Pembina Pipeline Corp (PBA) 2006 Q3 法說會逐字稿

Welcome to the Pembina Pipeline Income Fund third quarter results conference call. [OPERATOR INSTRUCTIONS] I would like to remind everyone that this conference call is being recorded on Wednesday, October 25, 2006, at 4:00 p.m. Eastern time. I would now like to turn the conference over to Mr. Bob Michaleski, President and Chief Executive Officer.

Thank you and good afternoon, everyone. I've got Peter Robertson, Pembina's Vice President of Finance and CFO; and Glenys Hermanutz, Manager of Corporate Development with me here today to discuss Pembina's third quarter 2006 operating and financial results.

I'll start today by providing a brief summary of our quarterly results, the details of which are disclosed in our third quarter interim report. I'll follow with an update on our projects that are currently underway and close with a summary of new development opportunities that we are pursuing. Many of my comments today will be forward-looking in nature. As such, I'm required to advise you of the following. The actual results could differ materially from our conclusion, forecast, or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast, or projection in the forward-looking information and the material factors and assumptions that were applied in drawing a conclusion or making a forecasted projection as reflected in the forward-looking information is contained in our third quarter 2006 interim report to unit holders, which is available on line at Pembina's website located at www.Pembina.com and on SEDAR website.

Now, a few brief highlights. Conventional pipeline systems. Our throughput was up about 3% year-to-date on the conventional pipeline systems to about 445,000 barrels per day. Incremental receipts to new connections to these systems more than offset the impact of natural production declines. We expect aggregate conventional pipeline throughput to continue to build over the final quarter of this year as receipts from new connections approach expected potential. Revenue generated by these systems totaled $54 million during the third quarter, a 5% increase over the same quarter of the prior year. Year-to-date revenue of 165 million is 8% higher than the prior year and reflects the revenue impact of higher throughput combined with higher average totals. Capital expenditures on the conventional systems totaled $37 million through the first nine months of the year, expanded principally on new connections and on Pembina's Drayton System product segregation facilities. We expect to spend a full $30 million during the fourth quarter of the year. Details with respect to our 2006 capital program are available on our website.

Turning to the oil pans. Here also, net returns are up about 2% year-over-year, reflecting the revenue impact of rate-based additions to that system. Here also, returns are contract-based, therefore independent of throughput. That said, this system recorded all-time high receipts during the month of September as syncrudes expansion resumed operation. The contracted capacity of the system of 389,000 barrels per day were constant over all reporting periods for the quarter.

Pembina expects that the newly constructed $42 million Cheecham Lateral pipeline will be available for service in November of this year. Work on the $340 million Horizon pipeline continued during the third quarter and Pembina expects to commence construction activities in November. Construction of the Horizon pipeline will occur in three phases over the coming 18 months. And this also is expected to be completed on schedule and available for service on July 1, 2008. $49 million has been spent to date in 2006 on oil sands infrastructure and Pembina anticipates that another 39 million will be spent by the end of 2006. 42 million of the total 2,000 expenditure relates to the Cheecham Lateral, 35 million to work on Horizon pipeline, and a further 10 million to rate based additions on the AOSPL system.

Looking at Midstream, we're encouraged by the results generated by our expanded Midstream unit and intend to continue to develop these operations in the coming quarters. Midstream operating results are up materially year-over-year, with a net contribution generated by this unit over the first nine months of this year almost double that of the prior year. The increase is attributable to higher than expected returns from the Swan Hills joint venture and the initial contribution from Midstream operations on the Drayton Valley system. Contribution from Pembina's fully contracted 50% interest in the Fort Saskatchewan packing and storage facility continues to meet our expectations. Pembina's Midstream unit will spend $20 million in 2006, that's roughly 15 million is related to line fill acquisition and the remaining 5 million on commercial development, principally of Pembina's condensate initiative, about which I will speak more of later in this call.

Growth across Pembina's three business units and regional employment market pressures has resulted in a material increase in general and administrative expenses in 2006. And with the anticipation that this growth trend will persist in coming periods, we expect to continue to expand our human resources as required to administer the new business. Pembina closed a prior placement of $200 million in 15-year unsecured notes in September at a fixed rate of 5.58%. The principal balance remaining on Pembina's two convertible debenture issues declined to $86 million at the end of the third quarter of this year, down from $179 million at the same point in 2005 as debenture holders continue to be convert to units at a relatively rapid pace. Pembina's notional distribution reserve increased by 4.5 million during the third quarter, resulting in a balance on reserve of 18.8 million as at September 30, 2006.

