical volumes plus volumes recognized from take-or-pay commitments. Volumes are stated in mboe/d, with natural gas volumes converted to mboe/d from MMcf/d at a 6:1 ratio.

(4)

Financial results reported for all 2017 periods have been restated to reflect the Corporate Reorganization and adoption of IFRS 15.

 

Marketing & New Ventures Division





3 Months Ended September 30




(unaudited)

Marketing

New Ventures(4)

Total

($ millions, except where noted)

2018

2017(3)

2018

2017(3)

2018

2017(3)

Financial Overview







Revenue(1)

1,341

575

1,341

575

Cost of goods sold(1)

1,239

504

1,239

504

Net revenue(2)

102

71

102

71

Share of profit from equity accounted investees

27

27

Realized loss on commodity-related derivative financial instruments

29

16

29

16

Unrealized loss on commodity-related derivative financial instruments

45

45

Depreciation and amortization included in operations

9

7

9

7

Gross profit

91

3

91

3

Proportionately Consolidated Financial Overview(2)







Total Marketed NGL Volumes (mboe/d)

160

107

160

107

Operating Margin(1)(2)

111

55

111

55

(1)

Includes Inter-Divisional transactions. See note 13 to the Interim Financial Statements.

(2)

Refer to "Non-GAAP Measures".

(3)

Financial results reported for all 2017 periods have been restated to reflect the Corporate Reorganization and adoption of IFRS 15.

(4)

All New Ventures projects have not yet commenced operations and therefore have no results of operations.

 

INVESTMENTS IN EQUITY ACCOUNTED INVESTEES

Investments in Equity Accounted Investees include:

Pipelines Division

Facilities Division

Marketing & New Ventures Division

Share of Profit and Proportionately Consolidated Operating Margin and Adjusted EBITDA






3 Months Ended September 30, 2018

(unaudited)

($ millions, except where noted)

Pipelines Division

Facilities
Division

Marketing &
New
Ventures
Division




Alliance

Ruby

Veresen
Midstream

Aux Sable(3)

Other(4)

Total

Total Volumes, net (mboe/d)(1)

139

89

86

37

351

Operating Margin(2)

90

50

51

38

4

233

General and administrative

11

2

1

5

19

Adjusted EBITDA(2)

79

48

50

33

4

214

Finance costs and other

9

11

13

3

(1)

35

Depreciation and amortization

36

18

21

3

3

81

Share of earnings in excess of equity interest

12

12

Share of profit of Investments in Equity Accounted Investees

34

31

16

27

2

110



(1)

Total revenue volumes. Revenue volumes are physical volumes plus volumes recognized from take-or-pay commitments. Volumes are stated in mboe/d, with natural gas volumes converted to mboe/d from MMcf/d at a 6:1 ratio.

(2)

Refer to "Non-GAAP Measures".

(3)

Aux Sable volumes include marketed NGL volumes.

(4)

Includes interest in Fort Corp (Facilities Division), Grand Valley (Pipelines Division) and CKPC (Marketing & New Ventures Division).

 

Distributions by Investments in Equity Accounted Investees to Pembina


3 Months Ended September 30, 2018

(unaudited)

($ millions)

Alliance

68

Ruby

30

Veresen Midstream

31

Aux Sable

38

Other(1)

3

Total Distributions from Investments in Equity Accounted Investees (per Pembina's Consolidated Statement of Cash Flows)

170

(1)

Distributions from Fort Corp. and Grand Valley

 

Loans and Borrowings Amortization Schedule of Investments in Equity Accounted Investees










(unaudited)

($ millions) (1)

9 Months Ended
September 30,
2018(2)

Balance of
2018(3)

2019(3)

2020(3)

2021(3)

2022+(3)

Total(3)









Fixed Maturity








Alliance

32

32

126

65

65

265

553

Ruby(4)

59

38

148

57

28

307

578

Veresen Midstream

10

9

36

36

36

1,022

1,139

Aux Sable

1

1

1

Other

1

1

24

2

2

26

55


103

81

334

160

131

1,620

2,326









Revolving








Alliance

111

111

Veresen Midstream(4)

37

37

Other

1

13

13


1

13

111

37

161









Total

104

81

347

160

242

1,657

2,487

(1)

Balances reflect Pembina's ownership percentage of the reported balance.

