An anonymous director reports

PEMBINA PIPELINE CORPORATION REPORTS RECORD RESULTS FOR THE FOURTH QUARTER 2023, PROVIDES BUSINESS UPDATE, AND DECLARES QUARTERLY COMMON SHARE DIVIDEND

Pembina Pipeline Corp. today released its financial and operating results for the fourth quarter and full year 2023.

Highlights

• Record results -- Reported 2023 full year earnings of $1,776-million and record full year adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $3,824-million that exceeded the high end of the company's original 2023 guidance range. Reported fourth quarter earnings of $698-million and record quarterly adjusted EBITDA of $1,033-million.
• Ethane supply and transportation agreements -- Pembina has entered into long-term agreements with Dow Chemical Canada (Dow) to supply and transport up to 50,000 barrels per day (bpd) of ethane to support their recently announced Path2Zero project.
• Nipisi Pipeline contracting -- Signed an incremental long-term contract on the recently reactivated Nipisi Pipeline, with line of sight to the asset being fully contracted by the end of 2024.
• Wapiti expansion -- Pembina Gas Infrastructure (PGI) has approved a $140-million (net to Pembina) expansion of the Wapiti plant that will increase natural gas processing capacity by 115-million cubic feet per day (mmcf/d) (gross to PGI).
• Phase VIII Peace Pipeline expansion -- The estimated project cost has been further reduced to $430-million (previously $475-million; original budget of $530-million).
• Common share dividend -- The board of directors declared a common share cash dividend for the first quarter of 2024 of 66.75 cents per share, to be paid, subject to applicable law, on March 28, 2024, to shareholders of record on March 15, 2024.
• Strong balance sheet -- At Dec. 31, 2023, the ratio of proportionately consolidated debt-to-adjusted EBITDA was 3.3 times, below the low end of the company's targeted range.

For further details on the company's significant assets, including definitions for capitalized terms used herein that are not otherwise defined, refer to Pembina's annual information form for the year ended Dec. 31, 2023, filed at SEDAR+ (filed with the United States Securities and Exchange Commission under Form 40-F) and on Pembina's website.

Financial and operational highlights

Adjusted EBITDA

Pembina reported record quarterly adjusted EBITDA of $1,033-million in the fourth quarter and record full year adjusted EBITDA of $3,824-million. This represents a $108-million or 12-per-cent increase, and a $78-million or 2-per-cent increase, respectively, over the same periods in the prior year. For both the fourth quarter and full year, reported adjusted EBITDA reflects strong performance in the pipelines and facilities divisions as Pembina continues to benefit from growing volumes and higher tolls on certain systems, as well as continued strong results from the marketing business.

Pipelines reported adjusted EBITDA of $617-million for the fourth quarter, representing a $69-million or 13 per cent increase compared with the same period in the prior year, reflecting the net impact of the following factors:

• Higher volumes on the Peace Pipeline system, Drayton Valley Pipeline and on the recently reactivated Nipisi Pipeline;
• Higher tolls primarily on the Cochin Pipeline and Peace Pipeline systems, largely related to contractual inflation adjustments;
• Lower contribution from the Alliance Pipeline, primarily due to lower interruptible tolls and volumes.

Pipelines reported adjusted EBITDA of $2,234-million for the full year, representing a $107-million or 5-per-cent increase compared with the same period in the prior year, reflecting the net impact of the following factors:

• Higher contracted volumes and tolls on the Peace Pipeline system;
• Higher tolls and the impact of a higher United States dollar exchange rate on the Cochin Pipeline;
• Higher volumes on the Vantage Pipeline due to third party outages in 2022;
• Reactivation of the Nipisi Pipeline;
• Lower volumes and higher operating costs due to the Northern Pipeline system outage and the Alberta and British Columbia wildfires;
• Lower contribution from the Alliance Pipeline, primarily due to the sale of linepack inventory in 2022, lower interruptible tolls and volumes, and seasonal contracts being replaced by firm contracts at lower regulated rates.

