An anonymous director reports

PEMBINA PIPELINE CORPORATION ANNOUNCES 2024 GUIDANCE AND PROVIDES BUSINESS UPDATE

Pembina Pipeline Corp. has released its 2024 financial guidance and provided a business update.

Highlights:

• 2024 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) guidance of $3.725-billion to $4.025-billion, driven by continued volume growth across the Western Canadian Sedimentary basin (WCSB), new assets placed into service, recontracting of certain assets and the prevailing commodity price outlook.
• 2024 capital investment program of $880-million reflects growing volumes, and Pembina's commitment to providing safe, reliable, flexible and cost-effective energy infrastructure solutions.
• At the midpoint of the company's guidance range, the 2024 capital investment program is expected to be fully financed with cash flow from operating activities, net of dividends.
• Continued accretive investment opportunities in the core business, highlighted by the sanctioning of a new cogeneration facility at the Kaybob South 3 processing plant (the K3 plant) by Pembina Gas Infrastructure (PGI), and continued investment in northeast British Columbia (NEBC) liquids egress. Pembina continues to progress the previously disclosed 40,000-barrel-per-day (bpd) expansion of its NEBC pipeline system, and evaluate additional pipeline and terminal infrastructure in the region.
• Pembina is in development of additional growth projects, which could add up to $280-million to the 2024 capital investment program, inclusive of prefinal investment decision (FID) contributions related to the Cedar LNG (liquefied natural gas) project.
• Consistent financial leadership demonstrated by Pembina's commitment to its financial guardrails, its low-risk and primarily fee-based business, with high take-or-pay or cost-of-service contributions, and strong leverage metrics, including a forecasted year-end 2024 proportionately consolidated debt-to-adjusted EBITDA ratio of 3.3 times to 3.6 times.

Business update

The predictability and resilience of Pembina's business are being demonstrated once again in 2023 with the expectation of another record-setting financial year. Strong results reflect growing volumes and rising capacity utilization across many key systems. In Pembina's conventional pipelines business, which is a proxy for the broader WCSB, second-half 2023 volumes are expected to be 5 per cent higher than the same period in 2022. The investments Pembina has made in recent years, including various expansions of the Peace Pipeline system and the transaction to form PGI have created the capacity to accommodate rising throughput, leading to highly accretive growth in Pembina's business. In addition, Pembina's growing platform, and favourable commodity prices and price spreads have allowed its marketing business to outperform the historical average.

Momentum within the WCSB is expected to continue into 2024 and beyond, and Pembina is well positioned to benefit from what it expects to be a transformational period in the Canadian energy industry. Over the next several years, Pembina sees the potential for mid-single-digit annual volume growth across the WCSB, driven by near-term catalysts, including up to approximately 2.8 billion cubic feet per day of new natural gas export capacity from new West Coast LNG projects, 590,000 bpd (barrels per day) of new crude oil export capacity from the expected completion of the Trans Mountain Pipeline expansion, as well as potential new developments in the Alberta petrochemical industry, including Pembina's expectation of more than 100,000 bpd of incremental ethane demand associated with Dow Inc.'s recent decision to build a new 1.8-million-metric-tonne-per-annum integrated ethylene cracker and derivatives facility in Fort Saskatchewan.

Given the scope and reach of its assets, highly economic expansion opportunities, existing long-term contracts, and agreements with three premier NEBC producers, Pembina is uniquely positioned to capture new volumes and benefit from the growth in the WCSB. Pembina will continue to invest in infrastructure to serve customers and enhance its integrated value chain, while also pursuing opportunities in the new ventures portfolio that align with the company's strategy to enhance access to global markets and better align its future with the transition to a lower-carbon economy. Specific highlights include:

