PEMBINA PIPELINE CORPORATION All financial figures are approximate and in Canadian dollars unless otherwise noted.
Highlights
- Brings together three complementary platforms to create a premier, highly competitive western Canadian gas processing entity with the ability to serve customers throughout the
Montney andDuvernay trends from north centralAlberta to northeastBritish Columbia ("NEBC"). - Approximately
$700 million of cash proceeds to Pembina expected upon closing, with approximately$550 million expected to be deployed for debt repayment and approximately$150 million for additional common share repurchases. - Efficiencies from the combination of three platforms, enabling cost reductions and an enhanced customer service offering.
- Increases Pembina's ownership in
Veresen Midstream and exposure to increasing LNG-driven volume growth in NEBC in a capital efficient manner. - Mid to high single digit accretion to Pembina's adjusted cash flow from operating activities per share1 over the next five years.
- Upon closing, Pembina intends to increase its common share dividend by
$0.0075 per share per month, or 3.6 percent. - Area of mutual interest for natural gas processing in western
Canada provides strong structural alignment for joint venture partners. - Well-capitalized entity able to pursue future opportunities in a capital efficient manner.
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1 | Adjusted cash flow from operating activities per share is a non-GAAP ratio. See "Non-GAAP and Other Financial Measures" herein. |
"Pembina has enjoyed a strong relationship with KKR as a partner in
"We have developed a great, trusted relationship with Scott, Jaret and the industry-leading team at Pembina and we are thrilled to be deepening that partnership with today's strategic combination," said
Strategic Rationale
Pembina has owned and operated natural gas processing infrastructure in western
By partnering with KKR in Newco, Pembina intends to extend its strong operating foundation, focused on safety, reliability and operational excellence, to a larger asset base across western
Newco Asset Profile
Pembina will contribute to Newco its field-based gas processing assets, which include the
Pembina's Empress, Younger and
KKR will contribute the 55 percent interest in
Collectively, the ascribed value of these transactions totals
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For more information on Pembina's significant assets, including as such relate to definitions for capitalized terms used herein and not otherwise defined, refer to Pembina's Annual Information Form (the "AIF") available at www.sedar.com (filed with the |
Key Metrics
Pembina |
| Energy Transfer | Newco | |
Processing Capacity | ~ 2 bcf/d (1) | 1.7 bcf/d | 1.3 bcf/d | ~ 5 bcf/d |
Processing Facilities | 15 (6 deep cut) | 5 | 5 | 25 |
Gathering and Transportation Pipelines | ~650 km | ~1,300 km | ~1,400 km | ~3,350 km |
2022E Adjusted EBITDA (million) (3) (4) |
1. | Represents Pembina's net processing capacity. | |||
2. | All values are 100% gross to Newco. | |||
3. | Assuming status quo treatment of leases under IFRS 16 and | |||
4. | Adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") is a non-GAAP financial measure. See "Non-GAAP and Other | |||
In addition, Newco's business is expected to have the following characteristics:
- Physical capacity utilization of approximately 65 percent, offering a strong base cash flow stream and incremental low cost processing capacity to meet customers' evolving needs.
- Contract tenures ranging from five to nearly 25 years, with an average of 14 years.
- Approximately 94 percent of the operating expenses across the asset portfolio are flow-through.
- Approximately 80 percent of counterparty credit exposure is with investment grade or secured entities.
- Tax pools of approximately
$4.6 billion .
Newco Structure and Governance
Capital Structure
Newco is intended to have an investment grade capital structure, consistent with Pembina's financial guardrails, with target leverage of 3.5 to 4.0 times debt-to-EBITDA. The entity will be independently funded and has obtained commitments for
Governance
Pembina will serve as the manager and operator of Newco, enabling the joint venture to benefit from Pembina's operating capabilities, institutional knowledge, and management systems. Newco will be led by
Environmental, Social and Governance
Newco will adhere to, and build on, Pembina's and KKR's strong program of continuously improving environmental, social and governance ("ESG") performance. The partnership will integrate ESG considerations into its governance structure and long-term business strategy.
Newco assets will be included in Pembina's target of taking concrete action to achieve a 30 percent reduction in greenhouse gas emissions intensity by 2030, against a 2019 baseline. Pembina's policies and management systems related to health, safety, environment, cybersecurity, Indigenous and community relations, and other ESG matters will also be maintained at Newco. More information on these initiatives can be found on Pembina's website at www.pembina.com/sustainability.
