Good morning, ladies and gentlemen, and welcome to the Pembina Pipeline Corporation Q4 2022 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Friday, February 24, 2023. I would now like to turn the conference over to Cameron Goldade, Pembina's Chief Financial Officer. Please go ahead sir.

Thank you, Colin, and good morning, everyone. Welcome to Pembina's conference call and webcast to review highlights from the fourth quarter of 2022. On the call today, we also have Scott Burrows, President and Chief Executive Officer; Jaret Sprott, Senior Vice President and Chief Operating Officer; and Janet Loduca, Senior Vice President, External Affairs and Chief Legal and Sustainability Officer; and [Technical Difficulty]. I would like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina's current expectations, estimates, judgments, and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations. Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see the company's Management's Discussion and Analysis dated February 23, 2023, for the period ended December 31st, 2022, as well as the press release Pembina issued yesterday, which is available online at pembina.com and on both SEDAR and EDGAR. I will now turn things over to Scott to make some opening remarks.

Thanks Cam. In the fourth quarter, Pembina delivered strong financial results, highlighted by adjusted EBITDA of $925 million, leading to full year record adjusted EBITDA of $3.746 billion, which exceeded the high end of the company's revised guidance range. As we have referenced throughout the year, in 2022, we benefited from rising volumes on key systems and very strong performance within the marketing business. 2022 was also highlighted by a number of accomplishments, the largest of which was the creation of Pembina Gas Infrastructure or PGI. Along with our partner, KKR, we were excited to bring together three complementary platforms to create a premier, highly competitive Western Canadian gas processing entity with the ability to serve customers from North Central Alberta to Northeast British Columbia and to pursue future growth opportunities in a capital-efficient manner. Since closing the PGI transaction in August, integration activities have progressed well, and operations have performed as expected with no major interruptions to service. Commercially, we have successfully secured incremental volumes through fee-for-service firm contracts with a number of existing customers at both the K3 and Wapiti facilities. In 2022, we also had a number of commercial successes signing long-term agreements and contracts. We entered into long-term service agreements with three premier Northeast BC Montney producers, renewed contracts and secured incremental volumes on our conventional pipelines and fractionation facilities; enhanced the long-term contractual profile of Alliance Pipeline, which is now fully contracted for the next two years; executed a long-term commitment with an anchor customer to support the reactivation of the Nipisi Pipeline; and extended a key contract on the Tioga portion of the Vantage Pipeline. The commercial success has continued into 2023 with a successful open season for capacity on the Cochin Pipeline and the extension of a contract to supply ethane on a…

Thanks, Scott. As Scott noted, Pembina reported fourth quarter adjusted EBITDA of $925 million, which represents a $45 million or 5% decrease over the same period in the prior year. Fourth quarter adjusted EBITDA was negatively impacted by lower margins on NGL sales, partially offset by higher margins on crude oil sales, both in the Marketing & New Ventures business, lower contribution from Aux Sable, a lower contribution from Ruby, lower revenue related to recoverable costs on the Horizon Pipeline system, higher general and administrative expense largely due to higher long-term incentive costs, driven by the change in Pembina's share price and its share price performance relative to a peer group as well as higher consulting fees and higher integrity costs. These impacts were partially offset by higher volumes on the Peace Pipeline system and coach and pipeline and higher tolls due to inflation mechanisms. The PGI transaction and stronger performance from certain gas processing assets, including the Hythe gas plant, the Dawson assets, the Cutbank Complex, and the Resthaven facility, the impact of a higher US dollar exchange rate and a realized gain on commodity-related derivatives compared to a loss in the fourth quarter of 2021. Earnings in the fourth quarter were $243 million, representing a $163 million or a 204% increase over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, earnings were positively impacted by lower impairment expense, lower restructuring costs and a higher unrealized gain on commodity-related derivatives. These factors were partially offset by our Ruby pipeline settlement provision. Total volumes of 3.392 million BOE per day for the fourth quarter represented a decrease of approximately 1% over the same period in the prior year. Volume decreases were attributable to both the Pipelines and Facilities divisions, including most notably the…

