In response to the COVID-19 pandemic and the recent significant decline in global energy prices, Calgary-based Pembina Pipeline Corp. announced on March 18 plans to protect its stakeholders. The company’s action plan is focused on protecting the health of its employees and communities, as well as ensuring a decisive response for customers and investors including a $900 million to $1.1 billion overall reduction to its 2020 capital spending plans.
“In these challenging times, Pembina’s priorities include protecting the health and safety of our staff and communities, ensuring critical infrastructure continues to operate safely and reliably and maintaining our strong financial position,” said Mick Dilger, Pembina’s president and CEO. “We are confident we are taking the necessary steps to allow us to successfully achieve these objectives.”
Dilger highlighted the company’s efforts in recent years to improve its business through focused diversification efforts.
“The acquisition of high-quality assets such as the Alliance and Cochin pipelines and the Edmonton Terminal storage assets, combined with the development of highly contracted assets such as the Peace Pipeline system and the Duvernay Complex, has diversified Pembina across commodities and credit-worthy counterparties, while also substantially growing our basin and currency diversification,” he said. “These actions, combined with our self-funding model, strong balance sheet and high contract quality all result in a high-quality, resilient cash flow stream, which allows us to protect our dividend, as we have always done through past downturns.”
Dilger assured stakeholders that Pembina would take actions to ensure the company’s future.
“We have many levers at our disposal,” he said. “We entered 2020 expecting a more tempered contribution from our commodity business relative to the past two years, as reflected in our guidance range. Based on the resilience of the business and the decisive actions we are announcing today, we remain within our projected guidance range, while still maintaining significant future upside given our suite of high-quality growth projects and strong financial position.”
Dilger thanked the company’s “amazing employees” for making a successful transition to a work-from-home environment in such a short time.
“Despite recent events, we are executing well and are confident that we can meet the expectations of all of Pembina’s stakeholders,” Dilger concluded.
Protecting People and Communities
Citing safety as its first priority, Pembina continues to take steps to protect the health of staff and the public in response to the COVID-19 pandemic.
COVID-19 is a global public health challenge, and the company is doing its part in support of government and community efforts to slow down the spread of the virus. In line with recommendations from health authorities, Pembina has restricted business travel, canceled large group meetings and is requiring non-essential employees and contractors who can work from home to do so.
Pembina has taken steps to determine the essential staff and critical infrastructure required to ensure uninterrupted service to its customers while maintaining the safety of its assets, employees and other stakeholders. The company is focused on processing and transporting the maximum amount of product for customers, thus supporting their cashflow.
Taking Immediate and Decisive Action for Investors
In light of the rapid and significant decline in global energy prices and uncertainty as to the duration of this downturn, Pembina has made the prudent decision to defer some of its previously announced expansion projects to reflect the current market reality. The following projects will be deferred:
- Peace Pipeline Phase VII, VIII and IX expansions, representing $1.55 billion of total capital.
- Empress Co-generation Facility, representing $120 million of capital.
- Prince Rupert Terminal Expansion, representing $175 million of capital.
- Pembina’s investment in the integrated propane dehydrogenation plant and polypropylene upgrading facility, representing $2.7 billion of capital, net to Pembina.
In addition to deferring capital spending on these major projects, additional discretionary capital spending has been removed from Pembina’s 2020 capital budget.
The impact of these measures results in a reduction of $900 million to $1.1 billion, or approximately 40 to 50 percent, to the company’s previously announced 2020 capital budget of $2.3 billion. Pembina now expects its revised 2020 capital budget to be $1.2 billion to $1.4 billion.
Pembina will advance its focus on optimization activities, which company officials believe can create additional incremental pipeline capacity with minimal capital spending and support producers’ near-term production growth. Additionally, the company intends to focus its remaining capital spending on key constrained segments of the pipelines to ensure maximum flexibility to meet customers’ needs and fulfill existing producer volume commitments.
Planning, engineering and regulatory work done to date on the deferred projects will allow Pembina to quickly resume these projects to meet customers’ needs when global energy prices and the broader economic environment support such action. Until then, the company will continue to work with its producing customers to evaluate their midstream service needs in light of the current commodity price environment.
Given their advanced stage of construction, Pembina still expects to place approximately $1.3 billion, net to Pembina, of new projects into service during 2020, including the Peace Pipeline Phase VI Expansion, Duvernay III, Empress Fractionation, Hythe Developments and the initial phase of the Prince Rupert Terminal, among others, to support Pembina’s growth in 2020 and beyond.
The deferred projects were expected to come into service largely in 2021 through 2023 and therefore will not materially impact Pembina’s 2020 adjusted earnings statement. At this time, Pembina believes it has taken action, which will enable the company to remain within the previously disclosed guidance range, albeit forecasted to be near the lower end thereof.
“Pembina’s business is resilient and remains strong in the face of these current challenges,” said Scott Burrows, Pembina’s senior vice president and chief financial officer. “An unwavering commitment to our financial guardrails has been a guiding principle for many years and, as a result, Pembina is well positioned. These guardrails, in addition to actions recently taken, highlight our ability to preserve our already strong balance sheet while funding our ongoing business, including the reduced 2020 capital program.”