(2)

Balances reflect payments that occurred during the nine-month period ended September 30, 2018.

(3)

Balances presented at face value remaining at September 30, 2018.

(4)

Reflects recent changes as described further under "Financing Activity" in the September 30, 2018 MD&A.

 

About Pembina

Calgary-based Pembina Pipeline Corporation is a leading transportation and midstream service provider that has been serving North America's energy industry for over 60 years. Pembina owns an integrated system of pipelines that transport various hydrocarbon liquids and natural gas products produced primarily in western Canada. The Company also owns gas gathering and processing facilities and an oil and natural gas liquids infrastructure and logistics business. Pembina's integrated assets and commercial operations along the majority of the hydrocarbon value chain allow it to offer a full spectrum of midstream and marketing services to the energy sector.  Pembina is committed to identifying additional opportunities to connect hydrocarbon production to new demand locations through the development of infrastructure that would extend Pembina's service offering even further along the hydrocarbon value chain. These new developments will contribute to ensuring that hydrocarbons produced in the Western Canadian Sedimentary Basin and the other basins where Pembina operates can reach the highest value markets throughout the world.

Pembina strives to provide sustainable, industry-leading total returns for our investors; reliable and value-added services for our customers; a net positive impact to communities; and a safe, respectful, collaborative and fair work culture for our employees. 

Pembina's strategy is to:

Pembina is structured into three Divisions: Pipelines Division, Facilities Division and Marketing & New Ventures Division.

Pembina's common shares trade on the Toronto and New York stock exchanges under PL and PBA, respectively. For more information, visit www.pembina.com.

Forward-Looking Statements and Information

This document contains certain forward-looking statements and information (collectively, "forward-looking statements"), including forward-looking statements within the meaning of the "safe harbor" provisions of applicable securities legislation, that are based on Pembina's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. In some cases, forward-looking statements can be identified by terminology such as "continue", "anticipate", "schedule", "will", "expects", "estimate", "potential", "planned", "future" and similar expressions suggesting future events or future performance.

In particular, this document contains forward-looking statements, including certain financial outlook, pertaining to, without their limitation, the following: Pembina's corporate strategy; expectations about commodity pricing industry activities and development opportunities; expectations about future growth opportunities and demand for our service; expectations regarding new corporate developments and impact on access to markets; anticipated adjusted EBITDA projections for 2018 and financial performance expectations resulting from Pembina's capital expenditures; planning, construction, capital expenditure estimates, schedules, regulatory and environmental applications and approvals, expected capacity, incremental volumes, in-service dates, rights, activities and operations with respect to planned new construction of, or expansions on existing pipelines, gas services facilities, fractionation facilities, terminalling, storage and hub facilities, facility and system operations and throughput levels; anticipated synergies between assets under development, assets being acquired and existing assets of the Company; the future level and sustainability of cash dividends that Pembina intends to pay its shareholders, including the expected future cash flows and the sufficiency thereof.

The forward-looking statements are based on certain assumptions that Pembina has made in respect thereof as at the date of this news release regarding, among other things: oil and gas industry exploration and development activity levels and the geographic region of such activity; the success of Pembina's operations and growth projects; prevailing commodity prices and exchange rates and the ability of Pembina to maintain current credit ratings; the availability of capital to fund future capital requirements relating to existing assets and projects; future operating costs; geotechnical and integrity costs; that any third-party projects relating to Pembina's growth projects will be sanctioned and completed as expected; that any required commercial agreements can be reached; that all required regulatory and environmental approvals can be obtained on the necessary terms in a timely manner; that counterparties will comply with contracts in a timely manner; that there are no unforeseen events preventing the performance of contracts or the completion of the relevant facilities; that there are no unforeseen material costs relating to the facilities which are not recoverable from customers; prevailing interest and tax rates; prevailing regulatory, tax and environmental laws and regulations; maintenance of operating margins; the amount of future liabilities relating to lawsuits and environmental incidents; and the availability of coverage under Pembina's insurance policies (including in respect of Pembina's business interruption insurance policy).

