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Pembina Pipeline Corp
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Good morning. My name is Adam, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Pembina Pipeline Corporation Fourth Quarter Results Conference Call. [Operator Instructions] Thank you.I'd now like to turn the call over to your host, Scott Burrows, Senior Vice President and Chief Financial Officer. Please go ahead.
Thank you, Adam. Good morning, everyone, and welcome to Pembina's conference call and webcast to review highlights from the fourth quarter and the full year 2018. I'm Scott Burrows, Pembina's Senior Vice President and Chief Financial Officer.On the call with me today are Mick Dilger, Pembina's President and Chief Executive Officer; Jason Wiun, Senior Vice President and Chief Operating Officer, Pipelines; Jaret Sprott, Senior Vice President and Chief Operating Officer, Facilities; and Stu Taylor, Senior Vice President, Marketing and New Ventures.Before we start, 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 and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations. Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please refer to the company's various financial reports, which are available at pembina.com and on both SEDAR and EDGAR.Pembina once again delivered strong quarterly financial and operational performance. Adjusted EBITDA was $715 million, a 6% increase compared to the same period last year. The increase was driven by strong demand on existing assets and increased utilization on assets placed into service in the Pipelines and Facilities division, in addition to a realized gain on commodity-related derivative financial instruments in the Marketing & New Ventures Division. While earnings of $368 million during the quarter was a 17% decrease when compared to the same period last year, this was largely due to a onetime increase in deferred tax expense relative to the fourth quarter last year, which was positively impacted by the onetime impact of U.S. tax reforms.A strong fourth quarter contributed to record financial results for the full year. On an annual basis, 2018 earnings of $1.3 billion was 45% higher than 2017, adjusted EBITDA was 67% higher at $2.8 billion and adjusted cash flow from operations per share was 31% higher at $4.27 per share. All 3 metrics set new records for Pembina. These results are driven by the full year contribution from assets included in the acquisition of Veresen in October of 2017, in addition to $4.8 billion of new projects placed into service throughout 2017.Further, the year-over-year increase was realized broadly across the organization, with all 3 divisions, Pipelines, Facilities and Marketing & New Ventures contributing to our growth.We have delivered these record results, while remaining firmly within our financial guardrails. In 2018, fee-based cash flow comprised approximately 85% of adjusted EBITDA, our dividend was supported by 75% of our fee-based cash flows, roughly 77% of our credit exposure is with investment grade and secured counterparties, and we are well above our strong BBB credit rating, with a ratio of FFO to debt of approximately 23%.As well, we finished the year with a ratio of proportionally consolidated debt to adjusted EBITDA of approximately 3.5x, below the lower bound of our target of 3.75x to 4.25x, positioning us very well for the next wave of capital spending. Recall that in December we announced a 2019 capital program of $1.6 billion and 2019 adjusted EBITDA guidance range of $2.8 billion to $3 billion.Finally, I want to note that when comparing where we are now to where we were 10 years ago, we have grown our volumes by 180%, cash flow per share by 171%, and our dividend per share by 50%. Over the same 10-year period, shareholders have realized a total return of about 380% or 17% per year, assuming the reinvestment of their dividends. We are proud of the results we have achieved over this period and look forward to continuing to deliver for our shareholders.Now I will turn things over to Mick to share his perspective on 2018 and our strategy to access global markets.
Good morning, everyone. Thanks, Scott. 2018 was, simply said, an outstanding year for Pembina. We placed approximately $900 million of projects into service, and secured over $1.8 billion of new capital projects. In 2019, we have already added Phase VIII Peace Pipeline expansions as well as sanctioned our PDH/PP facility bringing our total capital backlog of secured projects to about $5.5 billion.In 2018, we saw the first full year of contribution from the Veresen acquisition. The acquisition was transformational for Pembina, and we are realizing the strategic and financial benefits of the combination. The Veresen acquisition was designed to offer Pembina greater diversification, and ultimately, provide our customers a more comprehensive service offering. I'm very pleased to see this vision come together with the Hythe development projects announced in November. This was the first, truly integrated deal utilizing Pembina's full value chain, including natural gas gathering and processing at Veresen Midstream, transmission on Alliance Pipeline, liquid transportation on Peace Pipeline and fractionation at Redwater. Integration is at the heart of Pembina's strategy, and we are keen to add more deals like this in the future.The prospects for future growth, both within the base business and our further extensions of the value chain are strong. Our customers continue to approach their businesses, as we do, with the long-term outlook. We are planning for continued investments many years into the future and are looking ahead for egress securities. We are able to deliver timely and reliable solutions for our customers, and our growth prospects remain bright.Finally, I want to touch on the next evolution in Pembina's corporate strategy, which we announced in May of 2018, being the move towards accessing global markets.We are pursuing new developments that will contribute to ensuring that hydrocarbons produced where we operate and reach the highest value markets throughout the world. In the past year, we began construction of our Prince Rupert LPG Export Terminal and continued to progress our work on Jordan Cove. But of course, the highlight is the recent approval of our $4.5 billion integrated PDH/PP facility with our partners PIC of Kuwait. Through this project, we will capitalize on Alberta's abundant supply of propane and undertake value-added processing that benefits all Pembina stakeholders, the Province of Alberta and indeed, all of Canada. By partnering with PIC, we combine the relative strengths of each party and substantially mitigate the risk of Pembina's entry into this new market. And as promised, we will develop this project firmly within Pembina's publicly stated guardrails.We've already achieved a level of fee-for-service of 40% and expect that Pembina's adjusted EBITDA from this project and based on ongoing negotiations, we're confident in achieving our stated goal of 50%.Through the Prince Rupert Terminal, our PDH/PP joint venture and ongoing progress on Jordan Cove, I'm pleased that we have been able to take such meaningful steps in our efforts to secure global market pricing for our customers. And we're excited to continue the development of these and other projects.In closing, I once again like to thank all stakeholders for their support. We are proud of what we have accomplished in 2018 and very excited for the year ahead.With that, I'll wrap things up. Operator, Please go ahead and open up the lines for questions.
[Operator Instructions] And your first question comes from Jeremy Tonet from JPMorgan.
Just want to check, we're a couple of months into the year here, right? And we've had the kind of the production cut in Alberta play out, a little bit here and commodity price moved a bit. Just wondering how these developments stack up versus when you contemplate your guide, if this is kind of in line with what you're expecting? Or if there's any kind of changes in your -- where you see things landing, in the upper end or lower end of the guide? Or any color you can provide on that will be helpful.
Thanks, Jeremy. This is Jason from the Pipelines Division. I think the curtailments are really focused on the producers, who produce crude oil over 10,000 barrels a day. It has an impact on some of the heavy oil producers. We're not -- on our oil sands pipes, we've seen a bit of a reduction in volume, but there -- those pipelines are operated on a cost to service, so it doesn't really have a direct impact on our guidance.In terms of the impact on our conventional systems, we're not expecting to see a very material impact to those production volumes. As you recall, those are mostly NGLs, conventional crudes and condensates. The conventional crudes are generally not impacted by the curtailments, because the magnitude is over 10,000 barrels a day of production. And then the condensate has -- isn't expected to be directly impacted.
Got you. Also just kind of...
Jeremy, overall, on the guidance, like anything on a month-to-month basis, there's a few puts and takes. But there's nothing that's materially changed since the time that we put out the guidance to impact that range.
Got you. That's great. And I was also kind of thinking on the marketing side. Just given how commodity prices have changed and relative spreads have changed, does that kind of impact your outlook or how much marketing could make up within the guidance this year?
But I think -- if you step back for a second, you think about the diversity of our marketing business and all the optionality that we have. For every spread that tightens, there tends to be something else where we can make some money. So when we set the guidance, as you move through December, maybe the marketing business would have come down, but as we've moved through February it's come back up. So we're comfortable with where the marketing is versus where we set the budget back at the end of November.
That's helpful. And then, if I look at the balance sheet, Scott, you noted, 23% FFO to debt. Clearly, things are trending up here. I'm just wondering is the target here now an upgrade, would make sense. And is that what you're kind of targeting here? Or do you see kind of more growth CapEx comprising and you just won't have flexibility? Or would it make sense to kind of step up the dividend a bit here? Just wondering how you see these options trending, given the...
So with our guardrail being strong BBB, we're really targeting something around kind of 18%, 19% FFO to debt, which is at the high end of the BBB range and our debt-to-EBITDA of 3.75 to 4.25. This year, obviously, with an outperformance of the business, it brought those metrics into ranges that were stronger than what we were targeting. But I think we're comfortable with that because as we move forward, we obviously have a very heavy capital spend, as Mick pointed out, another $5.5 billion of capital still to spend with many more projects that we're potentially considering. So it's more about positioning ourselves through the course with the multi-year build-out, 2 or 3 years into those projects you reach peak leverage with no EBITDA. And we want to make sure that the lower end at that kind of peak leverage that we're still in the BBB range. So we're more positioning ourselves to go into a capital spend from a position of strength than we are chasing an upgrade.
That's helpful. And maybe just last one, Alliance and Veresen Midstream, seems like they performed quite nicely in the quarter. Just wondering if you -- if there was anything that was onetime beneficial in nature? Or you see this kind of trajectory of growth sustainable?
Jeremy, this is Jason again. Alliance continues to perform really well. It's generally chock-full on a daily basis, has been since we've become a part owner of that asset. There's certain swings in differentials between Chicago and Alberta in certain scenarios where some of the IT volume generates some incremental uptick in revenue there. But it's nothing that I would say would be materially different than what you would expect.
And your next question comes from Linda Ezergailis from TD Securities.
I'm wondering if you've assessed the impact of the accelerated CCA incentives announced by the Government of Canada in November on your cash tax outlook in 2019 and 2020. And how we might think about that going forward?
Yes, I mean, Linda, I mean, without -- at the highest level, it's obviously positive. In terms of giving numbers, we're still working through it. It's obviously not legislation yet. So until it's passed, we would be remised to put out or revise our guidance. If it does go through, it's notionally positive. And I think, at that time, we'd, obviously, update our current tax expense forecast that we have out there. But I think until then, we'll just be cautious on that.
Okay. That's helpful context. And just with respect to your phased expansions, IV and V was slightly over budget and VI is trending a little bit over budget as well. Is it for the same systemic reason? And can we assume that for whatever reason those are slightly over budget they're not systemic and we might not see that in your subsequent phased expansions as well?
Thanks, Linda. This is Jason. So Phase IV and V were impacted by some weather constraints and access to certain sites on -- particularly, on the Phase V segment. We've gotten to the point with our pump stations that we're very, very comfortable with our ability to execute those, and we generally execute them at or below budget. The challenge, sometimes is on the pipe side, where weather and access conditions can be a problem, and that's really what happened with our Phase V portion of the project, to push some of the costs slightly above budget.Phase VI, it's a trend. We're seeing -- at the time that we started procurements on the Phase VI project, we started to see some of the contracting services slightly increased. And we've actually sort of backed off on procuring some of those services, and we're actually going out in the first quarter and looking at those again. So it's a trend. We haven't really spent a lot of the money in Phase VI yet. So we're expecting or hoping to be able to drive those down. And then we also use those higher trend costs to forecast our VII and VIII expansions. So we're pretty optimistic that we're well within target on those as well.
Yes. Linda, it's Mick. When we look forward though, we think it's more anomalous. We think we'll have a very positive trend right now on Phase VII. Phase VIII is still a bit early to comment. But over the fullness of the phases, we firmly expect to be consistent with past history, which is on time and on or under budget.
That's helpful context. And I realized that you've got a significant backlog of secured projects at this point. But I'm wondering if there is beyond, I guess, Jordan Cove, which is a focus as well, are there any significant projects that you're starting to contemplate? There's been some rumblings that maybe you'd be interested in ethane, upgrading locally in Western Canada, and might you see enough demand in your LPG export facility to consider expanding that? And how does some of the financial guardrails and your capacity as an organization both from a financing as well as resources of people and management, time affect your appetite for looking at these other projects?
Sure, I'll try to answer those 6 questions as simply as I can, but good one, Linda. I think you have a future in the parliament. So if you read the interview that Pembina did in the National Post that talked about us in terms of ethane upgrading and the rest of the sentence in that article that wasn't printed was, we were mainly interested in that as a supplier, not necessarily a partner in polyethylene. I mean, that could happen, but more as a fee-for-service supplier. Your original question is, do we see lots of growth opportunities and do we ever? I mean, there -- every division is full of ideas and it's super-exciting. We couldn't be more optimistic about the things that we can do for our customers and bring lasting advantage to our stakeholders. You're not going to be surprised when I say that everything we look at will be in the guardrails, whether it's providing fee-for-service ethane, whether it's even participating in the polyethylene plant. You know we're going to be fee-for-service guys, and gals. Otherwise, we just don't do it. You know how we finance. We're just going to keep doing what we're doing -- what we have been doing. And there's going to be -- we have no kind of new anticipated risks or doing any kind of business that would disappoint our stakeholders.
And in terms of demand for LPG, could you see one of those projects over the next little while potentially be some sort of expansion on that front or that will...
Sure. I mean, butane's -- we could see this coming, obviously. Butane is not getting good value. Propane isn't either, but we see the fix. The fix is in our LPG projects. AltaGases, the 2 PDHs. The fix is in for propane. We need a fix for butane, clearly. And we need a fix for ethane. And maybe these government grants that are being proposed will start to fix for ethane. I don't know how they start to fix for butane yet, but that's clearly on our drawing board. We need to get our customers better butane pricing without a doubt. And we'll put our minds to that.
And your next question comes from Matthew Taylor of Tudor, Pickering, Holt.
Just you talked about Phase IX there, powering up existing capacity. Just curious, were discussions are to expand and, think through, going even further northwest of Gordondale as Gundy and Hitachi, seems like they are increasingly talked about by producers and that's where the focus for growth plans is?
I'll just make an opening comment, and Jason will follow on. We started our capacity on Phase VIII. Ink's fairly dry on that press release, but there's still potential up and down, our line. And we're considering all possibilities for getting more producers volumes to market. Jason?
Yes, that's accurate. So Phase -- I think bringing on Phase IV and V and VI this year start getting us to -- at least keep up with our producers in terms of what they are producing. Phase VII and VIII give us some running room and then, after Phase VIII, when we talk about Phase IX, it's -- a lot of it's about how we operate the system and less about necessarily capacity. So we've already got with the main lines going into Fort Saskatchewan and Edmonton. We've got the ability to power up the 1.1 million barrels a day on Peace. We have room there. VII and the phases before really created access for us to get all of the volume to Fox Creek from basically, LaGlace. So when we think west of LaGlace, it's a pretty specific sort of small looping projects, pump station projects and things like that to be able to allow us to access the capacity that's east, I guess, of Gordondale. And so we are looking at those and there is a lot of activity up in that area.
Okay. That's great. And what about going further Northwest? Do you still have some room on the Northeast BC Expansion? Or would you need to look at doing some additional expansion there, bringing more BC volumes down as producers start focusing on Gundy and Hitachi.
Yes, we have the ability to power that line up. It's not anywhere near its capacity at the moment, and we do have room for contract volume, but we also have room to power that system up. We can add booster stations on it and get it up into the 100,000-barrel-a-day range.
And the contractual nature of that line is cost of service. So as -- producers can essentially manufacture their own toll collectively as they -- as Jason said, that line gets toll, the toll drops. And so the people -- the impediments people may perceive of being not far away is mitigated somewhat by tolls dropping that's why there's increase out there.
Yes. That's great color. And then one more question on ethane there. Do you have any potential to rethink or reverse Vantage, given restructuring along in Canada. Obviously, you probably need to connect into overbuild third-party pipes. I'm just trying to think if there's some way to get ethane, more ethane out of the province?
That's under a really long-term contract with the key shipper, so that wouldn't be our decision to make in the next, what, 15 years anyway. But is it physically possible? Perhaps.
And then just on NGL services, no recent uptick in volumes there quarter-over-quarter and then kind of year-over-year. But did notice kind of a corresponding marketing volume uptick. Just trying to think through that disconnect, and how we should be thinking of capturing more marketing volumes through '19 as you're processing more volumes in your facility segment?
I don't know the answer to that.
I think a couple of things. I mean, so volumes that flow through the frack, not all are pure frack spread barrels, which get the full margin. We have different marketing arrangements. Some, we have return fees, where we return back to the producers. RFS II and III are under slightly different marketing arrangements than others. And I think quite frankly, you saw prices come off pretty hard in December, so we went into -- if you follow the trend of NGLs, they tended to trend up all year. There wasn't the usual seasonality factor. So you went into Q4 with I'd say, probably higher-than-average COGS. And then what we saw in late November and all of December was pretty reduced pricing, and so that really squeezed margins for that month.
All right. Yes, that's helpful color there. And just one more on the conventional business. Can you just talk about the -- I mean, is there marginal downtick in volumes and higher OpEx? So I'm just trying to think of the main drivers there and how you're seeing those drivers potentially play out in '19.
Yes, I'll just make one comment and then, I'll turn it over to Jason to talk. I mean, no one, I think, should be surprised by the higher OpEx. If you recall, kind of Q2, Q3 conference calls as everyone was asking us about the full year guidance. We warned people that we had a pretty substantial integrity and geotechnical program that tends to happen in Q4, due to winter access only. So that's something that we had discussed pretty openly. So that shouldn't have caught too many people off guard. But maybe, Jason, will let you talk about volumes.
Yes, I think on the volume side, it's actually more related to the IFRS treatment of volumes and makeup rates. And as we go through the year, we make estimates of the rates that we expect people to be able to make up their shortfalls to take or pay. And really, the volume difference that you're seeing in the fourth quarter versus the third quarter is really accounting adjustments, not physical volume reductions.
We recognized quite a bit more in Q3 versus Q4. If you would have averaged those 2 IFRS recognitions, you would be roughly the same quarter-over-quarter, absent a marginal uptick in OpEx due to integrity. So it was -- I'd say, it's more noise than anything fundamentally or structurally wrong with the business.
Your next question comes from Patrick Kenny of National Bank Financial.
I'll let you off easy here and just 2 questions. First one, just on the contracting efforts for Jordan Cove. Given the level of interest here exceeds the capacity of the plant, is this process through the rest of Q1 simply a bidding war amongst the off-takers, and you're just letting that process play out? Or are these customers waiting for certain milestones yet, either on capital cost estimates, pipeline regulatory progress or any other state-level support that still might need to be firmed up?
Patrick, it's Stu. It's essentially -- we're turning paper with all of the parties and working through that. There's nothing on the commercial side that we're waiting for a milestone. It's a -- first one done is the price -- is to get the agreements done as fast as we can, where we continue to progress all the commercial conversations at the same time.
Okay, that's great. And the second question, now that KKR has a new partner in the Montney, wondering if that changes anything for Veresen Midstream with respect to appetite for future growth or perhaps, does this increase the tension around the ownership structure? Just trying to get a sense as to whether or not anything has changed for Veresen Midstream since that deal was announced 1 month or so ago.
Pat, Jaret here. Right now, no, it doesn't increase, I'd say, the tension within our partnership. Veresen Midstream is really focused northwest of Grand Prairie in Northeast BC with a fairly large footprint, with a great long term, 30-year area of dedication, in down where the new entity is. But I would say that gets more into Pembina's traditional processing and liquids transportation business. But no, based on your original question, we don't see increased tensions or crossing over of borders there.
Yes. The MLP is an exploitation-focused entity right now within the area of dedication. So they are not focused on new geographic areas at all. And so if you think about the Hythe project that was exploiting existing capacity. And we're [ sweating ] those assets to make them as profitable as we can with full support from our partner, KKR. But it's not a growth mandate.
Your next question comes from Rob Hope from Scotiabank.
Just, maybe a follow-up on Pat's question there. Just, we have seen some producers talk a bit more openly about willing to shed some assets. Just want to get your sense of the M&A market in Western Canada right now. And whether or not there are some pieces of infrastructure that could be of interest to you?
I mean, not surprisingly, we do look at everything. What we ask ourselves when assets are for sale is, does it make us better or just bigger. And it's a -- it really is an important question. And so if buying something just makes us bigger, not better, even if it's slightly accretive, it may not be compelling to us. We're more focused on things that diversify us at a higher level of customer service, create synergies, reduce risk, enhance our guardrails, things like that. Just adding, for example, more and more gas plants, particularly ones where we already transport the liquids and provide fractionation services so on and so forth. Maybe a little less interesting to us than projects, which have the characteristics that I just outlined.
And then, just as a follow-up. Turning your attention to Jordan Cove. Appreciate the commentary on the contracting there. But when you look at that project over the next year, what do you think the key chokepoints are and what are do you think will be the impediments to the FID there?
