Pembina Pipeline Corporation ("Pembina") (TSX: PPL; PBA) announced its financial and operating results for the first quarter of 2023.
Highlights
- First Quarter Results - reported earnings of $369 million and adjusted EBITDA of $947 million.
- Common Share Dividend Increase - the board of directors declared a common share cash dividend for the second quarter of 2023 of $0.6675 per share, representing an increase of 2.3 percent, to be paid, subject to applicable law, on June 30, 2023, to shareholders of record on June 15, 2023.
- KAPS - the sale of Pembina Gas Infrastructure's ("PGI") interest in the Key Access Pipeline System ("KAPS") was completed on April 26, 2023.
- Cedar LNG - during the quarter, Cedar LNG received its Environmental Assessment Certificate from the British Columbia Environmental Assessment Office and a positive Decision Statement from the federal Minister of Environment and Climate Change.
- Guidance - reiterated 2023 adjusted EBITDA guidance range of $3.5 billion to $3.8 billion.
- Strong Balance Sheet - at March 31, 2023 the ratio of proportionately consolidated debt-to-adjusted EBITDA was 3.6 times and Pembina expects to exit the year with a ratio of 3.3 to 3.6 times.
Financial & Operational Highlights
Adjusted EBITDA
Pembina reported first quarter adjusted EBITDA of $947 million, representing a $58 million or six percent decrease over the same period in the prior year.
Pipelines reported adjusted EBITDA of $525 million for the first quarter, representing a $4 million or one percent increase compared to the same period in the prior year, reflecting the net impact of the following factors:
- higher volumes and higher recoverable project costs on the Peace Pipeline system;
- higher revenues from Cochin Pipeline, Vantage Pipeline, and AEGS;
- lower revenues and higher operating expenses resulting from the Northern Pipeline system outage;
- lower adjusted EBITDA contribution from Ruby; and
- lower revenue related to recoverable costs on the Horizon Pipeline system in the first quarter of 2022.
Facilities reported adjusted EBITDA of $298 million for the first quarter, representing a $17 million or six percent increase over the same period in the prior year, reflecting the net impact of the following factors:
- the creation of PGI on August 15, 2022 (the "PGI Transaction") and stronger performance from certain gas processing assets, including the former Energy Transfer Canada ("ETC") plants and the Dawson Assets; and
- lower supply volumes at the Redwater Complex as a result of the Northern Pipeline system outage.
The combined impact across Pipelines and Facilities from the Northern Pipeline system outage was approximately $54 million in the first quarter.
Marketing & New Ventures reported adjusted EBITDA of $169 million for the first quarter, representing a $98 million or 37 percent decrease compared to the same period in the prior year, reflecting the net impact of the following factors:
- lower NGL margins as a result of lower propane and butane prices and lower margins on crude oil resulting from the lower prices across the crude oil complex, coupled with lower marketed NGL volumes;
- realized gains on commodity-related derivatives for the quarter compared to losses recognized during the first quarter of 2022; and
- lower contribution from Aux Sable as a result of lower NGL prices and recontracting in the fourth quarter of 2022.
Corporate reported adjusted EBITDA of negative $45 million for the first quarter, representing a $19 million or 30 percent increase compared to the same period in the prior year. The change over the prior period was the result of lower corporate general and administrative expense primarily due to lower long-term incentive costs, partially offset by higher information technology-related maintenance costs.
Earnings
Pembina reported first quarter earnings of $369 million, representing a $112 million or 23 percent decrease over the same period in the prior year.
Pipelines had reportable segment earnings before tax of $376 million, representing a $15 million or four percent increase compared to the same period in the prior year. The increase was attributable to the factors impacting adjusted EBITDA, as noted above, excluding the lower contribution from Ruby.
Facilities had reportable segment earnings before tax of $135 million, representing a $115 million or 46 percent decrease over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, as noted above, the first quarter was negatively impacted by lower unrealized gains on commodity-related derivatives. Further, in the first quarter, the positive impacts captured in adjusted EBITDA from PGI were offset by interest expense on long-term debt, income tax expense, and depreciation resulting from the PGI assets recorded at fair value, which are all included in share of profit from PGI following the PGI Transaction.