An ESG strategy for Newco will be established following the closing of the transactions. Initial priorities that Pembina and KKR have identified for Newco include:
- Building upon Pembina's leading safety culture to continuously reduce process and occupational safety incidents, with the ultimate goal of zero incidents.
- Enhancing employee equity, diversity and inclusion across the Newco assets.
- Embracing Pembina's commitment to meaningfully partnering and engaging with Indigenous communities, with an aim of continuously increasing the number of local Indigenous suppliers each year.
Financial Impact and Dividend Increase Following Closing
Pembina expects the creation of this joint venture to generate mid to high single digit accretion to adjusted cash flow per share over the next five years. This accretion is expected to be driven by a combination of the net impact of the purchase and sale components of the transaction, synergies associated with combining the operations of the three businesses, tax synergies, and the planned repurchase of Pembina's common shares using cash proceeds obtained from the transaction.
With target leverage of 3.5 to 4.0 times debt-to-EBITDA, Newco's capital structure will align squarely with Pembina's financial guardrails. Newco will not be consolidated into Pembina's financial statements and will instead be accounted for as an equity accounted investment.
Upon closing, Pembina expects to receive approximately
In connection with the transaction, and subject to approval and declaration by its Board of Directors, Pembina also intends to increase its common share dividend upon closing by
Closing
Completion of the transactions is subject to approval under the Competition Act (
Conference Call & Webcast
Pembina will host a conference call and webcast to discuss the transaction on
The conference call dial-in numbers for
A live webcast of the call can be accessed on Pembina's website at www.pembina.com or by entering https://produceredition.webcasts.com/starthere.jsp?ei=1533498&tp_key=ef49bb49c4 in your web browser. Shortly after the call, an audio archive will be posted on www.pembina.com for 90 days.
Advisors
About Pembina
Purpose of Pembina:
To be the leader in delivering integrated infrastructure solutions connecting global markets:
- Customers choose us first for reliable and value-added services.
- Investors receive sustainable industry-leading total returns.
- Employees say we are the 'employer of choice' and value our safe, respectful, collaborative and inclusive work culture.
- Communities welcome us and recognize the net positive impact of our social and environmental commitment.
Pembina is structured into three Divisions: Pipelines Division, Facilities Division and Marketing & New Ventures Division.
Pembina's common shares trade on the
Forward-Looking Information and Statements
This news release contains certain forward-looking statements and forward-looking information (collectively, "forward-looking statements"), including forward-looking statements within the meaning of the "safe harbor" provisions of applicable securities legislation, that are based on Pembina's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. In some cases, forward-looking statements can be identified by terminology such as "expects", "estimates", "anticipates", "projects", "plans", "will", "would", "could", "potential", "continue", "commit" and similar expressions suggesting future events or future performance.
In particular, this news release contains forward-looking statements, including certain financial outlooks, pertaining to, without limitation, the following: the joint venture transaction between Pembina and KKR, including the terms thereof, including the assets to be contributed by Pembina and KKR, the expected closing date and the anticipated benefits thereof to Pembina, including the anticipated synergies and efficiencies and the accretion to Pembina's adjusted cash flow from operating activities per share; the cash proceeds to Pembina from the joint venture transaction and Pembina's expected use thereof to repay debt and repurchase common shares; the post-closing business and assets of Newco, including Pembina's role as manager and operator of Newco and the expected processing capacity and utilization, cash flows, operating costs and capital expenditures of Newco; Newco's capital structure, including funding commitments, and the terms thereof, its target leverage ratio and its impact on Pembina; the post-closing ownership of Newco; the acquisition by Newco of the remaining 51% interest in ETC, including the terms and expected timing thereof; the proposed disposition by Newco of the KAPS project, including the expected timing thereof and the anticipated repayment of the KAPS construction facility and distribution of the remaining cash proceeds to Pembina and KKR in connection therewith; 2022 adjusted EBITDA expectations for the Pembina assets contributed to Newco,
The forward-looking statements are based on certain assumptions that Pembina has made in respect thereof as at the date of this news release regarding, among other things: the ability of Pembina and KKR to satisfy the conditions to closing of the joint venture transaction in a timely manner and substantially on the terms described herein; the ability of Newco to satisfy the conditions to closing of the acquisition of the remaining 51% interest in ETC in a timely manner and substantially on the terms described herein; that favourable circumstances continue to exist in respect of the operation of the assets to be contributed to Newco; that Newco's future results of operations will be consistent with management expectations in relation thereto; oil and gas industry exploration and development activity levels and the geographic region of such activity; prevailing regulatory, tax and environmental laws and regulations; the ability of Newco to maintain an investment grade rating; future cash flows; prevailing commodity prices, interest rates, carbon prices, tax rates and exchange rates; the availability of capital to fund Newco's future capital requirements; future operating costs; that all required regulatory approvals can be obtained on the necessary terms in a timely manner; that counterparties will comply with contracts in a timely manner; that there are no unforeseen events preventing the performance of contracts; that there are no unforeseen material costs relating to the relevant facilities which are not recoverable from customers; and maintenance of operating margins.
