All financial figures are in Canadian dollars unless noted otherwise.
CALGARY, Aug. 5 /CRWENewswire/ - Pembina Pipeline Income Fund (”Pembina” or the “Fund”) announced today that it generated increased revenue, net operating income, net earnings and cash flow from operating activities during the second quarter of 2010 compared to the second quarter of 2009. While Pembina’s Gas Services business, which was acquired in 2009, was the primary driver of the improved financial results, diligent cost control in Conventional Pipelines also contributed to increased net earnings and cash flow from operations.
“Our focus on operational excellence is paying off,” said Bob Michaleski, President and Chief Executive Officer. “We’re boosting revenue through expansion and providing customers with reliable and highly competitive services. Safe work practices and a comprehensive integrity management system enable us to operate responsibly.”
Revenue, net of product purchases, during the second quarter of 2010 was $129.9 million, compared to $121.1 million during the same period in 2009. During the first six months of 2010, Pembina generated revenue, net of product purchases, of $261.4 million, compared to $237.2 million in the first six months of 2009.
Operating expenses were $39.1 million during the second quarter of 2010, compared to $35.8 million during the same period in 2009. The increase reflects Pembina’s expanded operations - the addition of Gas Services - as well as higher power costs in the Oil Sands & Heavy Oil business. Reduced maintenance and labour costs in the Conventional Pipelines business offset this increase. During the first six months of 2010, operating expenses were $77.4 million, compared to $79.9 million during the first half of 2009.
Net operating income was $90.8 million during the second quarter of 2010, compared to $85.3 million during the same time period in 2009. Year-to-date net operating income totaled $184.0 million, up from $157.3 million generated during the six months ended June 30, 2009.
Net earnings were $41.2 million ($0.25 per Trust Unit) in the second quarter of 2010, compared to $36.2 million ($0.25 per Trust Unit) during the second quarter of 2009. The increase in net earnings reflects higher revenues and decreased depreciation and amortization offset by higher operating expenses. For the six months ended June 30, 2010, net earnings totaled $92.2 million, compared to $64.5 million during the same period in 2009.
Cash flow from operating activities during the second quarter of 2010 was $68.1 million, compared to $49.2 million the year before. Year-to-date cash flow from operating activities was $135.4 million, compared to $90.4 million during the same six months in 2009.
Distributable cash per Trust Unit during the second quarter of 2010 was $0.39 compared to $0.41 during the second quarter of 2009. On a year-to-date basis for 2010, distributable cash per Trust Unit was $0.81, an increase over the $0.78 generated during the first six months of 2009.
Distributed cash was $63.7 million during the second quarter of 2010, representing a quarterly payment of $0.39 per Trust Unit ($0.13 per Trust Unit monthly), compared to $57.5 million in the second quarter of 2009 (no change in per Trust Unit payments). Distributed cash year-to-date totaled $126.6 million compared to $110.7 million during the first six months of 2009. At its annual general and special meeting held May 7, 2010, unitholders voted in favour of the recommendation to convert Pembina from an income trust to a corporation. Following corporate conversion, Pembina expects to maintain its current cash distributions in the form of a dividend of $1.56 per share per year ($0.13 per share monthly) through 2013.
Growth Update
Strong operational performance during the first half of the year is expected to provide a firm financial foundation to support Pembina’s growth strategy. “We’re on track to expand our service offering to customers and invest in new assets which support and enhance long-term value for our investors,” said Michaleski.
Nipisi and Mitsue Pipeline Projects
On July 13, 2010, Pembina announced it had received approval from the Energy Resources Conservation Board (”ERCB”) to construct and operate the Nipisi and Mitsue Pipelines. Approval to proceed with construction of the pipeline projects was granted by the ERCB without a public hearing, as all stakeholder objections were resolved through the consultation process.
The Nipisi Pipeline, designed to initially transport 100,000 barrels per day (”bbls/d”) of diluted heavy oil, will originate north of the Town of Slave Lake, Alberta and run south to Judy Creek, Alberta. From there it will connect to Pembina’s existing pipeline system that delivers products to the Edmonton area. The Nipisi Pipeline is designed such that it can be expanded to a capacity of approximately 200,000 bbls/d. The Mitsue Pipeline is designed to transport approximately 20,000 bbls/d of condensate (a light hydrocarbon used to dilute heavy oil) from Whitecourt, Alberta to producers operating north of the Town of Slave Lake, Alberta. The Mitsue Pipeline is designed such that it can be expanded to a capacity of approximately 45,000 bbls/d.