Thanks, Kim. In closing out of today's call, I wanted to take a moment to touch on the future of Pembina and where we are headed in 2023 and beyond. Over the next 12 months to 24 months, a key focus will be growing cash flow by enhancing utilization of our existing assets, gas plants, pipelines and fractionation facilities to serve our customers' growing volumes. Despite ongoing economic and geopolitical uncertainty, the WCSB is expected to continue to grow at a modest pace in 2023, with the potential for higher growth rates in the future, given major third-party egress projects such as the TMX Pipeline and LNG Canada, which are projected to come into service over the next couple of years. Our outlook for continued growth was further bolstered by the recent announcement by the Province of British Columbia and the Blueberry River First Nation regarding the finalization of an agreement allowing oil and gas activity to proceed within certain parts of Northeast BC. While future development is subject to certain provisions, Pembina is optimistic that the agreement will provide the needed clarity for producers to allocate capital to drilling programs and support larger development plans leading to growing volumes in the area. Pembina has a long history as a Northeast BC service provider. Through our existing Northeast BC Pipeline, which has significant expansion potential, we are well-positioned with readily available solution to meet new customer demand. What we were very -- while we were very well-positioned to benefit from this growth and look forward to the anticipation in the next few years, we also have an eye to the future of Pembina. With a longer time horizon in mind and emerging from the COVID pandemic, the Board and management view 2022 as an opportune time to review Pembina's corporate…

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question will come from Jeremy Tonet of JPMorgan. Please go ahead.

Hello, good morning.

Good morning Jeremy.

Just wanted to start-off with a high-level thought on the basin because there's a lot of very positive language in the release and what you've discussed in so far as Montney production. And so just wondering if you could sketch out any numbers or any more detail as far as how you think volume growth could grow over the next few years post the Blueberry River First Nation agreement here with these new Montney contracts, as you outlined in Northeast BC. Just trying to get a flavor for what that means for Pembina exactly?

Yes. I think we've seen upwards of 200 to 250 licenses be issued since the announcement whether those all get drilled or not, we'll wait to be seed. In terms of specific numbers, Jeremy, I'm not going to give you specific numbers, but I do think what we've been talking about historically is seeing kind of that 3% to 4% growth on the conventional pipeline from 2021 into 2022. And I think we see that volume continuing for the next couple of years on that trend.

Got it. That's very helpful. Thanks for that. And then just as far as the new frac contracts are concerned, I just wanted to see there, if those are kind of full value chain contracts, so there's upstream integration economics and kind of enhances you across the value chain there?

Yes. I mean everyone is kind of different, but on a lot of them, there are value integration across the value chain. But there's multiple contracts there. Some are fully integrated, some aren't.

Got it. Just one last one. Marketing keep exceeds the upside. Just wondering, as you see the current environment today relative to the assumptions baked into your guidance for marketing, are things tracking as planned or a bit better. We've seen the frac spread step up here. So just want to get a flavor for how marketing stands today in the current environment relative to when you set guide?

I would -- I mean we put the sensitivities in the 2023 budget release. If you look at those, we would be up slightly. We've obviously seen gas price come way off. Now that being said, propane has come off as well, slightly offset by a slightly more favorable FX rate. So all-in-all, I'd say, slightly ahead of where we set budget.

Got it. I’ll leave it there. Thanks.

Your next question comes from Rob Hope at Scotiabank. Please go ahead.

Good morning, everyone. Two questions on the strategy and maybe diving in there a little bit more. Specifically, you highlight that Pembina wants to meet global demand and transform and export your products. Can you give a little bit more color on this? Historically, we've seen new export Prince Rupert as well as down into the US. But are you looking for something larger there potentially on the crude oil side? And then when you're talking about transform the products as well, does that mean you could once again look at pet chem?