Although Pembina believes the expectations and material factors and assumptions reflected in these forward-looking statements are reasonable as of the date hereof, there can be no assurance that these expectations, factors and assumptions will prove to be correct. These forward-looking statements are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties that could cause actual events or results to differ materially, including, but not limited to: the ability of the parties to receive, in a timely manner, the necessary regulatory and other third-party approvals in connection with closing of the joint venture transaction; the ability of Pembina and KKR to satisfy, in a timely manner, the other conditions to the closing of the joint venture transaction; the ability of Newco to satisfy, in a timely manner, the conditions to closing of the acquisition of the remaining 51% interest in ETC; the failure to realize the anticipated benefits and/or synergies of the joint venture transaction following closing due to integration issues or otherwise; expectations and assumptions concerning, among other things: customer demand for Newco's assets and services; commodity prices, interest rates and foreign exchange rates; planned synergies, operating and capital efficiencies and cost-savings; applicable tax laws; future production rates; the sufficiency of budgeted capital expenditures in carrying out planned activities; labour and material shortages; non-performance or default by counterparties to agreements entered into in respect of Newco's business; the impact of competitive entities and pricing; reliance on key relationships and agreements; reliance on third parties to successfully operate and maintain certain assets; the regulatory environment and decisions and Indigenous and landowner consultation requirements; actions by governmental or regulatory authorities, including changes in tax laws and treatment, changes in royalty rates, climate change initiatives or policies or increased environmental regulation; fluctuations in operating results; adverse general economic and market conditions in
In respect of the forward-looking statements concerning the anticipated increase in Pembina's common dividend following completion of the joint venture transaction, Pembina has made such forward-looking statements in reliance on certain assumptions that it believes are reasonable at this time, including assumptions in respect of: prevailing commodity prices, interest rates, margins and exchange rates; that future results of operations will be consistent with past performance, as applicable, and management expectations in relation thereto, including in respect of Newco's future results of operations; the continued availability of capital at attractive prices to fund future capital requirements relating to existing assets and projects, including but not limited to future capital expenditures relating to expansion, upgrades and maintenance shutdowns; future cash flows and operating costs; that counterparties to material agreements will continue to perform in a timely manner; that there are no unforeseen events preventing the performance of contracts; that there are no unforeseen material construction or other costs related to current growth projects or current operations; and that there are no unforeseen material construction or other costs related to current growth projects or current operations. Pembina will also be subject to requirements under applicable corporate laws in respect of declaring dividends at such time.
The estimates of adjusted EBITDA and adjusted cash flow from operating activities per share set forth in this news release may be considered to be financial outlook for the purposes of applicable Canadian securities laws. Financial outlook contained in this news release about prospective financial performance, financial position, or cash flows (including adjusted EBITDA and adjusted cash flow from operating activities per share) are based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available, and which may become available in the future. These projections constitute forward-looking statements and are based on a number of the material factors and assumptions set out above. Actual results may differ significantly from the projections presented herein. See above for a discussion of the risks that could cause actual results to vary. The financial outlook contained in this news release have been approved by management as of the date of this news release. Readers are cautioned that any such financial outlook contained herein should not be used for purposes other than those for which it is disclosed herein. Pembina and its management believe that the financial outlook contained in this news release has been prepared based on assumptions that are reasonable in the circumstances, reflecting management's best estimates and judgments, and represents, to the best of management's knowledge and opinion, expected and targeted financial results. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future results.