Pembina has increased its distribution rate twice thus far in 2006 to an annualized rate of $1.20 per trust unit and a 14% increase over the $1.05 paid in the preceding five years. Based on our current projections, Pembina expects a further build in this distribution reserve during the fourth quarter of 2006. Should this increase materialize, further review of the distribution rate may be appropriate.

We'll now turn to a discussion of business development initiatives currently underway at Pembina and provide our outlook. As stated last quarter, Pembina's presently operating at capacity in terms of administering the unprecedented growth across our three business segments. We continue to acquire resources required to execute new initiatives and to develop the further diversification and growth potential of our business interests. On the conventional pipelines, product segregation facilities are currently being constructed on the Drayton system and similar facilities are being considered for the Peace system. These facilities are designed to preserve the quality of the common crude oil stream on these systems and to provide additional services and value to pipeline customers. The layering of Midstream operations over Pembina's conventional pipeline transportation business has generated a significant source of incremental net cash flow and again benefits our pipeline customers by extending the economic life of the related pipeline assets.

Finally, several years of accelerated and oil gas industry in the producing fields delineated into many of Pembina's conventional pipeline systems has resulted in year-over-year throughput growth that is expected to continue in the coming year. Longer term, certain material oil-producing fields in Pembina's traditional service areas have been identified by industry as being potentially minimal to enhanced recovery, utilizing carbon dioxide flooding. The producer of CO2 projects proceed to commercial products in the coming years, and Pembina will benefit from the incremental production associated with these operations and made by virtue of the extensive network of pipeline rightaways have the opportunity to participate in the development of regional CO2 transportation infrastructure. Pembina's rapidly expanding oil sands infrastructure business unit is expected to continue to drive growth in the coming years.

I've discussed Pembina's Cheecham Lateral and Horizon pipeline projects earlier in this call. Let me reiterate that these products once placed in service will do the consistent fully contracted returns over the life of the 25-year extendible agreements. Pembina has worked closely with our customers in developing these projects and through careful planning and execution have created a high degree of confidence in our cost estimates and schedule. Upon completion of the Horizon Pipeline, Pembina will have 640,000 barrels per day of transportation capacity from that area. Should C&IL proceed with the possible future expansion of the productive capacity of their Horizon oil sands facility for which Pembina has the exclusive transportation right, total takeaway capacity from this strategic area could grow to almost 900,000 barrels per day. Further, Pembina continues to vigorously pursue transportation opportunities in this area and has engaged in preliminary and ongoing discussions with several producers with oil sands projects slated for the 2010 to 2012 time frame.

I'll close with an update on Pembina's proposed Condensate pipeline. The project should it proceed would entail the pipeline transportation of up to 110,000 barrels per day of imported condensate from a rain terminal located at the deepwater port near Kitimat, B.C. to a newly constructed connection to our existing western system. When it's on the western system, the condensate would be transported on Pembina's conventional pipeline network, expanded to accommodate this incremental volume to customers in the Edmonton area. Pembina has entered into a development support agreement with prospective shippers and has reached an agreement in principal on all commercial terms surrounding this product. We hope to have firm shipper commitments in place by early 2007.

We continue to firm up costs and scheduling information. Pembina will work cooperatively and collaboratively with project stakeholders to progress the ongoing development of this proposed service. Stakeholder engagement activities are well underway and based on our experiments to date, we are confident that in time we will be successful in obtaining the necessary approvals to proceed. [Inaudible] being consistent throughout the year and as we compete our annual budgeting process in the coming weeks, we expect to confirm our expectations. In summary, we project rising throughput on our conventional pipelines through the final quarter of this year, and increasing contributions from our oil sands and Midstream business units as new business is implemented and becomes fully operational. Thanks for participating in the call this afternoon. I'll now turn the call back for questions.

Thank you. [OPERATOR INSTRUCTIONS] Linda Ezergailis from TD Newcrest.