Facilities reported adjusted EBITDA of $324-million for the fourth quarter, representing a $36-million or 13-per-cent increase over the same period in the prior year, reflecting the net impact of the following factors:

• Higher contribution from the PGI assets, primarily from the former Energy Transfer Canada plants, the Hythe plant and the Dawson assets due to higher volumes;
• Higher revenue at Vancouver Wharves.

Facilities reported adjusted EBITDA of $1,213-million for the full year, representing a $76-million or 7-per-cent increase over the same period in the prior year, reflecting the net impact of the following factors:

• Higher contribution from the PGI assets, due to higher volumes primarily at the former Energy Transfer Canada plants, the Hythe plant and the Dawson assets;
• A gain on the recognition of a finance lease;
• Lower volumes at the Redwater complex and at Younger primarily due to the Northern Pipeline system outage.

Marketing and new ventures reported adjusted EBITDA of $173-million for the fourth quarter, representing a $2-million or 1-per-cent increase compared with the same period in the prior year, reflecting the net impact of the following factors:

• Higher contribution from Aux Sable;
• Lower natural gas marketing margins due to the decrease in Chicago natural gas prices, as well as lower crude oil margins resulting from the lower prices across the crude oil complex, largely offset by higher NGL margins, primarily due to lower input natural gas prices and higher marketed NGL volumes;
• Realized losses on commodity-related derivatives in the fourth quarter of 2023 compared with realized gains in the fourth quarter of 2022.

Marketing and new ventures reported adjusted EBITDA of $597-million for the full year, representing a $124-million or 17-per-cent decrease compared with the same period in the prior year, reflecting the net impact of the following factors:

• Lower crude oil, NGL (natural gas liquids) and natural gas margins, resulting from a decrease in commodity prices;
• Lower contribution from Aux Sable;
• Realized gains on commodity-related derivatives in 2023, compared with realized losses in 2022.

Corporate reported adjusted EBITDA of negative $81-million for the fourth quarter, which was largely consistent with the same period in the prior year. Results were impacted by higher incentive costs driven by Pembina's share price performance and increased shared service revenue.

Corporate reported adjusted EBITDA of negative $220-million for the full year, representing an $19-million or 8-per-cent increase over the same period in the prior year, reflecting the net impact of the following factors:

• Lower general and administrative costs, net of increased shared service revenue;
• Lower long-term incentive costs.

Earnings

Pembina reported fourth quarter earnings of $698-million and full year earnings of $1,776-million. This represents a $455-million or 187-per-cent increase, and a $1,195-million or 40-per-cent decrease, respectively, over the same periods in the prior year.

Pipelines had reportable segment earnings before tax in the fourth quarter of $677-million, representing a $382-million or 129-per-cent increase over the prior period. In addition to the factors impacting adjusted EBITDA, as noted herein, the change in reportable segment earnings before tax in the fourth quarter was due to the reversal of a previous impairment related to the Nipisi Pipeline, as well as the Ruby settlement provision and associated legal fees incurred in the fourth quarter of 2022.

Pipelines had reportable segment earnings before tax for the full year of $1,840-million, representing a $425-million or 30-per-cent increase over the prior year. In addition to the factors impacting adjusted EBITDA and the factors impacting fourth quarter reportable segment earnings before tax, as noted herein, the change in reportable segment earnings before tax for the full year was due to higher depreciation.

Facilities had reportable segment earnings before tax in the fourth quarter of $143-million representing a $2-million or 1-per-cent decrease over the prior year. In addition to the factors impacting adjusted EBITDA, as noted herein, the change in reportable segment earnings before tax in the fourth quarter was due to lower project writeoffs recognized in the quarter, largely offset by higher depreciation.

