Pembina Pipeline Corp (PBA) 2014 Q1 法說會逐字稿

Good morning. My name is Steve and I'll be your conference operator today. At this time I would like to welcome everyone to the Pembina Pipeline Corporation first quarter results conference call.

(Operator Instructions)

Thank you. Mr. Scott Burrows, you may begin.

Thank you, Steve. Good morning, everyone, and welcome to Pembina's conference call and webcast to review our first-quarter 2014 results. I'm Scott Burrows, Pembina's Vice President of Capital Markets.

This morning Peter Robertson, Senior Vice President and Chief Financial Officer will start the call off by reviewing our first quarter results which we released yesterday after markets closed. Mr. Dilger, President and Chief Executive Officer, will then provide an update on Pembina's growth projects and strategy, including the dividend increase we announced yesterday. Following that I will discuss our recent financings and financial position and then turn the call back to Mick once again for closing comments before finally opening up the line for questions.

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

Please go ahead, Peter.

Thank you, Scott, and good morning everyone. Pembina's financial and operating performance during the first quarter of this year was very strong. In fact, we broke records for the majority of our key metrics which I'll discuss momentarily.

At a high level, our results were positively impacted by several factors. These included new assets and expansions being in-service such as our Saturn I Facility which generated [accrual] quarter results after being placed into service in October of last year, and our Phase I crude oil condensate and NGL expansions on our Conventional Pipelines which were placed into service in December 2013.

In addition, growing customer activity in our operating areas benefited our results as did significantly higher propane prices for our Midstream business. Compared to the same period last year, we grew our EBITDA by almost 50% from CAD211 million in the first three months of 2013 to CAD316 million this past quarter. This increase was largely due to improved results for the reasons previously mentioned.

Adjusted cash flow from operating activities increased 31% to CAD264 million during the first quarter from CAD202 million for the same period last year. On a per-share basis, adjusted cash flow from operating activities grew over 22%. Each of our businesses generated excellent results for the first three months of the year.

For our conventional pipeline business, average throughput in creased by almost 12% to 553,000 barrels per day compared to the same period last year with peak- day volumes reaching over 587,000 barrels per day. Increased throughput was mainly the result of the Phase I expansions being placed into service in December as well as higher truck terminal volumes and new connections. Volumes from the Saturn I Facility also contributed to the increased throughputs.

Conventional Pipelines increased revenue by 22% to CAD117 million, up from CAD96 million in the same quarter last year. This revenue jump was due to increased volumes for the same reasons I previously mentioned along with higher tolls.

Offsetting higher revenue in conventional pipelines were operating costs which increased by 14% compared to the prior period. This was mainly because of higher labor and power costs related to volume growth and the Phase I expansions as well as seasonal winter access pipeline work and general repairs and maintenance. As a result, operating margin in Conventional Pipelines saw an increase of 26% during the first quarter compared to the same quarter last year.

Our oil sands and heavy oil business generated improved results. This was largely due to higher volumes in the Nipisi pipeline and flow-through operating expenses. Our operating margin increased by almost 10% for the first quarter compared to the same period last year.

Gas services increased average processed volumes by 77% to 528 million cubic feet per day compared to the first quarter of last year with peak day volumes reaching 595 million cubic feet per day. This increase was largely a result of bringing our Saturn I Facility online in late October and we've seen substantial increases since Saturn I has been put into service. I'd also like to mention that average volumes increased by 44% over the fourth quarter of last year.

Placing Saturn I into service and the associated new volumes, higher throughput volumes at the Cap Bank Complex, and improved Facility reliability which led to higher processing fees at the Musreau Deep Cut Facility increased revenue by 50% during the first quarter compared to the same period last year. Offsetting this revenue increase were higher operating expenses which were largely the result of power, operating labor and maintenance costs associated with Saturn I being placed into service, as well as higher volumes and increased power costs at the expanded Cap Bank Complex. Overall operating margins and gas services increased by almost 53% for the first quarter compared to the same quarter last year.

