All financial figures are approximate and in Canadian dollars
unless otherwise noted.
CALGARY, AB, March 1, 2022 /CNW/ - Pembina Pipeline
Corporation ("Pembina" or the "Company") (TSX: PPL) (NYSE: PBA)
today announced that it has entered into definitive agreements with
KKR to combine their respective western Canadian natural gas
processing assets into a single, new joint venture entity
("Newco"), which will be owned 60 percent by Pembina and 40 percent
by KKR's global infrastructure funds. Pembina will serve as the
operator and manager of Newco. Included in the transaction are
Pembina's field-based natural gas processing assets, the Veresen
Midstream business (currently owned 55 percent by funds managed by
KKR and 45 percent by Pembina), and the business currently carried
on by Energy Transfer Canada ("ETC") (currently owned 49 percent by
funds managed by KKR). Concurrently with closing of the joint
venture transaction, Newco will also acquire Energy Transfer LP's
remaining 51 percent interest in ETC. Collectively, the ascribed
value of these transactions totals $11.4
billion, excluding the value of assets under
construction.
Highlights
- Brings together three complementary platforms to create a
premier, highly competitive western Canadian gas processing entity
with the ability to serve customers throughout the Montney and Duvernay trends from north central
Alberta to northeast British Columbia ("NEBC").
- Approximately $700 million of
cash proceeds to Pembina expected upon closing, with approximately
$550 million expected to be deployed
for debt repayment and approximately $150
million for additional common share repurchases.
- Efficiencies from the combination of three platforms, enabling
cost reductions and an enhanced customer service offering.
- Increases Pembina's ownership in Veresen Midstream and exposure
to increasing LNG-driven volume growth in NEBC in a capital
efficient manner.
- Mid to high single digit accretion to Pembina's adjusted cash
flow from operating activities per share1 over the next
five years.
- Upon closing, Pembina intends to increase its common share
dividend by $0.0075 per share per
month, or 3.6 percent.
- Area of mutual interest for natural gas processing in western
Canada provides strong structural
alignment for joint venture partners.
- Well-capitalized entity able to pursue future opportunities in
a capital efficient manner.
_________________________________
1
|
Adjusted cash flow from
operating activities per share is a non-GAAP ratio. See "Non-GAAP
and Other Financial Measures" herein.
|
"Pembina has enjoyed a strong relationship with KKR as a partner
in Veresen Midstream over the past four years," said Scott Burrows, Pembina's President and CEO. "We
work well together and share a mutual desire to invest capital and
generate attractive returns. The formation of this new joint
venture is a natural extension of our relationship, unlocks value
for Pembina and creates another growth platform. We are extremely
pleased to be creating this exciting new company with KKR to drive
real synergies and deliver a wider suite of commercial
opportunities."
"We have developed a great, trusted relationship with Scott,
Jaret and the industry-leading team at Pembina and we are thrilled
to be deepening that partnership with today's strategic
combination," said Brandon Freiman,
Partner and Head of North American Infrastructure at KKR.
"Importantly, we share Pembina's views on the positive and
essential role that Canadian natural gas plays within the global
energy transition and we are pleased to combine these assets to
create a stronger platform to meet that opportunity."
Paul Workman, Director at KKR,
added, "The industrial logic of combining these three complementary
businesses in a fully-aligned partnership is compelling. We believe
that a well-capitalized, customer-oriented private partnership
between KKR and one of Canada's
leading infrastructure companies is incredibly well-positioned to
create value for our investors, customers and the communities in
which we operate."
Strategic Rationale
Pembina has owned and operated natural gas processing
infrastructure in western Canada
since 2009. These operations provide Pembina with a long-term,
fee-based cash flow stream, while enhancing Pembina's ability to
serve its customer base by delivering natural gas liquids
extraction capabilities and offering egress certainty, thereby
providing additional value and a higher service offering for our
customers. As the energy sector has evolved, the opportunities
available from bespoke partnerships between public and private
infrastructure owners have become more compelling, particularly in
the natural gas processing business.
