Pembina Generates Stable Second Quarter Results and Closes Cutbank Complex Acquisition
CALGARY, July 29 /CNW/ - Pembina Pipeline Income Fund ("Pembina" or the "Fund"), (TSX: PIF.UN, PIF.DB.B), announced today its financial and operating results for the three and six month periods ended June 30, 2009. Highlights - The Fund distributed $0.39 per Trust Unit during the second quarter of 2009 for total cash distributions of $57.5 million, a 20 percent increase over the same period of 2008. Since the Fund's inception, Pembina has distributed a total of $1.3 billion to Unitholders, or $13.06 per Trust Unit, on a $10.00 per Trust Unit original issue price. - Pembina generated net earnings of $36.2 million during the quarter and $64.5 million year-to-date, compared to $42.1 million and $74.7 million over the comparable periods of 2008. Excluding the after tax gain on sale of linefill of $14.7 million included in the six months ended June 30, 2008, net earnings increased 7.5 percent during the six months ended June 30, 2009. - Pembina's Conventional Pipelines business unit contributed $38.5 million in net operating income during the second quarter of 2009 and $72.2 million year-to-date, as compared to $37.7 million and $77.6 million, respectively, for the same periods of 2008. - The Oil Sands & Heavy Oil Infrastructure unit generated $20.9 million and $41.8 million in net operating income during the second quarter and first half of 2009, compared to $8.9 million and $18.5 million during the same periods of 2008. - Midstream & Marketing contributed $23.1 million in net operating income (excluding contribution from Pembina's recently acquired gas gathering and processing facilities) during the second quarter of 2009, compared to $25.4 million during the same quarter of 2008. Year-to-date operating income of $40.4 million compares to $47.1 million for the first six months of 2008. - Pembina announced on June 2, 2009 that Pembina Gas Services Limited Partnership, a newly formed subsidiary of Pembina, had successfully closed the acquisition of the Cutbank Complex gas gathering and processing facilities in the amount of $296.3 million. See "New Developments and Outlook" for further information. Results from Operations ------------------------------------------------------------------------- HIGHLIGHTS(1) 3 Months 3 Months 6 Months 6 Months (in millions of Ended Ended Ended Ended dollars, except June 30, June 30, % June 30, June 30, % where noted) 2009 2008 Change 2009 2008 Change ------------------------------------------------------------------------- Average throughput - conventional (mbbls/d) 406.8 433.4 (6.1) 414.3 446.2 (7.1) Contracted capacity - oil sands (mbbls/d) 775.0 525.0 47.6 775.0 525.0 47.6 Total throughput and contracted volumes (mbbls/d) 1,181.8 958.4 23.3 1,189.3 971.2 22.5 Capital expenditures 308.2 88.1 249.8 341.1 183.3 86.1 Revenue 185.5 181.5 2.2 343.5 324.2 6.0 Product purchases 64.4 76.2 (15.5) 106.3 112.6 (5.6) Operating expenses 35.8 33.3 7.5 79.9 68.4 16.8 Net operating income(2) 85.3 72.0 18.5 157.3 143.2 9.8 General & administrative expense 12.4 9.7 27.8 23.3 19.1 22.0 Interest expense on long-term debt 11.5 8.3 38.6 21.8 16.5 32.1 Net earnings 36.2 42.1 (14.0) 64.5 74.7 (13.7) Cash flow from operations 49.2 68.2 (27.9) 90.4 127.3 (29.0) EBITDA(2) 70.2 77.1 (8.9) 130.0 136.0 (4.4) Cash distributions to Unitholders 57.5 47.9 20.0 110.7 95.7 15.7 $ Per Trust Unit $0.39 $0.36 8.3 $0.78 $0.72 8.3 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) The second quarter 2009 Interim Report to Unitholders reports unaudited results of the Fund for the three and six months ended June 30, 2009 and comparative to unaudited results for the three and six months ended June 30, 2008. (2) Refer to "Non-GAAP Measures" below. Conventional Pipelines Pembina's extensive network of pipelines in Alberta and BC provides safe, dependable, and cost effective transportation service to customers in Western Canada. The conventional pipeline business unit represents Pembina's traditional core business. These strategically located pipeline assets are expected to generate stable and predictable cash flows. During the three months ended June 30, 2009, Pembina's conventional pipelines collectively transported an average of 406,800 bbls/d, a reduction of 6 percent from the comparable period in 2008. Pembina's conventional systems generated revenue of $63.7 million and $129.8 million during the second quarter and first six months of 2009, respectively, compared to $63.0 million and $130.1 million in the same periods of 2008. The Alberta systems generated revenue of $56.2 million during the quarter and $112.8 million for the first half of the year consistent with the same periods of 2008. The Alberta pipelines transported an average of 387,700 bbls/d during the second quarter, 6 percent lower than volumes transported during the second quarter of 2008. Higher volumes on the Peace and Swan Hills systems were offset by lower throughputs on the Drayton Valley system, resulting from reduced Nisku production. Pembina expects that as crude oil prices stabilize, resumption of drilling activity in the Nisku area may improve, assisting the normalization of throughputs on the Drayton Valley system. Pembina will continue to focus on the management of operating costs to maintain