Pembina Pipeline Corp (PBA) 2016 Q1 法說會逐字稿

Good morning. My name is Steve and I will be your conference operator today. And I would like to welcome you to Pembina Pipeline Corporation 2016 first quarter 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. Scott Burrows, Pembina's Vice-President of Finance and Chief Executive Officer, please go ahead.

Thank you, Steve. Good morning, everyone. Welcome to Pembina's conference call and webcast to review our first quarter 2016 results. Joining me today is Mick Dilger; Pembina's President and Chief Executive Officer; as well as Paul Murphy, Pembina's Senior Vice President, Pipeline and Crude Oil Facilities; and Stu Taylor, Pembina's Senior Vice-President, NGL and Natural Gas Facilities.

I would 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, projections, risks and assumptions. Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see the Company'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 may express of imply today.

I would also encourage listeners to review the news releases, MD&A, and financials we issued yesterday which provide our results for the first quarter 2016 as I will not go over each metric on today's call. Before I review our consolidated financial performance an operational results, I wanted to touch briefly on a few year-to-date highlights.

We achieved record revenue volumes on a corporate basis for the second quarter in a row. We placed approximately CAD340 million of new assets into service primarily within our midstream and gas services segments. We successfully closed a CAD566 million acquisition of Paramount, 250 million cubic feet per day sour gas line and supporting infrastructure. We announced a feasibility study for an integrated polypropylene facility which Mick will discuss later in the call.

We completed three successful public offerings, raising CAD365 million of equity through both common and preferred share sales. We expanded our credit facility by CAD500 million to CAD2.5 billion and we increased our dividend by the same amount as last year; three-quarters of a cent per share per month or 4.9%, which results in an annualized dividend of CAD1.92 per share.

So far in 2016, the macro economic environment has remained challenging, as evidenced by the sustained lower commodity pricing as well as significant volatility. On average as compared to the first quarter of 2015, key commodity prices are down approximately 30% including crude oil, propane, and natural gas.

In the first three months of 2016, crude oil and (indiscernible) propane saw price swings in excess of 20% while Alberta natural gas pricing moved in excess of 40%. Financial, operational, and capital market successes Pembina has achieved so far this year demonstrate our strategy continues to deliver significant value in both good times as well as more challenging times.

I am happy to report that Pembina has achieved solid results overall, and continued to show financial resilience during the first quarter of 2016. Volume growth in conventional pipelines and sustained performance in Pembina's other segments resulted in a 10% year-over-year increase in operating margin. Pembina's operating margin for the first quarter of 2016 was CAD315 million as compared to CAD284 million in the first quarter of 2015. Increased operating margins supported adjusted EBITDA of CAD269 million in the first quarter as compared to CAD241 million in 2015.

The increased operating margin was somewhat offset by somewhat higher and general administration expenses due to non-cash lease provisions totaling CAD5 million. Higher net financed costs, depreciation, and unrealized losses on commodity derivatives resulted in earnings of CAD102 million or CAD0.23 per share for the first quarter of 2016. This compares to CAD120 million or CAD0.32 per share last year. Cash flow from operating activities increased CAD151 million in the first quarter of 2016 as compared to the previous year. This was largely driven by the increased operating margin and reduced taxes paid.

Adjusted cash flow declined year-over-year as a result of reduced tax adjustments and lower share-based payments. These factors were somewhat offset by a decreased change in non-cash working capital. In the first quarter, Pembina generated adjusted cash flow of CAD209 million or CAD0.56 per share. This compares to CAD213 million or CAD0.63 per share last year. Per-share earnings and adjusted cash flow metrics were impacted by the increased number of shares outstanding issued to finance our growth initiatives.

Pembina continues to focused on building out its fee for service asset base. In total, fee for service revenue streams represented proximately 80% of Pembina's operating margin for the first quarter of 2016.

On the total fee for service contribution 75% was comprised of contracts that mitigate volume risk, including take or pay and cost of service agreements. In the first quarter of 2016 conventional pipelines saw record quarterly revenue volume of 670,000 barrels per day, a nearly 6% increase as compared to the 633,000 barrels per day in the first quarter of 2015. Revenue volumes grew as a result of the Phase II expansions, which were completed in April and September of 2015, new contributions that were placed into service, and increased volumes on advantage pipeline.

