All financial figures are approximate and in Canadian dollars
unless otherwise noted. This news release refers to adjusted
earnings before interest, taxes, depreciation and amortization
("adjusted EBITDA"), the ratio of adjusted funds from
operations to adjusted debt, and fee-based distributable cash flow,
which are financial measures that are not defined by
Generally Accepted Accounting Principles ("GAAP"). For more
information see "Non-GAAP Measures" herein.
CALGARY, March 18, 2020 /PRNewswire/ - In response to
the COVID-19 pandemic and the recent significant decline in global
energy prices, Pembina Pipeline Corporation ("Pembina" or the
"Company") is taking action to protect all of our stakeholders.
Pembina's action plan is focused on protecting the health of our
employees and communities and ensuring a decisive response for
customers and investors including a $900
million to $1.1 billion
overall reduction to the Company's 2020 capital spending plans.
"In these challenging times, Pembina's priorities include
protecting the health and safety of our staff and communities,
ensuring critical infrastructure continues to operate safely and
reliably, and maintaining our strong financial position. We are
confident we are taking the necessary steps to allow us to
successfully achieve these objectives," stated Mick Dilger, Pembina's President and Chief
Executive Officer.
Mr. Dilger added, "Over the past many years, Pembina has been
making its business better, not just bigger, through focused
diversification efforts. The acquisition of high-quality assets
such as the Alliance and Cochin
pipelines and the Edmonton Terminal storage assets, combined with
the development of highly contracted assets such as the Peace
Pipeline system and the Duvernay Complex, has diversified Pembina
across commodities and credit-worthy counterparties, while also
substantially growing our basin and currency diversification. These
actions, combined with our self-funding model, strong balance sheet
and high contract quality all result in a high-quality, resilient
cash flow stream, which allows us to protect our dividend, as we
have always done through past downturns.
We have many levers at our disposal. We entered 2020 expecting a
more tempered contribution from our commodity business relative to
the past two years, as reflected in our guidance range. Based on
the resilience of the business and the decisive actions we are
announcing today, we remain within our projected guidance range,
while still maintaining significant future upside given our suite
of high-quality growth projects and strong financial position."
"I want to thank our amazing employees who have successfully
transitioned to a 'work-from-home' environment in such a short
time. Despite recent events, we are executing well and are
confident that we can meet the expectations of all of Pembina's
stakeholders," concluded Mr. Dilger.
Doing our part to protect people and communities
Safety is our first priority at Pembina and we continue to take
steps to protect the health of our staff and the public in response
to the COVID-19 pandemic.
COVID-19 is a global public health challenge and we are doing
our part in support of government and community efforts to slow
down the spread of the virus. In line with recommendations from
health authorities, we have restricted business travel, cancelled
large group meetings and are requiring non-essential employees and
contractors who can work from home to do so.
Doing our part for customers
Pembina has taken steps to determine the essential staff and
critical infrastructure required to ensure uninterrupted service to
our customers while maintaining the safety of our assets, employees
and other stakeholders. We are focused on processing and
transporting the maximum amount of product for our customers, thus
supporting their cashflow.
Taking immediate and decisive action for investors
In light of the rapid and significant decline in global energy
prices and uncertainty as to the duration of this downturn, Pembina
has made the prudent decision to defer some of its previously
announced expansion projects to reflect the current market reality.
The following projects will be deferred:
- Peace Pipeline Phase VII, VIII and IX expansions, representing
$1.55 billion of total capital;
- Empress Co-generation Facility, representing $120 million of capital;
- Prince Rupert Terminal Expansion, representing $175 million of capital; and
- Pembina's investment in the integrated propane dehydrogenation
plant and polypropylene upgrading facility, representing
$2.7 billion of capital, net to
Pembina.
In addition to deferring capital spending on these major
projects, additional discretionary capital spending has been
removed from Pembina's 2020 capital budget.
The impact of these measures results in a reduction of
$900 million to $1.1 billion, or approximately 40 to 50 percent,
to the Company's previously announced 2020 capital budget of
$2.3 billion. Pembina now expects its
revised 2020 capital budget to be $1.2
billion to $1.4 billion. These
spending reductions will be directed towards reducing Pembina's
leverage and enhancing its financial position. Importantly, these
measures will have no impact on Pembina's existing base business or
its ability to continue to operate safely and reliably.
Pembina will advance its focus on optimization activities, which
we believe can create additional incremental pipeline capacity with
minimal capital spending and support producers' near-term
production growth. Additionally, we intend to focus our remaining
capital spending on key constrained segments of the pipelines to
ensure maximum flexibility to meet customers' needs and fulfill
existing producer volume commitments.