I have some questions related to your cash flows. The future income tax reduction of $3.3 million this quarter was a little bit lower than I was -- well, quite a bit lower than I was expecting and definitely below the run rate of 6 million a quarter of guidance that you provided last year. I'm just wondering what was driving that number in the quarter and what sort of run rate we should be using going forward, if this is anomalous or a new trend?

Well, Linda, given that is a tax-related question, I'm going to turn that over to Peter for his answer.

Thank you, Bob. As we develop our Midstream business, our earnings will increase, so that will have an affect on the future tax balance and the balance sheet, our draw on that reserve and impact the income statement. As we move forward and income rises, there'll be a lower -- a smaller draw on future income taxes.

Peter, do you have a sense as to what that might be? Do you think this quarter is representative of what--?

Yes, as a run rate, maybe pick 3, $4 million on a quarterly basis.

For the next few years?

Yes, yes.

Okay. I guess this is a cash flow-related question. I noticed your non-cash working capital was a use of cash this quarter, and I'm just wondering, is that related to changes in your line pack or your Midstream business? Can you provide some color?

Well, I believe receivables increased in the quarter and the end of September, so that would be a draw on cash.

That was really a timing issue.

And timing depending when the last day of the week, the month closed and generally most of our revenues are received on the 25th of the month. Some months there are a few stragglers, depending on when that date falls.

I take it that probably is not an expected item every quarter here then? It was perhaps unusual this quarter.

Okay. And then your future benefits contribution in the quarter of 5.7 million was a little bit higher than it's been year-to-date. I think we're running at about $9 million year-to-date. What sort of guidance can you give on a run rate over the next few years on that?

Yes. During the third quarter, we elected to make contributions for both the third and fourth quarter. So the 9 million will be, that will be the total contribution we have for 2006. Going forward, I would estimate 4 to $5 million for the next couple of years.

Linda, we made a voluntary contribution to our pension plan. We're trying to shore up that deficit that we've been dealing with the last couple of years, so we decided to just bite the bullet and make a larger contribution this year. But as Peter has mentioned, we'd expect a return to that 4 to $5 million range going forward.

Great, thank you. I guess my final question is related to -- just a clarification on the Horizon pipeline. Did you say the new cost estimate is 340 million?

Yes, I think that's a rounded cost estimate. The schedule is coming around 338, and I think you can use 340 as a basis, Linda.

And that includes capitalized interest?

Yes, it does.

And this would all be added to the rate base?

That is correct.

And can you give us a sense of what's causing the delays in signing a binding agreement for Horizon?

I think, Linda, it's fair to say that there are a lot of things that are happening at CNRL these days with their Anadarko acquisition and we believe that it's meant with respect to them signing that agreement. We have no reason to think they won't be in a position to do that within, I would say within days. Our intention is once we have executed agreements from CNRL, we will press release that information.

Thanks. I'll jump back in the queue.

Bob Hastings from Canaccord Adams.

Thank you and congratulations on more good growth.

Thanks, Bob.

One of the questions I have, obviously you're hiring more people and you're now expecting employee costs to rise from about 9% to 12%. I believe originally that was talked about going to 11%. So it's moving up a little bit. How much of that is just extra employees? How much of that is just competitive pressures in the marketplace?

Peter, want to take a shot at that? I think, Bob, longer term, the target we're looking at for percentage of operating income would be closer to that 11%, somewhere between 10 and 11%. Peter, I'm not sure if you--.

I don't have specific details on the split, Bob, but as a wild guess, I would say it was fairly equally between industry pressures on salaries and payments.

And really what I'm getting to, who cares for percent, maybe, but is what do you see as the risk. Does that competitive pressure start to abate as you say some of that crazy activity is starting to slow?

I think that's right. We've got a bit of cash up in 2006 because we had underaccruals with respect to incentives from 2005. We got a bit of a double hit this year, Bob. I think as far as hiring is concerned, I think the things have stabilized here to a certain extent. I think what we are now seeing is that there are contractors, particularly on the smaller projects, smaller diameter inch projects that are now willing to bid on their projects as opposed to not being willing to bid. We're seeing that starting to filter through and I think are returning to a pattern which is more normal and hopefully that's what we'll see going into the future as well.

And staying on the expense side, expenses were up a bit and there was some unhitched power costs, and I look at the power prices out there, they're still pretty high and going higher in the fourth quarter than they were in the third, so do you see -- is there much risk there on the unhedged portion?

