Oil Sands Pipelines and New Gas Facilities Boost Pembina's Net Operating Income
All financial figures are unaudited and in Canadian dollars unless noted otherwise. Certain financial measures referred to in this document are not prescribed by Canadian generally accepted accounting principles (GAAP). For a description of these measures, see section entitled "Non- GAAP Financial Measures" below.
- The Fund distributed $0.39 per Trust Unit during the third quarter of 2009 for total cash distributions of $60.2 million, a 19 percent increase over the same period in 2008. Pembina expects, based on its current projections, estimates and assumptions, to maintain this level of cash distribution through 2013 by continuing to provide Unitholders $0.13 per unit per month, or $1.56 per unit per year. The Fund plans on converting to a corporation in late 2010 and expects to distribute $1.56 per unit per year to shareholders as a dividend once the new structure is in place (see "Forward-Looking Information, Statements and Assumptions" below). - Pembina generated net earnings of $44.7 million during the third quarter of 2009, compared to $48.1 million during the third quarter of 2008. For the first nine months of 2009, Pembina's net earnings were $109.2 million, compared to $122.8 million during the first nine months of 2008. Excluding the after tax gain on sale of linefill of $15.2 million included in the third quarter of 2008 and $30 million included in the first nine months of 2008, net earnings have increased 35.9 percent and 17.7 percent, respectively, during the quarter and nine months ended September 30, 2009. - Net operating income during the third quarter was $91.5 million, compared to $77 million during the third quarter of 2008. Year-to- date, Pembina has generated net operating income of $248.7 million, compared to $220.1 million during the first nine months of 2008. - Strong returns were generated by the Oil Sands & Heavy Oil Infrastructure business unit, which realized increases in both third quarter and year-to-date net operating income (compared to the same periods in 2008) due primarily to contribution from the Horizon Pipeline, which commenced operations in November 2008. The Cutbank Complex gas gathering and processing facility, acquired in June, introduced a new source of revenue for the Midstream & Marketing business unit, while lower operating expenses helped maintain margins on Pembina's Conventional Pipeline systems. Combined, these positive factors largely offset the impact of reduced commodity prices and associated lower pipeline throughputs during the quarter. - Pembina's major growth projects, the Nipisi and Mitsue Pipelines, are proceeding on schedule and on budget. Detailed engineering is nearing completion, stakeholder and Aboriginal consultation is ongoing and Pembina has submitted all required regulatory applications. The Nipisi and Mitsue Pipeline projects were initiated in response to industry demand for reliable diluent supply to, and diluted heavy oil take-away capacity from, the region north of Slave Lake, Alberta. The combined capital cost estimate for both pipelines is approximately $440 million and Pembina currently expects the pipelines to be placed into service in mid-2011. - Subsequent to quarter end, the Fund entered into an agreement for the issuance by way of private placement of $267 million in Senior Unsecured Notes, Series D (the "Series D Notes") by its wholly-owned subsidiary Pembina Pipeline Corporation. Subject to Pembina and the purchasers of the Series D Notes satisfying all of the conditions to closing, Pembina expects the Series D Notes will be issued in a single tranche on November 18, 2009 with a 10-year bullet maturity and a fixed interest rate of 5.91 percent. Results from Operations ------------------------------------------------------------------------- HIGHLIGHTS(1) 3 Months 3 Months 9 Months 9 Months (in millions of Ended Ended Ended Ended dollars, except Sept. 30, Sept. 30, % Sept. 30, Sept. 30, % where noted) 2009 2008 Change 2009 2008 Change ------------------------------------------------------------------------- Average throughput - conventional (mbbls/d) 389.3 430.5 (9.6) 397.9 440.9 (9.8) Contracted capacity - oil sands (mbbls/d) 775.0 775.0 - 775.0 775.0 - Total throughput and contracted volumes (mbbls/d) 1,164.3 1,205.5 (3.4) 1,172.9 1,215.9 (3.5) Average Cutbank Complex throughput (mmcf/d) 200.5 - 100.0 200.2 - 100.0 Capital expenditures 23.1 14.6 58.2 364.2 197.8 84.1 Revenue 211.9 201.3 5.3 555.4 525.5 5.7 Product purchases 80.8 84.2 (4.0) 187.2 196.9 (4.9) Operating expenses 39.6 40.1 (1.2) 119.5 108.5 10.1 Net operating income(2) 91.5 77.0 18.8 248.7 220.1 13.0 General & administrative expense 11.1 9.6 15.6 34.5 28.7 20.2 Interest expense on long-term debt 13.0 11.5 13.0 34.8 28.0 24.3 Net earnings 44.7 48.1 (7.1) 109.2 122.8 (11.1) Cash flow from operations 62.2 50.4 23.4 152.6 156.4 (2.4) EBITDA(2) 77.8 85.0 (8.5) 207.8 221.1 (6.0) Cash distributions to Unitholders 60.2 50.7 18.7 170.9 146.4 16.7 $ Per Trust Unit $0.39 $0.38 2.6 $1.17 $1.10 6.4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) This third quarter 2009 Interim Report to Unitholders reports unaudited results of the Fund for the three and nine months ended September 30, 2009 and comparative to unaudited results for the three and nine months ended September 30, 2008. (2) Refer to "Non-GAAP Measures" below.
