Pembina Pipeline Corporation Reports Third Quarter 2014 Results

Press Release

Nov 04, 2014

Pembina secures additional projects and expansions, executes on growth plans and finalizes Bakken pipeline acquisition

All financial figures are in Canadian dollars unless noted otherwise. This news release contains forward-looking statements and information that are based on Pembina Pipeline Corporation’s (“Pembina” or the “Company”) current expectations, estimates, projections and assumptions in light of its experience and its perception of historic trends. Actual results may differ materially from those expressed or implied by these forward-looking statements. Please see “Forward-Looking Statements & Information” herein and in the Company’s Management’s Discussion & Analysis for the period ended September 30, 2014 (“MD&A”) for more details. This news release also refers to net revenue, operating margin, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted cash flow from operating activities (and adjusted cash flow from operating activities per common share) which are financial measures that are not defined by Generally Accepted Accounting Principles (“GAAP”). Pembina’s methods of calculating these financial measures may not be directly comparable to that of other companies. Pembina considers these non-GAAP financial measures to provide useful information to both management and investors in measuring Pembina’s financial performance and financial condition. For more information about the measures which are not defined by GAAP see “Non-GAAP and Additional GAAP Measures” herein and in the MD&A, which is available on SEDAR at www.sedar.com.

CALGARY, Nov. 4, 2014  – Pembina Pipeline Corporation (“Pembina” or the “Company”) (TSX: PPL; NYSE: PBA) announced today its third quarter 2014 financial and operating results.

Financial Overview
($ millions, except where noted)	3 Months Ended September 30			9 Months Ended September 30
	2014	2013		2014	2013
Revenue	1,445	1,300		4,810	3,724
Net revenue(1)	358	317		1,165	927
Operating margin(1)	264	226		883	674
Gross profit	216	177		732	558
Earnings(2)	75	72		299	256
Earnings per common share – basic and diluted (dollars)	0.20	0.22		0.85	0.83
EBITDA(1)	199	201		750	597
Cash flow from operating activities	188	94		604	477
Cash flow from operating activities per common share – basic (dollars)(1)	0.57	0.30		1.87	1.56
Adjusted cash flow from operating activities(1)	158	188		613	540
Adjusted cash flow from operating activities per common share – basic (dollars)(1)	0.48	0.61		1.90	1.77
Common share dividends declared	143	129		417	375
Preferred share dividends declared	8			21
Dividends per common share (dollars)	0.44	0.42		1.29	1.23
Capital expenditures	344	245		929	605

 

 

“Pembina continues to achieve strong operational performance in all of its businesses, as evidenced by year-over-year improvements in operating margin, gross profit, earnings and cash flow from operating activities,” said Mick Dilger, Pembina’s President and Chief Executive Officer. “Providing safe, reliable and responsible operations while executing on our growth platform is of utmost importance to the Company as we continue working towards adding shareholder value for the long-term.”

Revenue increased 11 percent in the third quarter of 2014 to $1.4 billion from $1.3 billion in the same period of the prior year and 29 percent to $4.8 billion year-to-date compared to $3.7 billion in the first nine months of 2013. Net revenue increased 13 percent to $358 million during the third quarter of 2014 from $317 million during the same period of 2013. The third quarter increases in revenue and net revenue were primarily driven by the Company’s Conventional Pipelines business, which generated an increase of approximately 24 percent in revenue in the third quarter of 2014 compared to the same period of 2013 due to contributions from the Phase I crude oil, condensate and natural gas liquids pipeline capacity expansions which were completed in December 2013 (the “Phase I Expansions”). Further, Pembina’s Saturn I Facility contributed to the strong performance in the Company’s Gas Services business, which saw an increase of approximately 19 percent in net revenue in the third quarter of 2014 compared to the same period of 2013. Year-to-date, net revenue in 2014 was nearly $1.2 billion compared to $927 million during the same period of 2013. The increase relative to the prior period was largely due to the Company’s Midstream business, which generated an increase of almost 32 percent in net revenue during the first nine months of 2014 compared to the same period of the prior year. This was driven by higher volumes, favourable pricing, market fundamentals and enhanced service offerings since the prior period in crude oil midstream, as well as a stronger year-over-year market for propane which benefited Pembina’s natural gas midstream activities. The Company’s Conventional Pipelines business also contributed to higher net revenue due to the Phase I Expansions noted above.

Operating expenses were $98 million during the third quarter of 2014 compared to $87 million in the third quarter of 2013. For the nine months ended September 30, 2014, operating expenses were $284 million compared to $255 million in the same period of 2013. The increase in operating expenses for the third quarter and first nine months of 2014 was primarily the result of new in-service assets, particularly the Phase I Expansions in the Company’s Conventional Pipelines business and the Saturn I Facility in the Company’s Gas Services business. These higher operating expenses were offset by a reduction in operating expenses in the Company’s Midstream business resulting from Pembina’s sale of its non-core trucking-related assets recognized in the second quarter of 2014.

Operating margin totalled $264 million during the third quarter of 2014, up 17 percent from the same period last year when operating margin totalled $226 million. For the nine months ended September 30, 2014, operating margin was $883 million compared to $674 million for the same period of 2013. Both the third quarter and year-to-date increases were primarily driven by strong performance in the Midstream and Conventional Pipelines businesses, as discussed above.

