Pembina Pipeline Corp (PBA) 2009 Q4 法說會逐字稿

Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the Pembina Pipeline Income Fund year-end results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Mr. Michaeleski, you may begin your conference.

Thank you, Chris. Good morning, everyone, and welcome to Pembina's teleconference and webcast to review our 2009 financial results. Joining me on the call today are Glenys Hermanutz, our Vice President of Corporate Affairs, and Claudia Dorazio, our Controller.

Our agenda today follows our standard process. I will review the 2009 results we released yesterday, then open up the line for questions. But before we start the Q&A, I will spend a few minutes providing an update on our Nipisi and to Mitsue pipeline projects and discuss our plans to convert our fund to a Corporation.

I will start with a reminder that some of the comments made today may be forward-looking in nature are based on Pembina's current expectations, estimates, projections, risks, and assumptions. I must also point out that some of the information I provide refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see Pembina's various financial reports available at Pembina.com and SEDAR.com. Actual results could differ materially from the forward-looking statements we may express or imply today.

Now on to the overview of Pembina's 2009 results. We issued two news releases yesterday afternoon. One provides a snapshot of our plans for corporate conversion, while the other provides our overview of our 2009 annual results, which were filed and posted to our website yesterday. Our 2009 financial performance was strong and reflects operational milestones that were achieved during the year. Key accomplishments include the commencement of full service of the Horizon Pipeline, which transports crude oil for CNRL's oilsands operation; the June acquisition of the Cutbank Complex gas gathering and processing facilities; and the expansion of our Alberta-based midstream services.

These operational accomplishments combined to set new financial records during the year. Quite notable given the downturn in the economy and the market volatility we were all challenged by during 2009.

Revenue was just over under CAD497 million in 2009, up from CAD454 million we realized the year before. This increase of almost 10% was primarily the result of new revenues generated by the Horizon Pipeline and the Cut Bank Natural Gas Gathering and Processing complex.

Horizon and Cutbank also had a positive impact on Pembina's net operating income, which totaled about CAD338 million, an increase of almost 12% over the year before. G&A in fourth quarter of about CAD17 million was impacted by a one-time charge of CAD3 million in internal restructuring fees and approximately CAD2.5 million in incentives. We expect our run rate for 2010 to approximate CAD11 million per quarter.

Although we set a new record for cash flow for 2009, the year-over-year change was more modest, growing 2% to total nearly CAD225 million. Net earnings were just over CAD162 million in 2009. This is a slight increase over the year before, when we realized a CAD30 million after-tax gain on the sale of [Line Fill]. If you exclude that one-time gain, net earnings actually increased 23%.

The strong financial performance was challenged by two factors. First, our operating expenses were higher in 2009, primarily a reflection of the increased cost associated with running a larger company. Second, the economic downturn which drove down commodity prices and production rates in the upstream sector negatively impacted conventional pipeline throughputs and revenues generated by some of our midstream operations.

We mitigated these impacts by deferring nonessential projects, broadening our service offering particularly at our Alberta-based truck terminals, and implementing selected toll increases. Safe and reliably run operations also helped keep costs down.

This commitment to operational excellence also enabled us to fulfill a very important promise to our investors, delivering an annual cash distribution of CAD1.56 per trust unit. This payment, the largest in our 12-year history as a publicly traded Company, is expected to continue through 2013.

Distributed cash totaled CAD232 million in 2009, a 17% increase over 2008. The payout ratio of 99% was higher than the 96% achieved in 2008. A significant contributor to our successful DRIP program, more than CAD10 million of the increase in distributable cash was attributed to raising equity under our DRIP to prefund the Nipisi and Mitsue pipeline projects.

If we exclude this factor, the payout ratio would have been nearly 95% for 2009 and distributable will cash would have been CAD12.8 million in excess of distributed cash. We expect a similar payout ratio for 2010.

I will now provide an update on Nipisi and Mitsue pipeline projects. A year ago, we expected permitting and construction would begin this winter. However, two objections have been filed by aboriginal stakeholders, which have delayed regulatory approval. Their concerns relate to impacts the projects may have on traditional land use, aboriginal rights, and the environment.