margins on its conventional systems. Average revenue per barrel on the Alberta systems of $1.56 during the second quarter was up 10 cents per barrel from the average for the same period of 2008. Average revenue per barrel on the BC systems increased by 4 cents per barrel from the same period of 2008 to $1.95 per barrel. The conventional systems contributed $38.5 million in net operating income during the second quarter 2009 compared to $37.7 million for the same quarter of the prior year. Net operating income totaled $72.2 million for the first six months of 2009 and $77.6 million for the comparable period in 2008, a 7 percent decline, primarily due to increased operating costs. Pembina continues to invest capital in its assets to help ensure safety and reliability. During the second quarter of 2009, Pembina invested capital of approximately $13.1 million, which was focused on new connections and upgrades on the conventional systems. Pembina expects that these new connections, when fully commissioned, will provide incremental volumes and revenue to Pembina's conventional systems, consistent with historical metrics. Oil Sands & Heavy Oil Infrastructure Pembina has 775,000 barrels per day 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, Cheecham Pipeline, and Horizon Pipeline continue to produce consistent results, generating net operating income of $8.4 million, $0.8 million, and $11.6 million, respectively, during the second quarter. Midstream & Marketing Business Pembina's Midstream & Marketing business segment 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 terminalling, storage and hub services operated on several of its conventional pipeline systems. The Midstream & Marketing business recorded revenue of $25.5 million during the second quarter of 2009, net of product purchases and excluding $4.4 million in revenue contributed by the Cutbank Complex. This compares to $27.6 million in revenue for the same period of 2008. Factors influencing the results of this business include market conditions and the volume of product receipts on single shipper assets. During the second quarter of 2009, the impact of a decline in throughputs on the pipeline systems on which midstream activities are conducted offset incremental revenue contributed by expanded service offerings at two truck terminals on the Peace system. Pembina expects that its 50 percent interest in the fully contracted Fort Saskatchewan Ethylene Storage Facility will generate stable, long-term returns that are independent of capacity utilization and operating expenses. Operating expenses for the Midstream & Marketing business for the second quarter of 2009 of $4.0 million have increased from the prior year as the result of the ongoing expansion of this business unit and the inclusion of $1.6 million for Cutbank Complex expense. Capital expenditures during the second quarter of $15.8 million were primarily related to the expansion of the Peace and Drayton Valley truck terminal facilities and the development of the Namao terminal. An additional $274.0 million in capital was expended on the acquisition of the Cutbank Complex. Pembina entered into the gas services business in May, 2009, with the strategic acquisition of the Cutbank Complex. The Cutbank Complex is comprised of three gas plants (the Cutbank, Musreau and Kakwa gas plants), and related assets. The Cutbank gas plant and the Musreau gas plant are 100 percent and 86 percent owned, respectively, and operated by Pembina, and the Kakwa gas plant, in which Pembina has a 50 percent interest, is operated by a third party. Pembina expects results generated by the Cutbank Complex to contribute additional fee-for-service revenue to the Midstream & Marketing business unit, and to assist in further diversifying the sources of revenues and stabilizing revenues on a go-forward basis. See "Risk Factors" and "Forward-Looking Statements and Information" in the Management's Discussion and Analysis (the "MD&A") and "Forward-Looking Statements and Information" below. Cash Distributions During the second quarter of 2009, the Fund declared distributions of $0.39 per Trust Unit, or $57.5 million in aggregate, compared to $0.36 per Trust Unit, or $47.9 million in aggregate, paid in the second quarter of 2008. Under Canadian tax laws, a component of the Fund's cash distributions are taxable in the hands of the Unitholder, with the remaining portion a return of capital, unless held in a tax-deferred account. Pembina estimates that 75 percent of the distributions declared in 2009 will be taxable and 25 percent will be a return of capital for Canadian tax purposes. For purposes of calculating the capital gains upon disposition of the Trust Units, the amount considered a return of capital will reduce the Unitholders' adjusted cost base of each Trust Unit for Canadian tax purposes. Pembina's distributions are subject to current domestic tax laws which require a withholding tax from distribution income to non-residents of Canada. Pembina generated $0.4124 per Trust Unit in distributable cash during the second quarter of 2009. Pembina believes that 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 June 30, 2009 consisted of an unsecured $500 million revolving credit facility due July, 2012. During the second quarter, Pembina also obtained an unsecured $150 million non-revolving credit facility due December, 2010, which was used to partially fund the Cutbank Complex transaction. In addition, Pembina recently increased its operating facility to $50 million from $30 million, which matures July, 2010. There are no repayments due over the term of either facility. At June 30, 2009, Pembina had $571.2 million drawn leaving $128.8 million of undrawn capacity on the $700 million of established bank facilities. Borrowings bear interest at either prime lending rates or bankers' acceptances, plus applicable margins. The margins are based on the credit rating of the senior unsecured debt of Pembina Pipeline Corporation and range from zero percent to 2.75 percent. Other debt includes $76.9 million in fixed rate Senior Secured Notes due 2017, $175 million in fixed rate Senior Unsecured Notes due 2014, and $200 million in fixed rate Senior Unsecured Notes due 2021. In the second quarter, the Fund negotiated a 5 year unsecured non-revolving credit facility from a Canadian chartered bank in the aggregate amount of $75 million at a fixed rate of 6.16 percent. On May 20, 2009 Pembina borrowed $75 million under the new facility and on June 22, 2009 used such funds to repay in full the outstanding principal of its Floating Rate Senior Notes, which were due in June, 2009. At June 30, 2009, Pembina had long-term debt (excluding deferred financing fees) of $1,081.3 million. This long-term debt, together with $39.7 million of outstanding convertible debentures, resulted in a ratio of total debt to total enterprise value of 33.4 percent compared to a ratio of 32.1 percent at December 31, 2008. See "Non-GAAP Measures" below. During the second quarter, $9.7 million in net debt financing costs were recorded. Pembina's acquisition financing to fund the Cutbank Complex transaction also consisted of, in part, a $150 million equity bridge facility, which was subsequently cancelled upon the closing of the bought deal financing on May 20, 2009, for net proceeds of $156.8 million. Conference Call & Webcast Pembina will host a conference call and webcast today, Wednesday, July 29, at 2:00 pm MT (4:00 pm ET), for interested investors, analysts, brokers and media representatives to discuss the second quarter financial and operating results. The conference call dial-in number is 416-644-3427 or 800-595-8550. A recording of the conference call will be available for replay until Wednesday, August 5, 2009 at 11:59 PM ET. To access the replay, please dial either 416-640-1917 or 877-289-8525 and enter the passcode 21310775 followed by the pound key. 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 June 30, 2009, provide a detailed explanation of Pembina's operating results for the three and six month periods ended June 30, 2009 as compared to the three and six month periods ended June 30, 2008. These documents are posted at www.pembina.com and at www.sedar.com. Forward-Looking Information and Statements This news release contains certain forward-looking information and statements ("forward looking statements") that are based on the Fund's and Pembina's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. In this news release, such forward-looking information and statements can be identified by terminology such as "will", "expects", "planned", "believe", "estimate", "ensure", "projects", "expansion", 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 for the foreseeable future after conversion, the performance of the Cutbank Complex, the continued normalization of Pembina's results from operations (including in relation to the Midstream & Marketing Business), ongoing utilization and expansions of and additions to Pembina's asset base, growth and growth potential in Pembina's conventional pipelines, oil sands & heavy oil infrastructure and midstream & marketing and gas services operations, potential revenue and cash flow enhancement, future cash flows, maintenance of operating margins, and additional throughput potential on additional connections and other initiatives on the conventional system. 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 under the section entitled "Forward-Looking Statements and Information" in the MD&A. 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 December 31, 2008 and the Fund's management's discussion and analysis for the year ended December 31, 2008, each of which can be found under the Fund's SEDAR profile at www.sedar.com. 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 term "distributable cash" to refer to the amount of cash that is to be available for distribution to the Fund's Unitholders. 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. "Distributable cash" is not a measure recognized by Canadian generally accepted accounting principles (GAAP). Therefore, distributable cash of the Fund may not be comparable to similar measures presented by other issuers, and investors are cautioned that distributable cash should not be construed as an alternative to net earnings, cash flow from operations or other measures of financial performance calculated in accordance with GAAP as an indicator of the Fund's performance. Further, the use of 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) are not recognized under Canadian GAAP. 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]