Planning, engineering and regulatory work done to date on the
deferred projects will allow Pembina to quickly resume these
projects to meet our customers' needs when global energy prices and
the broader economic environment support such action. Until then,
we will continue to work with our producing customers to evaluate
their midstream service needs in light of the current commodity
price environment.
Given their advanced stage of construction, Pembina still
expects to place approximately $1.3
billion, net to Pembina, of new projects into service during
2020, including the Peace Pipeline Phase VI Expansion, Duvernay
III, Empress Fractionation, Hythe Developments and the initial
phase of the Prince Rupert Terminal, among others, to support
Pembina's growth in 2020 and beyond.
The deferred projects were expected to come into service largely
in 2021 through 2023 and therefore will not materially impact
Pembina's 2020 adjusted EBITDA. At this time, Pembina believes
it has taken action, which will enable the Company to remain within
the previously disclosed guidance range, albeit forecasted to be
near the lower end thereof.
"Pembina's business is resilient and remains strong in the face
of these current challenges. An unwavering commitment to our
financial guardrails has been a guiding principle for many years
and, as a result, Pembina is well positioned. These guardrails, in
addition to actions recently taken, highlight our ability to
preserve our already strong balance sheet while funding our ongoing
business, including the reduced 2020 capital program," said
Scott Burrows, Pembina's Senior Vice
President and Chief Financial Officer.
- The underlying business remains highly contracted, with
approximately 85 percent of 2019 adjusted EBITDA supported by
long-term, fee-based contracts, including approximately 62 percent
coming from cost-of-service or take-or-pay contracts with no volume
or price risk.
- Direct commodity exposure in Pembina's business is limited to
the Marketing & New Ventures Division. The Marketing & New
Ventures Division represented approximately 15 percent of Pembina's
overall adjusted EBITDA in 2019 and approximately 45 percent was
generated by natural gas and natural gas liquids marketing
activities and 55 percent by crude oil and condensate marketing
activities. In 2020, Pembina has hedged 50 percent of its frac
spread exposure, excluding Aux
Sable, at average levels for the calendar year which are
approximately 70 to 80 percent above the forward strip implied
levels as of March 17, 2020.
- Approximately 80 percent of the Company's credit exposure is
with investment grade and split-rated counterparties as well as
counterparties secured by letters of credit. Further,
non-investment grade and split-rated counterparty exposure is
diversified across various industries.
- The balance sheet is strong. Pembina is rated BBB with a Stable
outlook by Standard & Poor's ("S&P") and BBB with a Stable
trend by DBRS Limited. During the last oil price shock in
2014-2016, Pembina's BBB rating remained intact and the Company is
fully committed to protecting its BBB rating once again. For the
year ended December 31, 2019,
Pembina's ratio of adjusted funds from operations to adjusted debt,
as defined by S&P's methodology, was 18.4 percent, which is
comfortably within the upper end of the agency's stipulated range
for a BBB rating for Pembina of 15 to 20 percent. After normalizing
for the effect of the acquisition of Kinder Morgan Canada Limited
and the U.S. portion of the Cochin Pipeline, namely the
December 16, 2019 closing date, 16
days of contribution to our 2019 results and the debt funding
incurred, that same ratio was approximately 23 percent –
significantly above the BBB range.
- Pembina has ample liquidity, with $1.5
billion of available cash and borrowing capacity on its
credit facility as of March 17, 2020,
plus an additional $750 million of
capacity through an accordion feature (subject to the usual
conditions, including consent of the lenders) and this facility
does not mature until 2024. The overall weighted average life of
Pembina's debt is 12.7 years, with only $73
million of medium-term notes maturing in 2020 and less than
15 percent of Pembina's debt maturities occurring through
2022.
- Pembina's common share dividend of $0.21 per share per month is more than covered by
fee-based cash flows, meaning the Company is not reliant on the
direct commodity price exposed portion of the business to support
the dividend. In 2019, Pembina's common share dividend represented
only 73 percent of fee-based distributable cash flow, or an all-in
dividend payout ratio of 54 percent. As well, following the
$0.01 per share increase to Pembina's
monthly dividend that took effect in January
2020, the Company's Board of Directors does not intend to
proceed with an additional dividend increase for the remainder of
2020.
- Pembina is continuing to progress work started earlier this
year to pursue non-core assets sales in the range of $200 to $500
million.