By partnering with KKR in Newco, Pembina intends to extend its
strong operating foundation, focused on safety, reliability and
operational excellence, to a larger asset base across western
Canada. Pembina will realize
greater exposure to growing NEBC natural gas volumes in a capital
efficient manner through increased ownership in the Veresen
Midstream assets. The transaction is structured to create strong
alignment between Pembina and KKR, a leading global investment
firm. The combination of three adjacently located, high-quality
processing platforms will enable the joint venture to realize
incremental efficiencies and economies of scale. Pembina will also
receive strategic benefits through the diversification of its
natural gas processing asset suite and customer base.
Newco Asset Profile
Pembina will contribute to Newco its field-based gas processing
assets, which include the Cutbank Complex, the Saturn Complex, the
Resthaven Facility, the Duvernay Complex and the Saskatchewan
Ethane Extraction Plant, as well as its 45 percent interest in
Veresen Midstream.
Pembina's Empress, Younger and Burstall assets will be excluded from the
transaction and Pembina will retain its current ownership
position.
KKR will contribute the 55 percent interest in Veresen Midstream
and the 49 percent interest in ETC owned by its funds to the joint
venture. Newco has also agreed to acquire the remaining 51 percent
interest in ETC from Energy Transfer LP, aligning ownership of
those assets and driving additional efficiencies. The contribution
of Pembina's and KKR's assets to Newco, and Newco's acquisition of
51 percent of ETC from Energy Transfer LP, are cross-conditional
upon each other and will occur concurrently. Upon closing, Pembina
will own 60 percent of Newco and KKR will own 40 percent. Newco's
permanent name is expected to be announced prior to closing.
Collectively, the ascribed value of these transactions totals
$11.4 billion, excluding the value of
assets under construction related to Newco's 50 percent,
non-operated interest in the Key Access Pipeline System ("KAPS")
project. As part of the transactions, Pembina and KKR intend to
dispose of Newco's non-operated interest in KAPS following closing
of the transaction, subject to receiving acceptable purchase terms
through the sale process.
_________________________________
For more information
on Pembina's significant assets, including as such relate to
definitions for capitalized terms used herein and not otherwise
defined, refer to Pembina's Annual Information Form (the "AIF")
available at www.sedar.com (filed with the U.S. Securities and
Exchange Commission at www.sec.gov under Form 40-F) and at
www.pembina.com.
|
Key Metrics
|
Pembina
Assets
|
Veresen
Midstream
|
Energy Transfer
Canada
|
Newco
Combined (2)
|
Processing
Capacity
|
~ 2 bcf/d
(1)
|
1.7 bcf/d
|
1.3 bcf/d
|
~ 5
bcf/d
|
Processing
Facilities
|
15 (6 deep
cut)
|
5
|
5
|
25
|
Gathering and
Transportation Pipelines
|
~650 km
|
~1,300 km
|
~1,400 km
|
~3,350
km
|
2022E Adjusted EBITDA
(million) (3) (4)
|
$300
|
$500
|
$150
|
$950
|
1.
|
Represents Pembina's
net processing capacity.
|
2.
|
All values are 100%
gross to Newco.
|
3.
|
Assuming status quo
treatment of leases under IFRS 16 and U.S. GAAP.
|
4.
|
Adjusted earnings
before interest, taxes, depreciation and amortization ("EBITDA") is
a non-GAAP financial measure. See "Non-GAAP and Other
Financial Measures" herein.
|
In addition, Newco's business is expected to have the following
characteristics:
- Physical capacity utilization of approximately 65 percent,
offering a strong base cash flow stream and incremental low cost
processing capacity to meet customers' evolving needs.
- Contract tenures ranging from five to nearly 25 years, with an
average of 14 years.
- Approximately 94 percent of the operating expenses across the
asset portfolio are flow-through.