This list of risk factors should not be construed as exhaustive. Readers are cautioned that events or circumstances could cause actual results to differ materially from those predicted, forecasted, or projected. The forward-looking statements contained in this news release speak only as of the date hereof. Pembina does not undertake any obligation to publicly update or revise any forward-looking statements contained herein, except as required by applicable laws. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Non-GAAP and Other Financial Measures
Throughout this news release, Pembina has disclosed certain financial measures and ratios that are not defined in accordance with GAAP and which are not disclosed in Pembina's financial statements. Non-GAAP financial measures either exclude an amount that is included in, or include an amount that is excluded from, the composition of the most directly comparable financial measure determined in accordance with GAAP. Non-GAAP ratios are financial measures that are in the form of a ratio, fraction, percentage, or similar representation that has a non-GAAP financial measure as one or more of its components. These non-GAAP financial measures and ratios are used by management to evaluate the performance and cash flows of Pembina and its businesses and to provide additional useful information respecting Pembina's financial performance and cash flows to investors and analysts.
In this news release, Pembina has disclosed the following non-GAAP financial measures and non-GAAP ratios: adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"), adjusted cash flow from operating activities, and adjusted cash flow from operating activities per common share. These non-GAAP financial measures and non-GAAP ratios disclosed in this news release do not have any standardized meaning under International Financial Reporting Standards ("IFRS") and may not be comparable to similar financial measures disclosed by other issuers. The measures should not, therefore, be considered in isolation or as a substitute for, or superior to, measures of Pembina's financial performance, or cash flows specified, defined, or determined in accordance with IFRS, including revenue, earnings and cash flow from operating activities.
Except as otherwise described herein, these non-GAAP financial measures and non-GAAP ratios are calculated on a consistent basis from period to period. Specific reconciling items may only be relevant in certain periods.
Below is a description of each non-GAAP financial measure and non-GAAP ratio disclosed in this news release, together with, as applicable, disclosure of the most directly comparable financial measure that is determined in accordance with GAAP to which each non-GAAP financial measure relates and a quantitative reconciliation of each non-GAAP financial measure to such directly comparable GAAP financial measure. Additional information relating to such non-GAAP financial measures, including disclosure of the composition of each non-GAAP financial measure, an explanation of how each non-GAAP financial measure provides useful information to investors and the additional purposes, if any, for which management uses each non-GAAP financial measure; an explanation of the reason for any change in the label or composition of each non-GAAP financial measure from what was previously disclosed; and a description of any significant difference between forward-looking non-GAAP financial measures and the equivalent historical non-GAAP financial measures, is contained in the "Non-GAAP & Other Financial Measures" section of the MD&A, which information is incorporated by reference in this news release. The MD&A is available on SEDAR at www.sedar.com, EDGAR at www.sec.gov and Pembina's website at www.pembina.com.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
Pembina has included in this news release 2022 adjusted EBITDA projections, a forward-looking non-GAAP financial measure, for (i) the Pembina assets to be contributed by Pembina to Newco, (ii)
Adjusted EBITDA is a non-GAAP financial measure and is calculated as earnings before net finance costs, income taxes, depreciation and amortization (included in operations and general and administrative expense) and unrealized gains or losses on commodity-related derivative financial instruments. The exclusion of unrealized gains or losses on commodity-related derivative financial instruments eliminates the non-cash impact of such gains or losses.
Adjusted EBITDA also includes adjustments to earnings for losses (gains) on disposal of assets, transaction costs incurred in respect of acquisitions, dispositions and restructuring, impairment charges or reversals in respect of goodwill, intangible assets, investments in equity accounted investees and property, plant and equipment, certain non-cash provisions and other amounts not reflective of ongoing operations. In addition, Pembina's proportionate share of results from investments in equity accounted investees with a preferred interest is presented in adjusted EBITDA as a 50 percent common interest. These additional adjustments are made to exclude various non-cash and other items that are not reflective of ongoing operations.
Management believes that adjusted EBITDA provides useful information to investors as it is an important indicator of an issuer's ability to generate liquidity through cash flow from operating activities and equity accounted investees. Management also believes that adjusted EBITDA provides an indicator of operating income generated from capital invested, which includes operational finance income from lessor lease arrangements. Adjusted EBITDA is also used by investors and analysts for assessing financial performance and for the purpose of valuing an issuer, including calculating financial and leverage ratios. Management utilizes adjusted EBITDA to set objectives and as a key performance indicator of the Company's success. Pembina presents adjusted EBITDA as management believes it is a measure frequently used by analysts, investors and other stakeholders in evaluating the Company's financial performance.