Midstream also had another impressive quarter. Our Midstream business generated very strong results. Operating margin for the period increased over 63% compared to the same quarter last year and NGL sales volumes increased by 8% to 133,000 barrels per day compared to the same period last year. This increase was driven by higher sales across all products.

To put volumes into perspective, peak day production at the Redwater Fractionator during the quarter was 77,000 barrels per day which exceeds design capacity of 73,000 barrels per day and was achieved on March 27. Further our NGL related assess benefited from a significantly stronger year-over-year propane market as well as increased fee-per-service revenue related to storage caverns.

Operating margin generated by our crude oil Midstream activities grew over 21% due to higher volumes and wider margins. The expansion of condensate-related services increased storage opportunities, crude oil unit train loading and increased volumes at our full- service truck terminals. The combined financial and operating results of all of our businesses have resulted in a strong first quarter.

I will now turn the call over to Mick Dilger who will give an update on how we are progressing with our growth projects and plans.

Good morning, everyone. Thanks for the overview of our strong first quarter results, Peter. Before I speak specifically about what lies ahead for Pembina and our growth projects, I want to first address the dividend increase that was approved at the Board meeting yesterday.

As you saw in our news release yesterday and our quarterly report, our solid business fundamentals, new assets and expansions being placed into service, attractive suite of growth projects, and our growing and sustainable cash flows have driven the dividend increase of 3.6%. Our new monthly dividend rate will be CAD0.145 per share or CAD1.74 annualized and will take effect as of the May 25th record date. This increase demonstrates our ongoing commitment to enhancing sustainable shareholder returns. I believe that with the growth profile I'm about to discuss, we are well-positioned to see increasing dividends over the long-term.

Starting with our gas services business. Construction of the Resthaven, Musreau II and Saturn II gas plants is progressing well. The Resthaven Facility is tracking on schedule for the third quarter of this year with over 70% of site construction completed to date. The Musreau II and Saturn II facilities are also tracking on schedule and are expected to be on stream in the first quarter of 2015 and late 2015 respectively.

With these three facilities in service by the end of 2015, we expect our net processing capacity to reach approximately 1.2 billion cubic feet per day, which is a long way from when this business started in 2009 with just over 300 million cubic feet per day. The roughly 55,000 barrels per day of NGL resulting from these projects will help support the expansions we are undertaking in our conventional pipeline business and feed the rest of our integrated value chain.

Conventional. In our conventional pipeline business we are undertaking significant expansions. Without reiterating all the details contained in our first-quarter report, I'll touch on a few highlights about the progress we're making on these projects. We are progressing well on our Phase II expansions which will see our crude oil and condensate capacity on our Peace Pipeline reach 250,000 barrels per day in late 2014 and our NGL capacity on our Peace Pipe and northern pipelines reaching 220,000 barrels per day by mid 2015.

Because the work for these projects is mainly related to pump stations, our regulatory approvals have been staggered. We have some of these approvals secured and are still working on others but the projects are on schedule to be in service as expected. Our project to expand capacity between Simonette and Fox Creek Alberta is substantially complete. We'll be conducting right-of-way cleanup activities and hydrostatic testing before placing a 60-kilometerline into service in the third quarter of this year.

Based on our downstream capacity from Cox Creek into Edmonton this expansion will initially bring in 40,000 barrels per day but is built with the capacity of 150,000 barrels per day. When our Peace and Northern Pipeline expansions are placed into service the full capacity of the new pipeline will be available for use.

Beyond these projects we are diligently working on our Phase III expansion. We are expecting to follow regulatory applications for the project in the third quarter of this year which should allow us to stay on schedule for late 2016 and mid 2017 in-service date. In the next few months we will be making our final decision on pipeline size in order to secure long-lead equipment orders.

In Midstream we are pursuing a variety of crude oil, condensate and NGL- related projects. The most substantial of these investments is RFS II, our new CAD450 million, 73,000 barrel-a-day fractionation facility at our Redwater site. We have done quite a bit of work and are tracking on schedule to bring RFS II into service late in the fourth quarter of 2015.