Piping fabrication for the pump stations will commence in August and pump station construction is expected to begin in September. Right-of-way clearing is also anticipated to start in September in preparation for pipeline construction, which is planned to begin in early December. Approximately 800 to 1,000 temporary positions are expected to be created during construction. All engineering, construction and procurement contracts have been awarded.
Both projects, which Pembina estimates to cost a combined total of $440 million, are scheduled to be completed in mid-2011. Based on certain assumptions, Pembina’s internal projections estimate the two projects combined will generate approximately $45 million per annum in net operating income (see “Forward-Looking Statements and Information” on page 4).
Enhanced NGL Extraction at Cutbank Complex
Pembina is negotiating long-term fee-for-service agreements to provide producers with enhanced natural gas liquids (”NGLs”) processing at its Cutbank natural gas gathering and processing facility. Assuming such long-term commitments are obtained, Pembina plans to expand the Cutbank Complex to extract up to 15,000 bbls/d of incremental NGLs (primarily ethane).
Regulatory approval for the project, which includes constructing an ethane extraction facility as well as a 10-kilometre pipeline that will deliver the product to Pembina’s Peace Pipeline system, has been granted. Project engineering is approximately 35 percent complete and pending the completion of customer agreements, construction is scheduled to begin in the fall of 2010. Commissioning is expected to begin in mid-2011.
Located about 100 kilometres southwest of Grande Prairie, the Cutbank Complex is a fully interconnected sweet gas gathering and processing complex consisting of three gas plants and 300 kilometres of gathering systems. Total gross processing capacity at the Cutbank Complex is 360 million cubic feet per day (”mmcf/d”) (of which 305 mmcf/d is net to Pembina).
“Pembina’s priority is to pursue investments that are located near long-life economic hydrocarbon reserves that can generate strong returns in both the near-term and the long-term,” said Michaleski. “This region has significant supply potential and new technologies are driving production costs down and recovery rates up, while multi-year, fee-for service contracts increase cash flow certainty for Pembina and further reduces our exposure to commodity price risk.”
“This is a good project on a standalone basis but there is additional integration value as well. Our Conventional Pipelines business will transport the NGLs, while there may be future opportunity for our Midstream & Marketing operations to provide terminal, storage and hub services,” added Michaleski.
Corporate Conversion
Pembina’s Board of Directors plans to complete the conversion of the Fund into a dividend-paying corporate entity on October 1, 2010 and the Toronto Stock Exchange (”TSX”) has conditionally approved the listing of the common shares and convertible debentures of Pembina Pipeline Corporation (”PPC”) following conversion. As a result, Pembina expects the common shares and convertible debentures of PPC will commence trading on the TSX on or about Tuesday, October 5, 2010 under the symbols “PPL” and “PPL.DB.B”, respectively. The Fund’s trust units and convertible debentures are expected to be de-listed by the TSX that same day.
The decision to convert to a corporate entity results from a Government of Canada decision in 2006 that introduced legislation designed to change the taxation of income trusts. By converting to a corporation, Pembina can avoid the imposition of specified-investment flow through (”SIFT”) tax applicable beginning in 2011. Pembina expects conversion to provide greater access to capital markets, improved liquidity and greater flexibility to pursue growth and expansion.
Conference Call & Webcast
Pembina will host a conference call and webcast on Thursday, August 5, at 2 p.m. MT (4 p.m. ET) for interested investors, analysts, brokers and media representatives to discuss the second quarter financial and operating results.
The conference call dial-in numbers for Canada and the U.S. are 647-427-7450 or 888-231-8191. A recording of the conference call will be available for replay until August 11, 2010 at 11:59 p.m. ET. To access the replay, please dial either 416-849-0833 or 800-642-1687 and enter the password 89676088.
A live webcast of the conference call can be accessed on Pembina’s website at www.pembina.com under Investor Information, Calendar of Events, or by entering http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3159640 in your web browser. Shortly after the call, an audio archive will be posted on the website for 90 days.
For further information
Glenys Hermanutz, Vice President, Corporate Affairs, Pembina Pipeline Corporation, (403) 231-7500, 1-888-428-3222, e-mail: investor-relations@pembina.com
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