Depreciation and amortization included in operations rose to $51 million during the third quarter of 2014 compared to $47 million during the same period in 2013. This increase was primarily a result of the growth in Pembina’s asset base since the prior period and a reduction in depreciation in 2013 resulting from a re-measurement of the decommissioning provision in excess of the carrying amount of the related asset. For the nine months ended September 30, 2014, depreciation and amortization included in operations was $154 million compared to $121 million in the same period of 2013 for the same reasons noted above, along with the $13 million impairment of non-core trucking-related assets which occurred in the second quarter of 2014.

Increased revenue and operating margin contributed to gross profit of $216 million during the third quarter and $732 million during the first nine months of 2014 compared to $177 million and $558 million during the relative periods of the prior year. This represents a 22 percent and 31 percent increase, respectively.

For the three and nine month periods ending September 30, 2014, Pembina incurred general and administrative expenses (excluding corporate depreciation and amortization) of $53 million and $121 million compared to $28 million and $83 million during the same periods of 2013. These increases were primarily due to the addition of new employees and consultants resulting from Pembina’s growth since the third quarter and first nine months of 2013 as well as increased short-term and share-based incentive expenses resulting from a 26 percent ($9.76 per share) increase in the Company’s share price since December 31, 2013 compared to a 20 percent ($5.26 per share) increase from December 31, 2012 to September 30, 2013. Every $1 change in share price is expected to change Pembina’s annual share-based incentive expense by approximately $1 million.

Net finance costs in the third quarter of 2014 were $30 million compared to $35 million in the third quarter of 2013. Lower net finance costs were primarily due to a reduced unrealized loss on revaluation of the conversion feature of the convertible debentures as well as lower interest expense on the convertible debentures as a result of conversions. For the first nine months of 2014, net finance costs were $139 million compared to $111 million in the same period of the prior year. Higher net finance costs year-to-date in 2014 compared to the same period in 2013 were mainly due to the net increased share price in 2014 compared to the prior year, resulting in an increase in the unrealized loss relating to the revaluation of the conversion feature of the Company’s convertible debentures offset by lower interest expense on the convertible debentures.

Income tax expense was $21 million for the third quarter of 2014, including current tax of $26 million and deferred tax recovery of $5 million, compared to $40 million, including current tax of $6 million and deferred tax of $34 million in the same periods of 2013. Income tax expense was $128 million for the nine months ended September 30, 2014, including current tax of $75 million and deferred tax of $53 million, compared to income tax expense of $102 million, including current tax of $19 million and deferred tax of $83 million in the same period of 2013. Deferred income tax expense arises from the difference between the accounting and tax basis of assets and liabilities. The current tax rose year-to-date primarily as a result of taxable income exceeding losses and deductions available for carry over in certain of Pembina subsidiary corporations.

Pembina generated EBITDA of $199 million during the third quarter of 2014, consistent with $201 million during the third quarter of 2013. Increased gross profit since the same period last year was offset by increased general and administrative and other expenses. On a year-to-date basis in 2014, Pembina generated EBITDA of $750 million compared to $597 million during the first nine months of 2013. EBITDA was higher in 2014 compared to 2013 due to increased results from Pembina’s businesses, primarily stemming from higher operating margin in the Company’s Midstream business, as well as returns on new assets, expansions and services, offset by increased general and administrative expenses.

The Company’s earnings increased to $75 million ($0.20 per common share) during the third quarter of 2014 compared to $72 million ($0.22 per common share) during the third quarter of 2013. This increase was due to higher gross profit, which was offset by increased general and administrative expenses due to higher share-based compensation and other expenses, with an offset to per common share metrics from increased shares outstanding. Earnings were $299 million ($0.85 per common share) during the first nine months of 2014 compared to $256 million ($0.83 per common share) during the same period of the prior year. The year-to-date increase was mostly due to higher gross profit, partially offset by increased general and administrative expenses and income taxes. Also offsetting the increase in earnings in the third quarter and first nine months of 2014 was share of loss from equity accounted investees, which includes accelerated depreciation of $25 million for certain out-of-service assets at the Company’s Fort Saskatchewan ethylene storage facility.

Cash flow from operating activities was $188 million ($0.57 per common share) during the third quarter of 2014 compared to $94 million ($0.30 per common share) for the same period last year. The increase was primarily due to higher earnings and a larger decrease in non-cash working capital in 2013 compared to 2014. For the nine months ended September 30, 2014, cash flow from operating activities was $604 million ($1.87 per common share) compared to $477 million ($1.56 per common share) during the same period last year. The year-to-date increase was primarily due to higher earnings as well as a decreased change in non-cash working capital in 2014 compared to 2013.

Adjusted cash flow from operating activities was $158 million ($0.48 per common share) during the third quarter of 2014 compared to $188 million ($0.61 per common share) during the third quarter of 2013. Despite an increase in operating margin, the quarter-over-quarter decrease in adjusted cash flow from operating activities is primarily a result of increased current taxes, share-based payment expenses and preferred share dividends declared. For the nine months ended September 30, 2014, adjusted cash flow from operating activities was $613 million ($1.90 per common share) compared to $540 million ($1.77 per common share) during the same period last year. The year-to-date increase was also primarily due to higher operating margin offset by increased current taxes, share-based payment expenses and preferred share dividends declared. For both the third quarter and year-to-date in 2014, per common share metrics were impacted by increased shares outstanding.

Read More: http://www.pembina.com/media-centre/news-releases/news-details/?nid=135259

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