We have completed all of the earth work and our mechanical contractor is now on site. The piling is currently about 30% complete and foundations are expected to start next week. Equipment orders have been placed and equipment is showing up on-site daily. The facility is also using modular fabrication to help reduce cost as scheduled and structural steel is currently being erected at the module yard.

Storage cavern development also continues to be a major focus at our Redwater site in March. We signed another long-term fee-for-service agreement with a major petrochemical company for an underground storage cavern. We're also nearing completion of our full-service terminal at Cynthia, Alberta, which will help bring additional volumes on to our systems.

In Edmonton we are progressing detailed engineering and have begun ordering long-lead items with a view to bring an additional 540,000 barrels of aboveground storage tanks into service by mid 2016.

On the oil sands we're also actively working on the potential Cornerstone pipeline project under an engineering support agreement with Statoil. We are awaiting their final investment decision on the upstream oil sands development which the pipeline would support. But regarding the work we are doing, we plan to file the regulatory application in the third quarter of this year and are still on schedule to be able to bring the pipeline into service in the third quarter of 2017 subject to satisfactory commercial agreements and regulatory approvals.

We also continue to work on a potential propane export terminal. This is proceeding slower than we originally expected. All in all, I'm very happy with how our growth projects are proceeding. We are keenly focused on the project execution at this stage but still having our sights set on additional opportunities as they arise.

I'll now pass the call back to Scott to give an update on our financing.

Thanks, Mick. With the heavy capital spending profile we have in front of us, our focus is on maintaining the financial strength and flexibility to execute on our plans.

We had two successful financings so far in 2014. On January 16 we closed our third preferred shared offering for growth proceeds of CAD250 million and in April we issued CAD600 million in 30-year notes. As we stand today, we currently have CAD550 million of cash and our CAD1.5 billion credit facility is completely undrawn. Combined with strong participation in our drip program, Pembina remains well-positioned to continue to fund our growth initiatives moving forward.

Thanks, Scott. So in closing, the first quarter of the year was a very positive one for Pembina and my first as the Company's President and CEO. I'm very thankful to Bob Michaleski, Pembina's previous CEO who retired in December of last year, for the wonderful shape he left the Company in. I'd also like to thank Lorne Gordon who stepped down as Chairman of the Board in April for working so diligently to create such a strong foundation for the Company and for his outstanding commitment to leadership since our inception as a public company.

Our businesses continues to be operated safely and reliably and, in turn, are producing solid cash flows and making our long-term growth profile more attractive than ever. The results we produced thus far in 2014 demonstrate that we are on the right trajectory to generate attractive returns for Pembina and our shareholders in years to come.

Before I open the line up for questions, I wanted to remind everyone that Pembina's annual general meeting is scheduled for this afternoon at 2 PM, Calgary time, at the Metropolitan center in Calgary. We look forward to seeing those of you who are able to make it. For those of you unable to attend we will be webcasting the presentation. The details of how to access our webcast are on the website at www.pembina.com under Investor Center.

Operator, please go ahead and open up the line for questions.

(Operator Instructions)

David Noseworthy, CIBC

Good morning and congratulations on a great quarter.

Thank you, David

First to start off with your conventional system. Regards the Phase III expansion, what is happening in terms of producer commitments following the winter drilling season?

They're still assessing what they have. So, no new news in terms of nominations or anything like that. We're seeing the results in the Duvernay. I think Athabaska talked about some stuff, but Trilogy talked about some stuff. So, it is starting to come out and we'll just stay apprised of that and see if it results in any incremental nominations as those results come out.

Okay. Thank you. And then in terms of the Simonette Foster Creek lateral, how should we think about the financial contribution from that lateral in Q3 and Q4 before the Phase II expansion is complete?

David, I wouldn't get too excited about it. There will be some volumes that flow on that and access the Fox Creek into Edmonton. But more importantly, the real uptick will be once the Phase II expansion comes on and we can access that 40,000 barrels a day of capacity.

