Pembina declares capital programme and credit award

"2017 will be transformational for Pembina, as our capital program is largely directed towards completing approximately CAN$4 billion in capital projects, the majority of which will be coming into service and contributing to cash flow by the middle of the year," said Mick Dilger, Pembina's President and Chief Executive Officer. "All in, the completion of these capital projects will further support our target of 80 percent fee-for-service contribution to EBITDA in 2018. A substantial portion of these fee-for-service arrangements are very low risk, being either take-or-pay or cost-of-service, which will further confidence in our long-term dividend growth outlook."

Based on the approximately CAN$1.3 billion of major assets placed into service in 2016 and the approximately CAN$4 billion of projects to be completed in 2017, Pembina expects to generate an incremental CAN$600 million to CAN$950 million of EBITDA in 2018. This range is dependent upon utilisation rates and commodity prices, with the lower ends representative of take-or-pay EBITDA.

"We expect our 2017 results to benefit from the hard work our teams put into safely completing such a large capital programme during the year," continued Mr. Dilger. "2017 will be another busy year for us, especially the first six months, as we focus on on-time and on-budget delivery of essentially all of our remaining secured capital. We are better prepared than ever to not only operate these new assets, but also pursue new growth opportunities as a result of the in-house expertise and process enhancements we have developed over the past several years."

The company expects 2016 capital expenditures to be CAN$1.9 billion in 2016, lower than the original budget of $2.1 billion as a result of capital moving into 2017 due to revised project construction timelines for Pembina's multi-year projects and cost savings, offset by the addition of new multi-year projects that the company secured during 2016.

Conventional pipelines

Pembina plans to spend approximately CAN$1140 million in its conventional pipelines business next year, 61% of its overall 2017 capital spending plan.

Pembina will allocate the majority of capital spending within its conventional pipelines business to completing the Phase III expansion of the company's Peace and Northern Pipeline systems (Phase III Expansion). In 2016, Pembina began construction on the new 24 in. and 16 in. pipelines in the Fox Creek to Namao, Alberta, corridor and completed other segments of the overall expansion programme. Pembina expects to place the Phase III Expansion into service in mid 2017, which will bring capacity between Fox Creek and Namao to approximately 1.2 million bpd and be readily expandable to 1.5 million bpd (through the addition of pump stations).

Pembina is also developing numerous pipeline laterals and associated infrastructure to support the Phase III Expansion, including a large-scale pipeline expansion in northeast British Columbia (NEBC Expansion) and a lateral in the Altares area of British Columbia (Altares Lateral) which will feed into the NEBC Expansion. These projects will connect the growing Montney resource play into the Phase III Expansion and have expected in service dates of late 2017, subject to regulatory approval.

Overall, with in its conventional pipelines business, Pembina has secured 777 000 bpd of long-term, firm service contracts for the transportation of crude oil, condensate and natural gas liquids (NGL), once it places the expansions noted above into service.

Midstream

Pembina continues to direct the majority of capital spending in midstream towards initiatives that are supported by long-term, fee-for-service contracts. For 2017, Pembina expects to spend capital of CAN$540 million, or 29% of the overall budget, in its Midstream business.

In Pembina's NGL Midstream business, the company expects to spend CAN$260 million in 2017, which will largely be directed towards a number of initiatives at its Redwater site. Pembina expects to commission its third fractionator, a 55 000 bpd facility (RFS III) in the third quarter of 2017 and continues to develop terminalling infrastructure for the North West Redwater Partnership, which it expects to place into service throughout the coming year.

With the completion of RFS III, Pembina will have nearly tripled its fractionation capacity in the Redwater area since 2012 and will become the largest fractionation facility in Canada.

Additional capital will be spent in the NGL midstream segment on various upgrades across Redwater West, including the proposed cogeneration facility, incremental caverns and an expansion to the rail yard which will support the growing operations of Pembina's Redwater complex, and Empress East systems.

In crude oil midstream, Pembina expects to spend CAN$280 million to expand its current service offerings and enhance the interconnectivity of its infrastructure. This includes plans to complete the Canadian Diluent Hub (CDH) in mid 2017 to handle growing diluent supply and align with the in-service date of the Phase III Expansion and cost-effectively connect it to local third-party diluent infrastructure. Pembina is also pursuing several new initiatives to further support operations at the company's Edmonton North Terminal (ENT). The focus of the various projects at the site will be to handle increased volumes from the Phase III Expansion, better leverage existing underutilised infrastructure, increase delivery points and enhance the connectivity of ENT. The programme will be developed in a number of different phases and will be placed into service throughout 2017.

