Pembina Pipeline Corporation ("Pembina" or the "Company") (TSX: PPL; NYSE: PBA) announced today its 2025 financial guidance and provided a business update.
Highlights
2025 adjusted EBITDA guidance of $4.2 billion to $4.5 billion, which relative to Pembina’s guidance for 2024 is driven by the positive impacts of continued volume growth across the Western Canadian Sedimentary Basin ("WCSB"), new assets acquired or placed into service, and the full year impact of the consolidation of the Alliance and Aux Sable assets, partially offset primarily by the impacts of the recontracting of the Cochin Pipeline, and moderation of commodity margins in the marketing business.
2025 capital investment program of $1.1 billion reflects ongoing construction of previously sanctioned projects, development spending on potential future projects in response to growing volumes across the Canadian energy industry, and sustaining capital.
Pembina continues to execute its strategy within a fully funded model and consistent with its financial guardrails. Within the 2025 adjusted EBITDA guidance range, Pembina expects to generate positive free cash flow, with all 2025 capital investment program scenarios being fully funded by cash flow from operating activities, net of dividends. Further, the Company is forecasting a year-end proportionately consolidated debt-to-adjusted EBITDA ratio of 3.4 to 3.7 times.
Mr. Alister Cowan has been appointed to the board of directors effective December 3, 2024.
Business Update
Pembina anticipates a record setting financial year in 2024 reflecting the positive impact of recent acquisitions, growing volumes in the WCSB, and a strong contribution from the marketing business. As expected, volumes in the conventional pipelines business have strengthened in the fourth quarter relative to the first three quarters of the year.
In 2024, the Company meaningfully advanced its strategy through the full consolidation of Alliance Pipeline and Aux Sable (the "Alliance/Aux Sable Transaction"), and by reaching a positive final investment decision on the Cedar LNG Project. These two accomplishments highlight Pembina’s focus on strengthening the existing franchise, increasing exposure to resilient end-use markets, and accessing global market pricing for Canadian energy products. In addition, Pembina Gas Infrastructure ("PGI") announced transactions with Veren Inc. and Whitecap Resources Inc., creating opportunities with attractive economics that are expected to enhance asset utilization, capture future volumes, and benefit Pembina’s full value chain. Through these two transactions, we are realizing the vision set forth with the creation of PGI in 2022.
Other accomplishments over the past year include the completion of the $430 million Phase VIII Peace Pipeline Expansion and the $90 million NEBC MPS Expansion, on time and under budget; sanctioning $210 million (net to Pembina) of new projects, including the Wapiti Expansion and K3 Cogeneration Facility; and entering into long-term agreements with Dow Chemical Canada to supply up to 50,000 barrels per day ("bpd") of ethane for their Path2Zero Project (the "Dow Supply Agreement").
Through its extensive asset base and integrated value chain, Pembina can provide a full suite of transportation and midstream services across multiple hydrocarbons – natural gas, crude oil, condensate, and NGL. This uniquely positions the Company to benefit from a robust, multi-year growth outlook for the WCSB driven by transformational developments that include the recent completion of the Trans Mountain Pipeline expansion, new West Coast liquefied natural gas ("LNG") and NGL export capacity, and the development of new petrochemical facilities creating significant demand for ethane and propane. Growing production and demand for services in the WCSB continues to provide opportunities to increase utilization on existing assets and pursue expansion opportunities.
As attention turns to 2025, Pembina is focused on several key priorities including:
Safe, reliable, and cost-effective operations.
Stewardship of inflight construction projects, including the RFS IV Expansion, Wapiti Expansion, and the K3 Cogeneration Facility, to ensure safe, on-time and on-budget execution.
Progressing the Cedar LNG Project, including completion of detailed engineering followed by the start of construction of the floating LNG vessel in mid-2025. Further, Pembina will continue the process underway to assign its capacity in the project to a third party. This represents the only capacity currently available for contracting from a sanctioned west coast LNG project, and as such, there is broad interest in the capacity from multiple counterparties.
Completing the evaluation of the options available to meet Pembina’s commitment under the Dow Supply Agreement. Pembina is seeking to fulfill its commitment in the most capital efficient manner possible and is evaluating a portfolio of opportunities, including the addition of a de-ethanizer tower at RFS III within the Redwater Complex.