• PGI is proceeding with the development of a 28 MW (megawatt) cogeneration facility at its K3 plant (the K3 cogeneration facility), which is expected to reduce overall operating costs by providing power and heat to the gas processing facility, while reducing customers' exposure to power prices. The K3 cogeneration facility is expected to fully supply the K3 plant's power requirements, with excess power sold to the grid at market rates. Further, this project is expected to contribute to a reduction in annual emissions compliance costs at the K3 plant through the utilization of the cogeneration waste heat and the low-emission power generated. These attributes are expected to enhance the K3 plant's competitiveness and potential to attract further incremental volumes in the area:
  • The project is expected to cost approximately $70-million (net to Pembina) with an estimated in-service date in the first half of 2026, subject to receipt of regulatory and environmental approvals. This is Pembina's third cogeneration project following the successful development of cogeneration facilities at the Redwater complex and Empress NGL extraction facility.
• Construction of the previously announced expansion of the NEBC pipeline system (the NEBC MPS expansion) continues to progress as expected. The NEBC MPS expansion includes a new midpoint pump station, terminal upgrades and additional storage, which will support approximately 40,000 bpd of incremental capacity on the NEBC pipeline system. This capacity will fulfill customer demand in light of growing production volumes from NEBC and previously announced long-term midstream service agreements with three premier NEBC Montney producers. The project is expected to cost approximately $90-million with an estimated in-service date in the fourth quarter of 2024:
  • Additionally, Pembina continues to evaluate further expansions to support NEBC volume growth, including new pipelines and terminal upgrades within the NEBC pipeline system, and downstream systems between Taylor, B.C., and Gordondale, Alta. Pembina recently filed its project notification with the Canadian Energy Regulator in respect of the interprovincial portion of these expansions. These expansions would accommodate increased customer demand anticipated from growing production volumes within the NEBC Montney in the second half of the decade, drive higher utilization on the Peace Pipeline system and allow Pembina's NEBC customers to access premium markets.

Two thousand twenty-four guidance

Pembina is anticipating adjusted EBITDA of $3.725-billion to $4.025-billion in 2024. Relative to 2023, the major factors driving the outlook for 2024 adjusted EBITDA include:

• Higher volumes on Pembina's conventional pipelines reflecting increased producer activity across the WCSB, and the impact in the first half of 2023 from wildfires and the outage on the Northern pipeline system. At the midpoint of the 2024 guidance range, volumes in Pembina's conventional pipelines business and gas processing business are expected to be approximately 9 per cent and 3 per cent higher, respectively.
• A full-year contribution from the Nipisi pipeline, which was reactivated in October, 2023, as well as the expectation of additional volume growth throughout the year. Current volumes on the Nipisi pipeline are approximately 30,000 bpd, with visibility to adding incremental firm commitments in the near term.
• A lower contribution from the Cochin pipeline due to lower contracted tolls beginning in the third quarter of 2024. While contracted tolls are expected to be lower than 2023 levels, recent recontracting efforts have yielded multiyear term extensions, and continuing open seasons are similarly highlighting strong customer interest and the value of service on the Cochin pipeline. In addition to recently increasing capacity from 95,000 bpd to 110,000 bpd, Pembina is continuing to optimize the operating line, which may unlock incremental throughput capacity.
• A lower contribution from the NGL marketing business due to lower NGL prices and higher natural gas prices, and lower realized gains on commodity-related derivatives. Pembina has hedged approximately 40 per cent of its 2024 frac spread exposure, excluding Aux Sable. For 2024, the weighted average price of Pembina's frac spread hedges, excluding transportation and processing costs, is approximately $39.40 per barrel, which compares with the prevailing 2024 forward price at the end of November, 2023 of approximately $39.20 per barrel.

Excluding the contribution from the marketing and new ventures segment, the midpoint of the guidance range reflects an approximately 4-per-cent increase in fee-based adjusted EBITDA relative to the forecast for 2023.

The lower and upper ends of the guidance range are framed primarily as a function of: (1) commodity prices and the resulting contribution from the marketing business; (2) uncommitted volumes on key systems; and (3) the United States/Canadian dollar exchange rate.

Current income tax in 2023 is forecast to be approximately $330-million. Relative to the original 2023 current tax guidance of $340-million to $395-million that Pembina provided in December, 2022, the revised forecast reflects higher-than-expected earnings offset by lower-than-expected taxable income from partnerships. Current income tax expense in 2024 is anticipated to be $295-million to $345-million, as Pembina will continue to benefit from the availability of tax pools from assets recently placed into service.

Pembina's 2024 adjusted EBITDA may be directly impacted by market-based prices, as shown in the associated table.

Two thousand twenty-four capital investment

Pembina's 2024 capital program is expected to be allocated as shown in the associated table.

The 2024 capital investment program reflects approximately $100-million of deferrals of capital expenditures from 2023 into 2024 due to project reprioritization and execution timing.