There are two points I want to make here. One, I remain very confident these concerns will be resolved through continuation of the consultation we began with stakeholders nearly two years ago. Pembina is committed to the principles of consultation and public involvement and will continue to work with stakeholders to understand their issues and resolve their concerns.

Two, despite this challenge, the project remains on schedule to be placed in service mid-2011. Engineering is more than 90% complete and we have construction and procurement contracts in place to provide certainty for more than 60% of the project costs. The CAD440 million cost estimate remains on budget and we still expect to generate about CAD45 million per year in net operating income once these pipelines are operating.

Although Nipisi and Mitsue are currently our biggest projects, they aren't our only growth opportunity. In our Conventional Pipelines business, we are exploring new and expanded service offerings to support the new expected production from the Cardium formation in the Drayton Valley area and we continue to monitor development in the carbon sequestration and the role we may play there.

In our Midstream business, we are looking at opportunities to expand our hubs and terminals and are actively evaluating potential investments that could broaden our gas gathering and processing services. And with the rebound and plan to oilsands developments, we are also talking to various customers in the Fort McMurray area about future business opportunities.

During 2009, Pembina raised approximately CAD800 million in debt and equity capital and the undrawn capacity in our bank lines currently sits at around CAD400 million. Our strong balance sheet gives us confidence that we will be -- when the right investment opportunity arises, we will be ready to capitalize on them.

In addition to pursuing these growth opportunities, during 2010, Pembina will be working towards converting to a corporation. As announced yesterday, Pembina's Board intends to seek full support for this conversion at our May annual general and special meeting. Subject to receiving all the necessary approvals, we expect the conversion could become effective as early as July 1 and no later than December 31. We will let you know once precise timing is confirmed.

Detailed information relating to the conversion including tax implications for Canadian and US investors will be provided in Pembina's 2010 management information circular which will be mailed to investors before April 12 and posted to our website and SEDAR.

As you know, Pembina anticipates a dividend of CAD1.56 per share per year through 2013 and this is expected to provide eligible Canadian investors with an enhanced dividend tax credit. Other benefits of conversion include the potential for greater access to capital markets and improved liquidity, and of course, growth restrictions that are based on income trusts will no longer apply.

And that is timely for us, because corporate conversion will result in a new simplified structure for our business and the room to expand. That said, conversion will not come with a change to our business strategy. We will continue to focus on the priorities that have brought us success in the past and as always, we will manage our operations with a view to maximizing shareholder value.

Now there's a lot underway at Pembina and I expect the financial operational success we achieved in 2009 will serve us well in 2010 and beyond.

I will now turn it back over to Chris to open the line up for questions.

(Operator Instructions) Robert Catellier, Clarus Securities.

Yes, I didn't catch the CAD11 million per quarter figure earlier in the conference call. Was that the quarterly SG&A expectation or the DRIP?

Sorry, that's the quarterly G&A expectation, Rob.

And what perspective should we have on that? Does that include expenses related to conversion and IFRS?

Yes, I think Claudia is acknowledging. She is nodding her head, so I'm assuming that is the correct response. That CAD11 million per quarter is I think a reasonable estimate, including the items that you've mentioned, Rob, so IFRS, corporate conversion will be costs that will be a component of our estimates for 2010.

Okay, so then the unusually high SG&A in the quarter, obviously there was the CAD3 million charge for internal restructuring. But it seems to me that that number is unusually high. Can you provide some perspective on that figure?

Well, I guess what I can say, Rob, is that I can't recall the number of staff that were restructured in December of this year. It was probably close to 10, 10 individuals that left the organization. So as a result, that may be considered to be a little high, Rob, but some of the people were senior in the organization, too. So they had accumulated other obligations that we had to acknowledge as a part of the departuring process.

Right, okay. Do you have a volume figure, Q4 volume figure for the conventional segment?

Glenys, I think --

Rob, did you look at the supplemental information at the back of our annual report? I believe the operating statistics by quarter are available there.

Okay, I'll take a look. Thanks. Just as you prepare and continue to go through the process for Nipisi, is there a -- I guess what time do you think you have to start 0breaking ground in order to meet your targeted in-service dates?

I think right now, Rob, we are looking at September of 2010 as to be the time that we would start -- we would get actually regulatory approval. It's possible we might get regulatory approval before that -- well before then, Rob, but at this stage, we are not going to start construction until the ground is starting to get a little colder. So it would be in the fall of this year.