Marketing & New Ventures had reportable segment earnings before tax of $120 million, representing a $97 million or 45 percent decrease over the same period in the prior year. The decrease was largely due to the same items impacting adjusted EBITDA, discussed above.
In addition to the changes in reportable segment earnings for each division discussed above, the change in first quarter earnings compared to the prior period was due to the net impact of the following factors:
- lower other expense largely as a result of lower acquisition fees incurred during the period; and
- lower income tax expense due to lower current period earnings and the tax impact of the PGI transaction.
Cash Flow From Operating Activities
Cash flow from operating activities of $458 million for the first quarter represents a $197 million or 30 percent decrease compared to the same period in the prior year. The decrease was primarily driven by a decrease in the change in non-cash working capital due mainly to the Ruby settlement, lower operating results, and higher share-based compensation payments, partially offset by a decrease in taxes paid and higher distributions from equity accounted investees.
On a per share (basic) basis, cash flow from operating activities was $0.83, representing a decrease of 30 percent compared to the same period in the prior year.
Adjusted Cash Flow From Operating Activities
Adjusted cash flow from operating activities of $634 million for the first quarter represents a $66 million or nine percent decrease compared to the same period in the prior year. The decrease was largely due to the same items impacting cash flow from operating activities, discussed above, excluding the change in non-cash working capital, taxes paid, and share-based compensation payments, partially offset by lower current tax expense and lower accrued share-based payments.
On a per share (basic) basis, adjusted cash flow from operating activities was $1.15 per share, representing a decrease of nine percent compared to the same period in the prior year.
Volumes
Total volumes of 3,188 mboe/d for the first quarter represent a decrease of approximately five percent over the same period in the prior year.
Pipelines volumes of 2,467 mboe/d in the first quarter represent a one percent decrease compared to the same period in the prior year, reflecting the net impact of the following factors:
- approximately 62 mbbls/d reduction in volumes due to the Northern Pipeline system outage;
- lower volumes on the Ruby Pipeline;
- higher volumes on the Peace Pipeline system resulting from increased upstream activity; and
- higher volumes at AEGS and on the Vantage Pipeline due to third-party outages in the first quarter of 2022.
Facilities volumes of 721 mboe/d in the first quarter represent an 18 percent decrease compared to the same period in the prior year, reflecting the net impact of the following factors:
- the disposition of Pembina's interest in the assets comprising the Empress I Plant, Empress I Expansion Plant, and the Empress VI Plant (collectively, "E1 and E6"), in exchange for a processing agreement that provides Pembina the right to first priority for gas processing at all Plains-operated assets at Empress;
- approximately 70 mboe/d reduction in volumes at the Redwater Complex and Younger due to the Northern Pipeline system outage; and
- increased volumes from PGI, primarily at the former ETC plants and the Dawson Assets.
Excluding the impact of the disposition of Pembina’s interest in the E1 and E6 assets at Empress, Facilities volumes would have decreased by seven percent compared to the same period in the prior year.
Marketed NGL volumes of 194 mboe/d in the first quarter represents a six percent decrease compared to the same period in the prior year, reflecting reduced ethane and butane sales as a result of lower supply volumes from the Redwater Complex following the Northern Pipeline system outage.
Quarterly Common Share Dividend
Pembina's board of directors has declared a common share cash dividend for the second quarter of 2023 of $0.6675 per share, representing an increase of 2.3 percent, to be paid, subject to applicable law, on June 30, 2023, to shareholders of record on June 15, 2023. The common share dividends are designated as "eligible dividends" for Canadian income tax purposes. For non-resident shareholders, Pembina's common share dividends should be considered "qualified dividends" and may be subject to Canadian withholding tax.
For shareholders receiving their common share dividends in U.S. funds, the cash dividend is expected to be approximately U.S. $0.4902 per share (before deduction of any applicable Canadian withholding tax) based on a currency exchange rate of 0.7344. The actual U.S. dollar dividend will depend on the Canadian/U.S. dollar exchange rate on the payment date and will be subject to applicable withholding taxes.
Quarterly dividend payments are expected to be made on the last business day of March, June, September, and December to shareholders of record on the 15th day of the corresponding month, if, as and when declared by the board of directors. Should the record date fall on a weekend or on a statutory holiday, the record date will be the next succeeding business day following the weekend or statutory holiday.