Pembina's extensive network of pipelines in Alberta and British Columbia ("BC") provides safe, dependable and cost-effective transportation service to customers in Western
During the three months ended
Pembina's Conventional Pipelines generated revenue of
Pembina's continued focus on operating cost discipline and steady operations helped reduce operating expenses for the Conventional Pipelines business during the third quarter of 2009. During the quarter, operating expenses were
Lower operating expenses helped maintain net operating income margins, partially offsetting the decrease in revenue. Conventional Pipelines contributed
Pembina continues to invest capital in its assets to help enhance safety and reliability while at the same time providing for the possibility of future growth. During the third quarter of 2009, Pembina invested capital of approximately
Oil Sands & Heavy Oil Infrastructure
Pembina has 775,000 bbls/d of fully contracted crude oil transportation capacity in three distinct pipelines serving customers in the Athabasca oil sands region. Pembina's oil sands assets, the Syncrude Pipeline, Cheecham Lateral, and Horizon Pipeline, operate under long-term, extendible contracts that provide for the flow through of Pembina's operating costs to shippers. Operating income generated by these assets is related to invested capital and is not sensitive to fluctuations in costs or capacity utilization.
The Syncrude Pipeline has a transportation capacity of 389,000 bbls/d and is fully contracted to the owners of Syncrude
The Cheecham Pipeline has a capacity of 136,000 bbls/d and is fully contracted to shippers under the terms of a 25-year agreement, which expires in 2032. Net operating income generated by this asset was
The Horizon Pipeline is fully contracted to Canadian Natural Resources Ltd. ("CNRL") and has an ultimate capacity of 250,000 bbls/d. The pipeline is operated under the terms of a 25-year extendible transportation agreement providing Pembina a fixed return on invested capital and full recovery of operating expenses. The Horizon Pipeline contributed
Midstream & Marketing Business
Pembina's Midstream & Marketing business unit is comprised of its 50 percent non-operated interest in the Fort Saskatchewan Ethylene Storage Facility, the Cutbank Complex gas gathering and processing facilities, and its wholly-owned terminals, storage and hub services operated on several of its Conventional Pipeline systems.
The Midstream & Marketing business recorded revenue, net of product purchases, of
During the quarter, Midstream & Marketing operating expenses were
The Midstream & Marketing business contributed
Pembina expects the stability of results generated by its Midstream & Marketing business to benefit from cash flow contributed by contracted assets such as the Cutbank Complex and its 50 percent interest in the fully contracted Fort Saskatchewan Ethylene Storage Facility. Pembina anticipates the Cutbank Complex to contribute additional fee-for-service revenue and the Fort Saskatchewan Ethylene Storage Facility to continue to generate stable, long-term returns that are independent of capacity utilization and operating expenses. The Fund intends to pursue additional contracted opportunities in this business unit to assist in further diversifying and stabilizing revenues going forward.
During the third quarter of 2009, the Fund declared distributions of
Pembina generated $0.4293 per Trust Unit in distributable cash during the third quarter of 2009, compared to $0.3923 during the third quarter of 2008.
Pembina believes it is well positioned to maintain its current level of cash distributions to Unitholders through 2013, despite becoming a taxable entity in 2011. Attractive fundamentals within each of Pembina's three business units combined with a strong inventory of organic growth opportunities continue to support this positive outlook.
Liquidity and Capital Resources
The Fund's credit facilities at
During the third quarter,
Pembina initiated several significant financial events in the third quarter and subsequent to quarter end to further strengthen its financial position. In July, the Fund announced it filed a Short Form Base Shelf Prospectus with Canadian regulatory authorities in each of the provinces of
Subsequent to quarter end, the Fund entered into an agreement for the issuance by way of private placement of
Conference Call & Webcast
Pembina will host a conference call and webcast on
The conference call dial-in number is 416-644-3419 or 800-814-4860. A recording of the conference call will be available for replay until
A live webcast of the conference call can be accessed on Pembina's website at www.pembina.com under "Investors", "Calendar of Events." Immediately following the call, an audio archive will be posted on the website for 90 days.