So maybe I'll answer the first part, and then I'll turn it over to Stu. As part of the strategy work, one of the conclusions was that global demand remains more resilient 2030 and beyond compared to North American demand. So we continue to think that having egress out of the basin will continue to be a strategic priority. And so yes, we have Prince Rupert, and we do export quite a bit to both the US and propane to Mexico as well. Obviously, Cedar LNG fits squarely within that dynamic in terms of exporting product as well as our partnership with WIPG as we explore the possibility of what TMX could look like in our portfolio and the ability to get crude to world markets as well. So I think all of the things we're working on fits squarely within that thesis. And maybe I'll turn it over to Stu now just to talk a little bit about the changing of products.

Hi, Rob. We've been looking and watching closely the global demand, the need for decarbonization. We've had lots of inbounds. Obviously, Pembina is well-situated with our Redwater Complex and the lands that we have available and the expertise that we have in the operation capability. And so we've had lots of inbounds and we've been looking at ourselves at energy transition opportunities, the likes of hydrogen, ammonia, methanol and other products. And so we continue to evaluate low carbon complex, we're referring to it in the -- in our Redwater area. We are looking at how we can participate in those. We might be an equity partner, a player in those various entities that I talked about. But at the same time, we also recognize we have the opportunity to provide additional services Pembina has, again I mentioned operation capability. We can provide feedstock, which was proposed even with our PDH opportunity, we can provide water and other services that we think would help growing businesses in that area, and we think we have a large role to play there.

All right. I appreciate the color. And then maybe as a follow-up, just taking a look at your capital allocation in 2023 and even in the next year, you sanctioned RFS IV, but even still, you have a very strong balance sheet. You have very strong cash flows. When you take a look at paying down debt versus share buyback, is that a function of you are seeing some larger projects maybe creeping on to the horizon of when you'll have to start to deploy capital?

I think that's right, Rob. I mean when you sort of -- your point is valid, when you sit there and look forward, I mean, we're still obviously very positive on the Cedar LNG opportunity and if we play on that into next year, obviously, that starts to bring more meaningful capital into 2024, along with the RFS IV opportunity. And so it will be a function of that. And beyond that, I mean, obviously, there's lots of different things that Stu just talked about that we're seeing opportunities with. We continue to see opportunities in our base business to accommodate customers' volumes. So I think you can hear from the tone that we are very optimistic about the current outlook over the next few years and where this could go beyond that. So certainly a possibility, but we'll always stay disciplined and evaluate those opportunities against the alternatives being the ones you mentioned, repayment of debt, share buybacks, whatever the most optimal use of month will be held to get to that standard.

Excellent. That’s it for me. Thank you.

Your next question comes from Linda Ezergailis at TD Securities. Please go ahead.

Thank you. Maybe just as a follow-up in terms of the growth outlook. Looking out over the next year or two, can you just give us a little bit more clarity beyond your conventional pipelines, how much operating leverage you might have? And how we might think of any ramp-up in contribution from volumes on existing capacity beyond the 3% to 4% on conventional that you cited?

Good morning, Linda. Jaret here. Yeah, so as Scott and Cam mentioned, the 3% to 4% on conventional system. What we're hearing from customers right now is we're -- the customers are essentially constrained by gas egress and fractionation capacity, right? Hence, the RFS IV announcement today. So we continue to work with our customers. We do see some torque in the PGI, and continuing to build some white space with our customers who have the substantial gas egress capacity. And that leverages right into liquids onto the pipe. Alliance is obviously highly contracted. I think Scott mentioned that earlier. So volumes, they look really good. Pricing is continuing to be strong. Even at, let's call it, 250 AECO, that's still -- our customers are doing extremely well. So, yes, it's looking really good.

Okay. And then, maybe if you can just comment on, with your updated strategy, does Pembina have the in-house talent to execute on your decarbonization and energy transition-related aspects of your strategy? And how might acquisitions fit into your plans to gain that expertise and maybe accelerate execution, because I get a sense that everyone is trying to hire these types of folks.

