Pembina Pipeline Corporation 2011 second quarter results
Strong performance driven by industry activity
All financial figures are in Canadian dollars unless noted otherwise. This news release contains forward-looking statements and information that are based on Pembina Pipeline Corporation's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. Actual results may differ materially from those expressed or implied by these forward-looking statements. Please see page 6 for more information. All financial information, including comparative figures pertaining to Pembina's 2010 results, has been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), using accounting policies within the framework of International Financial Reporting Standards ("IFRS"). This news release also refers to financial measures that are not defined by GAAP. For more information about these non-GAAP measures please see page 5.
CALGARY, Aug. 3, 2011 /CNW/ - Pembina Pipeline Corporation ("Pembina" or "the Company") announced that it achieved strong financial performance during the second quarter of 2011, realizing earnings of $48 million ($0.29 per share), compared to $37.7 million ($0.23 per share) during the second quarter of 2010. Adjusted earnings for the period were $64.5 million ($0.39 per share) compared to $43.5 million ($0.27 per share) for the same period of 2010 (adjusted earnings is a non-GAAP measure, see "Non-GAAP Measures" on page 5). Cash flow from operating activities was $50.4 million ($0.30 per share), compared to $69.6 million ($0.43 per share) during the same quarter the year before. This decrease was due to a $31.4 million negative change in non-cash working capital during the quarter. Adjusted cash flow from operating activities was $83.1 million ($0.50 per share), an increase of 43 percent compared to $58.2 million ($0.36 per share) during the same quarter the year before (adjusted cash flow from operating activities is a non-GAAP measure, see "Non-GAAP Measures" on page 5). Pembina generated strong earnings before interest, taxes, depreciation and amortization ("EBITDA") contribution of $102.8 million, a 32 percent increase over the second quarter 2010 EBITDA of $77.6 million (EBITDA is a non-GAAP measure, see "Non-GAAP Measures" on page 5).
Earnings for the first six months of 2011 totaled $90.5 million ($0.54 per share), compared to $89.9 million ($0.55 per share) during the first six months of 2010, while adjusted earnings for the same periods were $116.5 million ($0.70 per share) and $92.8 million ($0.57 per share), respectively. In the first half of 2011, Pembina generated cash flow from operating activities of $124.8 million ($0.75 per share) compared to $136.0 million ($0.84 per share) in the first half of 2010. This decrease was due to a $32.9 million negative change in non-cash working capital during the first six months of 2011. Adjusted cash flow from operating activities was $152.5 million ($0.91 per share), an increase of 21 percent compared to $126.2 million ($0.78 per share) during the same period in 2010 (see "Non-GAAP Measures" on page 5). Pembina generated strong EBITDA of $190 million, a 17 percent increase over the first six months of 2010 EBITDA of $162.5 million (see "Non-GAAP Measures" on page 5).
During the second quarter of 2011, Pembina progressed its growth plans, completing the construction of its Nipisi heavy oil pipeline ("Nipisi Pipeline") and Mitsue condensate pipeline ("Mitsue Pipeline") (collectively the "Nipisi and Mitsue Pipelines"). In addition, at the date hereof, the Company is nearing completion on its Musreau Deep Cut Facility, which together with the Nipisi and Mitsue Pipelines, are expected to boost cash flow from operating activities and earnings later in 2011 once fully operational.
"Pembina has a strong track record of identifying and completing projects that enhance our financial and operating results," said Bob Michaleski, Pembina's President and Chief Executive Officer. "The Nipisi and Mitsue Pipelines are another clear example of Pembina's ability to improve our bottom-line by completing and bringing on stream projects that are on time, under budget and in a way that respects the environment and the communities in which we operate."
Revenue, net of product purchases, during the second quarter of 2011 increased to $148.1 million, compared to $124.5 million during the same period in 2010. Year-to-date revenue, net of product purchases, in 2011 was $288.6 million, compared to $250.3 million during the first six months of 2010. Increased revenue was driven by strong performance in each of Pembina's four business units, particularly Midstream & Marketing, which realized a $14.2 million quarter-over-quarter gain in revenue, net of product purchases and Conventional Pipelines, which realized an $8.4 million quarter-over-quarter gain in revenue primarily a result of strong throughput. Operating expenses were $37.8 million during the second quarter and $81 million during the first six months of 2011, compared to $37.2 million and $73.5 million during the same periods in 2010, with the increase primarily due to enhanced and expanded integrity and maintenance work in Conventional Pipelines and higher labour and power costs. Operating margin totaled $110.3 million during the second quarter of 2011, compared to $87.3 million during the second quarter of 2010 (Operating margin is a non-GAAP measure, see "Non-GAAP Measures" on page 5). Year-to-date operating margin in 2011 was $207.6 million, compared to $176.9 million during the first six months of 2010.
Dividends were $65.3 million during the second quarter of 2011, representing a quarterly payment of $0.39 per share ($0.13 per share monthly), compared to $63.7 million in the second quarter of 2010 (no change in per share payments).