Pembina's greatest assets are our people and the relationships
we have with our customers, investors and the communities in which
we have a presence. We will continue to keep our stakeholders top
of mind and supported as we navigate through these events. We stand
by prepared to adjust our response as needed and will continue to
base our decisions on recommendations from public health experts,
our ongoing evaluation of global energy prices and the impact on
Pembina's and our customers' businesses.
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 65 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; an oil and natural gas liquids
infrastructure and logistics business; is growing an export
terminals business; and is currently developing a petrochemical
facility to convert propane into polypropylene. 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.
Purpose of Pembina:
To be the leader in delivering integrated infrastructure
solutions connecting global markets;
- Customers choose us first for reliable and value-added
services;
- Investors receive sustainable industry-leading total
returns;
- Employees say we are the 'employer of choice' and value
our safe, respectful, collaborative and fair work culture; and
- Communities welcome us and recognize the net positive
impact of our social and environmental commitment.
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 PPL and PBA, respectively. For
more information, visit www.pembina.com.
Forward-Looking Information and Statements
This document contains certain forward-looking statements and
forward-looking 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 outlooks, pertaining to,
without limitation, the following: Pembina's corporate strategy,
including the reduction to its 2020 capital spending program, the
deferral of certain expansion projects and the pursuit of certain
non-core asset sales; capital spending plans and expectations,
including the focus on reducing leverage; expected financial
results and performance for 2020; expectations about industry
activities and development opportunities; expectations about future
growth opportunities and demand for our services; expectations
regarding new corporate developments; planning, construction,
capital expenditure estimates, schedules, locations, 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; the future
level and sustainability of cash dividends that Pembina intends to
pay its shareholders and 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; 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 strength and operations of the oil and natural gas
production industry and related commodity prices; the regulatory
environment and decisions; the impact of competitive entities and
pricing; labour and material shortages; reliance on key
relationships and agreements; 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 (including the acquisition of Kinder Morgan Canada
Limited and the U.S. portion of the Cochin Pipeline), 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; risks relating to widespread epidemics or
pandemic outbreaks, including the COVID-19 pandemic; the 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.
The estimates of 2020 adjusted EBITDA set forth in this press
release may be considered to be future-oriented financial
information or a financial outlook for the purposes of applicable
Canadian securities laws. Financial outlook and future-oriented
financial information contained in this press release about
prospective financial performance (including future expected
adjusted EBITDA) are based on assumptions about future events,
including economic conditions and proposed courses of action, based
on management's assessment of the relevant information currently
available and to become available in the future. These projections
contain forward-looking statements and are based on a number of
material assumptions and factors set out above. Actual results may
differ significantly from the projections presented herein. See
above for a discussion of the risks that could cause actual results
to vary. The future-oriented financial information and financial
outlook contained in this press release have been approved by
management as of the date of this press release. Readers are
cautioned that any such financial outlook and future oriented
financial information contained herein should not be used for
purposes other than those for which it is disclosed herein. Pembina
and its management believe that the prospective financial
information has been prepared on a reasonable basis, reflecting
management's best estimates and judgments, and represent, to the
best of management's knowledge and opinion, the Company's expected
course of action. However, because this information is highly
subjective, it should not be relied on as necessarily indicative of
future results.
This list of risk factors above 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. 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 adjusted
EBITDA, including 2020 adjusted EBITDA guidance, the ratio of
adjusted funds from operations to adjusted debt and fee-based
distributable cash flow, which do not have any standardized meaning
under GAAP. Since these 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 be
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 GAAP. The ratio of adjusted funds from operations to
adjusted debt is a ratio defined and used by Pembina's rating
agencies in the evaluation of the Company's credit worthiness.
Fee-based distributable cash flow is defined as wholly owned
fee-based adjusted EBITDA plus the fee-based portion of
distributions from equity accounted investees, less preferred share
dividends, interest and illustrative cash taxes. Management
believes fee-based distributable cash flow provides investors with
a useful figure, which shows Pembina's historical ability to pay
dividends on its common shares. The measures should not be
considered in isolation or used in substitute for measures of
performance prepared in accordance with GAAP.
Other issuers may calculate these non-GAAP measures
differently. Investors should be cautioned that these measures
should not be construed as alternatives to earnings, cash flow from
operating activities 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, the most directly
comparable measures recognized by GAAP, please refer to Pembina's
management's discussion and analysis for the year ended
December 31, 2019, which is available online at www.sedar.com,
www.sec.gov and through Pembina's website at
www.pembina.com.
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