- Approximately 80 percent of counterparty credit exposure is
with investment grade or secured entities.
- Tax pools of approximately $4.6
billion.
Newco Structure and Governance
Capital Structure
Newco is intended to have an investment grade capital structure,
consistent with Pembina's financial guardrails, with target
leverage of 3.5 to 4.0 times debt-to-EBITDA. The entity will be
independently funded and has obtained commitments for $4.75 billion of senior unsecured credit
facilities. These commitments are comprised of a five-year,
$3.9 billion drawn term loan
facility, a three-year $250 million
undrawn revolving credit facility, a $50
million operating facility, as well as a dedicated
$550 million revolving credit
facility to support the construction of KAPS. No scheduled
amortization payments are required on the facilities. Total drawn
amounts under the facilities are expected to be approximately
$4.3 billion upon closing.
Governance
Pembina will serve as the manager and operator of Newco,
enabling the joint venture to benefit from Pembina's operating
capabilities, institutional knowledge, and management systems.
Newco will be led by Chris Rousch,
current President and CEO of Veresen Midstream. With alignment
being a governing principle, the joint venture includes area of
mutual interest ("AMI") provisions whereby Pembina and KKR have
agreed to pursue field-based natural gas gathering and processing
assets in western Canada within
Newco. The shareholder agreement includes certain governance and
liquidity provisions, including right of first offer ("ROFO"),
right of first refusal ("ROFR"), and tag-along provisions.
Environmental, Social and Governance
Newco will adhere to, and build on, Pembina's and KKR's strong
program of continuously improving environmental, social and
governance ("ESG") performance. The partnership will integrate ESG
considerations into its governance structure and long-term business
strategy.
Newco assets will be included in Pembina's target of taking
concrete action to achieve a 30 percent reduction in greenhouse gas
emissions intensity by 2030, against a 2019 baseline. Pembina's
policies and management systems related to health, safety,
environment, cybersecurity, Indigenous and community relations, and
other ESG matters will also be maintained at Newco. More
information on these initiatives can be found on Pembina's website
at www.pembina.com/sustainability.
An ESG strategy for Newco will be established following the
closing of the transactions. Initial priorities that Pembina and
KKR have identified for Newco include:
- Building upon Pembina's leading safety culture to continuously
reduce process and occupational safety incidents, with the ultimate
goal of zero incidents.
- Enhancing employee equity, diversity and inclusion across the
Newco assets.
- Embracing Pembina's commitment to meaningfully partnering and
engaging with Indigenous communities, with an aim of continuously
increasing the number of local Indigenous suppliers each year.
Financial Impact and Dividend Increase Following
Closing
Pembina expects the creation of this joint venture to generate
mid to high single digit accretion to adjusted cash flow per share
over the next five years. This accretion is expected to be driven
by a combination of the net impact of the purchase and sale
components of the transaction, synergies associated with combining
the operations of the three businesses, tax synergies, and the
planned repurchase of Pembina's common shares using cash proceeds
obtained from the transaction.
With target leverage of 3.5 to 4.0 times debt-to-EBITDA, Newco's
capital structure will align squarely with Pembina's financial
guardrails. Newco will not be consolidated into Pembina's financial
statements and will instead be accounted for as an equity accounted
investment.
Upon closing, Pembina expects to receive approximately
$700 million in after-tax cash
proceeds, subject to final closing adjustments, with $150 million expected to be devoted to additional
share repurchases and the remaining $550
million expected to be used to repay debt. With the
$150 million allocation to common
share repurchases through this transaction, Pembina's overall
repurchase target in 2022 will increase from $200 million to $350
million. Following the planned sale of Newco's non-operated
interest in KAPS, the KAPS construction facility is expected to be
repaid in full, and the remaining net proceeds will be distributed
to Pembina and KKR according to their ownership interests.