Growth Strategy Update
Nipisi & Mitsue Pipeline Projects
Pembina announced on August 3, 2011 that it has completed a major milestone in its growth strategy with the commissioning and start-up of its Nipisi and Mitsue Pipelines, which will service the Pelican Lake and Peace River heavy oil regions of Alberta.
The Nipisi Pipeline is a new, 190 kilometre ("km"), heavy oil pipeline with a design capacity of 100,000 barrels per day ("bpd") that will transport diluted heavy oil from north of Slave Lake to Pembina's existing pipeline south of Swan Hills and on to Edmonton, Alberta for further transport or processing.
The Mitsue Pipeline will transport condensate from various sources in north western Alberta to heavy oil producers operating north of Slave Lake, Alberta for use by producers to dilute heavy oil prior to transport. The pipeline consists of a combination of 135 km of new and 120 km of existing infrastructure, and has a design capacity of 22,000 bpd.
The Nipisi and Mitsue Pipelines are underpinned by long-term agreements which contain a minimum primary term of 10 years from the in-service date and are extendible thereafter. Pembina expects these pipelines to contribute stable, long-term cash flow, with full recovery of operating expenses.
Pembina estimates that the total capital cost of the Nipisi and Mitsue Pipelines will be approximately $400 million, down from Pembina's previous estimate of $440 million. The Nipisi and Mitsue Pipelines are expected to contribute annual operating margin of approximately $40 million once commissioning has been completed.
Pembina has designed the Nipisi and Mitsue Pipelines so the capacity of each pipeline can be increased in a staged approach. The Nipisi Pipeline has the potential to be expanded to 200,000 bpd and the Mitsue Pipeline could be expanded to 45,000 bpd. Expansion plans would require regulatory approval, which Pembina expects to pursue once customer support has been solidified.
The Mitsue Pipeline commenced operations in mid-June, ahead of schedule, and the Nipisi Pipeline initiated deliveries in early July. Commissioning and ramp-up on the Nipisi Pipeline is continuing and is expected to be completed early in the fourth quarter of 2011.
Pembina announced on July 27, 2011 that it plans to expand its Cutbank Complex shallow cut gas processing capability by 50 million cubic feet per day ("mmcf/d") due to high plant utilization and strong customer demand arising from customer's positive drilling results in the area. Once the expansion is complete, the Cutbank Complex is expected to have raw gas processing capacity of 410 mmcf/d (355 mmcf/d net to Pembina), an increase to Pembina of 16 percent. The planned Cutbank expansion will occur at the Musreau gas plant, one of the three plants that make up the Cutbank Complex.
Pembina estimates the expansion will cost approximately $26 million and, subject to regulatory and environmental approval, is expected to be in-service by mid-2012. Pembina has entered into contracts with a minimum term of five years with area producers for the entire capacity of the expansion on a fee for service basis.
Enhanced Natural Gas Liquids ("NGL") Extraction: Musreau Deep Cut Facility
Construction of Pembina's Musreau Deep Cut Facility project, a new 205 mmcf/d ethane extraction facility and the related 10 km pipeline, is 80 percent complete with commissioning and start-up to commence in October 2011. This new $75 million plant, which is being built on the Company's existing Musreau Gas Plant site and uses existing infrastructure where possible, will deliver an ethane mix stream to Pembina's Peace Pipeline. Pembina has contracted approximately 80 percent of the planned capacity at the facility and expects to contract the remaining capacity under terms designed to provide Pembina with cash flow certainty. Once on stream and at full capacity, the ethane extraction facility is expected to provide Pembina with approximately $12 to $15 million of additional operating margin annually, as well as up to 14,000 bpd of liquids which Pembina will transport on its Conventional Pipelines and for which it will receive additional toll revenue.
"Pembina continues to capitalize on the low natural gas price environment, which is driving increased extraction of NGL by producers," said Mr. Michaleski. "We have been building out our capacity to process these liquids, and transport them to market using our existing pipeline network."
During the second quarter of 2011, Pembina realized an increase in average daily throughput on its Drayton Valley Pipeline and Peace Pipeline of more than 15,900 bpd and 27,700 bpd, respectively, compared to the same period in 2010. This is largely attributable to increased production in the Cardium formation located in west central Alberta. To continue meeting the needs of shippers in the region, and subject to receiving regulatory approval, Pembina plans to spend approximately $40 million prior to mid-2012 on projects that will provide additional transportation service options to customers. This includes an investment of approximately $23 million to increase the capacity of an existing 42 km section of pipeline that transports crude oil between Willesden Green and Buck Creek, Alberta and is expected to add an incremental 25,000 bpd to the current capacity of 12,000 bpd. In addition, Pembina plans to spend approximately $6 million to extend segments of its Drayton Valley trunk line and approximately $11 million to debottleneck existing pipeline systems and construct truck terminals in the region. To date this year, Pembina has spent approximately $15 million of the $40 million to install 10 km of 10 inch pipe in the west Drayton Valley area, and purchase and coat 42 km of 8 inch pipe for the Willesden Green expansion project, pump station upgrades and producer facility connections.
