Pembina Pipeline Corp (PBA) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Sally, and I will be your conference operator today. At this time I would like to welcome everyone to the Pembina Pipeline Corporation Q4 and annual 2015 financial results conference call.

(Operator Instructions)

I will now turn the call over to Scott Burrows, Vice President of Finance and Chief Financial Officer. Please go ahead, Mr. Burroughs.

Thank you. Good morning, everyone, and welcome to Pembina's conference call and webcast to review our fourth quarter and 2015 annual results. I'm Scott Burrows, Pembina's Vice President Finance and Chief Financial Officer. Joining me today is Stu Taylor, Senior Vice President, and Mick Dilger, Pembina's President and Chief Executive Officer.

For this morning's call I'll start by providing a high-level review of our financial results which we released yesterday after markets closed. Mick will then provide an update on Pembina's growth project and make some closing remarks before opening the Q&A session.

I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina's current expectations, estimates, judgments, projections, and risks. Further 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 the Company's various financial reports which are available at pembina.com and on SEDAR and EDGAR. Actual results could differ materially from the forward-looking statements we may express or imply today.

I would also encourage listeners to review the news release, MD&A, and financials we issued yesterday, which provide our full fourth-quarter and annual results as of December 31, 2015, as I won't go over each financial metric on today's call.

2015 was a milestone year from Pembina including record financial results and revenue volumes across our conventional and gas services segments, raising a positive CAD2.3 billion of capital, including our drip proceeds and announcing CAD600 million of new capital projects.

We brought into service approximately CAD1.3 billion of projects safely, on time and on budget, and in some cases even better. Collectively these assets will provide CAD100 million to CAD150 million of incremental fee-for-service EBITDA in 2016, helping to further strengthen Pembina's financial position and protect us from volatility in the commodity markets.

In spite of the uncertainty our industry has experienced, Pembina's cautiously optimistic for 2016. We expect to commission approximately CAD1.2 billion of large-scale expansion projects which are backed by long-term fee-for-service contracts. Furthermore, we have strong financial foundation and sufficient liquidity to fund our remaining growth projects.

Pembina continues to build out our fee-for-service asset base. In total, fee-for-service revenue streams represented approximately 80% of Pembina's operating margin for 2015. Of the total fee-for-service, over 70% was composed of contract to mitigate volume risk including cost of service or take-or-pay arrangements.

In the quarter, Pembina generated EBITDA of CAD260 million compared to CAD170 million in the fourth quarter of 2014. The 53% quarterly increase was largely as the result of higher operating margin, partially offset by increased general and administration cost. Additionally, our fourth quarter 2015 EBITDA was also impacted by other items, including the sale of line-fill and project derecognition cost totalling CAD10 million. Excluding these items our EBITDA would have been a CAD270 million.

For the year 2015, EBITDA totalled CAD955 million as compared to CAD920 million in the same period in 2014. The annual increase was largely driven by higher operating margin as general administration costs were consistently year-over-year. Adjusted cash flow from operating increased to CAD280 million during the fourth quarter or CAD0.77 per share from CAD164 million or CAD0.49 per share for the same quarter last year.

For the full year, adjusted cash flow from operating activities was CAD870 million or CAD2.53 per common share compared to CAD77 million or CAD2.38 per common share for the same period. The increase in quarterly and annual adjusted cash flow was principally as a result of higher operating margin, lower current tax, and lower share-based compensation expenses offset somewhat by increased preferred share dividends and higher shares outstanding.

Revenue volumes in Pembina's conventional business continued to be resilient. 2015 represented record annual throughput of 614,000 barrels per day as compared to 575 barrels and 2014. In the fourth quarter, revenue volumes averaged 621,000 barrels per day as compared to 612,000 barrels per day in the fourth quarter 2014. Revenue volumes were also very strong in January 2016, averaging an excess of 650,000 barrels per day.

Increased revenue volumes quarter-over-quarter were attributable to Phase 2 expansion, which was fully commissioned during the fourth quarter, increased volumes on the Vantage Pipeline, as well as new connections. These factors contributed to operating margin of CAD109 million in the fourth quarter of the year which is 47% higher than the CAD74 million in the same period last year. On a full-year basis, operating margin was CAD401 million or 33% higher than the CAD302 million recorded in 2014 for the same reasons as I discussed previously.