In connection with the transaction, and subject to approval and
declaration by its Board of Directors, Pembina also intends to
increase its common share dividend upon closing by $0.0075 per share per month, or 3.6 percent. The
increase reflects the immediate cash flow accretion from creation
of the joint venture and recognizes Pembina's long stranding track
record of a sustainable, growing dividend.
Closing
Completion of the transactions is subject to approval under the
Competition Act (Canada),
concurrent closing of the acquisition of Energy Transfer LP's 51
percent interest in ETC, and other customary closing conditions.
Closing is expected to occur late in the second quarter or third
quarter of 2022.
Conference Call & Webcast
Pembina will host a conference call and webcast to discuss the
transaction on Tuesday, March 1,
2022, at 8:00 am MT
(10:00 am ET). A presentation will be
available prior to the conference call at
http://www.pembina.com/investor-centre/presentations-and-events/.
The conference call dial-in numbers for Canada and the U.S. are 647-794-4605 or
1-888-204-4368. A recording of the conference call will be
available for replay until March 7,
2022. To access the replay, please dial either
1-888-203-1112 or 647-436-0148 and enter the passcode 6314863.
A live webcast of the call can be accessed on Pembina's website
at www.pembina.com or by entering
https://produceredition.webcasts.com/starthere.jsp?ei=1533498&tp_key=ef49bb49c4
in your web browser. Shortly after the call, an audio archive will
be posted on www.pembina.com for 90 days.
Advisors
RBC Capital Markets is acting as financial advisor to Pembina
and joint bookrunner with respect to the Newco credit facilities.
Blake, Cassels & Graydon LLP is acting as legal advisor to
Pembina. TD Securities is acting as financial advisor to KKR and
joint bookrunner and administration agent with respect to the Newco
credit facilities. Torys LLP is acting as legal advisor to KKR.
About Pembina
Pembina Pipeline Corporation is a leading energy transportation
and midstream service provider that has served North America's energy industry for more than
65 years. Pembina owns an integrated network of hydrocarbon liquids
and natural gas pipelines, gas gathering and processing facilities,
oil and natural gas liquids infrastructure and logistics services,
and a growing export terminals business. Through our integrated
value chain, we seek to provide safe and reliable infrastructure
solutions which connect producers and consumers of energy across
the world, support a more sustainable future and benefit our
customers, investors, employees and communities. For more
information, please visit pembina.com.
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 inclusive work
culture.
- 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.
Forward-Looking Information and Statements
This news release 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
"expects", "estimates", "anticipates", "projects", "plans", "will",
"would", "could", "potential", "continue", "commit" and similar
expressions suggesting future events or future performance.
In particular, this news release contains forward-looking
statements, including certain financial outlooks, pertaining to,
without limitation, the following: the joint venture transaction
between Pembina and KKR, including the terms thereof, including the
assets to be contributed by Pembina and KKR, the expected closing
date and the anticipated benefits thereof to Pembina, including the
anticipated synergies and efficiencies and the accretion to
Pembina's adjusted cash flow from operating activities per share;
the cash proceeds to Pembina from the joint venture transaction and
Pembina's expected use thereof to repay debt and repurchase common
shares; the post-closing business and assets of Newco, including
Pembina's role as manager and operator of Newco and the expected
processing capacity and utilization, cash flows, operating costs
and capital expenditures of Newco; Newco's capital structure,
including funding commitments, and the terms thereof, its target
leverage ratio and its impact on Pembina; the post-closing
ownership of Newco; the acquisition by Newco of the remaining 51%
interest in ETC, including the terms and expected timing thereof;
the proposed disposition by Newco of the KAPS project, including
the expected timing thereof and the anticipated repayment of the
KAPS construction facility and distribution of the remaining cash
proceeds to Pembina and KKR in connection therewith; 2022 adjusted
EBITDA expectations for the Pembina assets contributed to Newco,
Veresen Midstream, ETC and Newco; Pembina's future common share
dividends, including Pembina's intention to increase the amount
thereof following closing of the joint venture transaction; the
accounting treatment of Newco with respect to Pembina's financial
statements; and Newco's ESG strategy, including its priorities
thereunder.