Well, the unhedged portion really applies to AOSPL, and that's a flow through on our cost of service arrangement, Bob. Our participants have indicated to us that they weren't interested in hedging power on AOSPL, so that's a flowthrough cost to them.

So you have no exposure to power prices?

We're pretty much fully hedged here until 2010 -- 2011, Bob.

Excellent, excellent. One last question, if I might. In terms of the Midstream, that was obviously great performance and it should be increasing in the fourth quarter with new facilities and everything working a little better. Do you have sort of an -- based on the facilities that you have now, sort of an expected run rate in there, or is that just too tough a question?

I'm trying to think of what guidance I can give you for full year. I think this year, we're looking to generate about $25 million of operating income from the nonstorage components. Just bear with me for a second, Bob, while I gather some information here. Looks like 23, $24 million this year, and I would expect that probably using a number like $3 million a month roughly for 2007 might be a reasonable number to use. So--.

2 million?

3 million a month.

Okay, nice increase. Okay. If I might just on Kitimat, then, and then I'll log off, have you got all the first nations on site, or just some of them at this point?

I think that's a work in progress for us, Bob. We have some of them on-site. We've got a number of other First Nations groups that -- well, in total, I think we're dealing with ten groups at this stage that are directly affected. We have protocol agreements signed with two, and we're expecting a further four to be signed up here within the next -- oh, I'd say the next couple of weeks and we've got some tougher sledding on a couple that we'll continue to work on over the next month or so, but I think we're making progress.

And another party to help defray the project development costs and how much are you swallowing?

Well, there's actually two other parties that are expressing interest and we expect to hear back from them within the next two weeks. We have a shipper's meeting planned for the middle of November where we're going to talk to the group about what we do with future funding and so on, so within next week we expect to shore up that group and reduce our exposure. I think if we do proceed, we still will probably end up with having at this stage, something just under 10% of the project, which we would like to look at syndicating further once we move along.

So was there an expense in the third quarter for project development costs there?

No, I think we capitalized--.

We capitalized--.

We capitalized the costs associated with it, Bob, with the assumption that this is going to be a successful project and that we'll move forward with it. If it turns out to be unsuccessful, then obviously we'd look at expensing our share.

What have you capitalized to date?

This was a schedule of $4 million through the end of the third quarter, Bob.

Thank you very much.

That's now 20%.

I'm sorry, okay, that's 20% of the $4 million is your share. Okay. Thank you very much.

You're welcome.

Fai Lee, RBC Capital Markets.

Thanks. Peter, can you maybe tell me what the pension status is in terms of the deficit?

Peter, do you want to speak to that?

Yes, at the end of the quarter, we estimated about an $8 million deficit. We know what the market value of the assets are, but the liability is a little bit difficult to estimate on the [JUDO] basis. So that's really a projection from our last factory report that was at the end of 2005.

So you said 8 million at the end of Q3?

That's correct.

And you're saving in the CapEx, will you be posting something on your website?

Yes, it should be there -- if it's not there now, it should be there within a half an hour. We just sent out, I think, this afternoon, Glenys, probably about an hour ago or so. So it will show up there.

Okay, thanks.

You're welcome.

Karen Taylor from BMO Capital Markets.

Just have a couple of clarification questions. In your remarks to Bob, you talked about syndicating production or project costs. I'm assuming when you said less than 10%, you would like to get down in terms of the amount that you're carrying to less than 10%.

That's right, Karen. Right now if we proceed, as expected to date, we're potentially looking at sizing the line a little larger. It could be 110,000 bills to date and based on where we're at, we will be picking up about 9% of the project today with a plan to further -- to further reduce our position to potentially zero.

You mean in project costs?

Yes.

Development costs?

Yes.

Okay. Do you have -- the fact that you refined the size of the facility, do you have a new estimated cost?

At this stage, it's still being worked on, Karen. I think the sense that we have is that we don't have any surprises. The total project is going to come in around the number that we've been previously forecasting. We at one stage had looked at prebuilding a portion of this line to looking to a future expansion of up to 150,000 barrels per day. We're backing off that, because it looks like it's just going to cost too much to prebuild, because there's other modifications that require other existing systems that would be quite expensive to do. We're looking at trying to size this project for 110,000 barrels a day.