And you will still be able to meet your in-service dates for that construction timeline?

That's right.

And then -- it might be in the supplementary data, but is there a decline rate available for Cutbank in Q4?

I don't know if it shows up. Glenys, maybe I can have them taken up.

The Cutbank volumes are reported by quarter. We haven't put any prospective information in, but certainly the volumes are recorded.

Yes, they should be in there, Rob. And I guess all I can say is that the volumes [broadly] -- we are noticing an increase in volumes in the Cutbank Complex early this year. So that's quite encouraging for us.

Okay. And then finally, as you look to expand your oil sands business in Fort McMurray, do you think there's opportunities for either [drill-bit] lines and return lines or is it more lateral lines and ancillary assets -- and assets of that nature?

You know, Rob, it could really be all of the factors you've included. I think that we are working on a number of opportunities at this stage that are very early in progress, but they include all of the items you mentioned as well as a possibility for further expansion of the Nipisi and Mitsue projects as well.

So the extension beyond the CAD440 million of capital?

Yes.

Oh, okay. Thanks.

Juan Plessis, Canaccord.

Thank you. I think I read in the MD&A that you are looking at options to expand the capacity at Cutbank. Can you give us any sense of the size of expansion you are looking at or perhaps magnitude of potential capital that you might spend there?

Yes, Juan, it would be -- when we're looking at capacity expansion, what that also can incorporate might be a deep cut of the gas processing facility itself so that a plan that we would like to embark upon based on any of the processing assets that we are to acquire would be to install deep cut facilities and then extract liquids and move the liquids on our pipelines into the Edmonton market.

So that would be the type of expansion we are talking about for Cutbank.

Okay, is there a timing you are looking at to make a decision on that?

That's right, it's under discussion right now so I really can't say much more than that at this stage, Juan. It's just under consideration at this stage, so we are working with a customer or customers with respect to utilization of that processing facility. So there will be more to be said on that probably within the next month or so.

Okay, thanks. And getting back to the quarterly run rate on the G&A expenses, I know you said about CAD11 million. There was some catch-up in the fourth quarter. I know there's an internal restructuring charge.

But generally, do you think there's going to be I guess a trend going forward that there might be a little bit of a catch-up in Q4 for G&A?

You know, I think there often can be because, you know, you don't get to finalize some of your cost estimates usually until you come to the end of the year. And for example, we have had an adjustment for pension. We had the adjustment, the unusual adjustment for restructuring. We had an additional accrual for incentives.

That might happen again in the fourth quarter of next year, but I think we will probably -- I think the guidance we have given is probably pretty good, so I would just go with CAD11 million a quarter for the time being. And if we see a reason to adjust that, we will try to provide that guidance as we progress through 2010.

Okay, thanks. With respect to the Nipisi and Mitsue pipeline projects, there was a statement in the MD&A that said at the end of 2009, I think 80% of engineering was complete and procurement agreements locked in for 60% of costs.

That's right.

It's now a couple months later. Can you provide us with an update on those metrics?

Yes, I think I might've mentioned -- if I didn't, what I intended to mention, Juan, was that we are about 90% completes on engineering for the pipelines and we will essentially complete the engineering for the stations by the end of March.

So as far as cost certainty is concerned, I still think we're staying around the 60%, which I think is pretty reasonable. We still have a contingency in our cost estimate, so I think we're pretty comfortable that we are going to come in at or below the numbers that we have been quoting on that project right from the get-go, notwithstanding that it's going to be completed over one winter's construction as opposed to two.

Okay, thank you very much.

Robert Kwan, RBC Capital Markets.

Great, thank you. Just I guess coming back to the G&A, so I understand the CAD3 million charge. There was that CAD2.5 million charge though on -- was it the long-term compensation expense. I am just kind of wondering can I get some more color behind that, why that won't recur in future years?

I think, Robert, it's a matter of if we include in our accruals every year a provision for STIP and LTIP, and this year I think it was fair to say that we probably weren't as current with it as we could have been. And so we made that adjustment actually early in 2010. So I would think that going forward that we will be in a position to probably have a better handle on what our STIP, LTIP obligations will be as we progress through the year.

And so you shouldn't see an adjustment of any significance that will come through in the fourth quarter, but there probably will be some adjustment but not as significant as it would be this year.

Okay, I am just kind of wondering because the CAD11 million per quarter guidance is pretty similar to what you had for the first three quarters of this year. And you're saying that kind of CAD2.5 million to CAD3 million is going to -- you've baked it in to spread in through the quarters. Are you actually reducing G&A cost?

Yes, well one thing that we -- we've had a program under way here, Robert, last year, 2009, actually 2008, but the cost associated with the program -- it was a leadership development program. They engaged in external consulting firm to assist us through the -- what we call our shaping the future leadership development for the future as well as a middle management program, and that program cost us I think somewhere around CAD2.3 million -- to CAD2.7 million. Claudia, thanks for correcting me. So it's about CAD2.7 million of costs that we incurred in 2009 that will be nonrecurring.

There will be some modest costs I think, Robert, but I would say they would be in the CAD100,000 to CAD200,000 range as opposed to millions of dollar ranges. So there was that cost in 2009 which would be nonrecurring, so you have to look at the costs, costs will be going -- that will be as I said, nonrecurring.

Also we did reduce some staff at the end of 2009. The cost of that restructuring of course is included in the fourth quarter. Well, we are going with a slightly smaller staff complement into 2010. So overall, we think that CAD11 million per quarter guidance would be reasonable.

Okay, just on the Cardium, certainly there's a lot of talk going on there. You mentioned that. Is there something with respect to quantifying how you see volumes potentially evolving and then basically how that might work through to operating income?

Well, this would be your very early innings, Robert. All I can -- there is some information that we have been reading, some reports, third-party reports. Then if you like, I can allude to that. A third-party report basically what they did is they compared the Cardium development to the Bakken and Saskatchewan. And they looked at the landholdings, land positions, and drilling prospects in the Cardium and tried to apply the same sort of rationale to that as the Bakken and Saskatchewan.

I think that the numbers that I -- if I recall reading as I said (inaudible) over time with the completion of a drilling program of significance, I don't recall the number of wells that were complicated, Robert. But they were looking at potentially that volumes from the Pembina Cardium could reach 85,000 to 120,000 barrels per day in five years and that is unrisked.

So if I were looking at it from my perspective, say that the chance of that happening might be 50-50, in that range, so you could then apply that sort of logic to see what might happen to the potential for operating income on the Pembina system, recognizing that we do -- it's not just -- it's not just the tariff revenue. We have midstream, but also we have to look at how this all factors into the overall tolling methodology that we have on the Pembina system.

So there's a number of factors to consider but I think you could quantify what a maximum benefit might be if you just risked it at half and then apply that average tariff for Pembina and just say that's potential. Again, that's going to have to be shared with the customers.

I guess then maybe when you think about the toll and the volumes to combine with just decline rates in some of the other fields, how are you thinking about it? But maybe this just alleviates concerns about declines on the system or do you feel there's some real upside here?

Yes, I think is some legitimate upside here because decline rates on the Pembina system typically historically have been sort of 3% to 5% and typically what we've done is we've adjusted tolls by 3% to 5% to offset the impact of the volume declines.

But with this new volume, new potential, what we will likely -- we may have to do as well, Robert, is we've got sufficient mainline capacity on our Pembina system to be able to handle the increased volumes, but we may have to put in place new gathering lines and so on. So we may actually have to spend some capital. If we spend capital, we are expecting to get a rate of return on that capital. And so as a result, some of that incremental volume will be used to pay off the investment we will make in capital.

As an example, it might be that we may have to put in more pumps. We may have to lobe for example our Lewiston Green line, which runs south of Drayton Valley. So there's a number of factors that we have to consider, but I think right now it is early innings. I can say that we are in discussions with a number of producers in the area with respect to new connections. But I expect that to be the case over many months.

And I think it's going to take us some time before we actually can see the impact of the new activity. But clearly there's a lot of new activity taking place in response to this new technology.

Great. Thank you very much, Bob.

Matthew Akman, Macquarie.

Thanks a lot, guys. Where is that report from that you were reading, just out of curiosity?

I think it's your firm, Matthew.

Those guys don't know what they're talking about. No, they do, they do. (multiple speakers)

I can't comment on that.