2015 was a significant year in the gas services business with a 27% increase in revenue volumes as compared to 2014. This increase was driven by our Resthaven Muzero II gas lines that went into service in late 2014. Annual operating margin increased to CAD144 million as compared to CAD107 million in 2014. On a quarterly basis, operating margin was CAD33 million compared to CAD29 million in the fourth quarter 2014.

Quarterly volumes were impacted by an unscheduled outage at our Resthaven facility which was placed back into shallow cut service in February. Like our conventional business unit, we are seeing strong volumes in our gas services in 2016. In February we recently exceeded over one BCF per day which is a new record for Pembina.

In our oil sands and heavy oil business, we saw steady performance as expected. Fourth quarter operating margin was CAD36 million versus CAD34 million in 2014. For the full year, operating margin was CAD139 million compared to CAD136 million for 2014.

In the midstream business operating margin was CAD123 million during the fourth quarter 2015 which is meaningfully higher than the CAD57 million recorded in the fourth quarter of 2014. The significant increase in quarterly results was largely the result of an inventory impairment recorded in the fourth quarter of 2014. Additionally, increased margin on sales contributed to higher operating margin. For full year, operating margin was CAD427 million as compared to CAD528 million in 2014. The decrease on a year-over-year basis was largely attributable to lower commodity prices and tighter price differentials.

Going forward, Pembina will be commissioning a major asset in nearly every quarter into 2017, which will help to further increase Pembina's fee-for-service supported cash flows. In aggregate, these projects represent a total investment of just over CAD5 billion and are set to contribute between CAD600 million to CAD950 million of incremental EBITDA by 2018, depending on utilization and commodity prices. I will now pass the call over to Mick, who will give an update on how our growth projects are progressing.

Good morning, everybody. First and foremost, I want to recognize the commitment to safety that Pembina's staff continues to demonstrate every day. I'm extremely proud to say that Pembina has now exceeded two years without any employee lost time injuries. Since the beginning of 2014, Pembina's employees have worked over 5.1 million hours which represents an 18% increase over 2014.

2016 represents another exciting year for Pembina since many large-scale projects that we've been talking about for many years are coming into service. A large portion of these projects will be online in a matter of months, including RFS II, the Horizon expansion, two new gas plants, and additional NGL infrastructure at Redwater. These projects are back stopped by long-term fee-for-service contracts, most of which have substantial take-or-pay or fixed return provisions.

Growth and stable cash flows will help to further insulate Pembina from volatility in commodity markets and provide a solid foundation to support both current and future dividends. Throughout 2015, we commissioned our Phase 2 expansion, the crude oil and condensate portion was commissioned in April and the NGL portion was placed into service mid-September, collectively adding 108,000 barrels a day of capacity. We are looking forward to benefiting from a full-year contribution from these large-scale expansions in 2016.

As Scott mentioned earlier, volumes remain very strong across all of our conventional pipeline systems. We have now completed approximately 30% of the overall Phase 3 expansion project. The Phase 3 expansion represents Pembina's largest growth project and we are very pleased with the progress to date, as it continues to trend on time and on budget.

Over the course of 2015, a 70 km section between Kakwa and Simonette was placed into service. We expect to receive written decision from the AER next month on the Fox and Namao portion of the project.

All regulatory approvals have been received and construction is well underway for the Karr Lateral. This project will link growing Montney production volumes and Pembina's Phase 3 expansion project and is expected to come online in early 2016. This project is tracking moderately above budget, but this slight overrun is economically mitigated by agreements supporting project.

The Vantage expansion construction is also nearing completion. The pipeline portion is largely finished and final commissioning work is underway. The pump station portion has received all required approvals and design work is now complete. Currently, the project is tracking under budget.

In spite of a challenging commodity price environment, Pembina continues to receive strong support from customers. Subsequent to year end, we entered into an agreement to construct a new lateral in the out terrace area of British Columbia with a capacity of 17,000 barrels per day. This project is underpinned by a long-term cost of service agreement. The capital cost is estimated at CAD70 million and subject to regulatory and environmental approvals, is expected to be in service by mid-2017.