That cost, if memory serves, is in that 800 to 1 billion range?

$1 billion would be a good number to use for the project.

Okay. The other question that I had, I guess, relates to just loss at the Kitimat. Have you determined what type of regulatory approvals you're going to need? Can you keep it exclusively within the realm of the BCUC?

Yes. Karen -- our view on it is this way--for the new pipeline and the existing pipeline in British Columbia that will fall under BC. regulation, for the existing line that runs from Taylor to Doe Creek, that's under NAB regulation, that will be continue to be under NAB regulation, and the line from Doe Creek into Judy Creek and into the Edmonton area would be around AEUB jurisdiction. We have met both with the BC regulators and the Alberta regulators and they have confirmed that the regulatory regime follows under their jurisdiction and we have to have a final meeting with the AEB to confirm that.

When you said it was tough slugging with respect to a few of the groups of the ten that you are directly influencing, or that are directly influenced by the project, can you just talk about what some of the other issues are?

I think it's fair to say we've asked each of the First Nations groups to sign protocol agreements that we consider to be fairly standard agreements. One of the groups has not signed or is not indicating that they're willing to sign the agreement. They wanted to start a process that was quite a different process than what is understood to be the regular process, and so that's the group that we're going to have to continue to work with. They do represent -- or they are representing six First Nations groups, so it will be an important one for us to get to, but I see this as something as a work in process, and nothing is easy in terms of dealing with building new pipe through areas where you haven't had pipe built before. But I'm pretty optimistic, Karen, that we're going to be able to accomplish what we set out to do.

So it's six of the ten?

This one group -- one group represents six. There's 17 in total, and one group represents six. So it's that one group representing six that we're having some discussions with respective going forward.

And how does that relate to the ten?

It's one of the ten.

Okay. Can you come back to your marketing groups and talk about -- you talked about a run rate for 2007 of 3 million a month of revenues. Can you talk about how much of that $3 million or the year-to-date performance that's still frac risk dependent. You're acquiring line packs, I understand what you're doing there, and then you're either, you're high grading that using a couple of methods on either system. So some of that is not necessarily frac, but what I'll call product spread related. Is that still the essence of the business that's being conducted on both the Drayton Valley and the Swan facilities?

Yes, Swan, has the -- we have two programs in place. We have a single super status that we went through, and we create what we call an equalization revenue stream. That's in place and we also have joint venture operations on that pipeline. So we've got two phases of merchant activities taking place on that line, Karen. Drayton Valley, we just gone single shipper in July of this year, so we've only got one revenue stream in place, that being an equalization stream in place on that pipeline. We expect to have the secondary phase on early in 2007. So we have both the Swan Hills systems and the Drayton Valley system earning the equalization and joint venture revenue on a full run rate basis, we think, for the full year 2007.

Which would be 3 million a month.

Yes. And I look at roughly -- I've been saying roughly 50/50 between Swan Hills and Drayton Valley at this stage, but hopefully we'll be able to provide more guidance as we get into 2007, Karen. I think right now, 3 million is probably as good a number as we can provide. I think the actual performance this year has been better than expected, but it could be based on the fact that we're in a high commodity price environment or were early on this year and that may change in 2007. Again, that's going to go over our budgeting process as well, which we're also currently working on. So the news there is that we'll continue to fight as much value as we can as we move further into -- through this year and early into next year.

So -- just trying to formulate the next question and it's not -- so there is -- I guess in this most recent quarter, if I can come back to that issue of the higher commodity priced environment which we saw earlier or the first half of the year certainly, gas prices have come down and then other takeaway capacity out of the basin has lowered to a certain extent, the light heavy differentials, so that equalization stream opportunity may be slightly less for bus than it was in the first half. Is that fair?

I don't know that we actually have seen that yet, Karen, because the equalization scales have not changed here since -- I think it's changed twice, February and July. They haven't changed since July, Karen. And they'll be in place until February the 1st as far as I understand. Right now we are projecting to see a reduction in the equalization benefit, but that's been factored into my $3 million per month run rate for 2007.

I don't know that they've changed twice annually, I believed they're reviewed twice annually.

They're reviewed twice annually?

That's my understanding.

I beg your pardon?

