Good morning. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Pembina Pipeline Corporation 2013 Third Quarter Results Conference Call. [Operator Instructions] Mr. Bob Michaleski, you may begin your conference.

Thank you, Denise. Good morning, everyone, and welcome to Pembina's conference call and webcast to review our third quarter 2013 results. I'm Bob Michaleski, Pembina's Chief Executive Officer. And joining me on the call today are Mick Dilger, President and Chief Operating Officer; Peter Robertson, Vice President of Finance and Chief Financial Officer; and Scott Burrows, Vice President of Capital Markets. For this morning's agenda, we will follow our standard process. I'll spend a few minutes reviewing our third quarter 2013 results, which we released after markets closed on Friday, provide an update on Pembina's recent developments and then open up the line for questions. I'd like to remind you that some of the comments made today may be forward-looking in nature and they're based on Pembina's current expectations, estimates, projections, risks and assumptions. I must also point out that some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see Pembina's various financial reports, which are available at pembina.com and on both SEDAR and EDGAR. Actual results could differ materially from the forward-looking statements we may express or imply today. So both our financial and operating performance during the third quarter and first 9 months of 2013 were very strong. I'm happy to report that Pembina delivered another successful quarter and continued driving value for our shareholders. With the announcement of a new growth project, our recent dividend increase and growing and sustainable cash flows, Pembina remains committed to maximizing long-term and sustainable shareholder returns. At a high level, our current -- or sorry, our strong financial and operational performance was positively impacted by several factors. These include higher propane prices, which benefited our Midstream business, and increased volumes on our conventional and oil sands pipelines, as well as…

[Operator Instructions] Your first question comes from Juan Plessis with Canaccord Genuity.

Congratulations to you, Bob, on your upcoming retirement and to Mick on the new role.

Thanks, Juan.

Thank you.

Your MD&A refers to volumes transported in excess of contracted amounts on the Oil Sands & Heavy Oil division, which I think is due to the extra pumping station on Nipisi. What were the volumes transported in excess of the contracted amount? And do you have capacity for incremental volumes on that line?

I'm not really sure. I'll turn that one over maybe to Scott. If you got any detail there, Scott?

Yes. Juan, I don't think we're prepared to disclose the volumes. I can tell you they were above and beyond the take-or-pay contracts, and there is sufficient -- there is some capacity on that line to transport more than what we saw in Q3.

Okay. Can you also talk about if that total on the excess volumes is higher than the initial total?

Yes, it is.

Okay. You've mentioned that if you move forward on the Cornerstone Pipeline project, it should be in service by mid-2017. Based on that time frame, when would you need to have that project sanctioned by KKD Oil Sands Partnership?

It's Mick. The current sanctioning by them and ourselves is March 2014.

March 2014?

Yes. I'm not saying that if it were to delay a quarter, that would delay our progress yet. The way to look at it is as long as we keep working, that on-stream date is achievable whether it's sanctioned in March 2014 or at a later date. The main thing is that we continue to work on it.

Your next question comes from Carl Kirst with BMO Capital.

Just it was nice to see Saturn I kind of come on so quick, so fast. Should we expect as all of the new plants come on, that the ramp-up time will be as quick for the rest?

Well, we've mentioned a number of times that we are trying to standardize on 200 million a day deep cut designs and 100 million a day shallow cut designs, with, of course, with some operating flexibility. I think it's fair to say that provided we work with the same contractors using the same design, and Redwater would be another example of that, that we should be always improving the way we construct and the reliability of our construction timelines. That's our theory. I think it's logical, but it'll remain to be seen whether we can execute that.

I think as far as the start-up, if that's where the question was going, Carl, I think we always expect you're not going to be at 200 million a day from day 1. It is going to start up over a period of time as we work through the operations and system itself. But I think what we've learned from Saturn I has been very positive and I think we'll be able to apply that again to Saturn II and Resthaven. So again, I think we're going to get better at each one of these things as we do more.

Great. No, excellent. And then just a couple of micro questions, if I could. I just wanted to make sure I understood what perhaps a good run rate may be for the depreciation in the Conventional Pipelines. There were some reassessment of a number of things. But just kind of so we have a good idea going forward, is what we've seen in the third quarter about the proper run rate?

I don't have the details there. Peter?

Yes, we don't have the details there. There are some other factors impacting the depreciation in the last couple of quarters. One is the revaluation of the asset retirement obligation, a result of the increasing discount rates, that we do see some liability. And where we have more ARO than we do net book value, then that has a tendency to reduce the depreciation on the income statement. So you're seeing that impacting the run rate of depreciation. We can perhaps get back to you to what that might look like going forward in the absence of any further adjustments relating to the ARO.