Development of additional expansions to support growing demand for services on Pembina’s conventional pipelines. In particular, Pembina continues to advance expansions to support volume growth in northeastern British Columbia ("NEBC"), including the Taylor to Gordondale Project (an expansion of the Pouce Coupe system), which is in the assessment phase of the Canada Energy Regulator’s (the "CER") regulatory process. In addition, Pembina is undertaking development work on an additional expansion of the Peace Pipeline system. The current total capacity of the Peace Pipeline and Northern Pipeline systems is approximately 1.1 million bpd and Pembina has the ability to add approximately 200,000 bpd of additional capacity to its market delivery pipelines from Fox Creek to Namao through the relatively low-cost addition of pump stations on these mainlines (the "Fox Creek-to-Namao Peace Pipeline Expansion"), bringing the total capacity of these systems to 1.3 million bpd.
Fully contracting the remaining available capacity on the Nipisi Pipeline to serve growing volumes from the Clearwater area.
Alliance Pipeline CER Toll Review
The CER initiated a review of Alliance Pipeline’s tolls, which were previously approved by the CER. As such, the CER has ordered Alliance Pipeline to submit for approval a detailed toll application justifying why the current tolling methodology remains compliant with the Canadian Energy Regulator Act, or a new tolling methodology application. Likewise, the CER has ordered that the current tolls shall be deemed interim tolls until resolution of the above.
Alliance Pipeline's tolls for the Canadian segment of the pipeline are approved by the CER, while its tolls for the United States segment are approved by the Federal Energy Regulatory Commission. Alliance Pipeline's Canadian long-term firm service tolls have remained level since they were approved by the CER in 2015, while its full path tolls to Chicago have declined by approximately 15 percent. In comparison, tolls on alternative systems have increased by approximately 30 percent. Likewise, Alliance Pipeline has operated at an industry leading reliability rate. Furthermore, Alliance Pipeline remains an ‘at-risk’ commercial model where returns and cost recovery are squarely driven by the customer demand for its service and Alliance Pipeline's ability to efficiently provide such service. By contrast, the competitive alternatives and the majority of CER regulated Group 1 natural gas pipelines' returns are not materially exposed to volume or cost recovery risk.
Alliance Pipeline is working collaboratively with its stakeholders through the CER review process and will remain focused on delivering the highest standards of service that customers have come to expect. Pembina will work expeditiously throughout 2025 with shippers towards a negotiated solution, in accordance with all CER direction.
Approximately 60 percent of the adjusted EBITDA contribution from Alliance Pipeline is generated from the Canadian portion of the pipeline. Pembina’s 2025 adjusted EBITDA guidance, discussed below, assumes the existing toll is in effect for the full year.
Board of Directors Appointment
Pembina is pleased to announce that Mr. Alister Cowan has been appointed to the board of directors effective December 3, 2024.
Mr. Cowan has over 20 years of experience in the energy industry and has significant financial executive level experience at various public companies. In 2023, he was Executive Advisor of Suncor Energy Inc. ("Suncor") and was previously Chief Financial Officer of Suncor from 2014 to 2023 where he oversaw financial operations, accounting, investor relations, treasury, tax, internal audit, and enterprise risk management. Prior to joining Suncor, Alister was Chief Financial Officer of Husky Energy Inc. from 2008 to 2014. Before that, he was Executive Vice President and Chief Financial Officer and Chief Compliance Officer of British Columbia Hydro and Power Authority. Mr. Cowan is a non-executive director of The Chemours Company and of Smiths Group PLC. He has a Bachelor of Arts in Accounting and Finance from Heriot-Watt University and is a member of the Institute of Chartered Accountants of Scotland.
Mr. Cowan has also been appointed to the audit committee.
"The board of directors is excited to welcome Alister, and we look forward to working with him. Alister is a seasoned financial executive with extensive experience in Canadian energy. We are sure to benefit from his contribution as we work together to ensure Pembina's continued success during a transformational period of growth in the Canadian oil and gas industry," said Henry Sykes, Chair of the Board.
2025 Guidance
Pembina is anticipating 2025 adjusted EBITDA of $4.2 billion to $4.5 billion. Relative to the midpoint of Pembina’s adjusted EBITDA guidance range for 2024, the major factors driving the outlook for 2025 adjusted EBITDA include:
Higher contracted and interruptible volumes and higher tolls on Pembina's conventional pipelines (approximately $80 million), reflecting increased producer activity across the WCSB and fewer Pembina and third-party outages compared to the prior year. Forecasted physical volume growth on Pembina’s conventional systems is aligned with mid-single digit volume growth expected in the WCSB, with revenue volume growth reflecting certain customers growing into their contractual take-or-pay commitments.
The full year impact of higher ownership of Alliance Pipeline following the Alliance/Aux Sable Transaction in 2024 (approximately $70 million).