Glenys was just reminding me the equalization scales are reviewed twice a year, they aren't necessarily changed twice a year. What we are assuming for 2007 at this stage is that there's going to be a reduction in the equalization benefit, which again, has been factored into that run rate that I've indicated.

Okay, thank you.

You're welcome.

Alda Pavao from CIBC world Markets.

Good afternoon. Just getting back to the line of questioning on the Midstream business and the guidance range given for 2007, would that include potential additional rollouts? I think there was talk about additional activities rolled on the P system?

Yes. That would not include that additional revenue. I think, again, once we get into -- there's three phases that we're working on, Phase 1 and II will be fully implemented on both Drayton Valley and Swan Hills by the end of this year and next year. There is a Phase III opportunity which we see as potentially available. That has not been factored in. At this stage, I don't see that as being all that material. It would be a positive development, but I'm not saying it's a material positive development. Probably, we're going to again, have a better handle on that the middle of next year.

Okay, thank you. And then, just a question as it relates to the import pipeline proposal, seems to be moving along quite well. Is it fair to take it from your comments as it relates to the up-sized capacity that there's sufficient stripper interest to support that increased size and there's no requirement by Pembina itself to take on a portion of the capacity?

What we think is that there is -- since we first went out with the project being 100,000 barrels a day and upsizing to 110, we've since had two parties have come to us and have spoken for additional capacity, so I'd say if things worked according to plan, we'd probably have all of the 110,000 taken up by third parties, but the first phase of it would be the introduction of additional two parties as we're taking our position down from 20% down to about 9%, which I think I mentioned earlier, we would potentially look at reducing that exposure for ownership shipper commitment to zero, from Pembina's perspective.

So would it be fair to say then there's potential that one or two of the potential shippers could assume ownership, partial ownership of the pipeline?

They wouldn't take ownership of the pipeline, they would just -- this is just a shipping commitment. Right now, Pembina's share of the -- if the costs, development costs associated with the project to date is about 20%, so we would look at reducing that ultimately to zero and have somebody else stand in our place as far as shipper commitments on the pipeline.

Okay. And then just lastly, I just want to touch on, if you could just elaborate on the comment made as it relates to additional develop projects on the conventional system that are being pursued, could you just elaborate on those initiatives and that capital spend as it relates to them?

Yes, I don't really -- I think we may have -- I don't know if I've got a list in front of me of the capital, but there's probably about -- I'm going to say six or seven additional projects that are being worked on right now, varying levels of capital. Nothing really significant. These are sort of 1 million to 3 to $4 million CapEx projects and each of them has volume, some as high as 6,000 barrels per day. A project like that will cost us about $1 million. And most of the projects look like they're about $1 million. We've got one project on the books here for $4 million, estimated volumes of 2200 barrels per day. So we've probably got about 2200 barrels per day. So we've probably got about five or six of them on the books right now that we're working on and they should be in service here within the next quarter. We also, on our conventional systems are now starting to see additional volumes coming to us on an [SU] plate. It's been slow developing, but the producers of Dominion [Inaudible] West have indicated that they expect to meet the original projections, their original projections by the end of this year, and just so you know, we had budgeted for about 18,000 barrels a day from those facilities, and we probably year-to-date have averaged only about 5,000 barrels a day, I'd say at best. So we are starting to see the volume ramp up, and so we expect to see those coming back on stream here, hopefully by the end of the year.

Great. Thank you.

Dominique Barker from Credit Suisse.

Hi. I have a question with regards to maintenance CapEx in your distributable cash flow chart on page 6. It's not very much money, but I wanted to understand notionally why it's declining over time when your asset base is increasing?

Peter, did you want to speak to -- I think these are going to be specific projects that qualify for maintenance CapEx?

Yes. I would have thought it would be steadily be increasing over time.

It's 1.1 million versus 1.6 last year.

That will vary by quarter.

We were 2.7 million in nine months '05 and we're a 2.5 million this year. I don't see a 0.2 million decline as a trend. I would say we would be ending up the year, we're likely spending another potentially 500,000 to $1 million before the end of this year, and that will take us up to 3.5 million, which I think is slightly higher than 2005.

Okay. Also on interest expense, I wanted to know if in refinancing your debt, your interest expense at the end of September, how much your interest expense on a percent basis approximately would go down?