Liquids Rich Natural Gas
Pembina's Peace Pipeline and Northern System are located in prolific areas of the Western Canadian Sedimentary Basin where producers are aggressively pursuing liquids rich natural gas. The impact of this increased drilling activity to Pembina is evidenced by the substantial increase in the amount of NGL which is extracted from the natural gas that is being transported on its pipelines. Pembina is currently undertaking a detailed review and assessment of its pipeline systems to be ready for additional volume increases.
Moosehorn 8 Inch Gathering Pipeline Spill Update
On July 19, 2011, Pembina responded to a spill on its Moosehorn 8 inch gathering pipeline, approximately three km from its Swan Hills Terminal and Pump Station. The Company can now confirm that the leak size was between 800 and 1,000 barrels of light, sweet conventional crude oil, which is less than its initial estimate of 1,300 barrels.
The release occurred along Pembina's right-of-way and into muskeg and an unnamed creek, but did not enter any named waterways or sources of drinking water. To date, Pembina has satisfactorily met its regulatory requirements to ensure ongoing and effective containment of the spill. Containment measures include berms, booms and weirs. Additionally, water quality samples downstream from the spill have demonstrated no impact to water quality in any named waterways or sources of drinking water at this time.
Pembina continues its clean-up efforts and environmental assessments, having retained third party environmental specialists, suppliers and First Nations contractors, and is working closely with all regulatory agencies and local authorities to ensure Pembina's clean-up efforts return the area to its natural state. Pembina made arrangements for affected shippers to transport their production by truck to regional Pembina truck terminals and does not expect a material financial impact from this event.
Conference Call & Webcast
Pembina will host a conference call and webcast on Wednesday, August 3, at 2:00 p.m. MT (4:00 p.m. ET) for interested investors, analysts, brokers and media representatives.
The conference call dial-in numbers for Canada and the U.S. are 647-427-7450 or 888-231-8191. A recording of the conference call will be available for replay until August 10, 2011 at 11:59 p.m. ET. To access the replay, please dial either 416-849-0833 or 800-642-1687 and enter the password 76955387.
A live webcast of the conference call can be accessed on Pembina's website at www.pembina.com under Investor Centre, Presentation & Events, or by entering http://event.on24.com/r.htm?e=325454&s=1&k=AB948F22C27B5D6F847C6BA54C839503 in your web browser. Shortly after the call, an audio archive will be posted on the website for 90 days.
MD&A, Financial Statements & Notes
Pembina's management's discussion and analysis, consolidated financial statements and notes for the period ended June 30, 2011 provide a detailed explanation of Pembina's operating results for the three and six month period ended June 30, 2011 as compared to the three and six month period ended June 30, 2010. These documents are available at www.pembina.com and at www.sedar.com.
Throughout this news release, Pembina has used the following terms that are not defined by GAAP but are used by management to evaluate performance of Pembina and its business. Since certain non-GAAP financial measures may not have a standardized meaning, securities regulations require that non-GAAP financial measures are clearly defined, qualified and reconciled to their nearest GAAP measure. For additional information, see the section entitled "Non-GAAP Measures" in Pembina's management's discussion and analysis for the period ended June 30, 2011, which can be found at www.pembina.com and under Pembina's SEDAR profile at www.sedar.com.
Earnings before interest, taxes, depreciation and amortization
Adjusted cash flow from operating activities
Management believes these supplemental non-GAAP measures facilitate the understanding of Pembina's results from operations, leverage, liquidity and financial positions. Investors should be cautioned that EBITDA, adjusted earnings, adjusted cash flow from operating activities and and operating margin should not be construed as alternatives to net earnings, cash flow from operating activities or other measures of financial results determined in accordance with GAAP as an indicator of Pembina's performance. Furthermore, these non-GAAP measures may not be comparable to similar measures presented by other issuers.
Forward-Looking Statements & Information
Certain statements contained in this news release constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and "forward-looking information" within the meaning of applicable Canadian securities legislation (collectively, "forward-looking statements").
All forward-looking statements are based on Pembina's current expectations, estimates, projections, beliefs and assumptions based on information available at the time the statement was made and in light of its experience and its perception of historical trends. The use of any of the words "estimate", "expect", "may", "will", "believe", "plan", "anticipate", "design", "maintain", "schedule", "potential" and similar expressions are intended to identify forward-looking statements.
By their nature, such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Pembina believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. These statements speak only as of the date of this news release.
In particular, this news release contains forward-looking statements, including certain financial outlook, pertaining to the following:
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 Pembina's management's discussion and analysis for the period ended June 30, 2011 which can be found under Pembina's SEDAR profile at www.sedar.com.
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:
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 statement. Unless required by law, Pembina does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Management of Pembina approved the financial outlook contained herein as of the date of this document. The purpose of the financial outlook contained herein is to give the reader an indication of the potential effects that the proposed Nipisi and Mitsue pipelines may have on Pembina's operating results, once completed. Readers should be aware that the information contained in the financial outlook contained herein may not be appropriate for other purposes.
For additional detail and information, please see Pembina's public disclosure documents, including Pembina's annual information form for the year ended December 31, 2010 and Pembina's MD&A for the year ended December 31, 2010, each of which can be found under Pembina's SEDAR profile at www.sedar.com.
For further information: