Pembina Pipeline Corp (PBA) 2017 Q3 法說會逐字稿

Good morning. My name is Stacy, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Pembina Pipeline Corporation 2017 Third Quarter Results Conference Call. (Operator Instructions)

Scott Burrows, Senior Vice President and Chief Financial Officer, you may begin your conference.

Thank you, Stacy. Good morning everyone, and welcome to Pembina's conference call and webcast to review highlights from the third quarter 2017 results. I'm Scott Burrows, Pembina's Senior Vice President, Finance, and Chief Financial Officer.

On the call with me today are Mick Dilger, Pembina's President and Chief Executive Officer; Stu Taylor, Senior Vice President, NGL & Natural Gas Facilities; Jason Wiun, Vice President, Conventional Pipeline; and Cam Goldade, Vice President, Capital Markets.

Before passing the call over to Mick for a review of the quarterly highlights, 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 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.

We also mention non-GAAP measures for the results of Veresen, which are measured differently from ours. Our press release for the third quarter explains how the Veresen non-GAAP measures are calculated.

Actual results may differ materially from the forward-looking statements we may express or imply today. Over to you, Mick.

Thanks, Scott. Good morning, everyone. Before I begin discussing the quarter specifically, I'd like to make some overarching comments on the extraordinary achievements by our company. The past few months have been some of the most exciting ones in our company's history. Not only did we place over $3 billion of new assets into service, we also closed a $9.4 billion acquisition of Veresen on October 2.

2017, truly marks a transformational year and has positioned us as the leading North American energy infrastructure company.

In terms of the Veresen acquisition, the integration is progressing very well. Within days of closing, we welcomed the former Veresen staff into their new home at Pembina offices and have since been working under the same room. Financial and operational integration is progressing well, and we expect to be largely complete by year-end.

With respect to the Canadian Competition Act, Pembina continues to work with the commissioner of the bureau and the staff post-closing relative to the Alberta Ethane Gathering System and their review relating to AEGS is ongoing.

I'd also like to take a moment to applaud our teams on a job well done. The last few years have been fast-paced and there has been a great deal of change at Pembina. Our staff across the business have risen to these challenges, and I'm truly impressed by their dedication and commitment of our people who make our success possible.

Now moving on to our quarterly discussion. I'm happy to report that we [again] achieved record financial results for the quarter. On a year-to-date basis, we set new financial records, including adjusted EBITDA, adjusted cash flow from operations and adjusted cash flow from operations per share. We've again set new volume records in our Conventional Pipeline business, largely due to placing our Phase III Expansion into service, which has now operated for one full quarter and has continued to ramp up.

Our Gas Service business unit continues to produce strong results as well.

I also want to touch on our safety performance, as this is a core priority at Pembina. During the quarter, we unfortunately had one of our employees have a not-at-fault lost-time incident. Previously to that, our employees had worked 14 consecutive quarters, totaling over 9.7 million hours without any lost-time incidents.

The safety of our employees is a paramount to our success, and we will continue to strive to have best-in-class performance in that regard.

I will now pass the call back over to Scott.

Thanks, Mick. As Mick mentioned, Pembina achieved operational and financial records in the third quarter of 2017. Adjusted EBITDA was $365 million for the third quarter, a 27% increase compared to the same period last year and an all-time quarterly high as a result of stronger performance across the businesses.

The strong business performance is driven by new assets being placed into service, stronger commodity prices in the NGLs and increased revenue volumes, partially offset by higher G&A and net finance costs, which resulted in adjusted cash flow of $314 million for the quarter, which was a 26% increase over the same period last year.

On a per share basis, adjusted cash flow was $0.78, a 22% jump compared to the third quarter of last year. Adjusted cash flow was also positively impacted by increased current tax recoveries.

Earnings were $107 million during the third quarter of 2017, compared to $120 million for the same period of 2016. In addition to the factors previously discussed, which contributed to higher gross profits, earnings were partially offset by higher G&A, higher net finance costs and other expenses. Earnings were also impacted by a loss on commodity-related derivative financial instruments of $61 million.

We achieved a new quarterly revenue volume record on our conventional pipeline of 780,000 barrels per day, a 21% increase compared to the same period last year. Higher revenue volumes were realized due to increased throughput resulting from new connections as well as a full quarter contribution from the Phase III Expansion which was completed at the end of the second quarter and ramped up throughout the quarter.

We expect revenue volumes to continue to increase through the next 2 quarters and further again during the first quarter of 2019.

Operating margin in Conventional Pipelines increased by 44% to $174 million for the third quarter, as a result of higher revenue due to increased revenue volumes for new assets being placed into service, combined with lower operating cost due to lower geotechnical and integrity spending.

Our Gas businesses processed solid quarterly revenue volumes of 1.02 bcf per day in the third quarter of 2017. Revenue volumes were 15% higher than the comparable period in 2016. Increased revenue volumes from new assets and the Kakwa River acquisitions translated to operating margin of $66 million for the third quarter, 27% higher than comparable quarter last year.

Operating margin for our Midstream business was $125 million for the third quarter, which was 18% higher than the same period last year. The increase was primarily driven by the startup of RFS III and CDH at the end of the second quarter, and improvements in commodity prices throughout the year. This was partially offset by lower NGL sale volumes due to lower supply volumes and downstream curtailments and lower revenue for marketing opportunities compared to the same period in the prior year, as well as losses on commodity-related derivative financial instruments.

During the third quarter, we entered into commodity-related derivative financial instruments to economically hedge operating margin derived from the spread between the value of natural gas liquids and natural gas. We have now de-risked approximately 18,875 barrels per day of propane-plus frac spread through March 2018, at a margin of approximately $31 per barrel excluding basis differential and costs.

In our Oil Sands business, we continued to see performance in line with previous periods as expected. With the closing of the Veresen acquisition on October 2, Veresen's financial and operating results for this quarter are not included in Pembina's third quarter results. However, we are pleased to report that the Veresen assets continued their strong 2017 performance during the third quarter, generating a proportionately consolidated EBITDA of $164 million for the third quarter.

Alliance Pipeline continues to benefit from high seasonal and interruptible volume demand during the quarter, driven by curtailments and outages on other egress options out of western Canada and a wide Chicago to AECO price differential.

Additionally, Aux Sable earnings benefited from improved frac margins as well as the ability to recognize the margin deferred in previous quarters due to the results of the annual nature of margin sharing agreement with the counterparty.

As previously announced, with our continued success and financial strength, we were also proud to have increased the divided by 5.9% in conjunction with the closing of the Veresen acquisition. This marks the second increase to our dividend this year, with a total increase of 12% in 2017.

Pembina remains well-positioned with one of the strongest balance sheets among our peers. As of September 30, 2017, Pembina's debt to trailing 12-month adjusted EBITDA ratio was 3.7x.

I will now pass the call over to Jason, who will provide an update on growth projects within our condensate and crude oil value chain.

Thanks, Scott. Good morning, everyone. At the end of October, we were pleased to place our NEBC Expansion into service on time and on budget. This expansion is underpinned by long-term, cost-of-service agreements and adds approximately 75,000 barrels a day of transportation capacity to B.C.'s liquid-rich Montney.

In conjunction with this expansion, we also placed the Altares Lateral into service on time and on budget.

On November 1, Pembina took over operatorship of our Vantage Pipeline system which was previously operated by a third party. We believe over time we'll be able to drive cost synergies on this system which will flow through to EBITDA.

We continue to progress our Phase IV and V expansion which will support the growth and the prolific Montney Deep Basin and Duvernay plays. In addition to these expansions, we also continue to have the ability to further expand capacity in the Fox Creek and Namao corridor to approximately 1.2 million barrels a day, by adding additional pump station.

I will now pass the call on to Stu, who will provide an update on growth projects within our NGL value chain.

Thanks, Jason, and good morning, everyone. On November 1 of this year, we were excited to have placed our Duvernay complex into service ahead of schedule and under budget. The complex includes a shallow cut sweet gas processing plant with net capacity of 75 million cubic feet per day, connecting pipelines in the associated Field Hub infrastructure.

Continuing with the Duvernay play, discussions surrounding our 20-year infrastructure development and service agreement with a multinational, investment-grade customer, are progressing, and we are confident that we have more details to release relating to this agreement over the coming months.

Moving on to our PDH/PP Facility. In October, our 50/50 JV entity, CKPC, executed the primary FEED contract for our proposed PDH/PP Facility with a leading global engineering firm. CKPC also recently entered into a Municipal Improvement Agreement with Sturgeon County, which is where the proposed PDH/PP Facility would be located, adjacent to Pembina's Redwater complex.

Our West Coast propane export strategy is continuing to progress. We are currently consulting with key stakeholders for the proposed Prince Rupert Terminal, and are working to complete the design and engineering requirements and obtaining regulatory and environmental permits. We continue to advance the construction and commissioning of infrastructure in support of the North West refinery. Commissioning activities are now over 50% complete, and we expect the project to be placed into service by the end of 2017.

In terms of our recently acquired Veresen assets, both the Tower and Sunrise gas plants were put into service during September, ahead of schedule and under budget. We are also expecting to place the first 200 million cubic feet per day processing train at Saturn into service this month, ahead of schedule and under budget.

Combined, Veresen Midstream will have placed 800 million cubic feet per day of gas process capacity into service during 2017. The second 200 million cubic feet per day train at Saturn is expected to be placed into service in the first half of 2018.

Lastly, during the third quarter, the Jordan Cove LNG project officially filed its application with FERC, and we would expect an outcome sometime during the latter part of 2018. With regards to Jordan Cove, we continued to engage potential customers and we remain excited about the potential of this project.

Thanks, Stu. We are pleased with our strong financial and operational results over the third quarter. This quarter truly marks an inflection point in our company's history. Looking ahead, we are focused on completing our secured growth projects on time and on budget, and converting our unsecured opportunities into secured projects, as well as working to integrate Veresen and realizing near-term expected synergies, all while continue to support our dividend and create value for shareholders.

We are proud of what we have accomplished and are excited to continue realizing the benefits of our hard work.

With that, we'll wrap things up. Stacy, please go ahead and open the line up for questions.

(Operator Instructions) And our first question comes from the line of Jeremy Tonet of JP Morgan.

Just wanted to start off with the Phase III ramp as you talked about here. It sounds like it could go into the beginning of 2019. And was wondering if you could provide more color with regards to the degree of the ramp? Is it more kind of front-end loaded here or back-end loaded? How should we be thinking about this now that you've had kind of one quarter under your belt here?

Hey, Jeremy. It's Cam speaking. Yes, I think the ramp, from our perspective, is relatively consistent. I mean, we've pointed to the disclosure. This quarter, what we saw, obviously, we had some one-time adjustments that boosted the Phase III volumes, the revenue volumes for Conventional slightly in this quarter. But we expect to see a pretty consistent ramp through the next couple quarter. And then, as we said previously, leveling off and seeing another step function in '19, as some new contracts kick in.

Okay, great. Thanks. And turning over towards the NGL (inaudible) [marketing there]. Seems like there was some nice upticks quarter-over-quarter. And was wondering what you could share there? How you think about the run rate, especially on the Crude Oil side. You had talked about the 160 to 180. Is that something you still think about in a normalized environment? And that'd be a big uptick in 4Q. How should we think about that? NGL margin had a good step up quarter-over-quarter. Propane prices have really shot up. But there's some backwardation in the market structure now. So any thoughts you can provide for us there on those line?

Jeremy, maybe I'll start on the Crude Oil side. I would say on a normalized year, I think that we're still comfortable with what we've talked about. Now, that being said, I wouldn't expect a significant increase in Q4. Now that we're already a month into it, we haven't seen anything in the differentials that would make us believe that Q4 would be any different than what we've experienced on a year-to-date basis. On the NGL side, obviously strong Q3 as frac spreads were very wide with what's going on, on the AECO side. That being said, our Q4 and Q1 will be tempered, obviously, with the hedges that we've put in place. So we're comfortable with the hedges that we've put in place and locking in margins significantly above historical numbers. But they will be tempered somewhat by the hedging. Now, that being said, we are not hedged, obviously, at Aux Sable, so we will continue to see strong results coming out of that asset base as well. So everything is shaping up for what looks like a nice Q4 and Q1, with where propane inventory levels are and current pricing are. But we do acknowledge that the current forward strip does have backwardation, which I'm not sure we fully believe it yet, but it does moderate our complete 2018 outlook just with the way the strip is.

That's helpful. Thanks. And just want to touch on Veresen a bit more here. This really kind of your first opportunity, I think, to talk more about the synergies on the commercial side. Was wondering if you could address more where you guys stand right now? Do you see more opportunities than when you first started? Or is there anything that you can say now that you couldn't say before, now that the deal has closed?

We're going to stick to the script so far, Jeremy. We disclosed 75 to 100 of cost synergies. We actually had that discussion with our board yesterday. We think that's still about the right range. But recall that was our base case synergies on things that we thought we had complete or at least a strong degree of control. Now, our development case, we certainly think there's cost opportunities and revenue opportunities in the joint venture assets, I'll call them that, Alliance and Aux Sable and our Midstream joint venture. But we aren't in complete control there, so we've been reluctant to quantify something we can't control. But certainly there are opportunities not necessarily in the near term, because we've got to get to know our partners. But over the medium kind of a year out and beyond, I think for greater synergies than in the base case of that kind of 75 to 100 range.

That makes sense. Thanks. And then just one last one, if I could. It seems like there are some Midstream packages out there from some of the producers either building assets or them selling assets. Just wondering if you could update us on how you think about the market right now? And do you see opportunities that could make sense for you guys?

I'm going to start out, then I'm sure Stu will add something. The way we are structured, notwithstanding we've taken a big bite, the integration is going, honestly, extraordinarily well. And it's because we've built a capable and resilient company, including back office. So Veresen's sliding completely within our existing systems. We'll be able to shut down all their computer systems by the end of the first quarter. Everybody's over here. So what that means is that we're still open for business. And our business units each have their own mind and management and capability. So just because we're doing something corporately or one business unit isn't busy, it doesn't mean our other business units can't continue to transact. And we purposely set ourselves up that way. So we're still open for business. But maybe I'll let Stu talk about specific opportunities.

Well, we don't -- and I won't start from specifics. But in general, I think, as Mick described, we continue to look at and evaluate opportunities that must fit within our investment criteria and areas that we like. We spend a great deal of time focusing on the geology and some of the packages that are believed to be out there. We do like their location. So we will continue to look and put effort into that. Then, if it makes sense, we'll pursue that. But at this point we're busy with what we have and are continuing to look for new opportunities already.

Your next question comes from Benjamin Pham with BMO.

Following on the last question about the ramp up on Phase III, is the ramp up, is that primarily driven by contractual increases that you have embedded each quarter? Is there sort of an element of volumes that need to flow through the system?

This is Jason. Yes, it's a bit of a combination. It's predominantly the ramp that Cam referred to in 2018, and then another one in 2019. It's really driven by the contractual profile which are done on an annual basis. So every January, our contracts ramp up to the new volume profiles. And then underlying those, the physical volumes sort of follow those trends as we build up towards the contractual capacities that we've contracted.

And can I ask, is Phase IV and V, have a similar type of trend?

Yes, they would. I guess they form part of the basis of the growth that you see in 2018 and '19.

Okay. All right. My second question, some commentary about Jordan Cove and regulatory filings. And I'm wondering more as you're looking at that project now from your lens, as you're looking at it, anything differently than how the predecessor looked at it? And is there any sort of [VD] cost that you could be moving around that's reflected in that synergy expectation that you have?

Well, let's just start at the start and we'll get to your question. When we combined with Veresen, certainly we were aware of that opportunity. Again, the way we evaluate things is we have a base case and a development case. In our base case, we did not subscribe value to that asset; we were neutral on it. And we really were new to that space entirely. However, in our development case, we did see the opportunity there. I would characterize where we are now as having gone from neutral to favorable on the project. We have been kind of around the world meeting with potential customers. And it does seem to us that the timing and location of the project are favorable. And we are seeing quite a substantial interest in the project. In terms of what's different, obviously, the scale capability, operating capability, construction capability of Pembina, the balance sheet, make the project quite a bit different. And I would say the team, the existing Jordan Cove team had an extremely strong handle on the plant itself and have a class 2 cost estimate. So we're very comfortable with that. But what we bring is the ability to construct that pipeline and all that's associated with the pipe. So from the perspective of the Jordan Cove team, they welcome the capabilities that Pembina brought. Stu?

Yes. Ben, it's Stu. We're excited. I think we were lucky to inherit through the acquisition this great LNG team down in Houston. They've been working extremely hard to progress this project. As mentioned, the FERC application has recently been filed; 31,000 to 33,000 pages of documentation as part of that filing. We've progressed the engineering on, as Mick says, the plant side to a class 2 estimate. We're very comfortable. We're working hard on the pipeline side. And simultaneous to all the engineering work is route; on our consultation meeting along the right-of-way and individuals, and are hoping to make some good progress coming up in the last part of '17 and into 2018. All-in-all, I think as Mick described, our view of the project is moving from neutral to favorable. We like the opportunity. We believe it competes very, very favorably with LNG exports out of North America, and particularly off the west coast of North America.

Your next question comes from Rob Hope with Scotiabank.

On another potential Veresen project, just want to get your thoughts on Alliance. We had another strong quarter. There seems to be quite a bit of demand there, just given some pipeline constraints. Can you update us on your thoughts on contracting that pipeline as well as expanding it longer term?

Well, certainly the market predisposes that pipe to have the ability to recontract and expand. I mean, the AECO pricing situation versus Chicago create quite a bit of differential. And so it is a hot commodity. We are just starting to get to know the Alliance team and our partners at Enbridge. And so I don't want to go too far in terms of what's possible there yet. Jason, you went to your first board meeting. What are your thoughts?

Yes. I think it is early days. I think our focus now at the beginning are probably on the cost synergy side of the equation and trying to see if there's opportunities there. And then as we're, like Mick said, we're really just learning the market and learning the assets. I think over the next month or 2, I'd say we're going to get to the point of understanding the asset and market a little bit better and knowing where we're going with it from that point.

I mean, we obviously would love to see the pipe recontracted long term, according to our investment criteria. So you already know what we'd like to do. I think that it's more what we've done on Peace and all of our other assets.

All right. That's good color. And then switching gears a little bit. Since putting our your indicative 2018 EBITDA guidance, we've seen a number of tailwinds to your business, whether it be commodity pricing, some projects entering service quicker than anticipated, as well as some strong volumes. Just want to get a sense on how you're looking at your 2018 guidance levels from here.

At this point, Rob, there is no change to those levels.

All right. That's good. And then one last follow-up. Just you mentioned the kind of contracting profile of Phase III. What about RFS III? How should we think about the kind of contractual volumes ramping up there?

So on the contractual volumes there, there really is no shape to that asset base. It really is, the contract kicked in with the in-service date. And recall, it's entirely completely contracted 100% take or pay. So we're getting paid for every barrel of capacity there right now. Physical volumes are lower than contractual volumes and, therefore, we're not able to touch as many physical barrels on the marketing side as we'd like at this point. But assets are ramping up. The assets we combined with on Veresen Midstream, for example, are coming on. And they're kicking off a lot of liquid. Duvernay's kicking off a lot of liquid. So we think that notwithstanding it's full contractually, that we'll get a tailwind from increased marketing volumes over the next 1 year or 2, as these different plays develop.

And your next question comes from Robert Catellier with CIBC.

I was just wondering if you could discuss which of the Veresen projects interest you the most at this point.

We like them all. Honestly, the Veresen folks did a masterful job recontracting AEGS. So that's like an oil sands asset. It's reconstructed full for 20 years. Alliance, the market [that] puts us into, we like a lot. We like the fact that it gives us a gas leg to our commodity diversification and additional customer service offering. So we like it. Frac spread assets like Aux Sable, sometimes you love them, sometimes you hate them; right now, we love them. And really impressed with the leadership at Aux Sable and the attitude of the people there and their ability. So like that asset. The Veresen Midstream, we've taken over the Hythe Steeprock operations. At some point in the future, envision taking over the Dawson operatorship as well. And the Cutbank -- or the Encana Mitsubishi partnership is strong and growing that asset. So really, they're doing well. I think the results speak for themselves there. And of course, Jordan Cove, we've talked about going from neutral to favorable. Clearly, it's a huge project and we're looking at it carefully. It does have a significant burn rate and we need to evaluate the risk reward profile, and that's part of what we're going to do in our 2018 budget cycle.

Okay. And then on the NGL hedging strategy, the barrels you hedged over the next couple quarters, how much is that as a percentage of your exposure? And what would you say the strategy's going to be sort of medium and longer term? You have more frac spread exposure with Aux Sable, obviously. But you're also a much larger organization, which could, arguably, carry a little bit more volatility.

Rob, it's Scott here. So on the overall hedged position, on the Empress East barrels, we are largely hedged; call it close to 90% of our term sales. Now, that being said, to the extent we have incremental spot sales, those are unhedged. And then very little on the Redwater side. So on a combined basis, we're probably somewhere in the neighborhood of 50% to 60% hedged on the propane barrel. Now, just to be clear, that is on the legacy Pembina assets. As I mentioned previously, Aux Sable is unhedged. So on an aggregate basis, we're probably in the neighborhood of, I'm going to say 25% to 35% hedged on that. And that just really goes through Q1 of 2018. We are relatively unhedged for the balance of 2018. In terms of the longer term strategy, I'd say your question is bang-on and something that we're discussing as an executive team right now. So I don't have a good answer for you. But as we do look forward, we're seeing probably less and less reasons to hedge, given the size of the company and the balance sheet that we see today.

Yes. 2018, we're north of 85% fee-for-service. And that's, by contrast, in 20, kind of '15, '16, we needed some of our commodity-exposed stream to pay our dividend. And clearly, the need to hedge when you're using some of your commodity-exposed cash flow stream to pay your dividend is completely different than where we sit now where we have a relatively comparatively low payout ratio coming completely out of our fee-for-service. It does really mitigate the need to hedge at all. But we're going to, as Scott says, do a kind of risk reward. In fact, I think -- is that meeting next week? It's coming right up. So we should be able to give you more color here by the next quarterly call.

Okay. And then just a similar type of question on PDH. You've been very disciplined in your guardrails in terms of risk reward and things you're willing to do. But the same sort of logic might apply here as you're a larger organization? Do you have a little bit more risk tolerance on the PDH and maybe have to have less of it contracted before reaching FID, knowing you'd still have a chance to backfill some of the contracts during the construction period? Just that you're a larger organization now, you might have more appetite there?

Well, you know our straw dog remains 50/50. And you're bringing up an interesting point. I mean, with our size, we could do the whole thing at risk and still stay well within our guardrails. But the way we think about it is, we don't want to drop from 85% right to 80% and use all of our room, so-to-speak, on one project because there are other opportunities where we might want to take an 80/20 risk profile. So our straw dog remains 50/50 for that project. We're gaining confidence that the 50% fee portion is possible and we could even go north of that. But at this time, we're still using that straw dog. And, of course, even though that is a material project for us at $2 billion our share, it does not really put a dent in the guardrails in terms of our fee-for-service component, given our larger size.

Your next question comes from Andrew Kuske from Credit Suisse.

I think my question's probably for Mick. And obviously, you just closed the Veresen deal. You've got a broader portfolio of assets on what was already a pretty big footprint in Western Canada. But when you look at your network of assets and just the capital that you're allocating in the future, really, what's missing in your portfolio at this stage? So if you had your wish list out, what would you want to put on the portfolio, whether organically building it or buying it? What's really missing in the value chain for you?

Well, I think it's what every person in the energy business in Alberta wants for Christmas is to access the global market. When we see the gas price in Tokyo and reflect on what that could mean, we could net that back to Western Canada through Jordan Cove and associated pipelines or the propane price, what that means to Western Canadian producers if we can get world pricing, or world pricing for polypropylene. If [Gamina] and others that we wish well, actually sincerely, can connect Western Canada to the rest of the world, that's really the Christmas present we all want and we think is fantastic for our industry, but also for all Canadians. The amount of money that we are leaving on the table as a country, it's absolutely sad. We're a single customer industry, and that's just got to change. So that's the biggest thing that's missing, from my perspective.

Okay. That's helpful. And when you think about the Christmas list and potentially getting that present, I mean, you've had experience in the past in trying to push things off of the coast and what happened in Portland. Just maybe give us your thoughts on just the regulatory side on how your process has changed for pushing forth regulatory approvals, because you've got a couple really interesting projects which would accomplish your wish list.

Well, in terms of our Rupert terminal, it being in Canada, we've been out there for a long time, I'm feeling pretty confident that we've learned what we didn't know 2 or 3 years ago. And in terms of Jordan Cover, to echo Stu's comments, there's a super talented, knowledgeable team. The environment in the U.S., the regulatory political environment, you need years of experience in that arena. And our talented folks out of Houston have that experience and as do some of our new board appointees. So we have structured at a management level and a board level to have expertise. And from what I see, the past challenges with the FERC application for Jordan Cove have been fully addressed. And so we added a lot of smart people to the team that should enable us to be successful both in Canada and in the U.S. Stu, what would you --

Yes. I think we learned and we've taken those learnings. We are trying to reach out, a more local presence in all our projects. We're out discussing our projects with the locals. We are listening to them, trying to work with them and trying to address issues that are there. Our Watson Island, our Prince Rupert export terminal is on city-owned land. It already has an existing dock that we're working with. So we're trying to avoid some of the challenges that we face in that area. So all the learnings that we've taken, Andrew, we've tried to apply to the on a go-forward basis. None of them are easy, and it takes a lot of talented people and hard work to get to where we are today.

I think the biggest single thing is the local support that Jordan Cove and the Prince Rupert locations have. We thought we had that in our Portland endeavor, but it turned out that it wasn't as broad as we'd hoped. But at Rupert and in [Kusay], there is overwhelming local support. And these are viewed both, respectively, as transformational projects for the community. And really, local support is key.

Your next question comes from Robert Kwan with RBC Capital Markets.

You had a comment earlier on the Duvernay, expecting more in the coming months. Obviously, you don't want to get too granular. But can you just comment on what some of the recent pace of discussions has been under the existing gas infrastructure agreement there?

We're meeting regularly with our counterparts. We're optimistic and working well together. And we expect before year-end to be coming forward with proposals and plans and announcements to the community.

And is that a little bit faster than was initially anticipated?

Right in line, I think is what we had thought. There's no change there. And again, we continue to work. I think it's actually quite encouraging to work with some of our counterparts; they're very disciplined. And we're following a process that was laid out through negotiations of proposals, both production forecast timing and proposals on our part. So we are following a process that was laid out entirely in the conversation.

You might not remember this, but it's been 3 years. So when you say it's happening a little faster, we have to remember we've been at this for 3 years. So it is evolving as expected.

Sure. I was just thinking about the formalization of the agreements, and I thought at the time maybe it was kind of a 12-month thing, so. There's been a number of gas processing announcements, (inaudible) [Pipestone] by other parties. I'm just wondering, what's your pipeline takeaway or available takeaway capacity for liquids coming out of the region on your system?

This is Jason, Robert. The takeaway capacity is really that's the point of our Phase V Expansion, is driving a 20-inch pipeline out to Lator and debottlenecking that whole area. So we have lots of running room in that area. I think we're not concerned once we get the Phase V Expansion in place about capacity in that corridor.

Okay. And I guess just maybe to clarify on that, given a lot of -- well, those plants are really third-party plants, there's no concern, from your perspective, on the competitiveness of moving those liquids versus a competing liquids proposal?

I mean, we're always aware that it's a competitive market. So obviously we look at all the alternatives and evaluate them when we're proposing commercial deals with our customers. So to date, we've been pretty successful, and I think we would expect to be that way as we go forward.

Robert, we're not -- I mean, for the customers who are bringing us a lot of volume, we can have very sharp pencils. And we do offer volume incentives and we have multi-product service and expansion rights, step-up rights, all those kinds of features that we think keep us aligned with our customers. So we're certainly not deaf to the fact that we need to, as the pipe ramps up, we need to keep our [holes] very competitive and that some of the upside we can experience from filling pipes, we need to share it with the producer community.

Got it. And if I can just finish on Alliance. I'm not sure if it's too early at this point. But do you have a sense as to where the seasonal firm might be shaping up for this winter, at least directionally versus where it was last winter?

We don't yet. I think it's a bit early. We will probably have that answer next quarter, though.

I think the only thing I'd add to that is the pipe is running pretty much full every day. So I think that's a pretty good sign for that.

Okay. So do you expect actually much in the way of seasonal firm capacity be available? Or is it all being eaten up by the priority interruptible?

I think it's too early to speculate. Give us another quarter, please, Robert.

Your next question comes from Linda Ezergailis from TD Securities.

I realize it's early days. But I'm interested in getting some sort of conceptual understanding of the nature of additional synergies that you might realize from JVs that you now have through the Veresen acquisition or even beyond that. Would some of those potentially be related to financing, having balance sheet room incrementally, or any sort of tax synergies that you're looking at? And how might -- and again, I realize it's really early days. But how might U.S. tax reform affect how Pembina looks at your U.S. operations, if at all?

Linda, it's Scott here. So on the financing side, I do think that we're evaluating using Pembina's balance sheet and size in the market. So we'll be looking at some of the opportunities at both BMLT as well as Alliance, to leverage our cost of capital. We definitely think that there are some opportunities there. We're also, as we laid out in the original press release, evaluating the opportunity to accelerate some of the taxable usage at the MLP and other assets to help shelter some of Pembina's more near-term tax profiles. So both of those are actively being worked on, and we'll probably have more to say on that at Q1 and our ability to actually affect those changes. But those are definitely things that we're currently working on.

And in terms of the business -- sorry if everyone's getting an echo. But in terms of the business, we have a lot of capability, pipeline integrity, financing. The list goes on and on. At Pembina, as does Enbridge in the jointly owned asset. So we're looking for synergies there in terms of shared services. We have a shared service agreement with our Veresen Midstream LP joint venture; we have an agreement in place already. So those are things that we're going to discover over the next year together with our partners.

And have you started monitoring the potential for U.S. tax reform and how it might influence how you either operate your existing business or expand into the U.S. over time?

I would say we haven't looked at the longer term strategy yet in terms of entering the U.S. I mean, at the end of the day, we make decisions based on the business rationale, not the tax rationale. So that would be a nice win, but it's not going to change our thinking in the short term. That being said, we are looking at how our assets are structured, both ours and the Veresen assets in terms of optimizing our tax profile in the U.S. Certainly it's a win, especially when you look at something like Jordan Cove. It does have a positive impact on the economics. It's not something that we're counting on, but it would be a nice upside.

(Operator Instructions) Your next question comes from Jeremy Tonet^ from JP Morgan.

Just one quick follow-up here. Granted, you guys have lots of irons in the fire, based on everything we've discussed this morning. But it does seem like there are some unique opportunities out there south of the border where the market's really forcing MLPs to move towards a model like yours with a lower payout ratio and bringing down leverage. And as such, this is really kind of forcing some really good assets to the market. Just wondering if you could refresh us as far as your thoughts for further expansion down there? Granted, you guys have a lot going on right now.

Jeez, Jeremy. We just closed a $9.4 billion acquisition 3 weeks ago. Like I said, we're capable of evaluating multiple opportunities. We're going to take a minute, though, to fully understand Alliance, what its role is in the U.S. market, what other pipes might be synergistic. We have Ruby. Ruby's a great asset, [a preferred] cash flow stream. What's going on in the Rockies? What other assets might be synergistic? Now we have gas egress through Alliance and ethane egress out of the Bakken. What are the synergistic -- you know our plan is always to try to vertically integrate and physically connect our assets and our operations. So we're going to need a minute to see which assets out there have those characteristics, and that's where we'll start looking.

That makes sense. I know you guys have a lot of irons in the fire. But I just wanted to ask the question given it is kind of a unique point in the market right now with the strain some MLPs are under. So thank you for taking my question.

[100%]. Thank you.

Your next question comes from Elias Foscolos from Industrial Alliance Securities.

I've got a couple questions. The first one is on the ramp up of the annualized synergies from Veresen. Do you think we'll see that occur linearly over the next 12 months? Or might it take a bit longer?

Well, some of them are chunky in nature, like to the extent you can refinance some stuff, that'll come in, obviously, fully at the time that we're able to execute that. Other items such as cost synergies, I think will be more rolled in on time. So I don't think we would fully expect to get the full run rate in 2018. It'll ramp up through 2019.

Okay. Thanks for that clarification. The next one is sort of a segmented question on Gas Services. We saw a relatively flat performance sequentially Q2 over Q3. Given the projects that are coming online, will we see more of a step in Q4, Q1, or will it be sort of a combination?

I'll jump in, and then maybe Stu can add any color if he'd like. I mean, I think, yes, it was flat quarter-over-quarter. But we actually think that that was a very positive outcome, just given the dynamics in the market in terms of curtailments and pricing. So from our perspective, our flat quarter-over-quarter was a fantastic result. We did, as we talked about, put our Duvernay I into service. We are seeing volumes build quite strongly in that plant. So for sure, we will see volumes in that business unit go up just from that plant alone. And then, of course, the MLP has put in a significant amount of infrastructure in late September. So if you look at the BLMT results in Q4, they should be significantly above where they were at in the previous quarters.

Okay. Thanks. One more questions. In terms of just segmented results going forward, do you anticipate any change in how you might segment or provide segmented results going forward with the Veresen acquisition?

Absolutely. So it's really going to be a 2-phase approach. So our Q4 results will really be Pembina plus the Veresen assets as a standalone, similar to how we reported the Veresen results in our Q3 report. In Q1 of 2018, we are changing our segmented reporting in terms of where the assets sit and how we're going to report. I'm not going to delve too much into that, because we'll be working with the investment community over the next several months to seek advice and input. That'll really be under Cam's accountability. And then once we're through Q4, we will be working with the Street and the investors to kind of give them an understanding of where we're going to people can be ready for our Q1 results. So by the time the Q1 results roll out, nobody should be surprised with how we're going to report it. We're going to have an active communication strategy around that.

Okay. Maybe one more question. And thanks for that. And it has to do with how I'll characterize 2018 and 2019. 2018, if I would characterize that as a year of sorting through and working through the acquisition of Veresen, going through the closet of projects, and then, towards the end of '18 and into '19, it's sorting out which projects will sort of go ahead with and sort of back to organic capital, as I call it that. Would that be a very good way to characterize the next 2 years?

You know what? Maybe. The way things have gone, and like Jeremy's question previously, we're always on the lookout. So all those things you described are going to happen. But if the right opportunity comes along, Scott and Cam have kept our balance sheet extremely strong and we have tremendous access to a capital market. So we can respond for the right asset. If the right asset comes along and it meets our guardrails and our investment criteria, it's synergistic, then we're going to move on that. And we have that capability. We'll be a fully restructured organization by Jan 1. And we can deal with multiple projects, multiple industries at the same time and we have the balance sheet. So you could well be right and we're going to do all the things you mentioned, but that doesn't preclude us from proactively seeking synergistic assets.

Great. Thank you very much for that clarification. That's it for me.

And there are no further questions at this time. Thank you all for joining today. This concludes today's conference call and you may now disconnect.

Great. Thanks, everyone.