Although Pembina believes the expectations and material factors and assumptions reflected in these forward-looking statements are reasonable as of the date hereof, there can be no assurance that these expectations, factors and assumptions will prove to be correct. These forward-looking statements are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties including, but not limited to: the regulatory environment and decisions; the impact of competitive entities and pricing; labour and material shortages; reliance on key relationships and agreements; the strength and operations of the oil and natural gas production industry and related commodity prices; non-performance or default by counterparties to agreements which Pembina or one or more of its affiliates has entered into in respect of its business; actions by governmental or regulatory authorities including changes in tax laws and treatment, changes in royalty rates, climate change initiatives or policies or increased environmental regulation; the failure to realize the anticipated benefits or synergies of acquisitions due to the factors set out herein, integration issues or otherwise; fluctuations in operating results; adverse general economic and market conditions in Canada, North America and worldwide, including changes, or prolonged weaknesses, as applicable, in interest rates, foreign currency exchange rates, commodity prices, supply/demand trends and overall industry activity levels; ability to access various sources of debt and equity capital; changes in credit ratings; counterparty credit risk; technology and cyber security risks; and certain other risks detailed from time to time in Pembina's public disclosure documents available at www.sedar.com, www.sec.gov and through Pembina's website at www.pembina.com.

This list of risk factors should not be construed as exhaustive. Readers are cautioned that events or circumstances could cause results to differ materially from those predicted, forecasted or projected. The forward-looking statements contained in this document speak only as of the date of this document. Pembina does not undertake any obligation to publicly update or revise any forward-looking statements or information contained herein, except as required by applicable laws. Readers are cautioned that management of Pembina approved the financial outlook contained herein as of the date of this press release. The purpose of the 2018 Adjusted EBITDA projection is to provide investors with an indication of the value to Pembina of capital projects that have been and will be brought into service in 2018, and the closing of the acquisition of Veresen on 2018 full-year financial results. Readers should be aware that the information contained in the financial outlook contained herein may not be appropriate for other purposes. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

Non-GAAP Measures

In this news release, Pembina has used the terms net revenue, operating margin, adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), Adjusted EBITDA per common share, cash flow from operating activities per common share, adjusted cash flow from operating activities per common share, which do not have any standardized meaning under IFRS ("Non-GAAP Measures"). Since Non-GAAP financial measures do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies, securities regulations require that Non-GAAP financial measures are clearly defined, qualified and reconciled to their nearest GAAP measure. These Non-GAAP measures are calculated and disclosed on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods. The intent of Non-GAAP measures is to provide additional useful information respecting Pembina's financial and operational performance to investors and analysts and the measures do not have any standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS.

Non-GAAP Proportionate Consolidation of Investments in Equity Accounted Investees Results

In accordance with IFRS, Pembina's jointly controlled investments are accounted for using equity accounting. Under equity accounting, the assets and liabilities of the investment are net into a single line item in the Consolidated Statement of Financial Position, Investments in Equity Accounted Investees. Net earnings from Investments in Equity Accounted Investees are recognized in a single line item in the Consolidated Statement of Earnings and Comprehensive Earnings, share of profit from equity accounted investees. Cash contributions and distributions from Investments in Equity Accounted Investees represent Pembina's proportionate share paid and received in the period to and from the equity accounted investment.

To assist the readers' understanding and evaluation of the performance of these investments, Pembina is supplementing the IFRS disclosure with Non-GAAP disclosure of Pembina's proportionately consolidated interest in the Investments in Equity Accounted Investees. Pembina's proportionate interest in Investments in Equity Accounted Investees has been included in operating margin, Adjusted EBITDA and other reconciling line items to IFRS. A reconciliation of operating margin and Adjusted EBITDA to share of profit from equity accounted investees can be found under the heading "Proportionately Consolidated Results by Investments in Equity Accounted Investees".

Other issuers may calculate these Non-GAAP measures differently. Investors should be cautioned that these measures should not be construed as alternatives to revenue, earnings, cash flow from operating activities, gross profit or other measures of financial results determined in accordance with GAAP as an indicator of Pembina's performance. For additional information regarding Non-GAAP measures, including reconciliations to measures recognized by GAAP, please refer to Pembina's management's discussion and analysis for the period ended September 30, 2018, which is available online at www.sedar.com, www.sec.gov and through Pembina's website at www.pembina.com.

For further information:
Investor Relations: Cameron Goldade, Vice President Capital Markets, (403) 231-3156, 1-855-880-7404, E-mail: investor-relations@pembina.com, www.pembina.com

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