As a result of lower geotechnical and integrity spending operating expenses declined to CAD46 million as compared to CAD56 million in 2015. These factors contributed operating margin of CAD128 million for the first three months of the year, which was 31% higher than the same period last year.

In gas services, revenue volumes and operating margin were largely in line with the first quarter of 2015. Revenue volumes for the first three months of the year 675 million cubic feet per day as opposed 680 million cubic feet per day. Increased volumes in the Cutbank complex and the addition of Saturn 2 helped offset the outages at Resthaven. Operating margin of CAD37 million was in line with the comparable period of 2015. For the quarter the estimated impact of the Resthaven outages was approximately CAD5 million.

In our oil sands and heavy oil business we saw relatively stable performance with the first quarter operating margin of CAD33 million as compared to CAD35 million last year. The modest decline is related to normal course annual adjustments.

In our crude oil and NGL midstream business operating margin for the first quarter of 2016 was CAD113 million, which was in line with the first quarter of 2015. In our NGL midstream business, sales volumes increased by 9% as a result of higher ethane sales as compared to the first quarter of 2015. Operating margins slightly increased year-over-year which is largely attributable to higher product sales margins on butane, propane, and condensate; as a result of lower cost of goods sold. These factors were somewhat offset by lower commodity pricing, especially for propane.

Our crude oil midstream business experienced a modest year-over-year decline in operating margin as a result of lower crude oil prices, narrower price differentials, and lower truck terminal volume. I will now pass the call to Mick, who will give an update on our growth projects.

Thanks, Scott. Good morning, everyone. I am going to provide a quick update on some of Pembina's growth projects. Pembina continues to make great progress on the roughly CAD5 billion of secured growth projects. So far in 2016 we have placed approximately CAD740 million of assets into service. Noting none of which contributed to our first quarter results.

Starting off with our conventional business, we are pleased to have received the AER approval to the Fox Creek to the Namao portion of the Phase III expansion. This was the last major regulatory hurdle for the project and our teams will be out in the field shortly, commencing clearing and construction activities.

In aggregate, Phase III is now approximately 35% complete. In addition to beginning construction between Fox Creek and Namao, our focus this year will be on completing all expansion from stations on the Wapiti to Kakwa pipeline segment. Phase III continues to trend on-time and on budget for mid-2017 in-service date.

Pembina is developing new gathering laterals to extend the reach of our pipeline network. In aggregate these investments are expected to require approximately CAD300 million of capital. The car lateral, supporting the Alberta Montney, was recently completed and is commissioning. The recently announced Alteris Lateral, supporting the northeast BC Montney, is expected to be completed by mid-2017. Numerous other laterals are at various stages of development.

Pembina has completed engineering and submitted regulatory and environmental applications in support of the northeast BC crude expansion. Or sorry, NGL expansion. Pembina will be constructing approximately 150 kilometers of 12-inch diameter pipeline. Initial capacity of the pipeline is estimated at 73,000 barrels a day, and has an expected cost of approximately CAD235 million. The project remains on track for late 2017 in-service, subject to receiving required regulatory and environmental approvals.

The vantage pipeline expansion is nearly complete, which will increase the system capacity to approximately 70,000 barrels per day from its initial capacity of approximately 40,000 barrels per day. Construction of the new lateral is now complete and the pump stations are almost half done. In aggregate, Pembina has approximately 777,000 barrels per day of crude oil, condensate, and NGL under contract through Phase I, II, and III of pipeline expansion projects, our vantage pipeline, and re-contracting of base volumes on our systems.

Now on to the gas services business unit. So far in 2016, Pembina has commissioned 200 million cubic feet per day of gross processing capacity through the expansion at the Resthaven and Musreau 3 facilities. Both of these projects were completed under budget and ahead of schedule. Engineering is almost half complete for the Duvernay 1 facility which is the first large-scale gas processing plant designed specifically for Duvernay.

Construction teams are commencing site rating and piling activities. Subject to receiving regulatory approval for supporting pipeline, Duvernay 1 is expected to be in service in the second half of 2017. This project continues to trend on time and on budget.

I am proud to say we have completed the acquisition of Paramount's Capital River facility, which is well-situated within one of our core operating areas and we believe supports some of the most economic geology in north America. By expanding our service offering to include sour gas processing, Pembina is well positioned to capitalize on future liquids-rich gas production growth. The acquisition is underpinned by a long-term take or pay commitment with Paramount.

Furthermore, the expansion option at the 6 of 18 site, combined with Paramount's substantial resource base, creates a strong growth platform. Pembina is well on its way to becoming one of the largest third party gas processors, inclusive of Younger and the Empress facilities, Pembina will have approximately 4.2 billion cubic feet per day of gas processing capacity by the second half of 2017.

Moving on to the NGL and crude oil midstream businesses. So far in 2016, Pembina commissioned a second 73,000-barrel per day fractionator at our Redwater site, placed 550,000 barrels of oil per day of above ground storage at our Edmonton North into service, and completed an expansion at our Toronto, Ontario site. RFS 3 continues to trend on time and on budget for a Q3 2017 start-up. Over 50% of long-lead items have arrived on site and construction of foundations and pilings is now complete.

Pembina has received regulatory approval for the development of the terminal infrastructure for the planned northwest Sturgeon refinery. Detailed engineering and procurement activities are almost half complete and nearly all long-lead mechanical items have been ordered. The project is tracking on time and on budget and will be placed into service throughout 2017 beginning earlier in the year.

On April 11th, Pembina announced a joint feasibility study for the evaluation of a world scale integrated polypropylene facility in Alberta, with grades petrochemicals industry company or PIC which may create an opportunity to create crucial new market demand for propane in the province. Building local value-added infrastructure will help maximize proceeds that our customers receive for their propane construction, as well as benefit the province by increasing regional economic activity. This facility could consume approximately 35000 barrels per day of propane and produce 800,000 metric tons per year of polypropylene.

The project leverages our position as the WCSB's largest supplier to Alberta's petrochemical industry and extends our integrated NGL service offering. We have a lot of work ahead of us to determine if this project is feasible from a technical, commercial, and financial perspective. We plan to make final investment decisions by mid-2017.

Earlier this year, Pembina announced the interconnection agreements with the Canadian dilute hub. In aggregate, these connections provide for initial takeaway capacity in excess of 400,000 barrels per day across multiple pipelines. Additionally as a result of optimizing project scope and cost savings, the expected capital expenditure for CDH is now CAD250 million, roughly CAD100 million lower than initially expected. The in service date of CDH is expected by mid-2017. Scott?

Thanks, Mick. Pembina continues to have access to the capital markets. So far in 2016, Pembina raised CAD420 million in preferred shares through two offerings and 345 million in common equity to support the Paramount acquisition. To maintain strong liquidity position, Pembina exercised CAD500 million of the accordion feature of our credit facility, increasing the funds available to CAD2.5 billion.

As of May 3rd, our now CAD2.5 billion credit facility is now approximately CAD140 million drawn. The incremental cash flows from our assets that were recently placed into service and our substantial capital cost savings, both realized and forecast, will help to reduce of external capital requirements on a go-forward basis. Pembina continues to actively monitor our financing alternatives to ensure an attractive cost of capital.

In closing now, with clear visibility to near-term, high quality cash flow growth, Pembina is well-positioned in what has been a rapidly changing world. This positioning is enhanced by a strong balance sheet, tremendous liquidity and sustained access to capital markets. Overall we are very pleased with the performance of our business so far in 2016 and would look forward to the exciting milestones ahead for our Company.

Before I just remind everyone in the AGM, go off script for a second here to talk about the fire situation. It is clearly a huge concern to all Albertans, and I guess most Canadians, and very concerning to our Company. The situation is far from stable. I am though pleased to report that our people are all fine and our harm's way, that our assets for the time being at least are roughly 15 kilometers away from harm. We are taking all necessary precautions.

That we have made a CAD50,000 emergency donation to the Red Cross and I am pretty sure, knowing what has happened in the past with Slave Lake, that will make a more meaningful contribution once the smoke clears up there for a longer term rebuilding.

So before we move on to Q&A, with that said, just a reminder our AGM is scheduled for Thursday, May 12th at 2 p.m. at the Met Centre in Calgary and we hope some of you can join us. With that we will turn it over for Q&A.

(Operator Instructions). We will pause for just a moment to compile the Q&A roster. And your first question comes from Linda Ezergailis with TD Securities. Your line is now open.

Thank you. I just wanted to get a bit more color on what the nature of the unplanned outage was at Resthaven. The financial impact of CAD5 million was helpful to know, but I am wondering if there was a process hiccup or something in the plumbing that needed to be adjusted to ensure it does not happen again at Resthaven or any of your other facilities.

Linda, it is Stu Taylor. What transpired at Resthaven is, through our integrity work at the facility, we identified there was mercury present in the inlet gas stream. It had pooled in the tower. And to protect the facility we have downstream of the tower we have braised aluminum heat exchangers which do not react well with the presence of mercury. We elected to shut the facility down at that point in time and have installed what is called mercury recovery beds so that mercury can never get through towards the aluminum.

That is now in place and operational. At the same time we were doing our expansion. So part of the downtime was commissioning as well, expansion and commissioning services. So we fixed that problem and are now in operation.

It was precautionary. There was no damage or anything. But mercury is not in our spec for that plant. What we saw it was showing up, as a precautionary measure we shut the plant down and undertook the activities that Stu mentioned.

And this would not be an issue potentially in any of your other facilities?

No, not at this time. We do not have that -- in some cases the same gas or aluminum -- the aluminum heat exchangers in some cases.

Okay, that is helpful to know. Moving on to your crude oil midstream business, I am wondering how to think of how this unfortunate fire might affect either your volumes or differentials/margins in that business, or is that kind of unknowable in terms of what we are seeing?

Well, there is fires in BC that I did not mention. And they are having, so far, knock on wood, a minimal impact. Then there is of course the Fort McMurray situation. We do not market very much synthetic crude. In fact we -- I do not think we really touched synthetic crude at all. Those streams are controlled, and owned and marketed the exclusively by Syncrude and Horizon. So it should not have any kind of measurable impact on our midstream business.

Thanks. I will jump back in the queue.

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

Thank you. Good morning. I guess just in the results season we have seen a pretty continual trend among a lot of the people in the Montney and Duvernay, just declining costs of drilling wells, if you just give us maybe some color on what you have seen from your customer base, their activity levels. And then also any impact you are seeing just on your outlook for costs going ahead on whether, from a productivity standpoint outright labor costs; just color on that would be very helpful, please.

It is Mick. I am going to turn it over to Stu in a minute. But yes, we have seen some press releases from players, I think in (indiscernible) that are down at CAD8.5 million for those Duvernay wells. The wells keep getting better and the costs keep dropping. We have been at a minimum foreshadowing, and I think we are saying that a lot of these large companies are going in the Duvernay from pilot production into full-scale production, that is our perception.

And I will try to pre-empt, I am sure, a subsequent question. We think there is going to be a lot of growth in that area. And you know in terms of the Montney, a lot of activity there -- you know, if you look at what Seven Gen is doing in the deep basin, they are continuing to ramp up their production, so I think our conventional volumes kind of tell the story there. Stu?

I do not have a lot more to add on the cost. We are continuing to see previous services being very efficient, driving costs across the board out of the drilling and completion equation. The wells are obviously being high-graded. The wells are better than the tight curves that have been forecasted. We are seeing continuing improvements on that side.

We are in conversations with many people in both the Duvernay and the Montney looking at incremental facilities. In that 2018 through 2021 time frame, so people are planning, taking the results today and we are starting to have conversations about growth opportunity.

Okay. That is helpful. And then a related question; are you seeing any significant changes in product quality and composition coming out that gives you maybe some enhanced opportunities on extraction or processing?

I will jump in a bit here and maybe Paul can answer. But we are seeing at this point, people are sticking to probably shallow-cut processing or dew point processing. What that means is we are leaving a lot of liquid still in the gas stream, and justifiably so at this point in time. We are very aware of conversations and looking at some of the composition that there is extraction opportunities into the future.

The Duvernay gas, as an example, has a very high ethane content and lots of propane. So in the future, with a market that they have got product -- again, we believe there is deep cutting opportunities behind some of these shell plants that are being built today.

Okay. That is very helpful. Thank you.

Your next question comes from Robert Kwan with RBC Capital. Your line is now open.

Morning. Maybe if I can just follow on that last answer. If we start to take more liquids out of the stream behind the dew point processing, do you see as you think about the fractionation capacity in the Fort, do you think that is a logical home for the barrels? Is that part of the conversations you are having? Or are you seeing interest from producers, whether that is the Montney, deep basin, or Duvernay around field frac?

I would say it depends, Robert, how far away you are from the Fort. If you are in the Kakwa area or from there on even or even on up to the Grande Prairie region, I think the products naturally want to come to Edmonton, particularly ethane and condensate. I think that is a no-brainer. When you get quite far away, say up where Petronas is, it is a long, expensive pipeline ride into Edmonton.

And I would say that some of those guys are less likely to deep cut their gas and probably more likely to leave more NGL in the gas stream and export it as LNG. So it is just economics in terms of where the best place is. But let us just go through the thinking. If there was a frac, say -- well, there is a frac at Taylor, but a larger scale frac at Taylor, by volume, any given NGL barrel is half ethane, and the highest volume product is condensate and the highest value market is Edmonton.

So by volume already 60%, no matter what, are coming that direction, even if you are way out in the farther reaches. And then propane and butane are kind of a toss-up. What we think the game changer should be there is, if we can build a polypropylene plant, and that of course has much higher value, we think we can entice more propane to come to Edmonton. So then when you are thinking -- and the butane, of course, I think most of it should come to Edmonton.

Then once you are by volume taking all the product to Edmonton, it just makes more economic sense to take it all there. But that is not to say there is not an opportunity to take some to the coast. We have looked at that in detail before we built RFS 3, we looked in detail whether we thought a frac, a larger frac at Taylor would make sense. At that point we concluded no.

But with commodities, you never know what the values are going to be and where they are going to be so I would not say it is impossible. It has not made sense to us so far. Stu?

And the other factor, Robert, I think, is as Mick said, the cost of the far reaches. I mean, the Fort has a couple of things that we talk about. The fort has the salt cavern storage for the cost of storing the product. Secondly, what people want is reliability of service and optionality. We are going to have three fracs running, which we can take product into storage and continue to run with upsets and turnaround.

In fact, you have multiple fracs from other frac owners, it gives flexibility and opportunity to work together. If you are tied to a single field frac, when that frac has a turnaround or outage, there is not a lot of other choices for services at that point.

Right. Okay. And if I can just follow the last question here, you had a target on your capital, total capital program of saving about 5%. There were some moving pieces, probably the biggest being actually having Phase III full approval. With that approval in hand, I am just wondering; and your commentary that you are tracking under budget, just wondering overall how you are hitting -- how you are looking versus that 5% target?

Yes, Robert, so the 5% target was in that CAD200 million to CAD225 million range. I think the latest update is we are at about CAD160 to CAD165 million of cost savings. So we are trending very well towards our goal.

Okay. And is that inclusive of your refresh thoughts on Phase III following the full approval?

It is, yes.

Okay. That is great. Thank you.

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

Good morning and thank you. There could be two very different futures for Western Canadian gas. That is LNG projects may or may not go ahead. What shifts if any would you make in your business plan if LNG goes ahead, or is postponed for several years?

Steven, I kind of think that the facilities -- the way I look at it, the facilities we have now make sense if LNG in a way does not go ahead. And I think it actually just gets better if it does. You know, if we have one or two LNG plants, that is a lot more gas plants. That is a lot more NGLs and a lot more opportunity. So I would say that LNG liberates additional NGL production and I would view it more as upside. Paul, what do you think?

I would agree. From our discussion with producers, our facilities are sort of designed for non-LNG decisions. And of course ready to be expanded.

Stu, what do you think?

Steven, I think what you will see is the facilities that we have today and the plans we have in place right now, and the conversations we are having are kind of a slow-paced wait and see LNG kind of future. I think if LNG does -- any FIDs of LNG decisions, we will see the ramp-up of those incremental facilities much sooner. I think it brings more lower economic alternatives.

Processing will come back to different locations within the province, and northeast BC to serve that. So the horn river basin in northeast BC becomes more economic of LNGs. But those areas that we are not spending a lot of our focus, I think it just ramps up sooner some of the expansion that is we have been considering.

Thank you, guys. Second, it looks like some rich gas may be going from northwest Alberta over the top to the oil sands, and might not see full liquids extraction. Could Pembina build a liquids extraction facility near Fort Mac to extract the liquids from the gas before it is consumed?

That GTL, that has been in place for years and I think we did look at that at one point, did we, Paul? I cannot recall.

Yes, we did. Frankly, it could be built anywhere. It will just come to the economics and really, again, getting the products out of Fort McMurray. Is there egress or use for them up there.

Well, keep in mind that the off-gas in the Fort is already processed so they are taking, I think -- I believe it is Williams is taking NGL volumes out of Fort Mac already. So there is NGL egress. So that is certainly possible.

Could NGLs be taken out of Fort Mac and then sent to Edmonton and then go back to Fort Mac? Because of course they use a lot of propane up there. Would it make sense, then, to build some sort of propane extraction facility to sort of keep the propane up there?

Maybe. Yes, possibly. Like a microfrac just for local supply. That could make sense.

That is what Taylor has, Steven. It basically is a microfrac, keeps the propane in northeast BC. If it made sense and there is a market, it could be done.

Thank you. And finally, are you looking at any, possibly going downstream to more wholesale, industrial, residential, propane sales in order to have a different market? You are looking at the petrochemical market. What about a propane use market?

We tend to focus our guardrails on hot, high capital utilization, low-employee-type assets where we are trying to maximize, you know, the amount of invested per employee. So when we look at trucking companies and small terminals and retail distribution and things like that, they do not really match our current investment criteria. So generally with the amount of deal flow we are seeing kind of right in our target core businesses, those kinds of opportunities do not currently meet our investment criteria.

All right. Thank you, Mick. And those are my questions.

Thanks, Steven.

Your next question comes from Patrick Kenny with National Bank Financial. Your line is now open.

Good morning. First off, thoughts and all the best to you guys and your team up north over the coming days and weeks.

Thank you.

Just on the crude oil midstream segment here, posted a relatively strong quarter, especially considering the tough pricing environment there in Q1. Can you just walk us through maybe how the business is able to deliver what appears to be almost utility-like contributions under any conditions, or should we expect more volatility going forward?

Well, first of all, everyone on the phone, we did not plant that question with Patrick. But we have been saying this for sometime, and no, it is not a utility, just to be clear. But Bob Jones and that group have built out a set of options that rely on volatility. And if you have enough options, something is always going your way. Obviously some things are not.

And we have observed, if you go back and map our crude oil midstream results over the last number of years -- and I think we have some slides on that in our Investor Day, it has been CAD150 million plus or minus CAD10 million or CAD20 million.

And so we have mathematically stress-tested that matrix of options and the probabilities of that being relatively stable are quite high. We are not going to say it is impossible that they drop, and it is also not impossible that they make an extraordinary amount of money from time to time. But the probability is that that set of options will deliver relatively stable returns.

I would just add Pat, that in the lower commodity price environment we see lower type differentials, but we also tend to see a cantango crude oil market and lower pricing. So we are able to make upside off of storage revenue in that cantango market.

Okay. Great. Thanks for that color. Maybe less of a softball question here, but on the 618 site specifically, if commodity prices, let us say, just remain relatively flat here, given activity levels that you are seeing in the area, you still see an opportunity to build out that facility over the medium term?

Over the medium term, Patrick, yes, I think we do. We are having lots of conversations with various Montney players in that Wapiti/Kakwa general area. There is a need -- the people are developing the resource there. There is a need for additional processing. The 618 site is, again, with the location and the size that we have, we do believe that we will be progressing conversations and opportunities to build that out and start that process here in the near future.

Okay. Great. And maybe just lastly, on the PDH opportunity, looks like you are targeting some clarity here through the end of 2016. Would that include any royalty credits from the Alberta government as well; should you have that clarity by the end of the year here?

We filed our application with the government. They are in the process. I can assure you they are already reading the application and asking additional questions. We are hoping to get -- I think from the government's perspective, they are going to award various parties, whatever that looks like. And he who builds at the end of the day will get the credit.

So it is going to be a bit -- going through our feasibility study, making a decision post that being completed to continue with the feed work, and we are excited and we continue to work with our partners and our colleagues there to make sure that we are making the right decision and taking the right steps and want to drive this to be successful. But we should be making a further decision in the September/October time frame, with the completion of feasibility and then pushing forward on our fee study which would be mid-2017.

Okay. Great, Stu. Thanks. That is all I had.

(Operator Instructions). Your next question comes from Ben Pham with BMO. Your line is now open.

Thanks. Good morning. I wanted to follow on that question, the TDH facility and the credits, and more clarifying. How important is that credit to the project, with respect to FID, moving forward. I wanted to check on that.

Ben, it is safe to say that when we started our conversations with PIC, we asked that specifically of them; how important were these credits for them to make the decision? And we were very pleased that they were not essential or critical. They are important, I think, more from a government perspective. International businesses, as we are learning, there is an expectation of the jurisdiction or the area to provide some incentive to attract international investors.

I actually turned it around now. Now that it is been offered, I think it is more important to PIC that we do receive those credits to go forward, as opposed to when it was not, when it was just a consideration. I would say that it is not essential to have it. But now that it is there, it is definitely in the minds of everyone that we take a part of that.

I would just add that it is a royalty credit. So Pembina does not pay royalties; producers pay royalties. So you have to align yourself with a producer who gets that credit against royalties. So producers also will share in that benefit. And in this market, you all know what the prices of propane are. I think they do need support to produce that propane.

And -- so I would say that while it is somewhat important for Pembina-PIC joint venture, I think it is really important to producers to get that kind of support to keep producing propane.

Okay. And have you initiated conversations with potential customers yet? How do you think that -- how do you expect that to shape out in terms of the customer base? Is it Ontario-based? Are we looking at an aggregate area? Is it looking at sort of more concentrated? Maybe a little bit more color on that.

We are just in the very beginning. We have got a kickoff -- kickoff meetings have been held. That is one of the conversations and one of the activities that we will be ramping up here very, very quickly is to get into the market, have conversations with the polypropylene customers, distributors as well. So that is very early days but that is in the work plan.

And I would just add to that, that Canada does not produce any polypropylene. It imports 100% of its use, which is significant. So I think there is a pretty vast Canadian market available to this project.

Okay. If I may, I wanted to touch base back to the Fort Mac fires, and I think you mentioned you had a facility either 15 kilometers or 50 kilometers away. So it is still far but it is still pretty close to home. I wanted to check on the infrastructure around that area and I know this is a fluid movement here. What is your insurance packages you guys got in place are you fully protected there? And also maybe some commentary on business interruption?

If we have damage, we have a property policy that will respond subject to deductibles. If we have BI, we actually have -- if there is interruptions we have two levels of protection. One level of protection is the contracts provide for the customer to continue to pay through a force majeure. The second protection, of course, is our insurance.

One of the things to keep in mind about pipelines is they are five feet underground. Unless you are at a pump station, you can have a fire burn right over your right of way and be unimpacted, and even in some situations continue to flow depending on the specific circumstances. So unlike surface facilities, pipelines are a little bit unique that way.

So I am not really worried about financial loss at all. I am worried about the safety of our people. I am worried about the residents of Fort McMurray, and you know just encourage everybody who might be listening to make a donation to the Red Cross.

Okay. Thanks for taking my questions. Thanks, everybody.

There are no further questions at this time. I will now turn the call back over to Mick Dilger, Pembina's President and CEO.

Well, thanks, everybody. As we said, we are very pleased with our quarter. We are tracking very well longer term to our bold assertion to grow our EBITDA by the metrics we have talked about, you know, the CAD650 million to CAD950 million towards the end of 2017 into 2018. There is nothing to have us believe we cannot accomplish that goal, thanks to your support. So with that, we will sign off and everyone have a safe and enjoyable weekend.

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