Hi, Linda, it's Stu. Yes, I mean, as we sit here, we brought some in-house expertise. We're continuing to grow that team, just as you mentioned, as is everyone else. It's a growth opportunity, and those people are valuable commodities. We think we've added some tremendous staff and some great expertise. We will look at how to get there faster, potentially through partnering through JVs, M&A. Those opportunities do come along. We'll evaluate that as they come around. And how does that compare to a greenfield build of what that looks like. But we're continuing to build that team. We've got some tremendous in-house talent right now. We continue to look to expand. That will be a hiring exercise for us, but there are other ways to do it, as I mentioned, through JVs and M&A opportunities, as you point out. We're picking where our points are, and we still are determining how we participate in some of those opportunities. We may not be in the facility itself, but we may be providing services and those services could be what Pembina has been done for 68 years, feedstock provider and such like that. So we're trying to still evaluate exactly how we participate in some of those new opportunities.

Okay. Thank you. And just a quick question on RFS IV. What class of estimate is your $460 million number? And can you give us some sense of how maybe you might have a healthier contingency or maybe firmed up more than you might have historically, just to indicate your level of confidence in that estimate?

Hi, Linda. So internally, we would deem that as a Class IV estimate. But obviously, building RFS II, RFS III in the last, I would say, what is that, six years now, our confidence level with respect to our engineering design the equipment we need, the vendors that we will utilize to help support the execution of this project is extremely high. We do have some rail expansion associated with that RFS IV. So that’s obviously something that's well within our execution capabilities. Customer demand is extremely high. Our confidence in the execution team is, obviously, extremely high and our operating capabilities. And what we're really focused on is maximizing the utilization of the entire complex, right? Utilizing the entire -- the feedstock cavern storage, the spec cavern storage, the rail opportunities, etcetera. And so that's really helping us drive the efficiencies in the execution of RFS IV.

Thank you. I'll jump back in the queue.

Thanks, Linda.

Your next question comes from Patrick Kenny at National Bank Financial. Please go ahead.

Thank you. Good morning, guys. Just on the corporate strategy and looking at a high level here at the four key priorities that you've outlined. Can you just clarify what would be considered new within the strategy? And then, I guess, by virtue of omission, what parts of the prior strategy might not be a priority going forward?

Thanks, Pat. The way we think about it is a natural evolution of the strategy, considering the change in dynamics of the world in our industry. So when you step back, it wasn't a major pivot. And that's partially by design, that's partially by going through the process. I mean, the strategy wasn't broken. But I'm not sure, it was written down anywhere where the average reader could really understand it or see it. I know, most of the analysts on this call understood, it just through to our frequent communication. But it's important for us to step back, and kind of relook at it through multiple lenses and test it through various scenarios to make sure that it could be resilient and thrive under various scenarios. So that was really the exercise that we undertook. And through that, we came out with the strategy, which was largely in line, with what we had been talking about previously. But I do think, there are some subtle things. I think it's important to point out our commitment to the core business, we still see lots of opportunity in the core business. And we see – and we see the ability to grow that, and we are committed more than ever to the core business. I think the point around de-carbonization was – what we're really focused on is de-carbonizing our assets and our basins and the basins in which we operate in because that not only benefits us, but it benefits our customers as well. And I think some of the points there to your question around emissions is we're not looking at carbon sequestration as a business in, I don't know, the Permian or in the Midwest where we don't really have a lot of operations. It's really – it's…

Got it. Okay. Well, that's super helpful. Thanks, guys. And then maybe back to Cedar LNG. I'm just wondering if you guys have received any feedback from the BC government on your environmental application there or perhaps the timing of the process. Because I thought the approval was expected before year-end. So I'm just not sure if there's been any friction or any back and forth that's still needed in order to achieve approval of the application.

Hi, Patrick, its Janet Loduca. So we have heard from the BC government that the issuance of the environmental assessment approval is going to be delayed. But we're very optimistic that it will be approved. This is going to be one of the greenest LNG projects in the world. And I think the environmental assessment was very positive from that perspective. So we continue to in discussions with the BC government, but we are optimistic that we will receive approval in the near-term.

Okay. Thanks for that. And then last one, maybe for Cam here. Just I know the NCIB will be renewed here in March, just as normal course. But if you could just confirm that the intent is still to allocate any discretionary cash flow towards debt repayments, unless, of course, there's a significant sell-off in the markets to take advantage of, or are you now thinking of more of a balanced capital allocation approach for the year?

