Pembina Pipeline Corporation is pleased to announce that it has entered (directly and through its joint venture affiliates) into long-term, take-or-pay agreements to backstop development of new pipeline and processing infrastructure totaling approximately $1.3 billion. These agreements include related service for liquids transportation on Peace Pipeline, natural gas transmission service and fractionation services at Pembina's Redwater Facility.
The agreements include a significant milestone for Pembina - the first integrated deal utilizing Pembina's full value chain including natural gas gathering, processing and transmission; propane-plus and condensate transportation; and propane-plus fractionation, including assets acquired through the acquisition of Veresen Inc. in October 2017.
"These new projects demonstrate Pembina's continuing ability to leverage its existing asset footprint to respond to customers' current and future needs in a cost-effective and timely manner. This new infrastructure is indicative of the substantial portfolio of potential growth projects we have before us," stated Mick Dilger, Pembina's President and Chief Executive Officer. "These investments are directly aligned with our goals of providing sustainable, industry leading total returns to our shareholders and reliable, value added services to our customers, and once again highlight the growth potential in the liquids-rich Montney and Duvernay plays," added Dilger.
Collectively, these new projects extend Pembina's current portfolio of secured projects from $1.9 billion to $3.1 billion. In aggregate, the $3.1 billion of secured projects are expected to generate run rate Adjusted EBITDA of approximately $300to $450 million per year.
Peace Pipeline Expansions
Pembina continues to experience growing customer demand for transportation services to support development of the Montney resource play, particularly within the liquids-rich LaGlace to Kakwa corridor. Based on the need for additional capacity on the Company's Peace Pipeline system and having secured the necessary commitments under long-term, take-or-pay contracts, Pembina is proceeding with its next staged expansion of the Peace system ("Phase VII").
Phase VII includes a new 20-inch, approximately 220-kilometer pipeline in the LaGlace-Valleyview-Fox Creek corridor, as well as six new pump stations, between LaGlace and Edmonton, Alberta. Phase VII will add approximately 240,000 barrels per day ("bpd") of incremental capacity upstream of Fox Creek, accessing capacity available on the mainlines downstream of Fox Creek.
Phase VII is aimed at meeting transportation needs arising from the rapid growth of condensate supply in the Western Canadian Sedimentary Basin. Once the new condensate pipeline is placed into service, it will also divert condensate off of the existing LaGlace-Kakwa-Fox Creek corridor, creating additional firm capacity for Pembina's customers.
Phase VII has an estimated capital cost of approximately $950 million and is supported by long-term contracts with significant take-or-pay commitments. Phase VII is anticipated to be in service in the first half of 2021, subject to environmental and regulatory approvals.
Once Phase VII is complete, Pembina will have 1.1 million bpd of Edmonton area market delivery capacity across the Company's Peace and Northern Pipeline systems.
"The Phase VII expansion is a very exciting development as it caters directly to the growing demand for condensate transportation and is another step towards our ultimate goal of creating a pipeline system with full product segregation from Gordondale to the Edmonton area for market delivery," said Jason Wiun, Pembina's Senior Vice President and Chief Operating Officer, Pipelines. "We strive to be the service provider of choice for our customers who benefit greatly from the many operational efficiencies gained through product segregation, as well as Pembina's ability to leverage our existing asset base to provide reliable, timely and cost-effective solutions," concluded Mr. Wiun.
Pembina's Canadian Diluent Hub ("CDH") is capable of delivering approximately 400,000 bpd of condensate to five regional, third-party diluent pipelines and has 500,000 barrels of above ground storage. In late 2018, the Company began expanding condensate delivery capacity to two existing connections, which will increase delivery capacity at CDH by an incremental 75,000 bpd to a total of approximately 475,000 bpd. Condensate deliveries to CDH will continue to increase as volumes from the Phase VII expansion grow and Pembina will continue to develop new and expanded markets through CDH.
In addition to Phase VII, Pembina is engaged in ongoing discussions with customers and undertaking early engineering for an additional expansion of the Peace system ("Phase VIII"), which would enable segregated pipeline service for ethane-plus and propane-plus from the central Montney area at Gordondale, Alberta, into the Edmonton area for market delivery. Phase VIII would include a new 10 and 16-inch pipeline in the Gordondale to LaGlace corridor as well as a series of pump stations located between Gordondale and Fox Creek, Alberta.
Based on preliminary engineering, Phase VIII has an estimated capital cost of approximately $500 million. Sanctioning of Phase VIII remains subject to securing sufficient long-term, take-or-pay commitments and would have an in-service date in the first half of 2022, subject to environmental and regulatory approvals, as well as approval by Pembina's executive and board of directors.
Pembina's ultimate vision is to have at least four segregated product pipelines in the corridors between Gordondale, Alberta and the Edmonton area, maximizing Pembina's fully powered-up capacity of 1.3 million bpd on the Peace and Northern Pipelines, which would likely require a Phase IX expansion.
Pembina, and its 46 percent owned joint venture, Veresen Midstream Limited Partnership ("Veresen Midstream"), have executed binding agreements (the "NuVista Agreements") with NuVista Energy Limited ("NuVista"). The NuVista Agreements provide that Veresen Midstream will construct natural gas gathering and processing infrastructure in the Pipestone Montney region with Pembina also constructing various laterals connecting to the Company's Peace Pipeline system. The agreements further include liquids transportation on Peace Pipeline, natural gas transmission service and fractionation services at Pembina's Redwater facility.
The infrastructure (the "Hythe Developments") consists of several separate projects:
- an expansion (the "Hythe Gas Plant Expansion") of up to 125 million cubic feet per day ("mmcf/d") (57 mmcf/d net to Pembina), of sour gas processing at Veresen Midstream's existing Hythe facility (the "Hythe Gas Plant");
- the construction, by Veresen Midstream, of a new, approximately 60 km, 12-inch sour gas pipeline (the "Hythe Extension Pipeline") to transport natural gas from a NuVista compressor station to the Hythe Gas Plant; and
- the construction, by Pembina, of various laterals to connect NuVista liquids volumes to Pembina's Peace Pipeline system.
Versesen Midstream will provide natural gas gathering and processing for up to 100 mmcf/d (46 mmcf/d net to Pembina), under a 15-year, 80 percent take-or-pay agreement. This capacity will be provided in two equal increments, commencing in late 2020 and late 2021, respectively, with an option for NuVista to delay the timing of half of the second increment to 2022.
Veresen Midstream expects to capture additional volumes as these projects are strategically located to service other area customers and are being constructed with additional available capacity.
Collectively, the Hythe Developments have an estimated total capital cost of approximately $380 million (approximately $185 million net to Pembina) and are underpinned by long-term contracts with significant take-or-pay commitments. The Hythe Developments have an anticipated in-service date in late 2020, subject to regulatory and environmental approvals.
Additionally, the NuVista Agreements include the following provisions:
- transportation of propane-plus and condensate for delivery into the Edmonton, Alberta area. These volumes include those associated with the Hythe Developments as well as additional volumes being transported from other NuVista, and third-party facilities to Pembina's Peace Pipeline system. Transportation service is supported by 10 or 15-year agreements with significant take-or-pay commitments;
- processing of propane-plus volumes at Pembina's Redwater facilities. Fractionation service is supported by a 15-year agreement with significant take-or-pay commitments;
- transmission service, from a third-party shipper, on Alliance, for 40 mmcf/d of the natural gas processed at the Hythe Gas Plant; and
- NuVista will be constructing and operating a 100 mmcf/d compression and dehydration facility on their Pipestone North lands. NuVista has the option, to be exercised on or before November 15, 2019, to have Veresen Midstream acquire the proposed compressor station.
"Pembina is uniquely positioned to provide a full-service, integrated solution to our customer. Our ability to respond quickly with a near-term infrastructure plus transportation solution was a critical factor which enabled NuVista to advance their development by one year compared to other alternatives," highlighted Jaret Sprott, Senior Vice President & Chief Operating Officer, Facilities.
Pembina has executed further agreements ("Services Agreements") whereby the Company will construct and operate the second tranche of infrastructure development under its previously announced 20-year infrastructure development and service agreement (the "Agreement") with Chevron Canada Limited ("Chevron"). The Agreement includes over 230,000 acres of land dedication by Chevron in the liquids-rich Kaybob region of the Duvernay resource play near Fox Creek, Alberta.
Under the Services Agreements, Pembina will be developing and constructing:
- a 100 mmcf/d sweet gas, shallow cut processing facility with approximately 5,000 bpd of propane-plus liquids capacity (the "Duvernay III Gas Plant", a replica of Pembina's Duvernay I and II gas plants);
- a condensate stabilization facility with approximately 20,000 bpd of raw inlet condensate handling capacity; and
- water handling infrastructure.
The Duvernay III Gas Plant and the related infrastructure (collectively "Duvernay III") will be located at the Company's existing Duvernay complex (the "Duvernay Complex"). Pembina expects the total capital cost to be approximately $165million with an anticipated in-service date of mid- to late 2020, subject to regulatory and environmental approvals. As per the terms of the Service Agreements, the facilities will have a 20-year contractual life and would be back-stopped by a combination of fee-for-service and fixed-return arrangements. Additionally, the Service Agreements include natural gas liquids and condensate transportation on Pembina's Peace Pipeline system and NGL fractionation at the Company's Redwater Fractionation complex.
"We are excited to further support the growth of the world-class Duvernay resource play for Chevron. These agreements are a great example demonstrating our ability to align with our customer to deliver value-added, cost effective and integrated solutions," said Jaret Sprott. In total, the addition of Duvernay III will increase the Duvernay Complex's gross capacity to approximately 300 mmcf/d of sweet gas, shallow cut processing, 15,000 bpd of propane-plus liquids capacity and 50,000 bpd of raw inlet condensate stabilization. The Company's expectations for the Duvernay area remain unchanged, namely continued growth based on improving economics. "Our expanded Duvernay platform will allow Pembina to provide low cost, integrated solutions to our customers for many years to come," added Sprott.