12 Months Ended | |||||
($ millions, except as noted) | Pipelines | Facilities | Marketing & | Corporate & | Total |
Earnings (loss) before income tax | 917 | 715 | 391 | (358) | 1,665 |
Adjustments to share of profit from equity accounted investees | 286 | 135 | 23 | -- | 444 |
Net finance costs | 29 | 35 | (8) | 394 | 450 |
Depreciation and amortization | 413 | 214 | 50 | 46 | 723 |
Unrealized (gain) loss on commodity-related derivative financial | -- | (38) | (35) | -- | (73) |
Canadian Emergency Wage Subsidy | -- | -- | -- | 3 | 3 |
Transformation and restructuring costs | -- | -- | -- | 47 | 47 |
Transaction costs incurred in respect of acquisitions | -- | -- | -- | 31 | 31 |
Arrangement Termination Payment | -- | -- | -- | (350) | (350) |
Impairment charges and non-cash provisions | 457 | 36 | (1) | 1 | 493 |
Adjusted EBITDA | 2,102 | 1,097 | 420 | (186) | 3,433 |
Adjusted EBITDA from Equity Accounted Investees
In accordance with IFRS, Pembina's jointly controlled investments are accounted for using equity accounting. Under equity accounting, the assets and liabilities of the investment are presented net in a single line item in the Consolidated Statement of Financial Position, "Investments in Equity Accounted Investees". Net earnings from investments in equity accounted investees are recognized in a single line item in the Consolidated Statement of Earnings and Comprehensive Income "Share of Profit from Equity Accounted Investees". The adjustments made to earnings, in adjusted EBITDA above, are also made to share of profit from investments in equity accounted investees. Cash contributions and distributions from investments in equity accounted investees represent Pembina's share paid and received in the period to and from the investments in equity accounted investees.
To assist in understanding and evaluating the performance of these investments, Pembina is supplementing the IFRS disclosure with non-GAAP proportionate consolidation of Pembina's interest in the investments in equity accounted investees. Pembina's proportionate interest in equity accounted investees has been included in adjusted EBITDA.
12 Months Ended | |||||
($ millions, except as noted) | Pipelines | Facilities | Marketing & | Total | |
Share of profit (loss) from equity accounted investees – operations | 124 | 80 | 77 | 281 | |
Adjustments to share of profit (loss) from equity accounted investees: | |||||
Net finance costs | 72 | 31 | 1 | 104 | |
Depreciation and amortization | 156 | 104 | 22 | 282 | |
Unrealized loss on commodity-related derivative financial instruments | -- | -- | -- | -- | |
Share of earnings (loss) in excess of equity interest(1) | 58 | -- | -- | 58 | |
Total adjustments to share of profit from equity accounted investees | 286 | 135 | 23 | 444 | |
Impairment charges and non-cash provisions | -- | -- | -- | -- | |
Adjusted EBITDA from equity accounted investees | 410 | 215 | 100 | 725 | |
(1) | Pembina's proportionate share of results from investments in equity accounted investees with a preferred interest is presented in adjusted EBITDA as 50 percent common interest |
Adjusted Cash Flow from Operating Activities and Adjusted Cash Flow from Operating Activities per Common Share
Adjusted cash flow from operating activities is a non-GAAP measure which is defined as cash flow from operating activities adjusting for the change in non-cash operating working capital, adjusting for current tax and share-based compensation payment, and deducting preferred share dividends paid. Adjusted cash flow from operating activities deducts preferred share dividends paid because they are not attributable to common shareholders. The calculation has been modified to include current tax and share-based compensation payment as it allows management to better assess the obligations discussed below.
Management believes that adjusted cash flow from operating activities provides comparable information to investors for assessing financial performance during each reporting period. Management utilizes adjusted cash flow from operating activities to set objectives and as a key performance indicator of the Company's ability to meet interest obligations, dividend payments and other commitments.
Adjusted cash flow from operating activities per common share is a non-GAAP ratio which is calculated by dividing adjusted cash flow from operating activities by the weighted average number of common shares outstanding.
($ millions, except as noted) | Year Ended December | |
Cash flow from operating activities | 2,650 | |
Change in non-cash operating working capital | 100 | |
Current tax expense | (286) | |
Taxes paid, net of foreign exchange | 355 | |
Accrued share-based payment expense | (76) | |
Share-based compensation payment | 32 | |
Preferred share dividends paid | (135) | |
Adjusted cash flow from operating activities | 2,640 | (A) |
Weighted Average Shares (Basic) (million) | 550 | (B) |
Adjusted cash flow from operating activities per common share – | 4.80 | = (A)/(B) |
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