Facilities had reportable segment earnings before tax for the full year of $610-million representing a $1,194-million or 66-per-cent decrease over the prior year. In addition to the factors impacting adjusted EBITDA, as noted herein, the change in reportable segment earnings before tax for the full year was due to the $1.1-billion gain recognized on the PGI transaction during the third quarter of 2022, partially offset by lower depreciation and lower project writeoffs.

Marketing and new ventures had reportable segment earnings before tax in the fourth quarter of $204-million representing a $108-million or 113-per-cent increase over the prior year. In addition to the factors impacting adjusted EBITDA, as noted herein, the change in reportable segment earnings before tax in the fourth quarter was due to an unrealized gain on commodity-related derivatives compared with a loss in the fourth quarter of 2022, lower net finance costs due to decreased foreign exchange losses and a change in the insurance contract provision in the period.

Marketing and new ventures had reportable segment earnings before tax for the full year of $435-million representing a $273-million or 39-per-cent decrease, over the prior year. In addition to the factors impacting adjusted EBITDA, as noted herein, the change in reportable segment earnings before tax in the full year was due to an unrealized loss on commodity-related derivatives compared with a gain in 2022, partially offset by lower net finance costs due to gains recognized on non-commodity related derivatives compared with losses in 2022.

In addition to the changes in reportable segment earnings before tax for each division discussed herein, the change in fourth quarter earnings compared with the prior period was due to higher income tax expense due to higher earnings compared with the prior period, partially offset by the recognition of previously unrecognized deferred tax assets. The change in the full year earnings compared with the prior year was also primarily due to higher income tax expense due to the tax impact of the PGI transaction in 2022.

Quarterly common share dividend

Pembina's board of directors has declared a common share cash dividend for the first quarter of 2024 of 66.75 cents per share, to be paid, subject to applicable law, on March 28, 2024, to shareholders of record on March 15, 2024. The common share dividends are designated as eligible dividends for Canadian income tax purposes. For non-resident shareholders, Pembina's common share dividends should be considered qualified dividends and may be subject to Canadian withholding tax.

For shareholders receiving their common share dividends in U.S. funds, the cash dividend is expected to be approximately 49.40 U.S. cents per share (before deduction of any applicable Canadian withholding tax) based on a currency exchange rate of 0.7401. The actual U.S. dollar dividend will depend on the Canadian/U.S. dollar exchange rate on the payment date and will be subject to applicable withholding taxes.

Quarterly dividend payments are expected to be made on the last business day of March, June, September and December to shareholders of record on the 15th day of the corresponding month, if, as and when declared by the board of directors. Should the record date fall on a weekend or on a statutory holiday, the record date will be the next succeeding business day following the weekend or statutory holiday.

Executive overview

Two thousand twenty-three results reflect the strength of Pembina's business and are highlighted by record annual adjusted EBITDA of $3.8-billion that exceeded the high end of the company's original guidance range. These results reflect growing volumes across many systems and a strong contribution from the marketing business. While operations in the first half of the year were impacted by the wildfires and the Northern Pipeline system outage, the second half of the year more accurately reflected the underlying positive momentum in the Western Canadian sedimentary basin (the WCSB). This is demonstrated most notably by the more than 4-per-cent year-over-year increase in second half volumes in the conventional pipelines business.

Progressing Pembina's strategy

In early 2023, Pembina outlined a strategy designed to ensure it remains resilient into the future. Guided by this strategy, the company is working every day to strengthen its existing business to ensure it helps meet the energy needs of today and maximize the value of oil and gas products from Western Canada by getting them to the best markets in the world. The company also recognize that the future of energy will require lower emissions and new energy solutions -- there is a tremendous opportunity for Pembina to leverage its existing core business to help meet that challenge. Furthermore, Pembina's strategy demonstrates the value the company places on doing this important work in a way that benefits everyone that has a stake in Pembina's business -- its investors, customers, employees and communities.

A highlight of the fourth quarter was the announcement of a $3.1-billion acquisition of Enbridge's interests in Alliance, Aux Sable and NRGreen joint ventures. Pembina's business is built around integrated, difficult-to-replicate assets that provide an enduring competitive advantage and unequaled market access for customers. Alliance Pipeline and Aux Sable are world-class energy infrastructure assets and increasing the company's existing ownership in them will further strengthen its growing franchise. The Alliance/Aux Sable acquisition complements Pembina's strategy of providing access for world-class, long-life resources from the WCSB to premium end markets and increases exposure to lighter hydrocarbons, including natural gas and natural gas liquids. The Alliance/Aux Sable acquisition is subject to the satisfaction or waiver of customary closing conditions, including the receipt of required regulatory approvals. The 30-day waiting period under U.S. Hart-Scott-Rodino Act has expired without any further queries from the applicable regulators. Pembina continues to expect the Alliance/Aux Sable acquisition to close in the first half of 2024.

In 2023, Pembina further progressed its strategy by sustaining and enhancing the company's business through various previously disclosed accomplishments. These include signing new contracts on the Peace Pipeline system; signing new, or extending existing, contracts at the Redwater complex; reactivating the Nipisi Pipeline; and approving new projects such as the 55,000 bpd RFS IV expansion, the expansion of the NEBC pipeline system and a co-generation facility at PGI's Kaybob 3 plant.

In addition, Pembina is pleased to provide the following business updates:

• PGI has approved an expansion that will increase natural gas processing capacity at the Wapiti plant by 115 mmcf/d (million cubic feet per day) (gross to PGI). The Wapiti plant is fully integrated into Pembina's value chain and the liquids processed at the plant are transported on the Peace Pipeline system. The Wapiti expansion is being driven by strong customer demand supported by growing Montney production and will be fully underpinned by long-term, take-or-pay contracts. The Wapiti expansion, which includes a new sales gas pipeline and other related infrastructure, is expected to cost $140-million (net to Pembina) with an estimated in-service date in the first half of 2026, subject to regulatory and environmental approval.
• In November, Dow announced it is proceeding with construction of a new integrated ethylene cracker and derivatives facility in Fort Saskatchewan (the Path2Zero project), which is scheduled be completed in two phases with in-service dates in 2027 and 2029, respectively. This is an important development for the WCSB, representing a significant increase to the current ethane market in Alberta. Given Pembina's existing leading ethane supply and transportation business and extensive and integrated value chain, there are multiple opportunities for the company to benefit from this new development, through both the existing asset base and new investment opportunities.
  • First, Pembina is excited to announce that it has entered into long-term agreements with Dow to supply up to 50,000 bpd of ethane and for the associated transportation on the Alberta Ethane Gathering System (AEGS).
  • Second, Pembina is a major supplier of ethane to the petrochemical industry. To expand its existing ethane supply portfolio, in support of the agreement with Dow, Pembina is evaluating several possible options to invest in new infrastructure, including incremental deep-cut processing capacity at certain PGI gas plants, de-ethanizer expansions at existing fractionation facilities, potential new straddle facilities and smaller capital efficient expansion opportunities.
  • Finally, the Path2Zero project will directly drive incremental ethane demand, the extraction of which should also increase the supply of other associated NGL -- propane, butane and condensate. The resulting volume growth across the WCSB will benefit Pembina over a period of many years and support higher utilization and potential expansions of its assets, including gas processing facilities, the Redwater fractionation complex, the Peace and Northern Pipeline systems, the AEGS, and storage facilities.
• Pembina recently closed open seasons on the Cochin Pipeline for a total of 90,000 bpd with contracts expiring between 2027 and 2030, in respect of contracts previously expiring in July, 2024. The open seasons were more than three times oversubscribed, highlighting strong customer interest and the value of Cochin Pipeline service. Cochin Pipeline, which spans from Illinois to Alberta, supplies light condensate to fill a structural diluent shortfall in the WCSB. The desire of shippers to secure long-term capacity highlights the important role that Cochin Pipeline plays in supporting the Canadian oil industry's operations, development and growth. While contracted tolls are lower than historic levels, Pembina has successfully increased daily volume throughput over the past two years by up to 25,000 bpd, or approximately 25 per cent, through operational optimization and equipment upgrades.
• Given rising production from the Clearwater oil play, Pembina continues to experience strong demand for service on the Nipisi Pipeline, with current volumes of approximately 33,000 bpd. Including an incremental contract signed with an anchor customer in the fourth quarter, more than half of the capacity on the Nipisi Pipeline is now contracted, on a long-term basis, with line of sight to the asset being fully contracted by the end of 2024.

Looking ahead to 2024 and beyond

Momentum within the company's business is expected to continue and Pembina is well positioned to benefit from what it expects to be a transformational period in the Canadian energy industry.

In 2024, Pembina will focus on progressing its current growth projects -- the phase VIII Peace Pipeline expansion, RFS IV, the K3 co-generation facility, the Wapiti expansion and the NEBC MPS expansion -- and delivering them on time and on budget. The company also looks forward to progressing its other development opportunities, such as Cedar LNG, the Alberta Carbon Grid and further expansions of assets in its core business. As well, upon closing of the Alliance/Aux Sable acquisition, the company will prioritize integrating those businesses and pursuing the near-term synergies it has identified to extract greater value from these exceptional assets.

In December, Pembina announced a 2024 adjusted EBITDA guidance range of $3,725-million to $4,025-million, driven by continued volume growth across the WCSB, new assets placed into service, recontracting of certain assets and the prevailing commodity price outlook at the time. This guidance range excludes the impact of the recently announced Alliance/Aux Sable acquisition. Pembina will provide further updates to the guidance range as timing of the closing of the Alliance/Aux Sable acquisition becomes more certain.

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 paid down debt, reducing leverage below the low end of its target range in anticipation of funding future capital projects. Pembina expects to remain firmly within its financial guardrails with ample liquidity and its leverage metrics are expected to remain well within the ranges for a strong BBB credit rating.

Looking beyond 2024, over the next several years, Pembina sees the potential for mid-single-digit annual volume growth across the WCSB, primarily from the northeast British Columbia (NEBC) Montney formation. Near-term catalysts, including new LNG export capacity, the completion of the TransMountain Pipeline expansion, and Dow's Path2Zero project are expected to contribute to WCSB production growth.

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

The company's investors have come to expect strong and consistent financial leadership from the company, demonstrated by a secure and growing dividend, an unwavering commitment to its financial guardrails, a low-risk and primarily fee-based business with high take-or-pay or cost-of-service contributions, and strong balance sheet metrics. Investors can expect the company to live up to its reputation and execute its strategy with the same financial discipline that has made Pembina successful to date.

Pembina's 2023 annual summary, including the company's messages to shareholders, is available at the company's website.

Fourth quarter 2023 conference call and webcast

Pembina will host a conference call on Friday, Feb. 23, 2024, at 8 a.m. MT (10 a.m. ET) for interested investors, analysts, brokers and media representatives to discuss results for the fourth quarter of 2023. The conference call dial-in numbers for Canada and the U.S. are 1-416-764-8624 or 1-888-259-6580. A recording of the conference call will be available for replay until Friday, March 1, 2024, at 11:59 p.m. ET. To access the replay, please dial either 1-416-764-8692 or 1-877-674-7070 and enter the password 454444 followed by the pound key.

A live webcast of the conference call can be accessed on Pembina's website under investor centre/ presentation and events. Shortly after the call, an audio archive will be posted on the website for a minimum of 90 days.

About Pembina Pipeline Corp.

Pembina is a leading energy transportation and mid-stream service provider that has served North America's energy industry for more than 65 years. Pembina 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: It delivers extraordinary energy solutions so the world can thrive.

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

Pembina's common shares trade on the Toronto and the New York stock exchanges under PPL and PBA, respectively.

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