They do. So on Cardium, just to stick with that, what sort of deal do you see happening as Cardium production grows? Do you see doing any deals like you have done on the Nipisi and Mitsue sort of take or pay type deals? Or more just adding capital in order to pull volume into the existing conventional system?

I think it would be the latter, Matthew. We are just looking at capital, to put a little more volumes into the system. You know, if we have a significant new connection like you mentioned Nipisi and Mitsue, that is significant. I wouldn't expect we are going to see any real significant individual capital to tie in with some of these producers because generally speaking, the production is going to be very close to existing established infrastructure.

So we may have to put a gathering line and usually what we do is if we are at risk for capital, in that particular set of circumstances, we might enter into a longer-term contract with the individual producer to ensure that we do get a rate of return in the event the volumes do not materialize.

But generally speaking, I think we're going to be looking at just really opening up the system to provide more room for the potential production if it does come, and we're optimistic that it will be there at some point in time. We just don't know when at this stage, Matthew.

Thanks. What is your more near-term outlook for the conventional pipeline business for sort of the next year or two? You guys are putting a fair bit of capital into that business. So is that sort of just going to hold volumes flat over the next couple of years and operating income, or do you see that potentially growing over sort of 2010 to 2011 period?

Sort of the way we look at it in our own minds, Matthew, is we kind of look at the operating income contribution for conventional businesses being sort of steady as she goes at about that roughly the CAD150 million a year. The capital that we do put into the pipeline we do throw into our rate bases. So we do expect to earn a return on it, but usually the return is going to be coming down the road.

So it isn't a precise calculation, if you like. We do review our totals probably a couple times a year, but the whole objective here is really -- is to maintain the contribution from the conventional business.

I do see that where we do have the potential for upside would be the Cardium development. If we can also do additional liquids extraction from our, for example, I talked about earlier about the Cutbank Complex. You know, if we can get additional liquids moving on our systems, that will give us additional upside. We'll have to spend the money to do that as well, and so we expect to get a return on that.

So I think the best way to look at in response to your question is say over the next couple of years, I think we're going to hold our own as far as our operating income contribution from our conventional business. But we will be looking at investing some capital to add new volumes, particularly from Cardium, as well as new capital to add new volumes from liquids.

So two or three years out, I would expect perhaps our operating income contribution from the conventional business will actually be higher than it is today.

Thanks very much. Those are my questions.

Carl Kirst, BMO Capital.

My first question just on the Cutbank Complex and with respect to possibly putting in some incremental investment for the deep-cut facilities. Just to clarify, is that something that could potentially happen at the current throughput levels or do we need to get more up to the fuller capacity of 300 million a day net before that would make sense?

No, actually current throughput levels would be more than sufficient to justify the investment we would have to make there. Currently we are processing in excess of -- just in excess of 200 million cubic feet a day. We'd probably need about 100 million to do a deep cut, so we've got plenty of room with respect to volumes that are currently being processed at that facility.

Great. Then second question, kind of staying actually with the midstream and marketing segment. I was trying to get a better sense of how you are viewing the current marketing environment for 2010. The simple math if you just exclude Cutbank, it looked like we had about CAD83 million of net operating income in that segment.

I was just wondering with what you are seeing right now, is that something where you expect that base excluding Cutbank to possibly continue to be pressured in 2010, or perhaps just the opposite; we might see a little bit of a recovery?

Well, at this stage the ethylene storage facility is contributing about CAD18 million a year out of the CAD83 million I think you referred to. And so the Midstream and Marketing excluding the storage facility I think for -- I can't recall -- for 2009, Glenys, we had about -- what was it, roughly CAD60 million?

Excluding the ethylene storage.

Excluding the ethylene storage, yes.

[CAD80] million with ethylene storage.

Yes, so I think it's still going to be a challenge to do better than that in 2010 because the margins in the business are really quite tight right now and we don't expect to see much in the way of a change over the next several months. So I would say right now at best, we will do as well as we did in 2009, notwithstanding we've got new facilities that are operational in 2009. So we are going to be challenged.

But it's not like -- I think that when I'm saying that we are not -- it's not like we're going to be off CAD20 million or CAD30 million from where we were in 2009. We are looking maybe at worst-case scenario maybe off CAD5 million from that forecast. So -- (multiple speakers) or up or down.