Your next question comes from Linda Ezergailis with TD Securities.

In terms of finalizing your Phase 3 pipeline expansion and potentially a fractionator, can you talk about what the sticking points might be with your potential customers and when you expect to maybe finalize that and what sort of scope to the extent that you can comment on that as well?

Yes, I think -- I don't know if there's already any sticking points, Linda. I think part of the issue that we're facing, I think that could be facing our producers, really, is that a lot of the drilling in the area that we're looking to provide services to are relatively new. The results are relatively new and then we're expecting longer-term commitments from them. So I think that's really the issue. It's early innings in some cases and so it may be a little more difficult for them to make a longer-term commitment. And similarly, they're wanting to consider what alternatives they have for fractionation. And again, because it's early innings, they probably don't have a good sense as to what they really require. Mick, I'll let you pitch in here.

Yes, I think that was well said. The Montney, which is a little further away, people have a little more experience with. And then the Duvernay formation, which is very topical these days, people have less experience with, and so they're trying to balance the need to get Montney and further away production on stream with trying to slip in 1 more year of drilling results on the Duvernay, and that's a tough balance for many companies, or in both, a tough balance to strike. So we, as you know, we've extended slightly the timeline for people to enter into binding agreements. But as Bob said, we are still optimistic that we'll have something concrete to say in -- early in the new year.

That's great, very helpful. And just maybe a more detailed question. One of the dilemmas with having such great process is your cash tax profile might start shifting a little bit. Can you give us an update on that front in terms of your cash tax profile?

Yes, we're expecting cash taxes for 2013 to be around -- and between, say, $20 million and $30 million. But that cash tax won't be payable until filing time in the middle of next year. For 2014, again, it depends how well we do, but the good news and the bad news in the tax fund is that the run rate could potentially be between $50 million and $60 million for 2014.

[Operator Instructions] Your next question comes from Robert Catellier with Macquarie.

My question is similar to what Linda was asking on Phase 3. In the absence of committing the Phase 3, the interim success the producers seem to be having with the drilling, particularly in the Duvernay, is generating a lot of liquids production. So I'm wondering what the alternatives are for that production and when do they really hit a choke point where they have no other choice but to really start to move ahead and commit to a long-term solution?

Well, we are -- we just announced, I think, that we're building a bunch of truck risers in the Fox Creek area. I think there are 8 there. And so that will provide quite a nice interim solution and bridge the gap over the next little while. But your guess is as good as ours as how fast that production ramps up. Certainly, the results seem to be economic enough to turn the play commercial, is what people are saying. So there's no question that Phase 3 is going to be required, not just for the Duvernay, but as I previously said, the Montney and some of the deep basin areas as well. So something's got to happen beyond Phase 2 is our view.

So what you're saying is that the play is commercial, it's just a question of the timing required to herd all the cats and get them to focus on one particular solution?

Yes. I'm not saying it's commercial. I think that's what producers are saying. But yes, the rest of your statement is the way we see it.

Okay. I'd just like to pursue the volume strength a little bit on the NGL side. It would appear to me that the price increase the industry has experienced and the production growth is at least partly responsible for the strong volumes in the quarter, particularly because Q3 is typically seasonally weak. I'm wondering if -- what impact you are seeing at Empress from the changing tolls on the TransCanada pipeline and whether that -- those volumes are down at all and if you're making them up in other parts of your system, particularly in storage, or if you're just finding more opportunities to rail product to market?

Well, we're a volume taker at Empress. Generally, we haven't seen anything noteworthy happening down there. It's bumping along, generally, with a modest decline at Empress. But I think what's noteworthy is our volumes. Our facilities are remaining at or near capacity. And in Sarnia, we're a price taker, and so what's driving prices out there is a decent demand and the ever-growing propane exports in the Gulf Coast. Locally, in terms of volumes, people are turning their gas production on or off in any given quarter, so the drilling results and the volume results were as a result of the decisions made some time ago. It's not something that people can react to on a quarter-by-quarter basis.

Okay. And if you can just maybe give a comment then on the -- some of the volume growth you've been seeing and the implications for storage. Does the current storage footprint, including what you have underway right now, accommodate all your current growth projects, and in this case, and excluding Phase 3? So do you have enough storage just with what you have and then Phase 3 would add to the storage requirements?

Yes, we have not heard of any storage constraints at these volume levels nor do we -- have we heard that there will be any through the balance of the year.