MD&A, Financial Statements & Notes
The Fund's management's discussion and analysis, consolidated financial statements and notes for the period ended
Forward-Looking Information, Statements and Assumptions
This news release contains certain forward-looking information, statements and assumptions ("forward looking statements") that are based on the Fund's and Pembina's current expectations, estimates and projections in light of its experience and its perception of historical trends. In this news release, such forward-looking statements can be identified by terminology such as "will", "should", "expects", "planned", "believe", "estimate", "anticipates", "projects", "schedule", "continue", "expansion", "intends", and similar expressions.
In particular, this news release contains forward-looking statements, including certain financial outlook, regarding the possible conversion of Pembina to a corporate form in the latter half of 2010 and the ability of Pembina to maintain its current level of cash distributions to its equity holders both prior to and after conversion through 2013 (in the form of dividends after conversion), the proposed construction of the Nipisi and Mitsue Pipelines, the performance of the Cutbank Complex, the continued normalization of Pembina's results from operations, ongoing utilization and expansions of and additions to Pembina's asset base, growth and growth potential, potential revenue and cash flow enhancement, future cash flows, maintenance and operating margins, and the proposed issuance of the Series D Notes by the Fund's wholly owned subsidiary, Pembina Pipeline Corporation, (which remains subject to Pembina and the purchasers of the Series D Notes being able to satisfy the conditions to closing). These forward-looking statements are being made by Pembina based on certain assumptions that Pembina has made in respect thereof as at the date of this document including those discussed below.
None of the forward-looking statements described above are guarantees of future performance and they are all subject to a number of known and unknown risks and uncertainties, including but not limited to: the impact of competitive entities and pricing, approvals by industry partners, reliance on key alliances and agreements, activities of and decisions made by third parties, non-performance of the transportation agreements in accordance with their terms, the strength and operations of the oil and natural gas production industry and related commodity prices, the regulatory environment and decisions and the inability to obtain required regulatory approvals on satisfactory terms or at all, tax laws and treatment, fluctuations in operating results, the ability of Pembina to raise sufficient capital (or to raise capital on favourable terms) to complete future projects and satisfy future commitments, construction delays and labour and material shortages, and certain other risks detailed from time to time in the Fund's public disclosure documents including, among other things, those detailed under the heading "Risk Factors" in the Fund's annual information form for the year ended
Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted, forecasted or projected. Such forward-looking statements are expressly qualified by the above statements. The Fund does not undertake any obligation to publicly update or revise any forward-looking statements contained herein, except as required by applicable laws. Management of the Fund approved the financial outlook contained herein as of the date of this news release. The purpose of the financial outlook contained herein is to give the reader an indication of the potential effects to Unitholders of a possible conversion of Pembina to corporate form. Readers should be aware that the information contained in the financial outlook contained herein may not be appropriate for other purposes.
All dollar values are expressed in Canadian dollars unless otherwise noted.
Non-GAAP Financial Measures
Throughout this news release and the MD&A, the Fund and Pembina use the terms "distributed cash" (the amount of cash that has been or is to be available for distribution to Unitholders),"EBITDA" (earnings before interest, taxes, depreciation and amortization), "net operating income" (revenues less operating expenses and product purchases), "payout ratio" (the Fund's cash distributions to Unitholders divided by its distributable cash) and "enterprise value" (the Fund's market capitalization plus long-term debt), which terms are not recognized under Canadian GAAP. Distributable cash is used as a financial measure as it adjusts cash flow from operations for timing differences in non-cash working capital and for non-cash items charged to earnings that the Fund considers to be unavailable for distribution. Management believes that, in addition to earnings, distributed cash, EBITDA, net operating income, payout ratio and enterprise value are useful measures. They provide an indication of the results generated by the Fund's business activities prior to consideration of how activities were financed, how the results are taxed and measured and, in the case of enterprise value, the aggregate value of the Fund. Investors should be cautioned, however, that distributed cash, EBITDA, net operating income, payout ratio and enterprise value should not be construed as an alternative to net earnings, cash flows from operating activities or other measures of financial performance determined in accordance with GAAP as an indicator of the Fund's performance. Furthermore, these measures may not be comparable to similar measures presented by other issuers.
For further information: Glenys Hermanutz, Vice President, Corporate Affairs, Pembina Pipeline Corporation, (403) 231-7500, 1-888-428-3222, e-mail: [email protected]