Right. I appreciate the color. Thank you.

Stephen Paget, First Energy.

Good morning and thank you. On Syncrude, the Syncrude Consortium is discussing expansions and debottlenecking, including some bitumen production that would not be upgraded. My question for you is does Pembina have the exclusive rights to ship any and all production from the syncrude facility to markets?

Stephen, we no longer have the exclusive rights, but practically speaking given where our arrangements -- commercial arrangements are with the Syncrude Consortium, I think the most cost-effective expansion would be through our existing infrastructure.

When we completed the 24-, 30-inch pipeline here at the time that lines were segregated, well -- so the Syncrude Consortium has a new pipeline. It's a new 24-, 30-inch pipeline. The easiest way to expand that pipeline is by looping it, which is what we did for them in 2004 with the original line.

So I could think still the most cost-effective way of doing it is through the commercial arrangements we have in place right now, Stephen. And so that's something that we will obviously we are mindful of and will continue to pursue with with our customers as their development plans materialize.

Okay, thank you. And would a bitumen line have to be a new line to keep product quality in the existing lines the same?

Well, I don't know. I don't think it would be perfect, Stephen, but what I think we do is we would look at batching the bitumen with the synthetic crude. So there would be some quality degradation at the interface, but I think that that's still possible to do.

Okay, thank you. My second question is on NGL capture in your area. Your conventional pipeline area, which is effectively north and west of, say, Red Deer, how much of the available NGLs in the area do you think -- do you believe you are capturing and taking to market? Is there room to expand?

I think we've commented on the amount of liquids that we are moving. I think is it 20%? So I think there's --

(inaudible) total a little more than that.

Okay, I'm sorry, Stephen, I can't recall the specific amount. In terms of percentage of the total that's available, I don't really have one.

That excludes condensate.

Okay. So the natural gas liquids, this is actually just the volume moving which is obvious, but your question was with respect to the potential. I think that what we have the potential for based on what we're talking about now is within the Cutbank area we can see maybe 10,000 to 12,000 barrels a day of additional condensate. And if we look to other possible areas that are close by, either to the existing NGL systems we have or through the Peace pipeline, there could be another possibly 20,000 to 30,000 barrels a day of additional NGLs that could be -- could find their way to our system over the next couple of years.

Okay, and the move by Aux Sable to build the gas plant that would inject NGLs for shipment to Chicago, is there a greater competition for the NGLs coming out of the Montney area?

That is a good question, Stephen. I think you have to look at from where the producers stand. Does it make more sense for them to have the NGLs extracted closer to the production point than shipped on alliance and extracted Aux Sable. I think based on my limited understanding that right now with NGL pricing, it is very, very attractive for people to have the liquids taken out closer to the plant gate or at the plant gate and have it moved to a market where there is a demand. There is still continued demand particularly for ethane in the Fort Saskatchewan area because ethane has been on decline here.

So I'd say the answer to that is yes, that there is a strong demand at the liquids extracted in Alberta and moved to -- processed in Alberta.

Okay. Thank you. Those are my questions.

Tony Courtright, Scotia Capital.

Thanks very much. Just a clarification on your guidance on the Nipisi Mitsue. You said CAD45 million that you expect net operating income per year and that is on the -- just want to clarify -- that is the initial phase that you've got contracted, the initial 100,000 barrels a day?

That is correct, Tony, and I think we have in the past have said that if we go through an expansion of that development, we could spend, say, another -- I just used round numbers -- but I will say another CAD150 million or CAD160 million to potentially double the capacity and essentially be in a position that you could double the net operating income to CAD90 million from CAD45 million.

And is the likelihood of that promising in your discussions with producers and knowledge of the area or what is your assessment now?

Yes, we still have -- we have been in continual dialogue with some of our existing customers, Tony, as well as new customers. And there -- this does appear to be a highly profitable area for many of our customers because it does not in all cases, Tony, but in most cases, attracts a very little royalty. And also because the differentials between heavies and lights have been narrowing, it's making this area very, very attractive for a number of the producers.

So their development plans I think are being re-examined and we are staying close to our potential customers in this area to explore the possibility of providing additional service for them. I think we're quite optimistic that we will have something more to say about that before too long.