But Rob, as a part of our overall strategy, we do continue to look at storage opportunities going forward. I know we clearly have them in front of us, but we're not in a position yet to share those with you.

Your next question comes from Matthew Akman with Scotiabank.

On Cornerstone, what is the hinge on, I guess? The engineering studies are underway, so is the success or outcome of that, the sanctioning primarily just based on the cost study?

Our sanctioning depends on our anchor tenant sanctioning their larger project. We, as I said earlier, we're expecting that to happen in March of 2014. So if they're a go, it would appear that we're a go. But the costs are relatively well defined now. I mean, we're continuing to work on those. But the cost estimates, I don't remember what class they are, but they have been worked on for about 18 months already. So what we're really doing now is we're finalizing routing and we're out in the field consulting. And so the real push now is more on a regulatory front, I would suggest, than -- let me say it differently, we're not expecting any surprises on the capital cost of the project.

Does the Enbridge Norlite announcement have any bearing, do you think, on the potential green light for Cornerstone?

Well, I think the green light on Cornerstone, as I said, depends more on our anchor tenant's views of the economics of their project rather than -- I don't think they're looking over at that announcement in any way influencing their sanctioning or not. As you know, the cost of pipelines and tariffs of pipelines are almost immaterial compared to the capital costs of developing the resource behind the pipes. So it's a much larger question for Statoil than a pipeline question.

Okay. One more question on propane. You guys are realizing, obviously, strong pricing now, much improved year-over-year with Sarnia connection that the old Provident assets always had. How important in that context is it for Pembina to get a propane connection off the West Coast? Or is that starting to maybe diminish in importance for Pembina?

Well, as you know, Cochin's reversing, the Cochin pipeline that currently carries propane out of Alberta, and it's going to reverse. And so there'll be -- when that is complete, there'll be another, I think, approximately 30,000 barrels of propane in the Edmonton market. If you layer on our second fractionator, as well as the possibility of other additional fractionation capacity coming on our RFS III, it's our belief that somebody needs to clear the market out of Edmonton. We're ramping up with rail car delivery capability to satisfy what's going to come out of RFS II. But longer term, I think it'll be good for Alberta producers to have another outlet for their product, just keep the price moving upwards.

And your next question comes from Robert Kwan.

I guess just coming back to Phase 3 on the pipeline and you're mentioning that you're finalizing the binding commitments, do you sense you're in exclusive negotiations with these parties?

Well, it's hard to say. I think that we're definitely treating it as if there's -- competition is alive and well. That's, I think, the prudent thing to do. And so whether we are or we're not, we are moving forward as if there was plenty of competition.

Yes, I think, Robert, just to add to that. I mean, the fact that -- we believe we're in conversation with more than 60 producers. We are real. We've got a Phase 1, Phase 2 expansion underway. We've talked about the Simonette, the Fox Creek pipeline. We are definitely moving forward, and I think we would only move forward if we were confident that we were going to have something to actually fill space with.

And I guess, can you talk about what percentage or a majority or -- if that's the case, of those conversations you're having, that RFS III and capacity there is being tied into, and if there's any conversations about new gas plant capacity, particularly to serve the Duvernay?

Well, we do -- what we're being asked for by many of our customers is an integrated value chain service. And there's going to be a lot more gas plants required for these volumes to be delivered than probably Pembina can build. So I think it's a fair assumption that we'll be building as many gas plants as we possibly can. Nothing has been finalized in that regard, but we're optimistic we'll keep our gas business unit busy. With the pipeline versus the frac, I think people are -- have more urgency in getting their pipelines -- pipeline capacity nailed down, and then we'll get the boomerang effect of once they complete that, looking at fractionation. And the reason that's our sense is that there are more frac options available to customers than pipeline options, and so they're going to focus on what they perceive to be the scarce resource first. But again, I think there's going to be lots of demand for fractionation beyond RFS II resulting from the Open Season we're running.

Yes, particularly, Robert, if we can find a solution as well for propane, I think that will be very helpful for our producers today and for the future as well. So again, it gets back to what Mick mentioned. It's the integrated solution that people are looking for, but I think that we do have to take it one step at a time.

Okay. Just last question, just on Empress. Now that we're in November, just any commentary on what -- how the 2014 gas year has shaped up and directional commentary on extraction premiums.

I'll turn it to Scott.

Yes, our contracting effort at both Younger and Empress for the November 1 gas year have been very successful. Obviously, we can't disclose what those values are, but we can say that the contracting was successful, meeting or exceeding our targets on both volumes and term.

I guess maybe just -- I know you don't want to give the exact number. Can you maybe then just compare it to the 2013 gas year?