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: the ability of
Pembina and KKR to satisfy the conditions to closing of the joint
venture transaction in a timely manner and substantially on the
terms described herein; the ability of Newco to satisfy the
conditions to closing of the acquisition of the remaining 51%
interest in ETC in a timely manner and substantially on the terms
described herein; that favourable circumstances continue to exist
in respect of the operation of the assets to be contributed to
Newco; that Newco's future results of operations will be consistent
with management expectations in relation thereto; oil and gas
industry exploration and development activity levels and the
geographic region of such activity; prevailing regulatory, tax and
environmental laws and regulations; the ability of Newco to
maintain an investment grade rating; future cash flows; prevailing
commodity prices, interest rates, carbon prices, tax rates and
exchange rates; the availability of capital to fund Newco's future
capital requirements; future operating costs; that all required
regulatory 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; that there are no unforeseen material
costs relating to the relevant facilities which are not recoverable
from customers; and maintenance of operating margins.
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 that could cause actual
events or results to differ materially, including, but not limited
to: the ability of the parties to receive, in a timely manner, the
necessary regulatory and other third-party approvals in connection
with closing of the joint venture transaction; the ability of
Pembina and KKR to satisfy, in a timely manner, the other
conditions to the closing of the joint venture transaction; the
ability of Newco to satisfy, in a timely manner, the conditions to
closing of the acquisition of the remaining 51% interest in ETC;
the failure to realize the anticipated benefits and/or synergies of
the joint venture transaction following closing due to integration
issues or otherwise; expectations and assumptions concerning, among
other things: customer demand for Newco's assets and services;
commodity prices, interest rates and foreign exchange rates;
planned synergies, operating and capital efficiencies and
cost-savings; applicable tax laws; future production rates; the
sufficiency of budgeted capital expenditures in carrying out
planned activities; labour and material shortages; non-performance
or default by counterparties to agreements entered into in respect
of Newco's business; the impact of competitive entities and
pricing; reliance on key relationships and agreements; reliance on
third parties to successfully operate and maintain certain assets;
the regulatory environment and decisions and Indigenous and
landowner consultation requirements; 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; 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 exchange rates, commodity prices, supply/demand trends and
overall industry activity levels; risks relating to the current and
potential adverse impacts of the COVID-19 pandemic; lower than
anticipated results of operations and cash flow accretion to
Pembina from Newco; the ability to access various sources of debt
and equity capital; changes in credit ratings; counterparty credit
risk; technology and cyber security risks; natural catastrophes;
and certain other risks and uncertainties detailed in Pembina's AIF
and Management's Discussion and Analysis dated February 24, 2022 for the year ended December 31, 2021 (the "MD&A") and 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. In addition, the closing of the joint venture
transaction may not be completed or may be delayed if Pembina's and
KKR's respective conditions to the closing are not satisfied on the
anticipated timelines or at all. Accordingly, there is a risk that
the joint venture transaction will not be completed within the
anticipated timeline, on the terms currently proposed and disclosed
in this news release or at all.
In respect of the forward-looking statements concerning the
anticipated increase in Pembina's common dividend following
completion of the joint venture transaction, Pembina has made such
forward-looking statements in reliance on certain assumptions that
it believes are reasonable at this time, including assumptions in
respect of: prevailing commodity prices, interest rates, margins
and exchange rates; that future results of operations will be
consistent with past performance, as applicable, and management
expectations in relation thereto, including in respect of Newco's
future results of operations; the continued availability of capital
at attractive prices to fund future capital requirements relating
to existing assets and projects, including but not limited to
future capital expenditures relating to expansion, upgrades and
maintenance shutdowns; future cash flows and operating costs; that
counterparties to material agreements will continue to perform in a
timely manner; that there are no unforeseen events preventing the
performance of contracts; that there are no unforeseen material
construction or other costs related to current growth projects or
current operations; and that there are no unforeseen material
construction or other costs related to current growth projects or
current operations. Pembina will also be subject to requirements
under applicable corporate laws in respect of declaring dividends
at such time.