Excellent. Thank you, those are my questions.

(Operator Instructions) Linda Ezergailis, TD Newcrest.

Thank you, a lot of the questions have been answered. I just have a few cleanup questions. Your conventional business, you managed to -- I know if it was postponed or avoid some discretionary maintenance. How much of the -- was it about an CAD8.6 million delta was due to the discretionary maintenance change in activity? And can we expect heavier maintenance because of that in 2010 or have you learned to do things --?

Sorry, Linda, I'll try to answer that as best I can. We expect some of those costs will be deferred into 2010, but at this stage, we are just -- we are taking a look at our overall, if you like, approach to pipeline integrity and so on. Because I think there's a fair -- there's a chance that in the past we have been sort of looking at maintaining the pipelines as though they were going to be used at 100% of capacity. That probably is not appropriate given that in many cases our pipelines are moving at half of the available capacity.

So I think we are just re-examining the overall program and I think that probably we are not looking at providing any particular guidance that we are going to see that CAD8 million transfer into 2010. I wouldn't expect that to be the case. I think right now actually we are budgeting our operating costs to be somewhat similar to what we experienced in 2009. So I think that would be appropriate, Linda.

Okay, just a clarification on your payout ratio guidance. I missed that. You said you would expect the payout ratio in 2010 to be similar to 2009?

Yes, similar to where we were in 2009, ex the DRIP, yes. (multiple speakers) Of course, we are raising -- we have raised I think about CAD145 million in 2009 to pre-finance Nipisi, and so I expect our payout ratio excluding the impact to be about the same as to where it was in 2009.

Okay, I'm confused. So when you say excluding the impact of the DRIP, you are just saying you are notionally assuming the payout ratio is calculated by 100% cash distribution divided by your distributable cash?

Yes.

Okay. Thank you.

Carl Kirst, BMO Capital.

Thank you, just a quick follow-up on the Nipisi and Mitsue capacity. Of the 100,000 barrels of phase 1, can you remind me how much Pembina has? And I guess I wanted to get a better sense about your comment of potentially being optimistic here for phase 2.

In the course of that evolving, would we expect to see Pembina first re-contract out what its current capacity is or could we see you guys keep that and perhaps have third parties come in for a greater share -- that would trigger a phase 2?

No, Pembina has about 25,000 barrels a day of that capacity or 20,000 a of capacity. I think that the 80,000 is contracted to other parties. So really to answer your question, I think we would have to look at the particular set of circumstances because one of the options that we do have is that we could market that capacity to a third party and fill up the 20,000 barrels a day. Or the alternative, we might want to just keep the option available to ourselves. A lot of it just depends on the demand for transportation out of the area.

It may just give us -- part of the arrangement that we have to the extent that we maintain that capacity, we also maintain the ability to apply midstream marketing operations on the volumes that we control. So we possibly could be making more money by just keeping that space ourselves.

So I think the decision yet -- has not yet been made, Carl, with respect to what we are going to do there. But that's certainly one of the options we have got is to fill that, our allotment with third party at this stage, if that makes commercial sense. It may not.

I appreciate the color, thank you.

Stephen Paget, First Energy.

A question on power. Alberta power prices are looking relatively inexpensive. Are you looking at further hedging of your power costs for your conventional systems?

Yes, Stephen, we've got a review under way right now. We've hired an outside consultant to come and assist us and right now we are looking at hedging power costs would be very similar to where we are right now, probably in the range of CAD45.00 a megawatt hour excluding the transmission costs. So that's quite attractive to us and I think we would be looking at hedging out another are probably three years at least beyond 2010. So clearly that's on the agenda and topical and we will be doing something hopefully within weeks here.

Okay, thank you.

You have no further questions at this time.

All right, well thanks very much for participating today. I think we've covered quite a bit of ground and there's a lot -- as you know, based on our conversation today, there's a lot of things we're working on as well. So I'm hoping or optimistic that over the next quarter or so that we will have more to say about some of these initiatives that we are working on that will allow you to get a better sense as to where we see the future going over the next three to five years.

So thanks again for participating and we look forward to talking to you again at the end of the next quarter.

This concludes today's conference call. You may now disconnect.