No.

We'd like to, but we can't.

Yes.

Yes, it's a sensitive issue for us, Robert.

And your next question comes from Steven Paget with FirstEnergy.

First, best wishes to you, Bob, as you enjoy many years of retirement, your time away from the likes of us. Congratulations to Mick and Scott on your new titles, and to everyone on bringing Saturn I in on budget. If liquids recovery at Saturn is ahead of expectations, does that mean the plant is full of liquids at this point? Is the gas richer than expected?

No. The plant design is just exceeding our expectations. Part of it is that it's not -- it's only 3/4 loaded right now. And so whenever you -- it's like loading your car. If you only have 2 passengers in it versus 5, it seems to have a little bit better acceleration. So it's able to run a bit colder and very efficiently. When we -- I think we'll have more to say about whether it can exceed design over the long term once we get it up to or over nameplate at 200. So hopefully, the people are working hard there to allow that to happen.

Excellent. Is Pembina playing a role in supporting Shell's recently sanctioned Carmon Creek asset with diluent delivery?

Well, we are -- we have -- let me just say this. We have, from time to time, delivered diluent to Shell, and so that is a relationship we enjoy up there. But we can't really talk about what might happen in the future there.

Excellent. Can you please comment on the type of crude you loaded on the unit train at Redwater? Was it heavy or light?

Synthetic. Did you hear that?

Yes, yes. Finally, with propane exports opening up at the Gulf Coast, is Pembina seeing more customer demand for shipping LPGs by rail to the region?

What Mr. Lockett told me is that he's getting calls earlier than normal for people to satisfy their demand from that region. And so it's not like last year where we were phoning them to see if they needed any propane. They're phoning us much earlier than normal, so that's kind of anecdotally what we could say in response to your question.

Your last question comes from David Noseworthy with CIBC.

And just my congratulations to you, Bob, on a fantastic career, and obviously, to Mick and Scott who have increased responsibilities.

Thank you.

Thank you.

All right. Most of my questions have been asked, but a couple of cleanup questions. In terms of Empress, with lower volumes and NGL margins higher, why, in your opinion, are we seeing extraction premiums falling?

Sorry, can you repeat the question?

Yes, absolutely. You mentioned that volumes were basically -- generally declining at Empress, and year-over-year, we've seen NGL margins higher. And so it mentioned on Page 19 that extraction premiums have fallen. I was just wondering why we're seeing that, in your opinion.

Well, David, I think that there's obviously been other producers in the news that haven't fared so well with Sarnia. Remember, we are able to access the Sarnia market whereas some others aren't. So some people in the past have not had the same success with Empress. So we believe there could be less competition for the gas. The other thing is, as we've mentioned in the previous quarters, we've been aggregating more volumes through our Cromer facility via truck. And so part of our strength in volumes is not only Empress extraction, it's also aggregating liquids in the field and going to our Cromer facility.

I guess that was the point that I didn't quite understand. I would have thought with lower volumes and higher margins on a year-over-year basis, competition would have been hotter and I was just trying to understand why it wasn't.

But only certain parties can access those higher margins, right? There's only a few parties that have access to...

The Sarnia margins?

Sarnia margins.

We can pick that up offline as well with Bob Lock.

Okay. I'd appreciate that. And maybe just on taking a moment to talk about a smaller part of your business. I was just wondering how your efforts to develop the emulsion treating and water disposal facilities -- you talked about putting a certain number of these facilities to kind of bring new volumes to your pipeline over time. How are those progressing?

In terms of identifying locations and disposal wells, I think we've met our expectations. We are, though, in the process of building up our engineering capability in the oil Midstream business. And that's proven to be a little more time consuming than we thought. And until we're really comfortable that we have all the right people to start building 2 or 3 of those a year, that we're opting to take a slower approach than we first hoped. And so we're continuing to partner with people where that makes sense, where they have that capability. But in terms of our proprietary locations, that has been a bit slower to develop. But our strategy hasn't changed, that we would love to bring on a couple terminals a year. With the geologic developments, the resource play developments, that market is growing dramatically. So we think there's enough out there for everyone to fill their boots.

There are no further questions at this time. I'll turn the call back over to the presenters.

Okay, well, thanks to all for wishing us well in our new blocks in life, if you like. Certainly, from my perspective, I do appreciate the relationships that we've developed over the years. I think you all are doing a great job in your coverage of Pembina. And I think the team here will continue to try to provide the same sort of level of support that you've received in the past. So thanks again and wish you all well in your own careers.

This concludes today's conference call. You may now disconnect.