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Pembina Pipeline Corporation announces changes to reporting segments

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World Pipelines,

Pembina Pipeline Corporation yesterday announced changes to the company's reporting segments. As previously announced, given the enhanced scale and scope of Pembina's business following the closing of the Veresen Inc. acquisition in 2017, and considering the future needs of both the company and the North American energy industry, Pembina's management structure is evolving to position it for continued success. Effective 1 January 2018, Pembina's operations management structure is organised by three divisions: Pipelines, Facilities, and Marketing and New Ventures.

Accordingly, the company's financial reporting format is changing to better align with the new structure. The new organisational structure and reporting format provides a number of benefits including consistency between how Pembina's business is managed and how results are reported; the placement of like assets together within the same reporting segment; the creation of centres of excellence, which will increase reliability and cost efficiencies; and the establishment of a separate reporting segment for Pembina's commodity marketing activities and the development of larger-scale, value-chain extension projects.

Pembina's financial results will be reported as follows:

Pipelines division

The Pipelines division has over 18 000 km of pipelines with a total capacity of approximately 3 million boe/d serving various markets and basins across North America. The Pipelines division is comprised of Pembina's conventional, transmission and oilsands pipeline assets. The primary objectives of the division are to provide safe, responsible, reliable and cost-effective transportation services for customers, pursue opportunities for increased throughput, and maintain and/or grow sustainable operating margin on invested capital by capturing incremental volumes, expanding the company's pipeline networks, grow revenue and follow a disciplined approach to operating expenses.

Pembina's conventional pipeline assets comprise a strategically located network of approximately 9000 km of pipelines and related infrastructure including various hubs and terminals. This network transports crude oil, condensate and natural gas liquids (NGL) across much of Alberta and parts of British Columbia. The contracts for conventional pipelines are fee-for-service in nature, but vary in their structure, and include both firm and non-firm contracts and varying levels of take-or-pay commitments.

Pembina's oil sands assets include approximately 2400 km of pipelines and related infrastructure. Service is provided predominantly under long-term, extendible contracts, which provide for the flow-through of eligible operating expenses to customers. As a result, operating margin from these assets is primarily driven by the amount of capital invested and is predominantly not sensitive to fluctuations in certain operating expenses, actual throughput or commodity prices.

Pembina's transmission pipeline assets have developed through the strategic acquisition of key natural gas and specification ethane transportation infrastructure assets, positioned in some of the most prolific gas producing regions in western Canada and the US. Currently, Pembina has interests in approximately 7000 km of transmission pipelines providing customers with access to premium markets primarily on a fee-for-service basis under long-term contracts.

As part of the reorganisation, the following assets have been reclassified:

  • Vantage Pipeline has been reclassified from a conventional asset to a transmission asset within the Pipelines division.
  • The Swan Hills System has been reclassified from a conventional asset to an oil sands asset within the Pipelines division.
  • The Canadian Diluent Hub and the Edmonton North Terminal have been reclassified from the former midstream operating segment to conventional assets within the Pipelines division.
  • The Alberta Ethane Gathering System, Ruby Pipeline and Alliance Pipeline, all formerly reported under the Veresen operating segment, are now transmission assets included in the Pipelines division.

Facilities division

The Facilities division includes processing and fractionation facilities and related infrastructure that provide Pembina's customers with natural gas and NGL services.

Pembina's operations include natural gas gathering and processing assets, which are strategically positioned in an active condensate and NGL-rich area of western Canada, and are integrated with the company's other businesses. Pembina provides sweet and sour gas gathering, compression, condensate stabilisation, and both shallow cut and deep cut processing services for its customers, primarily on a fee-for-service basis under long-term contracts. The majority of condensate and NGL extracted through these facilities are transported by assets in Pembina's Pipelines division. A portion of the volumes are further processed at Pembina's fractionation facilities. In total, Pembina has 19 gas processing facilities and approximately 6 billion ft3/d of net gas processing capacity.

Additionally, the Facilities division includes NGL fractionation, cavern storage, and terminalling (loading and off-loading services) facilities. These facilities are fully integrated with the company's Pipeline division and other assets, providing customers across the Western Canada Sedimentary Basin (WCSB) and North America with the ability to contract for more than one service with Pembina and access a comprehensive suite of services to enhance the value of their hydrocarbons. In total, Pembina has 5 fractionation facilities and 286 000 bpd of net fractionation capacity.

As part of the reorganisation, the following assets have been reclassified:

  • The Empress NGL extraction facility and the Younger NGL extraction facility have been reclassified from the former midstream operating segment to gas services assets within the Facilities division.
  • Veresen Midstream Limited Partnership, which was previously reported under the Veresen operating segment, is now classified as a gas services asset included in the Facilities division.

Marketing and New Ventures division

The Marketing and New Ventures division strives to maximise the value of hydrocarbon liquids and natural gas originating in the WCSB and other basins where the company operates.

Pembina seeks to create new markets, and further enhance existing markets, to support both the company's and its customers' overall business interests. In particular, Pembina seeks to identify opportunities to connect hydrocarbon production to new demand locations through the development of infrastructure. Pembina strives to increase producer netbacks and product demand to improve the overall competitiveness of the WCSB and other basins where the company operates.

Pembina undertakes value-added commodity marketing activities including buying and selling products (natural gas, ethane, propane, butane, condensate and crude oil) and capitalising on storage opportunities. By contracting capacity on Pembina's and various third party pipelines and utilising the company's rail fleet and rail logistics capabilities, the Marketing business is able to add incremental value to the commodities. Marketing activities also include identifying commercial opportunities to further develop other Pembina assets. Examples of such assets include Pembina's integrated rail fleet and terminalling and storage assets, that were specifically developed to support getting marketed volumes to high value markets across North America.

The Marketing business enters into contracts for capacity on both Pembina's and third party infrastructure, handles proprietary and customer volumes and aggregates third party production for onward sale. Operating margins are subject to commodity price fluctuations, product differentials, location basis differentials and total volumes.

Pembina's Marketing business also includes results from Aux Sable, an NGL extraction facility near Chicago, Illinois and other natural gas and NGL processing facilities, logistics and distribution assets in the US and Canada.

Pembina's new ventures currently include the proposed propylene and polypropylene facility (PDH/PP facility) and the proposed Jordan Cove LNG project.

As part of the reorganisation, the following assets have been reclassified:

  • The proposed PDH/PP facility, previously included in the former midstream operating segment, is now included in the Marketing and New Ventures division.
  • Aux Sable and the proposed Jordan Cove LNG Project, which were both previously reported under the Veresen operating segment, are now included in the Marketing and New Ventures division.
  • In addition, Pembina's commodity marketing activities, which were previously reported in the former midstream operating segment, are now included in the Marketing and New Ventures division.

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