Developing this lateral helps provide incremental Phase 3 volumes and as well as extending our reach of our gathering network into the BC Montney. Civil work on the horizon pipeline expansion is also currently underway and most regulatory and environmental approvals have been received. This expansion will increase the pipeline capacity to 250,000 barrels per day and is expected to be in service by mid-2016.

Now on to gas services. In 2016 -- 2015, 260 million cubic ft per day of gas at processing capacity in supporting pipelines were placed into service. These projects were largely developed on schedule or better and under budget. 2016 is set to be a milestone year for Pembina's gas services business unit, as well as we will be commissioning an additional 200 million cubic ft of processing capacity.

The Resthaven gas line's expansion continues to progress well and is now approximately 80% complete. The project is expected to be in service by mid-2016 and is trending under budget.

Our Muzero 3 facility is now approximately 75% complete. We expect the facility to be in service by mid-year, and we expected it to come in under budget. In November, we announced development of a 100 million cubic ft per day Duvernay 1 gas plant. This project represents the first large-scale gas plant designed specifically for the Duvernay.

We have received AER approval for the plant and are now focused on securing regulatory approval for the associated pipeline. Subject to receiving all regulatory and environmental approvals, Duvernay 1 is expected to be in service in the second half of 2017.

Once all these facilities are commissioned, total processing capacity is expected to reach approximately 1.6 billion cubic ft per day. These plans are concentrated across the most economic resource place in Western Canada.

Moving on to midstream. At the Redwater site we are nearing completion of our second 73,000 barrels per day [proxinator], which is expected to be online by the end of March. This represents a major accomplishment for our midstream business and I'm happy to say the project will be substantially on budget. It is actually being commissioned as we speak.

RFS 3 is also progressing well. Over 50% of the long lead items are now on site, and construction of piling and foundations is complete. We expect RFS 3 to be in service in the third quarter of 2017 and is trending on time and on budget. Once complete, our Redwater site will be the largest fractionation facility in Canada with over 200,000 barrels per day of nameplate capacity. Pembina is progressing work for a major terminalling project in support of North West Redwater Partnership's planned refinery.

Substantially all long lead mechanical items have been ordered and detailed engineering procurement is now 40% complete. Subject to regulatory and environmental approvals, project is expected to be in service by mid-2017.

At our Edmonton North terminal, we continue to advance construction of three above ground storage tanks with a total capacity of 550,000 barrels. Electrical work is nearing completion and the team continues to progress mechanical integration. The project is on schedule to be in service by mid-2016 and is currently trending on-budget.

Finally, as Scott mentioned earlier, we wrote off certain nontransferable costs related to our proposed Portland West Coast terminal. After careful consideration, we decided to no longer pursue that location. We do, though, remain committed to developing a West Coast terminal to help our customers access premium international markets. Scott, back to you.

We're very happy to have access to capital markets throughout 2015 and now into 2016. During the fourth quarter, we completed a common share offering for gross proceeds CAD460 million. In total, throughout 2015, Pembina raised approximately CAD2.3 billion of debt and equity capital. In January we completed a preferred share offering for gross proceeds of CAD170 million.

As of February 24, 2016, our CAD2 billion credit facility is completely undrawn and we have a modest cash balance of CAD37 million. The combination of sustained access to capital markets and an undrawn CAD2 billion credit facility creates a robust financial foundation on the remaining portion of our CAD2.1 billion capital plan for 2016 and positions us well to fund the remainder of our secured growth projects through the end of 2017.

Maintaining our investment-grade credit rating and a strong balance sheet to ensure financial flexibility is paramount to Pembina. With that I will pass the call over to Mick to wrap things up before opening the line for questions.

Thanks, Scott. In closing I wanted to say we recognize this is a challenging time for our customers. We value all our producer relationships and are committed to doing what reasonably can to help improve their net backs. I'm very proud of what the Pembina team has accomplished in what has been a challenging time for our industry. All of our businesses operated soundly and we made many strides towards achieving our long-term growth objectives, while supporting communities we work in.

I'm confident that Pembina's strategy will achieve its objectives by continuing to de-risk our business and commission large-scale fee-for-service assets, providing high-value services for customers. And just 18 month, we have commissioned nearly all of our CAD5 billion of secured projects.

With that, I want to thank everybody for continued support of Pembina and participation in this morning's call.

One thing before I turn it back to the operator, if the people asking questions could -- we're going to do a little survey this morning to see what you think about the format of our call. If you'd like our call script to be shorter and have more time for questions or you like it the way it is or have any other ideas. So with that, I'll turn it back over to the operator.

Thank you.

(Operator Instructions)

Your first question comes from the line of Linda Ezergailis with TD Securities. Your line is open.

Thank you. Congratulations on another strong quarter.

Thanks, Linda.

I realize you are quite busy in executing on your capital projects, but as you can appreciate there's a lot of [preserve] midstream and energy infrastructure assets that are purported to be coming up for sale, or if not already for sale. And I'm just wondering if I can get a sense of how you kind of balance your capital allocation decisions, what sort of capacity you think you might have, and how you think of not just regular operating risk and clearly financing is a bit more of a consideration than it would've been previously. But also, counterparty and other risks associated with looking at these things.

Thanks, Linda. Yes, you know, we vigorously look at everything that is for sale and the challenge or the magic maybe has been to try to anticipate fully what the cost of capital for the industry is in this new world. So we are looking at all kinds of projects across business units, and really we are not really too sensitive about what business unit a project ends up in. We're really focused on the soundness of geology, the ability to enhance the value of all of Pembina through a given Greenfield, Brownfield or M&A project and the vertical integration opportunities.

Clearly, counterparty credit has been an issue. We just had a long session with our Board yesterday on the economics of the regions we serve and the economics and financial health of our customers, and it is remarkable how resilient our producer customers are and the steps they've been able to take to watch their cost. We are doing what we can to help them out. And generally, because we are not a really significant service provider to regions that have WCS product, I mean, in the oil sands we are synthetic crude, which remains quite cash flow positive, and then you look at the Cardium, the D Basin region, Montney, Duvernay, they are still pretty darn competitive and still are generally cash flow positive. In fact, they are all cash flow positive. Not every producer, not every well, but the regions are still able to turn positive cash flow so we've given that a lot of thought and our conclusion is we will just -- we're going to stick with our strategy, we're not going to do anything different. We will follow investment criteria very, very rigorously and we are just beefing up our review of counterparty credit.

By way of example, we used to -- our risk management committee used to meet quarterly. We are meeting monthly right now just to stay completely on top of that, and you may know that we've significantly over the last three years enhanced the depth and capability of our counterparty credit group. So again, it's just one of those things where we've been preparing for tougher market conditions for three to five years and I hate to say that that was time well spent because I'd rather have the whole industry at better health. But we have been positioning our business for resilience. Scott, do you want to add anything on the financing?

Yes, I mean I think, Linda, we're not -- we still believe that we have decent access to capital, as we pointed out we have a CAD2 billion undrawn credit facility. So from that perspective, we think that we could look at acquisitions or Greenfield opportunities of various sizes.

Thank you. And just a cleanup question. Cash taxes for 2016 and beyond, what are you seeing in terms of the trends off of 2015?

For 2016 it's probably likely in the neighborhood of CAD100 million to CAD225 million.

And then trending up in 2017?

Well that's going to -- it's probably more stable just because we're bringing on -- you think about what we're bringing on, RFS 2, RFS 3, and gas plants, those are all high write-off assets. So I don't expect it to trend-out materially in 2017.

Great. Thanks, Scott.

Your next question comes from the line of David Galison with Canaccord Genuity. Your line is open.

Good morning, everyone.

Good morning.

So I just had a quick question on the guidance for 2018. So adjusted EBITDA came in -- for 2015 you did around CAD700 million -- or CAD978 million, is that correct?

That's correct.

So adding the CAD600 million to CAD950 million will take us to around CAD1.6 billion to CAD1.9 billion for 2018. So there's a one point just for me to understand, is the CAD1.6 billion based on the 777 million barrel per day capacity that you've got committed for?

No, so remember that our -- the 777 is our firm contracts, most of our firm contracts have 75% take-or-pay. So recall, the CAD600 million of that range is really meant to represent the take-or-pay level, whereas more the CAD900 million is more of a normal utilization as well as commodity impact from the sales at the backend of our S2 and 3.

Oh, okay. And then just on the conventional side, I know you've been surveying customers and just wanted to know if anything has changed since the last time you surveyed them? Is there any -- are there any changes in their views of the nominations they made for the conventional side?

We have very close contact with our largest existing and future customers, and so far what we've heard from them was that their nominations were realistic if not conservative, and all but a few foresee themselves being at or above take-or-pay levels. Clearly, capital isn't available to all the customers and some will no doubt come in under take-or-pay.

We are working with customers to -- where we can -- mix-and-match nominations with people who may have more capacity than they need with those who need more. We're going to balance that with the promises we're making to shareholders. We are not going to do that at our detriment, but where we can, we are going to be flexible with matching customer demands up.

Okay. And then just as well on the conventional side, just wondering with Phase 2 uncomplete, how are you seeing volumes trending in 2016?

Yes, well, I like that a couple ways because we have got the question. If you recall the LBP portion of that commissioned in April, and really what we started to see as far back as Q4 of 2014 was a lot of those barrels were drilled and wanted to hit our system, and so because Phase 2 is not in service, those volumes were being trucked to our Drayton Valley and our Swan Hills, so you actually started to see the Phase 2 volumes show up as far back as Q3 and Q4 of 2014. And so when that pipeline came online in April, you saw a shift of volumes from our Drayton Valley and Swan Hills back on to the P system once that system was de-bottlenecked.

And that's really why you didn't see an incremental 50,000 to 100,000 barrels per day in April when that project came online, because a lot of those barrels were already hitting the system. But we have seen production continue to increase. You saw Q4, 2015 be quite strong and as we pointed out, both in our annual report and in our call today, we saw volumes in January in excess of 650,000 barrels, which if I recall is the highest month in the Company's history.

Okay. Thank you very much.

Your next question comes from the line of Steven Paget with FirstEnergy. Your line is open.

Thank you and good morning. Maybe you could comment on where propane is going out of Alberta. As outside Alberta itself, the US Midwest market is the most important market. Are you seeing any signs that LPGs out of the Marcellus region are closing the US Midwest market off from -- to Alberta LPGs?

Steven, it's Stu Taylor. We haven't see that as of yet. Our propane marketing group is very active in the markets looking for locations and our work continues to move barrels. We have a great success on -- with our inventory and drawing down our inventory through 2015. We're very excited of where we're sitting today in 2016. So we have -- at this point in time I'm not seeing a closing down of those markets, but they monitor that on a daily basis, and will be aware of that, if that market was closing, but have not experienced it yet.

I would just add that we've seen over the last four to five weeks pretty significant propane draws, almost if you go back six, seven months we were quite a bit above the five year average. With what's happened in the US, both exports out of the Gulf Coast and Northeast weather, we've seen that inventory level come down almost to the top of the five year average. And what that's really done is drawn up the Mont Bellevue price. I think in January we were $0.34 CAD, $0.35 CAD. We're now on a spot basis up to $0.41 CAD, and as that, as Bellevue has increased, that's dragged up both Conway and Edmonton.

Okay, Scott, Stu, thank you. Maybe we could talk more about exports and LPG out of North America. Assuming the market is basically integrated -- you have to look beyond to what these other markets are taking and how much in particular do think the Asian market can take? As I understand, it's taking about 200,000 barrels per day right now. And if that's saturated, does North America run out of places to export its surplus production?

You know, that's -- I think you have as good of an idea as the answer to that question as many, Steven. Long-term, the long-term trend has been that Asia is looking for new propane markets, not just based on price but also based on supply diversity. There is still a lot of interest for North American propane.

You saw enterprise recently up their capacity. We know there's cargos moving out of Fort Ferndale, and we still get a lot of inbound interest from Asia. So I think it's even if the world is a little different today than it was a year and a half ago due to commodity prices, we think the long-term trends remain and that location and cost advantage propane in Alberta will find its way to market. It only makes sense.

Well, thanks, Scott. I will follow up with my thoughts on the call format with Ian and Chelsea.

Stephen, what you think about our call format? Do think we are -- how do you feel about the script? What would you do differently?

Do you want to discuss this right here?

Just one minute to overview what you think.

I would -- I would cut the script down to -- not just -- you've read the release, do you have any questions, but a very short commentary on the construction projects, and any threat -- any threats to growth or a breakdown of growth, particularly between fee-for-service, take-or-pay, etc. The division of the contracts by contract type is, obviously very useful.

Okay. Thank you.

Your next question comes from the line of Andrew Kuske with Credit Suisse. Your line is open.

Good morning. I guess the question is for Mick, and obviously the royalty changes in Alberta have created some uncertainty for producers and the entire community. So the question really is, have you seen any behavioral changes at this point in time from the producer community because of the uncertainty in the royalty environment?

You know, they really didn't change very much and depending on where you sit in the Basin, it's actually -- there's still details to come out, of course, but initial discussions I've had with some of our CEO customers is they are relieved at the -- how subtle the changes are, and that they should not be negatively impacted so I think, I think most people were anticipating larger changes. They were bracing for adverse changes and I think that generally, Capital Markets and producers are feeling quite positive, compared to how they felt say two months ago about those changes.

Okay. That's helpful color, and then maybe just a follow-up, are you seeing any kind of evolution of your contracts with the producing community on just processing as we are in this commodity downturn right now?

No, but honestly we are business as usual. The deals we did last year, the deals that we are looking at still now are, you know, just regular vanilla kind of deals that you've come to expect from us. And again, we did the big review with our Board yesterday on state of the nation, our revised five-year plan, and all that, and we concluded our strategy. If you think about back over the last three years we've had the same strategy. We tested that strategy, could it work in very robust times and unfortunately, last year we had the privilege of testing it in horrible times, and in the very good times, we grew like crazy and in the very bad times we still grew a bit, and all the while we showed amazing resilience.

We don't disclose budget numbers but now that it's in the rear view mirror, we almost made our budget. I'm talking within 2% to 4% of our budget, which was set October 2014 before any of this bad stuff happened and we almost still made it. So I think our strategy is extremely resilient and has proven successful in both highs and lows.

So then if I may just -- do see yourselves as positioned right now at a very good base earning acceptable returns on the capital you've employed and then effectively getting a bit of a multiplier effect; one, from commodity prices rising and then; two, just from the interconnectivity of your networked assets?

I -- you know, no, I don't think we are, I actually don't think we're getting fairly treated by markets given the level of fee-for-service business we have. The growth -- I mean, when I go through all the new projects, it's kind of boring because it's on time and under budget and they are all highly contacted and I just do the math on the guidance we've given and I think there is lots of room.

I don't think we are getting any credit for the possible CAD30 million of EBITDA improvement for CAD0.10 increase in propane prices. I don't see that anywhere in our stock price. So I think there is -- there's tremendous opportunity out there and -- but that said, I'm like every other investor and when's the right time to pile back into a story is really, I think, what the question is. I think people know there's a lot of money to be made in upstream and in midstream, it's just when's the right time to do it.

Okay. That's very helpful. Thank you.

Your next question comes from the line of Ben Pham with BMO. Your line is open.

Okay, thanks and good morning, everybody. I wanted to go over your 80% fee-for-service target for 2018, and then perhaps you can help me a little bit on how that's flexed over time relative to where the commodity price curve expectations are. And you obviously got the component of commodity pricing impacting the commodity price business, but also you've got potentially higher commodity pricing driving utilization and firmer contracts so I'm just wondering how those two things interplay because they kind of move against each other and how that flexes at 80%.

Maybe I will attempt to answer that question and see if I -- I mean if you go back to 2014, we were about 68% fee-for-service and about 14% frac spread with the difference being our product margin business. As we went through 2015, that 68% fee-for-service increased to 80% and the frac spread went from 14% to basically 0.0%. So that was a combination, Ben, of both our fee-for-service on aggregate being up in the neighborhood of CAD100 million to CAD120 million, and our frac spread going from CAD100 million to basically CAD0.00 So that's the math that got us from the 68% to the 80%. It was both of those.