Makes sense. Thanks.

And on the gas service side of the equation, it seems as though the area around Saturn I is gas processing straight -- or at least that would be my interpretation by the rapid ramp-up of volumes that we saw there. Would you expect a similar ramp-up for process volumes in your Resthaven, Saturn II, Musreau II gas plants?

Yes, in the Saturn area -- remember that's a deep cut plant -- there's a lot of shallow cut processing, so it's not like there's any superb drilling ramp-up going there. I mean, it is an active area, for sure, but they're just a lot of shallow cut plants that previously existed, and so the drill there is just connecting to existing shallow cuts, so a lot of the production exists. It's not new drilling

Okay.

In terms of Resthaven, that's a little bit more of a frontier area. We've got the good contracts there, but that area will take a little while to develop to get up to nameplate. It's probably not going to be one of those that turns on and we're going to be bursting at the seams like we were with Saturn.

It's going to take a little longer to develop and recognizing it was more of a frontier area was the reason we got the high-quality contracts there.

Got it. Okay. That's helpful. And then in terms of what you're seeing right now with the Montney and the Duvernay -- and you talk a little bit about this during your Investor Day, but can you remind us from your perspective how much more gas processing infrastructure you see is needed to accommodate the growing volumes from these plays?

In the Montney, I think it's pretty clear it will be many BCFs a day. I don't know how many; is it going to be two, four, six BCF a day? It's hard to say right now, but it's going to be counted in the BCFs. In the Duvernay, because it's much more of a liquids play, I wouldn't even think about it in terms of million cubic feet a day. I'd think about it in barrels a day of liquids condensate, because that's really the drill, and the gas processing is an ancillary activity to getting out the crude or condensate.

I think that you could think about the potential of the Duvernay by looking at the Peace Phase III expansion. That's really -- a good portion of that was built for Montney and Duvernay. If you're asking me to guess on the Duvernay, it's not going to be anywhere near, in terms of the gas processing demand, as the Montney. At least in the Fox Creek area. The Duvernay is so massive. Down in the Drayton Valley area, it will probably be a little bit more gas focused, but again it's early days in the Duvernay.

Right on. Okay. And maybe one last question on a smaller part of your business, namely the full-service terminals. Could you just provide what your strategy is for growing this business going forward?

I would submit that we're still -- I mean, first we piloted the business concept and we did some joint ventures as we typically do with new businesses. Cynthia is our first constructed and wholly-owned terminal. And so the way I would think about that is that's our pilot on how to build and operate.

And so when we see the results of Cynthia, it's going to go into operation here -- I think I'm going to the groundbreaking later this month -- when we debug that and see how that's all working, then we'll make a decision on the speed at which we will grow that business. But there's certainly lots of opportunity there.

We remain committed to -- if we're making money on that business, which I hope we will and I think we will, our mission really is to stick close to our existing dry terminals. That's the synergy, David, is taking our dry terminals and adding wet capability.

Right on. So it sounds a lot like you're bringing your gas services strategy to the full-service terminal.

That's a good way to think about it.

Perfect. I will get back in the queue, but thank you very much. Those were my questions.

Thanks David

Juan Plessis, Canaccord Genuity

Thanks very much and congratulations on the strong quarter. You had a bit of CapEx spend on a potential project to connect the Nipisi Pipeline to the Trans Mountain pipeline. Can you talk a bit more about that potential project, and also in terms of CapEx and timing of that potential?

That wasn't a large project, but some of our customers wanted more than one outlet for their product and that wasn't a -- that was a customer- supported project, so we're going to make a little bit of money on that. It's not material for sure.

I think the takeaway there is producers like options. And when you think about what we're trying to do with our Nexus terminal is being able to get any product from any pipeline to any pipeline is of great value because of differentials in quality and different markets that pay different values for different commodities. And so, that hub concept that we're trying to develop is of great value to producers, and I think this is just more evidence of that.

Okay. Thanks for that. And you mentioned that you signed a long-term contract for underground storage in March. Can you give us some more details on the scale and potential impact of that agreement?

Yes, so that it's our typical deal. So, if you look back on the last couple of press releases we've had on our underground storage caverns, very similar in terms of the terms and conditions. The one point I would point out is that will be in service in December of 2014. So, we didn't give you the in-service date but that's when it is. But in terms of the contractual obligations there, you can look at the previous contracts.

It was one of the caverns we were previously developing. Remember we always have about three to five under development at any given time, so this was just one that was in development and close to being put into service, which we were then able to sign a contract for. So it's not like it was a brand-new one that we're just starting to drill and wash today. It's pretty close to an in-service date.

Okay. That's great. Thank you very much.

Carl Kirst, BMO capital

Thanks. Good morning, everybody. Congratulations as well. Great quarter.

Actually you hit on the storage, but can I ask, is there any granularity -- any more granularity we can get on Midstream liquids margin, with respect to perhaps a split between Empress and Redwater? And from a volume standpoint should we just assume that Redwater ran full out the entire quarter, given it was above nameplate for a little while there?

Yes, I mean, at a high level the 8% beat on volumes was pretty much equal in both the East and the West. And I think that's about all the conditional information we're prepared to share. It's not like the sales volume beat came from one specific area; it was equal on both areas.

And with respect to the significance of the margin ramp, could we then sort of extrapolate that to say that basically it was sort of an equal contribution, if you will, from both or did one perhaps just because of the way, obviously, Sarnia Propane was, that maybe produced some of the outside margin? Was just trying to get a better sense of that.

You just answered your own question, Carl. You can look at the quote screens and see that, obviously, Sarnia pricing was extremely strong, as was Edmonton. But Sarnia definitely was a stronger price this quarter.

Fair enough. And then last question if I could -- and this is sort of more a high level question given you all have so much going on. Great to see all the project backlogs continue on time, on budget. And I just wanted to touch base on cost pressures, as far as what you're seeing. Have you seen any over the last three, four months -- any further pressure that you are additionally seeing that you've had to combat, or have the market conditions not materially changed one way or the other on cost pressures?

You know, I can say everything we're working on so far looks pretty good. I want to just caution you, because the stages we're at now, for the most part, other than Resthaven, is we're just starting construction so we've ordered long-lead item and major equipment. And usually that comes in about as you expect, and the risk as always in the construction. So, notwithstanding everything is going well so far. We're not at the risky part of some of the larger projects, other than, as I said, Resthaven, where things are going according to the new plan.

But one thing I will say is it's the same people building Saturn II that built Saturn I. And the people who built the Simonette Pipeline, we've worked with in the past. We have the same engineering firm who did RFS I doing RFS II, and we're going to have the same people, were we to win RFS III, doing the same thing. And so, it's not quite what it would seem maybe on the outside.

We have a lot of familiarity with the people doing this work and so it would be a little bit surprising if, for example, we do Saturn I and it comes in on time and on budget and we'd have a complete runaway on Saturn II. It would seem unlikely to us that that would occur.

Excellent. I appreciate the color.

Robert Catellier, GMP Securities

Hi, good morning, and congratulations on the measured dividend increase. I'm sure it was tempting to do a little bit more. I just have a couple business development questions, particularly on the LPG. You alluded to, Mick, that maybe it was going a little bit slower than expected there. Obviously Altagas bought that Ferndale Terminal in Washington. I'm wondering how that's impacting the strategy? And obviously the time line's has been impacted, but is there anything you can add there?

Well, we're happy no matter who builds export capacity. Certainly wouldn't have minded if it was us making announcement about a new terminal, but if people are clearing barrels, that's a good thing. As we look forward we're ramping up for the RFS II startup with incremental rail export capacity, so we'll be able to move our barrels out of there, but the more markets we have, the better. No question about it.

So whether it's -- we see barrels clearing in the Gulf Coast, or hopefully on the West Coast with the Altagas project, we view that all as positive. But when we think about the Montney development, we just think there's going to be a lot of demand for more diverse markets, so it's not like the Altagas announcement has changed our view of the amount of barrels that need to be cleared.

I would submit that in due course -- I don't know how far into the future, but there will likely need to be more barrels cleared than just that terminal.

So to take that a little bit further then, would you consider shipping through that terminal and accessing international markets and getting a lift on the propane margin?

Well, two comments there. Number one, most of the barrels we clear are not proprietary, so they belong to our producers and so we'd have to consult with them how to clear those barrels. But that would be an option. We would not dismiss that as an option, but that doesn't necessarily mean that we wouldn't be continuing, and I can say we are continuing to pursue a proprietary export option.

Okay. And I apologize in advance, this one's a bit of a stretch, but in the US we're seeing a ramp-up in business development and projects for ethane export, particularly in the Gulf Coast. I'm wondering if the Sarnia and some of the Company's assets lend themselves to maybe participating in that ethane export, whether it's shipping down or shipping anything down to the Coast or some of the Northeast projects that have been established

You're honestly telling me something I didn't know, so I appreciate the knowledge. In terms of ethane, what we observe with ethane is that in Alberta and Sarnia, it doesn't quite have the margin that propane has to be able to afford to build those kinds of things.

I'm going to speculate -- because, like I say, I don't know anything about it, but you're probably talking about Gulf Coast activity, where they're proximate to the water and they've got a lot of the facilities in place whereas, by and large, we're talking about Greenfield for propane and we just don't have the margins currently on ethane. As I said, I don't really have much knowledge on that, so I apologize I can't help more.

That's the answer I expected. Just on RFS III, similar to David's question on getting additional nominations for Phase III of the pipeline expansion, it sounds like it's maybe a little bit early to talk about book building on RFS III?

We're working hard on that. We do have customer interest. But if we had critical mass, we'd be announcing it, so we don't yet have critical mass on that project. But it's clearly within our sites in terms of something we want to get done.

Okay. And then finally, the Company's strategy on the gas processing plant, obviously, it's worked out well in the number of plants associated with your other assets, but given the activity levels that you've alluded to in the Montney in particular, and some of your peers have said the same thing over this last series of conference calls, obviously it's a big opportunity there. I'm wondering about the Company's appetite to pursue a larger or a stand-alone facility that didn't necessarily leverage your pipeline infrastructure.

Probably not likely. We have enough that do leverage our infrastructure. I've said a number of times, there are more opportunities than Pembina can do. We're evidencing that now. We have some Ambridge plants, some Varrison plants, some Kiera plants on our system and we've got our hands full. We're building almost as fast as we can.

We have some capability that's going to pop up after Saturn II and Resthaven are done. We foresee having enough connected plants that we have the luxury. And I admit we're spoiled, but we do have that luxury right now of not needing to answer that question.

Okay. Thank you.

Matthew Akman, Scotia Bank

Thank you very much. Good morning.

Just to pursue the LPG export a little bit further, I'm wondering if you guys think about it in terms of build versus buy economics. And obviously I'm not asking you to comment on the specific Ferndale transaction, but is that something you guys think about and just generically do you see the economics in the market as being better for you to build versus buy?

Not necessarily in price. Buy is nice because of speed. In terms of overall economics, the analysis we've done on a number of different options is, they're similar. When people are selling, they're pretty smart. They know what it would cost to buy or to build, so that's how they triangulate their values.

The good things about buying are speed and cost certainty, but you do often pay a premium for that. There's nothing completely obvious in terms of a clear winner, in terms of which way to go.

Does it help to have more scale, and can you get that if you build versus buy?

Scale is very, very important, because it's kind of governed by the size of the ships that come in. If you can only half fill a ship, it's never going to be economic, so you have to be able to fill a ship. And that's really what drives your scale. So to Pembina that means probably no smaller than 30,000 barrels a day.