I think you've got it right, Pat. I mean we sort of look at the market dynamics as they stand and sort of evaluate it as days and weeks go by. And obviously, interest rates have been volatile and have backed up a little bit in 2023. Obviously, the equity markets are volatile as well. So we think keeping the NCIB in place and intending to renew it for another year, just gives us all the optionality in the world, to be able to react to markets and allocate our capital optimally. But I would say as we think about it today, base case is continuing to allocate free cash flow towards debt repayment in the immediate term.

Okay. Great. Thanks, everybody

Your next question comes from Robert Catellier of CIBC Capital Markets. Please go ahead.

Hey, good morning. You've answered most of my questions, but maybe just a couple of follow-ups here. How are you managing the construction cost risk on the fractionator. Specifically, do you have a lump sum EPC contract there, or is there some form of risk sharing with the customers?

Right now, Robert, we're just -- we're actually evaluating doing a lump sum. So on a smaller scale project like this, $460 million, we think there is opportunities out there in the market to derisk that. So that's ongoing as we speak. The confidence level, like I talked to earlier, we want to get out there and start speaking with some of the vendors really to secure that labor component and give them the certainty so they can make some commitments to Pembina and work forward positively.

And so no risk sharing with the customers on

Well, I don't think we're going to talk about our commercial contracts right now, Robert. That's sensitive.

Okay. Just on the strategy here. Would you say there's likely to be any change in your appetite for taking on commodity price risk as you look to transforming products into exporting?

I think we've always enjoyed a little bit of commodity exposure. I mean that's -- given the stability in underlying contractual profile of the base business, really the commodity side is which gives us the uplift in good years. [Technical Difficulty]

Yes. Understood. And then when you look at driving resilience and trying to preserve value in the existing business, what's the biggest risk factor you see there?

I think we're pretty -- it's a good question. I mean, I think, overall, we're pretty we're pretty -- we see more opportunities than we see downside to be honest with you. I think with some of the volume growth, as we talked about, whether it's TMX coming online, LNG 1, 2, our Cedar project, we -- there's talk of brand-new ethane cracker being built in Alberta. There's just -- there's a lot of pull on the products to which we transport. So, I'd say we're pretty optimistic about the core business.

Okay. Thanks for all that.

[Operator Instructions] Your next question will come from Ben Pham at BMO. Please go ahead.

Hi, thanks. Good morning. A couple of questions. On the RFS 4, what type of returns on capital do you expect on a project when you have that land in place? And then you also mentioned debottleneck opportunities, how did the returns on capital compare on that as well?

Well, again, we're in a bit of a commercially-sensitive time. So, what I would say is that RFS is consistent with previous Pembina build. I mean we do benefit from some land in place. We benefit from some existing infrastructure. Offsetting that, obviously, is inflation that we've seen over the last couple of years. So, all-in-all, I'd say RFS competes very similarly to previously sanctioned Pembina projects. And then on some of the other kind of smaller debottlenecks, those would come in -- typically, we like to talk about smaller kind of bolt-on debottlenecks in kind of four to six times EBITDA. Obviously, it goes higher as we get into greenfield and then even higher as it goes into M&A. So, the brownfield or the debottlenecks tend to be at pretty attractive returns overall.

Okay. And maybe the -- maybe a clarification on the Nipisi restart, do you need more contracts or not to push forward with that? And maybe you can maybe expand on how things look and the evolution of that play. Is there a restart and then maybe a potential expansion at some point?

Good morning. No, we don't need incremental contracts right now, obviously, to sanction the restart. That's proceeding and expected in service later this year. The demand, obviously, from our customers is extremely high. And the expansion opportunities, unfortunately, they are limited with respect to that pipeline, but we do see that growing -- the volumes growing back to its ultimate capacity.

Okay. And then maybe one last clean-up. Aux Sable, the loss in the quarter, is that more of that year-end share that you have with that agreement?

I think that -- it was a couple of different things. It was the strong collapsing of the AECO-Chicago price. There was some hedging losses there for some of the, I guess, the old rich gas premium deals that were still in place that we don't have going forward. So there was a couple, I'd call it one-off things that impacted the quarter that we wouldn't expect to see going forward because we no longer have hedges in place at Aux Sable.