As we dial forward to 2016, we do believe Empress will be profitable in 2016, so that frac spread again could be in the neighborhood of CAD30 million to CAD40 million, which would then increase -- and then we also have fee-for-service assets coming into service. So when we look forward to 2016, we're still guiding toward that 80% fee-for-service, which is a combination of growth in our fee-for-service business on a dollar basis, but we also have increased contribution from the frac spread.

And then to answer the rest of your question, when you look at 2018, we think we can be 80% or greater again, because we're ramping up our fee-based business, and the commodity business is based on -- our prediction errors based on strip pricing. The only way, in absence of other M&A activity or changes, the only way our commodity exposed businesses would grow more than 20% is if we were making an unbelievable amount of money from them, so but the kind of 80% or higher in 2018 is based on strip pricing.

Okay. Thanks for that. And if I could touch base on your Phase 3 conventional project and as you go through the regulatory process and discussions on landowners and what not. Does that necessitate possibly a re-look at your CapEx?

No, we're through that whole -- like we've concluded all of our fieldwork with landowners, first nations, we expect to -- a ruling here in the next month. So we are right at the tail end of that and knock on wood, we hope we'll be given the go-ahead before our investor day.

Okay. Thanks, everybody.

Thank you.

(Operator Instructions)

Your next question comes from the line of Robert Kwan with RBC Capital Markets. Your line is open.

Morning. Maybe I'll just first start following up on, Scott, what you were saying Empress and the expected profitability in 2016 versus frac spreads being CAD0.00 2015. Maybe by saying that you've answered the question, but can you just comment on the 2016 gas year and with respect to what you were seeing on the extraction premiums and whether a reduction there is what's really opening up the profitability for 2016?

It's all the components, Robert, and I'm not going to get into detail for obvious reasons, but what we're seeing is low ankle pricing, lower extraction premiums and Sarnia continues to have that kind of CAD0.15 propane premium, so when you factor all three of those things in, that's really what's leading to the profitability.

Okay, maybe just to kind of follow-up on that. So ex extraction premiums, are you expecting a material increase in frac spreads then, 2016 versus 2015?

Well, yes, because with are seeing a higher -- a slightly higher price on the propane, and natural gas is lower, so those are contributing to the profitability as well.

Okay, and when you're looking at the propane price you're looking at Sarnia -- you're not looking at in Alberta.

Correct.

Okay, just with respect to contracts, and Mick you had mentioned earlier that you are kind of trying to mix and match and swap barrels for your customers and trying to facilitate that as a way to help them all out, and that not looking to do anything that's detrimental from a shareholder perspective.

How do you think about that or would you consider a restructuring of agreements, maybe some lower upfront tolls or fees if you can extend term or get some escalators, i.e. would you do deals that might be NTV positive to you if it meant helping customers out on the front end?

You know, it's a question -- it's a great question and you've provided a great summary of what we're trying to do. You know, we have to be balanced. If we -- if we were to extend everyone's contract then we wouldn't be telling you guys -- we wouldn't be able to state -- stand behind the guidance of how much EBITDA we're going to add over the next few years.

So we have to be mindful that, that EBITDA is required to pay dividends and reinvest cash flow, so it's a balancing act. Under certain circumstances, we could reshape contracts to be NPV neutral or NPV positive provided we have a very high likelihood of using that then free capacity for another purpose. So it really is situational and it depends on what we're doing with a particular producer, customer and how much of our integrated value chain we're using, and so I think it would be wrong for me to generalize. But I can tell you that we are doing what we can to help customers without detrimentally affecting our guidance or the value to our shareholders; and what we have been doing there is -- has been very well received.

Okay. Great. And if I could just that's one last cleanup question here. Do you have what the dollar impact was of the Resthaven outage, whether that's an aggregate to margin or revenue and OpEx separately?

Yes, CAD3 million, Robert.

CAD3 million to margin?

Yes.

Okay. Great. Thanks very much.

Robert, one more question. Are you still on? Okay. Next.

Looks like there's no more questions. So with that, on behalf of Mick, Stu, and the entire Pembina executive team, thank you very much for your continued support, and we look forward to talking to you in May with our Q1 results.

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