Okay. Just one other separate question on financing. You had the very successful 30-year debt deal recently and a lot of other companies are leaning more towards sort of medium-term notes. I'm just wondering, given the success of that, whether we'll see you lean more towards long-term debt financing or where you are on that balance and mix.

Well, after we repay our note in June, the weighted average term of our debt will be 19 years, so we're sitting pretty from a debt maturity. The way we've structured it is we have a lot of flexibility right now, so there's lots of gaps in terms of looking at a 7-year, a 10-year, or even going out to a 30-year, so I don't think we've made that decision yet. But likely the next note offering would be somewhere in the 10-year term.

Okay. Thanks very much, guys

Robert Kwan, RBC Capital Markets

Good morning. Just quickly on the dividend and timing policy, are you thinking about this being an annual review or just one that went into the decision on timing this quarter?

Yes, Robert, I think that we will likely lean more towards the first quarter. I mean, keep in mind we assess every quarter with our Board, the dividends and the dividend policy. But I think on a go-forward basis, we'd likely look at Q1 as the timing for that dividend increase.

Okay. Turning to rail, any thoughts on some of the new regulations that have been put forward and, as well, anything you guys are thinking about around track bottlenecks, whether that's congestion in the Edmonton area and/or any further thoughts on grain prioritization?

The only comment I'll make there is we don't have any issues with the new regulations. We only have 58 of those Department of Transportation 111 cars and we have three years to deal with those. We're probably going to accelerate that time line quicker than the three years. We'll move forward.

In terms of the grain prioritization and the bottlenecks, no comments there. We don't see any issues there currently.

And do you have concerns with the growth and what you're trying to do and what others are trying to do, especially in and around Edmonton and then just Alberta more generally getting out of Providence?

There's no question there's a lot of projects that look like they're coming on. So we'll navigate our way through that. I think our advantage is we're in business now. We've got the largest non-railroad-owned yard in Western Canada and we are shipping unit trains today.

So, as opposed to some of the new projects are, they've got to consider we're already in business. But in terms of adding additional capability, we're certainly aware that there's a lot of service coming on to the market or proposed to be coming on.

Just the last question following on what you're doing with rail out of Redwater. You referenced, I think, earlier with RFS II you're going to be getting some extra propane. So in terms of increasing propane exports out of Redwater, is that an expansion of the existing racks, or are you repurposing racks such as some of the old Conde stuff. And how are you balancing that between increased propane exports and then crude out of the terminal?

Well, we don't need any incremental racks for the propane. There could be some repurposing. But longer-term, we see Redwater as the NGL hub and Heartland as the crude hub. There could be incremental development at Heartland. We'll have to wait and see. But in terms of moving our RFS II propane supply, we don't need any new racks at Redwater, and we'll have the cars in place.

So long-term you're thinking about repurposing the Conde racks to propane and then moving all the liquids over to Heartland? Is that the longer-term plan?

Yes, it is.

Perfect. Thank you.

Steven Paget, FirstEnergy.

Good morning and thank you. Regarding the profits in Midstream in marketing, what would you split them between fee-for-service and commodity-based margins?

Steven, I don't think we're prepared to share that at this stage.

Or how much of the margin was made by buying propane ahead of time and reselling?

Steven, those details we think are -- could impact our competitiveness so that's the reason we don't disclose them.

Okay. With the drop in Edmonton propane pricing versus other Continental pricing, how would that affect Pembina in the second quarter?

Clearly the second quarter prices will be lower than the first quarter. I mean, the first quarter or even the fourth quarter were pretty outstanding. I think I saw the dashboard; prices are coming much closer in line with historical second-quarter pricing. I think it's still favorable, but not, you know, multiples like we saw in the first quarter.

Steven, keep in mind with, given the cold weather, we were basically selling out of the backend of our frac, so it's not like we came out of winter with a huge amount of inventory at a high price similar to 2012. We were basically -- had no inventory so it's not like we're carrying a huge dollar value there at a high price.