Pipelines division capital expenditures primarily relate to: The construction of the phase 8 Peace pipeline expansion and the NEBC MPS expansion; development spending on potential future projects, including new pipelines and terminal upgrades within the NEBC pipeline system, and downstream systems between Taylor, B.C. and Gordondale, Alta; and investments in smaller growth projects, including various laterals and terminals.

Capital expenditures in the facilities division primarily relate to construction of the RFS IV expansion, smaller growth projects and sustaining capital spending.

Capital expenditures within the marketing and new ventures division, and the corporate segment, are primarily targeted at information technology enhancements to further the company's continuous improvement aspirations.

Contributions to equity accounted investees primarily relate to contributions to PGI to finance development of the K3 cogeneration facility, as well as development activities for the Alberta carbon grid.

The company's 2024 capital program includes:

• $90-million of non-recoverable sustaining capital to support safe and reliable operations;
• $50-million related to digitization, technology and systems investments, which aim to enhance operational efficiency.

In addition to the 2024 capital investment program detailed above, Pembina is in development of additional growth projects that could increase the program by up to $280-million. This includes approximately $210-million related to pre-FID contributions for Cedar LNG, and approximately $70-million related to growth projects to accommodate growing WCSB volumes, and incremental demand for transportation and gas processing services.

Further, Cedar LNG recently achieved a significant milestone with the signing of a heads of agreement (HOA) with Samsung Heavy Industries Co. Ltd. (SHI) and Black & Veatch Corp. The HOA provides Cedar LNG, on an exclusive basis with SHI and Black & Veatch, secure access to shipyard capacity to meet Cedar LNG's target commercial operations date. The parties expect to finalize a lump sum engineering, procurement and construction agreement prior to year-end, which will provide Cedar LNG with the necessary services to construct the project, subject to a positive FID. In connection with, and following execution of, the lump-sum engineering, procurement and construction agreement, Pembina expects to take additional steps and will be required to provide letters of credit to progress upstream infrastructure projects prior to an FID. Such letters of credit, net to Pembina, are currently expected to be up to $200-million, which may become payable in the case of a negative FID. In conjunction with a positive FID, these letters of credit will be transferred to Cedar LNG.

Cedar LNG continues to progress the key project deliverables, including finalizing the lump-sum engineering, procurement and construction contract, definitive liquefaction tolling agreements, and inter-project agreements with Coastal GasLink and LNG Canada. Given the complexity and sequencing of aligning the multiple work streams required to facilitate the project financing, an FID is now expected by the end of the first quarter 2024.

Capital allocation

Throughout 2022 and 2023, Pembina has generated substantial free cash flow, which has been allocated to strengthening the balance sheet and returning capital to shareholders. During this time, Pembina has raised the quarterly common share dividend by 6 per cent, repurchased approximately $400-million of common shares, and redeemed $300-million of preferred shares. Over the same period, Pembina has paid down debt, reducing leverage below the low end of its target range in anticipation of financing future capital projects.

In 2024, at the midpoint of the company's guidance range, the approved 2024 capital program of $880-million is expected to be fully financed with cash flow from operating activities, net of dividends. Pembina expects any excess free cash flow in 2024 to be used to pay down debt and will continue to evaluate the merits of debt repayment relative to additional share repurchases, taking into account prevailing market conditions and risk-adjusted returns, as well as the financing requirements for future capital projects. Pembina's solid financial position provides the flexibility to maintain strong leverage ratios across the guidance range and under various capital program scenarios. Pembina expects to exit 2024 with a proportionately consolidated debt-to-adjusted EBITDA ratio of 3.3 times to 3.6 times.

About Pembina Pipeline Corp.

Pembina Pipeline is a leading energy transportation and mid-stream service provider that has served North America's energy industry for more than 65 years. Pembina Pipeline owns an integrated network of hydrocarbon liquids and natural gas pipelines, gas gathering and processing facilities, oil and natural gas liquids infrastructure and logistics services, and an export terminals business. Through its integrated value chain, it seeks to provide safe and reliable energy solutions that connect producers and consumers across the world, support a more sustainable future, and benefit its customers, investors, employees and communities.

Purpose of Pembina Pipeline: It delivers extraordinary energy solutions so the world can thrive.

Pembina Pipeline is structured into three divisions: pipelines division, facilities division, and marketing and new ventures division.

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