The estimates of adjusted EBITDA and adjusted cash flow from
operating activities per share set forth in this news release may
be considered to be financial outlook for the purposes of
applicable Canadian securities laws. Financial outlook contained in
this news release about prospective financial performance,
financial position, or cash flows (including adjusted EBITDA and
adjusted cash flow from operating activities per share) 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 which may become
available in the future. These projections constitute
forward-looking statements and are based on a number of the
material factors and assumptions 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 financial outlook contained in this news release have
been approved by management as of the date of this news release.
Readers are cautioned that any such financial outlook contained
herein should not be used for purposes other than those for which
it is disclosed herein. Pembina and its management believe that the
financial outlook contained in this news release has been prepared
based on assumptions that are reasonable in the circumstances,
reflecting management's best estimates and judgments, and
represents, to the best of management's knowledge and opinion,
expected and targeted financial results. However, because this
information is highly subjective, it should not be relied on as
necessarily indicative of future results.
This list of risk factors should not be construed as
exhaustive. Readers are cautioned that events or circumstances
could cause actual results to differ materially from those
predicted, forecasted, or projected. The forward-looking statements
contained in this news release speak only as of the date hereof.
Pembina does not undertake any obligation to publicly update or
revise any forward-looking statements contained herein, except as
required by applicable laws. The forward-looking statements
contained in this news release are expressly qualified by this
cautionary statement.
Non-GAAP and Other Financial Measures
Throughout this news release, Pembina has disclosed certain
financial measures and ratios that are not defined in accordance
with GAAP and which are not disclosed in Pembina's financial
statements. Non-GAAP financial measures either exclude an amount
that is included in, or include an amount that is excluded from,
the composition of the most directly comparable financial measure
determined in accordance with GAAP. Non-GAAP ratios are financial
measures that are in the form of a ratio, fraction, percentage, or
similar representation that has a non-GAAP financial measure as one
or more of its components. These non-GAAP financial measures and
ratios are used by management to evaluate the performance and cash
flows of Pembina and its businesses and to provide additional
useful information respecting Pembina's financial performance and
cash flows to investors and analysts.
In this news release, Pembina has disclosed the following
non-GAAP financial measures and non-GAAP ratios: adjusted earnings
before interest, taxes, depreciation and amortization ("adjusted
EBITDA"), adjusted cash flow from operating activities, and
adjusted cash flow from operating activities per common share.
These non-GAAP financial measures and non-GAAP ratios disclosed in
this news release do not have any standardized meaning under
International Financial Reporting Standards ("IFRS") and may not be
comparable to similar financial measures disclosed by other
issuers. The measures should not, therefore, be considered in
isolation or as a substitute for, or superior to, measures of
Pembina's financial performance, or cash flows specified, defined,
or determined in accordance with IFRS, including revenue, earnings
and cash flow from operating activities.
Except as otherwise described herein, these non-GAAP
financial measures and non-GAAP ratios are calculated on a
consistent basis from period to period. Specific reconciling items
may only be relevant in certain periods.
Below is a description of each non-GAAP financial measure and
non-GAAP ratio disclosed in this news release, together with, as
applicable, disclosure of the most directly comparable
financial measure that is determined in accordance with GAAP to
which each non-GAAP financial measure relates and a quantitative
reconciliation of each non-GAAP financial measure to such directly
comparable GAAP financial measure. Additional information relating
to such non-GAAP financial measures, including disclosure of the
composition of each non-GAAP financial measure, an explanation of
how each non-GAAP financial measure provides useful information to
investors and the additional purposes, if any, for which management
uses each non-GAAP financial measure; an explanation of the reason
for any change in the label or composition of each non-GAAP
financial measure from what was previously disclosed; and a
description of any significant difference between forward-looking
non-GAAP financial measures and the equivalent historical non-GAAP
financial measures, is contained in the "Non-GAAP & Other
Financial Measures" section of the MD&A, which information is
incorporated by reference in this news release. The MD&A is
available on SEDAR at www.sedar.com, EDGAR at www.sec.gov and
Pembina's website at www.pembina.com.
Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization
Pembina has included in this news release 2022 adjusted
EBITDA projections, a forward-looking non-GAAP financial measure,
for (i) the Pembina assets to be contributed by Pembina to Newco,
(ii) Veresen Midstream, (iii) ETC and (iv) Newco, as it believes
such information is useful to investors and analysts in evaluating
the joint venture transaction with KKR and its expected impact on
Pembina. Pembina has not included disclosure of the historical
non-GAAP financial measure for such forward-looking non-GAAP
financial measures, including quantitative reconciliations of such
historical non-GAAP financial measures to their most directly
comparable GAAP financial measures, as such information is not
available. Pembina has, however, included additional information in
this news release with respect to Pembina's adjusted EBITDA, which
Pembina believes provides useful information to investors and
analysts in connection with such forward-looking non-GAAP financial
measures.
Adjusted EBITDA is a non-GAAP financial measure and is
calculated as earnings before net finance costs, income taxes,
depreciation and amortization (included in operations and general
and administrative expense) and unrealized gains or losses on
commodity-related derivative financial instruments. The exclusion
of unrealized gains or losses on commodity-related derivative
financial instruments eliminates the non-cash impact of such gains
or losses.
Adjusted EBITDA also includes adjustments to earnings for
losses (gains) on disposal of assets, transaction costs incurred in
respect of acquisitions, dispositions and restructuring, impairment
charges or reversals in respect of goodwill, intangible assets,
investments in equity accounted investees and property, plant and
equipment, certain non-cash provisions and other amounts not
reflective of ongoing operations. In addition, Pembina's
proportionate share of results from investments in equity accounted
investees with a preferred interest is presented in adjusted EBITDA
as a 50 percent common interest. These additional adjustments are
made to exclude various non-cash and other items that are not
reflective of ongoing operations.
Management believes that adjusted EBITDA provides useful
information to investors as it is an important indicator of an
issuer's ability to generate liquidity through cash flow from
operating activities and equity accounted investees. Management
also believes that adjusted EBITDA provides an indicator of
operating income generated from capital invested, which includes
operational finance income from lessor lease arrangements. Adjusted
EBITDA is also used by investors and analysts for assessing
financial performance and for the purpose of valuing an issuer,
including calculating financial and leverage ratios. Management
utilizes adjusted EBITDA to set objectives and as a key performance
indicator of the Company's success. Pembina presents adjusted
EBITDA as management believes it is a measure frequently used by
analysts, investors and other stakeholders in evaluating the
Company's financial performance.
12 Months Ended
December 31, 2021
|
($ millions, except
as noted)
|
Pipelines
|
Facilities
|
Marketing &
New Ventures
|
Corporate &
Inter-Segment
Eliminations
|
Total
|
Earnings (loss) before
income tax
|
917
|
715
|
391
|
(358)
|
1,665
|
Adjustments to share of
profit from equity accounted investees
and other
|
286
|
135
|
23
|
--
|
444
|
Net finance
costs
|
29
|
35
|
(8)
|
394
|
450
|
Depreciation and
amortization
|
413
|
214
|
50
|
46
|
723
|
Unrealized (gain) loss
on commodity-related derivative financial
instruments
|
--
|
(38)
|
(35)
|
--
|
(73)
|
Canadian Emergency Wage
Subsidy
|
--
|
--
|
--
|
3
|
3
|
Transformation and
restructuring costs
|
--
|
--
|
--
|
47
|
47
|
Transaction costs
incurred in respect of acquisitions
|
--
|
--
|
--
|
31
|
31
|
Arrangement Termination
Payment
|
--
|
--
|
--
|
(350)
|
(350)
|
Impairment charges and
non-cash provisions
|
457
|
36
|
(1)
|
1
|
493
|
Adjusted
EBITDA
|
2,102
|
1,097
|
420
|
(186)
|
3,433
|
Adjusted EBITDA from Equity Accounted Investees
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
presented net in 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 Income "Share of Profit from Equity
Accounted Investees". The adjustments made to earnings, in adjusted
EBITDA above, are also made to share of profit from investments in
equity accounted investees. Cash contributions and distributions
from investments in equity accounted investees represent Pembina's
share paid and received in the period to and from the investments
in equity accounted investees.
To assist in understanding and evaluating the performance of
these investments, Pembina is supplementing the IFRS disclosure
with non-GAAP proportionate consolidation of Pembina's interest in
the investments in equity accounted investees. Pembina's
proportionate interest in equity accounted investees has been
included in adjusted EBITDA.
12 Months Ended
December 31, 2021
|
|
($ millions, except
as noted)
|
Pipelines
|
Facilities
|
Marketing &
New Ventures
|
Total
|
Share of profit (loss)
from equity accounted investees – operations
|
124
|
80
|
77
|
281
|
Adjustments to share of
profit (loss) from equity accounted investees:
|
|
|
|
|
Net finance
costs
|
72
|
31
|
1
|
104
|
Depreciation and
amortization
|
156
|
104
|
22
|
282
|
Unrealized loss on
commodity-related derivative financial instruments
|
--
|
--
|
--
|
--
|
Share of earnings
(loss) in excess of equity interest(1)
|
58
|
--
|
--
|
58
|
Total adjustments to
share of profit from equity accounted investees
|
286
|
135
|
23
|
444
|
Impairment charges and
non-cash provisions
|
--
|
--
|
--
|
--
|
Adjusted EBITDA from
equity accounted investees
|
410
|
215
|
100
|
725
|
(1)
|
Pembina's proportionate
share of results from investments in equity accounted investees
with a preferred interest is presented in adjusted EBITDA as 50
percent common interest
|
Adjusted Cash Flow from Operating Activities and Adjusted
Cash Flow from Operating Activities per Common Share
Adjusted cash flow from operating activities is a non-GAAP
measure which is defined as cash flow from operating activities
adjusting for the change in non-cash operating working capital,
adjusting for current tax and share-based compensation payment, and
deducting preferred share dividends paid. Adjusted cash flow from
operating activities deducts preferred share dividends paid because
they are not attributable to common shareholders. The calculation
has been modified to include current tax and share-based
compensation payment as it allows management to better assess the
obligations discussed below.
Management believes that adjusted cash flow from operating
activities provides comparable information to investors for
assessing financial performance during each reporting period.
Management utilizes adjusted cash flow from operating activities to
set objectives and as a key performance indicator of the Company's
ability to meet interest obligations, dividend payments and other
commitments.
Adjusted cash flow from operating activities per common share
is a non-GAAP ratio which is calculated by dividing adjusted cash
flow from operating activities by the weighted average number of
common shares outstanding.
($ millions, except
as noted)
|
Year Ended December
31, 2021
|
|
Cash flow from
operating activities
|
2,650
|
|
Change in non-cash
operating working capital
|
100
|
|
Current tax
expense
|
(286)
|
|
Taxes paid, net of
foreign exchange
|
355
|
|
Accrued share-based
payment expense
|
(76)
|
|
Share-based
compensation payment
|
32
|
|
Preferred share
dividends paid
|
(135)
|
|
Adjusted cash flow from
operating activities
|
2,640
|
(A)
|
Weighted Average Shares
(Basic) (million)
|
550
|
(B)
|
Adjusted cash flow
from operating activities per common share –
basic dollars ($)
|
4.80
|
=
(A)/(B)
|
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SOURCE Pembina Pipeline Corporation