Okay. Thanks, guys. If we see condensate volumes from the Duvernay growing, could Western Canada condensate start squeezing out imported condensate? And how is Pembina protected if that happens?

Pembina actually -- I mean, obviously if it's Duvernay condensate, we're transporting it, and it will most likely -- in a scenario where there wasn't enough sufficient demand for Duvernay condensate and imported condensate, the local condensate would probably have to be discounted in price. We would not be impacted by that because we don't have proprietary condensate barrels. But our view of the world is when we have large projects like Curl that use 100,000 barrels per day, for example, there's a long way to go before we're long condensate. That could happen at one point, but it's a ways out there.

Okay. Thanks. When I look at cash flows, cash on hand debt and your committed projects off committed capital, $4.4 billion through 2017, it looks like you can get through without requiring additional equity financing. Does this seem correct you?

I'm sorry, does that assume your drip or no drip?

There's a drip in there

I think -- you can never say never, but in this five minutes I can say that for the rest of the year and for 2015, we're not planning any equity financing. But that could change with an acquisition; that could change with additional ramping up of the capital program. So obviously a lot can change, but in this five minutes, I think your assumption is correct.

Excellent. Thank you. And those were my questions.

Thanks, Steven.

David Noseworthy, CIBC

Hi, guys, just a couple cleanups here. Just first, can you comment in terms of what you're seeing in your [empersees] for the rest of the year regarding some of the structural market changes that we're seeing by the Cochin reversal, Mariner West, and Trap mainline volumes?

Yes, David. I think we've been pretty steadfast in terms of the Mariner West project, saying that the ethane that's going into that market is basically displacing the propane that was being brought by Cochin. So it's a bit of a net/net neutral there.

Where we stand today, we don't see that necessarily having a significant impact on the Sarnia prices. And in terms of main line volumes, obviously you can pull up the border reports to see that the volume going through the mainlines were quite strong, and obviously we benefited from some of that in Q1 of this year.

Which then leaves you -- what's the impact of the Cochin reversal? Certainly not helpful but we know we can move our product. So I think that it -- you do have to think about Gulf Coast exports and see what kind of impact on the market they had.

It's really hard to say, when you look back at 2013, what was cold weather and what was the impact of export? And I think anecdotally if -- when FERC had to cancel exports for a little while, they certainly thought exports was having an impact. So we just don't know how all those things come together. As long as the price is high somewhere, we can get there.

All right. That's fair. And then this is a tax question. I'm not sure if this is for Peter. Just given your outsize results in Q1, what do you expect your cash tax is to be for the remainder of the year?

Well, I think our guidance that we gave last quarter is still valid. I think we suggested a 15% to 20% of our cash flow number.

You didn't burn through those shelters?

A lot depends, David, on how much capital we actually get through and how much of that actually translates into proof that we can utilize in 2014. So the best we can do is that rough guidance based on the cash flow number.

Okay.

And recall, David, that call was in late February, so we already had a good idea when Peter gave that guidance of what January and February were going to look like

That's helpful. Thank you. On your Emberton storage, is that going to be spec'd or contracted?

The above ground?

Yes

Right now it's proprietary

Okay.

Our model there is we're going to build proprietary and then -- what we found, David, was when it came to above-ground LVP storage was when people needed it, they needed it. They didn't have time for you to build it. So we've developed a model where the amount we're building is the amount we're confident we can effectively use on a proprietary basis.

It's just like with the Redwater salt storage, we want to get into a program of building -- constantly building and then as fee-for-service opportunities arise, which they will, flip some of that into fee-for-service and then use the stuff we're building next for proprietary.

Okay. Thank you. Those were my questions

Thanks. Have a good day.

There are no further questions. I would now like to turn the call back over to Mr. Dilger.

Thanks, everybody, for attending this morning. Reminder, our AGM is 2:00 today, Calgary time.

I'd like to thank all Pembina's staff for working so hard and making sure we had a safe and reliable quarter. And we look forward to seeing you at the AGM. Thank you.

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