Okay, got it. Thank you.

Your next question comes from Robert Kwan at RBC Capital Markets. Please go ahead.

Good morning. I know you don't want to talk about the RFS IV contract specifically, but maybe if -- when you think about RFS IV, once it's in service, can you talk about what the pro forma percentage would be under take or pay and the average duration across all of Redwater fractionators?

No. So, I think as we've talked about, our base business is highly contracted under and continue to be recontracted for the long-term. We have significant contracts underpinning Redwater, and we have pretty significant commercial momentum. So given this is in service 2.5 years out, I would expect with the pace of conversations that we would be very highly contracted by the time that this comes into service.

Okay. Is it fair to say that Redwater in its entirety would be consistent with the guardrails?

Yes.

Okay. If I can turn to the strategy and particularly the decarbonization side of things, just given what we're seeing in some of those initiatives, either they may involve a new commercial framework or one that just doesn't exist in the market, some technology risk or for established things like renewables, much weaker returns than you are used to. So do you look to change your return expectations to mark-to-market realities, if it's conventional renewables, or do you shift your thinking to accept lower upfront returns or taking different risks, thinking you'll get something on the residual or back-end?

First, I'm going to answer probably in a mission. I should have spoken about when Pat asked his question, just around what we're not doing. I think what we're talking about when we talk about decarbonization really is CCUS, and I'll let Stu talk to ACG and what we're thinking about there, including some of our initiatives to decarbonize our assets. But as I step back, I mean, we're part of what we're not going into is renewable power. I mean, we've made a commitment that we think we can get the same benefits by taking long-term agreements. You would have seen us over the last year or so take on two pretty significant 200-megawatt power purchase agreements, we're focused on our cogeneration facilities, which have, as of right now, very strong returns. And we're looking at a few small behind fence solar for our specific sites, but Pembina is not planning on getting into the renewable power business. So the question around kind of, I'd say, lower returns as it relates to renewable power. I just -- I don't need to comment on that, because that's not currently within the strategy. But then maybe I'll turn it over to Stu to talk about more of the CCUS as it relates to decarbonization.

Yes, Robert, we're continuing to work with our partner to progress the Alberta Carbon Grid. We've got approval from the Parents to move forward with our appraisal program. That appraisal program is going to be -- it's the proving up of the sequestration capability of the lands that we've been granted to go have a look at. We'll shoot some -- we'll evaluate some seismic. We'll maybe shoot some additional seismic and ultimately drill a well. We need to prove up the sequestration capability. Along with that, we'll probably begin securing our pipeline right away as well. So we have -- that project is moving forward. We began looking at -- working with Jared and his teams looking at our assets and the decarbonization and what will that take to capture our emissions. And it's a goal of Pembina to move forward with those as well. We're looking at and have a good model of where those emissions are coming from within the Pembina assets and we'll look at and come up with plans on how to go forward with those things. We're not looking -- when we talk about energy transition projects, we're not looking at a lower return expectation at all. We're looking at to continuing to move forward. And as I said, we may take an equity position within some of these new energy transition opportunities where we may just provide services that Pembina has provided historically looking at how we can work with those new opportunities, but not at a lower return than what we've historically put forward.

Appreciate that, Stu, just on the return. And just I guess as you think about the risk or the contracted cash flows, like to the extent you could actually fit it in under the corporate-wide guardrails, would you be willing to take on quite a bit more risk, or should we think about these projects you've addressed returns. But from a contracted profile being plus or minus consistent with the guardrail?

I mean based on the portfolio of things we're looking at, nothing in there would have a significantly different risk profile than our existing base business.

Right. That's great. Thank you.

At this time, there are no further questions. So I would like to turn the conference back to Scott Burrows for any closing remarks.

I just wanted to say thank you. It was another great year. So thank you to all of you on the phone for your questions. Thanks to my team here in the room, and thanks to all the investors and our staff. We'll chat soon.

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating, and ask you to please disconnect your lines.