A higher contribution from gas processing assets (approximately $50 million), primarily at PGI due to higher volumes and the impacts of previously announced transactions with Veren Inc. and Whitecap Resources Inc.
A lower contribution from the Cochin Pipeline (approximately $40 million) due to the full year impact of lower contracted tolls that became effective in the third quarter of 2024, partially offset by higher interruptible volumes and lower integrity spending.
A lower contribution from various oil sands assets (approximately $10 million) due primarily to the sale of the Edmonton South Rail Terminal, which occurred in 2024, lower contracted rates at another terminal asset, and one-time items which occurred in 2024, partially offset by a higher contribution from Nipisi Pipeline.
A lower contribution from the marketing business (approximately $125 million) due to lower NGL prices and higher natural gas prices, narrower margins and reduced blending opportunities in crude oil marketing, and lower realized gains on commodity-related derivatives, partially offset by a higher ownership of Aux Sable following the Alliance/Aux Sable Transaction in 2024 and the synergies associated with consolidating ownership of Aux Sable.
Pembina has hedged approximately 32 percent of its 2025 frac spread exposure. For 2025, the weighted average price of Pembina's frac spread hedges, excluding transportation and processing costs, is approximately C$36 per barrel, which compares to the prevailing 2025 forward price at the end of November 2024 of approximately C$37 per barrel.
The mid-point of the 2025 adjusted EBITDA guidance range includes a forecasted contribution from the Marketing & New Ventures segment of $550 million.
Excluding the contribution from the Marketing & New Ventures segment, the midpoint of the 2025 guidance range reflects an approximately 5.5 percent increase in fee-based adjusted EBITDA, relative to the forecast for 2024. Further, Pembina remains on-track to achieve four to six percent compound annual growth of fee-based adjusted EBITDA per share from 2023-2026.
The lower and upper ends of the guidance range are framed primarily as a function of (1) commodity prices and the resulting contribution from the marketing business; (2) interruptible volumes on key systems; and (3) the U.S./Canadian dollar exchange rate.
Current income tax expense in 2025 is anticipated to be $415 million to $470 million as Pembina will continue to benefit from the availability of tax pools from assets recently placed into service.
2025 Capital Investment
Pipelines Division capital expenditures primarily relate to sustaining capital, a terminal expansion within the conventional pipeline system, development spending on potential future projects, including the Fox Creek-to-Namao Peace Pipeline Expansion, and investments in smaller growth projects, including various laterals and terminals.
Capital expenditures in the Facilities Division primarily relate to construction of the RFS IV Expansion, smaller growth projects, and sustaining capital spending.
Capital expenditures within the Marketing and New Ventures Division and the Corporate segment are primarily targeted at information technology enhancements to further the Company's continuous improvement aspirations.
Contributions to Equity Accounted Investees includes approximately $200 million of contributions to Cedar LNG to fund the construction of the Cedar LNG Project, and contributions to PGI to fund development of the Wapiti Expansion, K3 Cogeneration Facility, as well as development activities related to the previously announced agreements with Veren Inc. and Whitecap Resources Inc.
The Company's 2025 capital program includes:
$200 million of non-recoverable sustaining capital to support safe and reliable operations.
$85 million related to digitization, technology, and systems investments, which aim to enhance operational efficiency.
In addition to the 2025 capital investment program detailed above, Pembina is in development of potential additional projects that, if sanctioned, would increase the 2025 capital program by up to $200 million. These projects primarily include pipeline and terminal upgrades in support of volume growth in NEBC, the Fox Creek-to-Namao Peace Pipeline Expansion, investments related to the Dow Supply Agreement, including the addition of a de-ethanizer tower at RFS III within the Redwater Complex, and optimization of the Prince Rupert Terminal to allow for the use of larger vessels, which would reduce per unit costs.
Capital Allocation
Pembina continues to execute its strategy within a fully funded model and consistent with its financial guardrails. Within the 2025 adjusted EBITDA guidance range, Pembina expects to generate positive free cash flow with all 2025 capital investment program scenarios being fully funded by cash flow from operating activities, net of dividends. Under prevailing market and economic conditions, Pembina expects to prioritize the use of excess free cash flow to debt repayment in 2025. As has been our approach since 2021, Pembina will continue to evaluate the merits of debt repayment relative to share repurchases while considering expected future funding requirements along with prevailing market conditions and the risk-adjusted returns of the associated alternatives. Pembina expects to exit 2025 with a proportionately consolidated debt-to-adjusted EBITDA ratio of 3.4 to 3.7 times. Excluding the debt related to the construction of the Cedar LNG project this ratio would be 3.2 to 3.5 times.