Gas services

Pembina plans to allocate approximately CAN$165 million, or 9%, of its 2017 capital budget to new facilities within gas services. This includes the 100 million ft3/d (gross) Duvernay I gas plant and supporting infrastructure (Field Hub). Pembina anticipates bringing Duvernay I and the Field Hub into service late in the fourth quarter of 2017, subject to regulatory approval.

Once Duvernay I is in service, Pembina expects gas services' processing capacity to reach approximately 1.8 billion ft3/d including deep cut capacity of approximately 1.1 billion ft3/d, and total capacity across the company to reach approximately 4.2 billion ft3/d. The volumes from Pembina's existing gas services assets and those under development will be processed largely on a contracted, fee-for-service basis and result in condensate and NGL to be transported for additional toll revenue on Pembina's conventional pipelines.

Oilsands and heavy oil

Pembina plans to allocate approximately CAN$25 million, or approximately 1%, of its 2017 capital budget to oilsands and heavy oil, the majority of which will be directed towards system enhancements which will be added into the rate base of the associated pipeline system.

Capital summary

During 2016, Pembina continued the strong momentum of executing its growth plans, bringing approximately CAN$1.3 billion of assets into service, including its second fractionator at its Redwater site, an expansion to the Horizon Pipeline, two new gas services facilities (Musreau III and the Resthaven Expansion), as well as additional value-add infrastructure. The company also completed an acquisition of new gas services infrastructure in one of its core areas and began pursuing longer term growth opportunities.

The company's growth plan going into 2017 is underpinned by a strong financial position. Pembina was particularly successful over the past year in accessing both the debt and equity markets, having raised CAN$420 million in preferred shares, CAN$345 million in common equity, CAN$450 million in proceeds from the dividend reinvestment plan (DRIP), and CAN$500 million of senior unsecured medium term notes during 2016. This track record of successful financings, along with the company's CAN$2.5 billion credit facility, provides confidence there will be ample liquidity to fund the 2017 capital spending plan.

"As we work towards completing the approximately CAN$4 billion of capital projects we have underway and embark on our 2017 capital spending plan, I have a high degree of confidence given our track record of delivering projects on time and on budget," added Dilger. "Further, I'm encouraged by the strong operational, financial, commercial and safety performance we experienced this past year, during a particularly trying time in our industry. We are nearing the end of the most capital intensive period of Pembina's history and are looking forward to beginning to operate these assets and realising the associated incremental cash flows, which will ultimately contribute to growing shareholder value."

New developments

Pembina and its partner are very pleased to announce that they have been selected as the recipient of CAN$300 million in royalty credits under the Government of Alberta's petrochemicals diversification programme for its previously announced proposed propane dehydrogenation (PDH) and polypropylene (PP) upgrading facility in Alberta (‘PDH and PP facility’ or ‘the project’). The petrochemicals diversification programme received 16 applications locally and from across the globe, representing more than CAN$20 billion in potential new investment interest in Alberta's petrochemicals industry. Each application was evaluated as part of a competitive process to ensure the proposed project is economically viable, meets Alberta's strict environmental performance conditions, and demonstrates the best overall benefits to Alberta. The award is designed to help create jobs, attract investment and diversify Alberta's economy by providing royalty credits once approved projects are completed and feedstock consumption begins.

Pembina expects to construct the PDH and PP facility on lands already owned by Pembina in Sturgeon County in Alberta's Industrial Heartland, in close proximity to the company's Redwater Fractionation complex. The land is currently zoned for industrial development and is well-connected via rail. The project is expected to consume approximately 22 000 bpd of propane, and is expected to cost CAN$3.8 billion - 4.2 billion (gross). The PDH and PP facility, which could be in-service by 2021, remains subject to Pembina and its partner making a positive final investment decision, as well as regulatory, environmental and Pembina's and its partner's Board approval.

Read the article online at: https://www.worldpipelines.com/business-news/06122016/pembina-declares-capital-programme-and-credit-award/