Yes. On the refinancing was at the very end of the month. We drew that cash on the 29th of December, so there'll be no impact in the quarter for that refinancing.

Not for Q3, but I guess I'm wondering for Q4?

Yes, I think Q4, it's not going to be all that significant, we've got 5.58% there. Some of our bank lines were at 6%, some were BAs, so you may see a 50 point difference in some of it, maybe 50 points on average.

Okay. Also, is the voluntary contribution to the pension plan, is that one of the reasons that your future tax expense has decreased substantially?

Well, it's a very complicated calculation--.

I know.

I'd have to go back and ask my tax gurus about that. It may well have, but I can't say definitively.

Okay. And I missed the answer to Linda's question, I had problems asking a question through the system, but she had asked about why the future tax expense had been reduced so substantially? What was your expectation with respect to going forward?

I think it was 3 to 4 million.

So the run rate used to be say 6 to 7 and now it's about 3 to 4?

Yes. And I explained that's because of our increasing revenue stream from the Midstream sector.

Okay. And also, I wanted to ask your competitive advantage on the Condensate pipeline.

With respect to the competitive advantage, it comes for a couple of reasons. Lower cost than some of the transportation alternatives as applied to B.C. operations. There are other projects that are out there that involve -- I think one of those projects involves a line reversal from Chicago up into the Edmonton area. I think that probably can be done cheaper than what our project can be done for, but our project will be cheaper than what our competing alternative might be to build a larger diameter line from Edmonton out to the West Coast, so there's a cost advantage of about, I'd say at least $0.5 billion, and the other advantage we think is timing. We think we'll get our project complete one and a half to two years sooner, and that means a lot to the potential customers here if the project is on-stream in terms of sourcing condensate.

That was my actually, follow-up question, was whether it was realistic to believe that you could have that on in 2009. Have you already contracted labor, and for example, steel mills?

Well, no, we're not at that stage. We're not far enough along to make those sort of commitments with respect to project. What we want to do is get shipper commitments first. which I think I made reference to the fact that we hope to have that, obviously, by the first quarter of next year, and once we have the shipper commitments to the project, then we'll have it all unfold.

Is it realistic to believe that you can be ahead of your competitors who are all saying that they've contracted labor for the next couple of years and contracted on the steel side?

That's really quite interesting if they have in fact contracted. I can't speak for what our competitors have done. I would find it very, very hard to understand how you would contract for labor and supplies when you don't have a committed and improved project.

I guess not on that particular project, but just in terms of the tightness of availability of mills and availability of labor for pipelines in general. So competing with North American pipeline projects?

I think we've already been there on the Horizon expansion. We've got our contractor lined up. We've got our -- actually our pipe is being delivered here -- has been delivered here. We've got all the pipe on order and scheduled for delivery over the next 18 months, so that is all taken care of and I would expect we can do the same with the Condensate initiative, because it's just going to come a little later.

And final question. Just with respect to, we've seen a lot of producers shutting in gas and producers stopping drilling in Canada. Have you been seeing that impact -- I know you spoke about it before, but could you maybe put some numbers around it, how many new connections, for example, have you had so far this year on your conventional system?

The conventional systems, I would say we've had somewhere between 8 and 10 new connections this year and we'll probably have another, five or six that are just around the corner. So no, we're not actually seeing it -- what typically happens with our business is that there's a lag affect. We've had strong activity over the last two or three years and we're now starting to see that volume show up in our pipelines. What we're looking at, of course, is, we're looking at crude oil, light, sweet crude oil and condensate and natural gas liquids. I don't think we've seen an appreciable reduction in drilling for conventional crude oil or some of the deeper drilling that takes place that we have natural gas -- or natural gas liquid associated with in the deep-basin area in particular. I think where you see the curtailment of drilling is generally in other parts of the province where people have shallower drilling programs or if people are curtailing production, that's generally natural gas, which doesn't impact our operations.

Okay. Thank you very much.

You're welcome.

[OPERATOR INSTRUCTIONS] Mr. Michaleski, there are no further questions at this time. Please continue.

Thanks very much for participating in the call this afternoon. Glenys, Peter, and I are available to take any other questions that you might have following this phone call. So again, thanks for participating and we'll talk to you again soon.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, please disconnect your lines.