Calgary-based Pembina Pipeline Corp. is planning a $325 million expansion of its pipeline infrastructure between Lator and Namao, Alberta, related to its Phase III Expansion project. The announcement came as the company announced an update to its earnings and cost savings on capital projects in 2017.
“We are very excited about the dividend increase and these new pipeline expansion projects, and share our updated outlook for 2018,” said Pembina president and CEO Mick Dilger in an April 3 statement. “These developments build on our already strong start to 2017. We are encouraged by the level of volumes and business development activity we’ve seen in the early months of the year and our confidence in the outlook for Pembina continues to grow with the near-term completion of large-scale capital projects.”
Pembina’s 420,000 barrels per day (bpd) Phase III Expansion is nearing completion and continues to trend slightly under budget, with an expected on-time, in-service date of July this year. Given ongoing customer demand for capacity, Pembina is proceeding with two projects for a total estimated capital cost of $325 million: the Phase IV and Phase V expansion projects.
The Phase IV Expansion, or the Fox Creek and Namao Pump Stations project, is comprised of two pump stations on the newly installed 24-in. pipeline from Fox Creek to Namao, Alberta. Phase IV is expected to increase capacity between Fox Creek and Namao by approximately 180,000 bpd. The estimated capital costs for the two pump stations is approximately $75 million. Subject to regulatory and environmental approvals, Pembina expects to place this expansion into service in late 2018. Pembina has the ability to further expand capacity between Fox Creek and Namao by adding additional pump stations.
The Phase V Expansion, also called the Lator to Fox Creek Expansion, is a new, approximately 95-km, 20-in. pipeline from Lator to Fox Creek, Alberta. Both of these projects are underpinned by long-term, take-or-pay contracts. Phase V is aimed at addressing the current capacity constraints between Lator and Fox Creek and supporting future growth in the prolific Montney and Deep Basin resource plays. This $250 million project is expected to provide approximately 260,000 bpd of additional capacity in this corridor, as well as access to Pembina’s downstream capacity at Fox Creek. Pembina has received regulatory and environmental approvals for the Phase V Expansion and clearing of the right of way is approximately 50 percent complete. The company expects to bring this pipeline into service in late 2018.
In late 2015, Pembina’s secured capital program was comprised of $5.3 billion of new assets, which were scheduled to come into service through 2016 and 2017. Based on this capital program, the company provided earnings guidance indicating that, once in-service, these projects could generate an incremental run-rate annual earnings (EBITDA), ranging from $600 million to $950 million in 2018.
Based on the current commodity price environment and volume estimates, Pembina expects 2018 adjusted EBITDA to range from $1.8 billion to $1.9 billion. This range is consistent with Pembina’s prior commitment of delivering $600 million to $950 million of incremental fee-for-service EBITDA from the secured capital projects which enter service in 2016 and 2017, in addition to the Kakwa River acquisition in 2016 and higher volumes/pricing across the base business. Based on the above, Pembina expects to deliver on its projection of nearly doubling 2015 adjusted EBITDA by 2018.
“By mid-year, we expect to bring into service the remaining projects that made up the largest capital program in Pembina’s history,” Dilger said. “Overall, we have successfully brought these assets into service on-time, on-budget, and most importantly, safely and I believe these remaining projects will be no different. I’m very proud of what our organization has been able to achieve over the past several years and am pleased to share our outlook for 2018 and our expected consolidated capital cost savings.”