Rob, it's Stu. So we continue to progress our -- the regulatory process. Our teams continually are in contact with both the federal and the state permitting bodies. We're answering questions. We're progressing all the conversations. We are, again, hoping to have our commercial arrangements completed here in the first quarter. We talked about an equity sell-down process, which we will kick off very soon after that. And progress that, we hope, quickly. There isn't a chokepoint or a bottleneck. At this point, we're continuing to anticipate our FERC draft EIS here in the next few weeks, followed up by the actual certificate in 2019. And those things are all on track with what our expectations are.
Your next question comes from Robert Catellier from CIBC Capital Markets.
There's been a bit of senior management change at Chevron, and there's been some other producers leaving the basin. I wonder if there has been any change to the outlook of the rollout and the pace of the program you have with Chevron for the Duvernay?
Robert, Jaret here. No, we -- everything is business as usual. We're currently executing the first expansion for the CREO I we announced in Q4 '18, the next phase of CREO II and no -- in short order, no change.
Okay. And just for -- on the producer side, there is the Redwater case of the abandonment liabilities and things like that, and there is also IFRS 16. I'm wondering if IFRS 16 is going to require producers to capitalize the G&P arrangements or whether the Redwater case will limit access to debt and maybe curtail capital spending a bit, do you have a take on that?
Yes, I think when it comes to IFRS 16, maybe just start there, I can't speak to what's going to happen to the E&P space. From our own perspective, we have certain assets that will be leases that will go on the balance sheet, and we have some lessor arrangements as well. So we're still finalizing all of that analysis. And we'll probably update the market with our Q1 results just on the overall impact, the pluses and the minuses of that. But I can't speak from a producer's perspective. In terms of the Redwater abandonment, and I'm assuming you are talking to the liability of abandoned wells, those are not -- that kind of things come up in our conversations to date. I'm looking around the room to my colleagues to see if they've had any of those discussions with their customers. Certainly, I haven't heard anything. Jaret? Jason?
No.
No. No feedback.
Okay. And just, my last question here is more of a curiosity. The press release referenced creativity a few times. Does this refer to commercial structures, sort of trading ore fees for extending the term or things like that? Or what are you referring to the creativity reference?
Well, 2 things, really. It's the creativity, I think of our customers. I mean, if you look back just to say, middle of 2014, and you said, we're going to have a growing base. I mean, we keep expanding Peace. So the base is growing. And if you would have said, we're going to have a rapidly growing basin at these times of commodity prices, people would have said you are crazy. And so the creativity of our customers to persevere with top capital markets and tough pricing, I think our hats are off to them, and we're going to do everything we can to improve their net backs, which brings us to our creativity. Taking on a global strategy and getting propane on to Tidewater, converting propane into polypropylene is a brand-new market. We hope to slay butane at some point. And we want to supply ethane to make sure that, that product isn't kept in the gas stream and sold based on methane pricing. So I think, we can take a little bit of credit for being creative as well to change the face of the basin.
Okay. You've mentioned butane a couple of times now. What are the options, as you see them for to increase other than expanding LPG capacity?
We're in the early stages of that, Robert, so more to come. But when products trade down, like they do, it attracts attention. So even if it's not Pembina, I'm sure, there are other companies working on how to solve that.
Your next question comes from Andrew Kuske from Crédit Suisse.
Mick, I think you mentioned sort of a few times the number of market dislocations that exist in Western Canada and how Pembina could graciously fix some of those challenges. I guess, if you sort of step back a little bit and you think about just your business development capital that you allocate to opportunities, how do you divide it among sort of down the fairway kind of projects that are really network extensions of your existing asset base versus the amount of capital you allocate to really the bigger, bolder, lower-probability things that are maybe complete business extensions or brand-new opportunities? How do you think about that?
Well, that's actually the topic of our next strategy session -- our executive strategy session as well as the board, because it's tough. I think you're trying to balance a bunch of things. Your ratio of projects spending for large capital projects, like Jordan Cove, you have to keep that ratio of spending on those to your overall EBITDA at a minimum. But yes, the flip side is, you have to do things that are going to make a difference to your company and to the basin. So there is that trade-off. There's trade-off on geographic basin diversity, currency diversity. So Pembina will be spending more money, for example, in the Bakken or elsewhere in the U.S. to diversify, which may not be quite as accretive as doing things in our backyard, where we leverage our entire value chain. So those inner plays are what is -- both difficult, but also exciting. The great news for Pembina is, Scott talked about the balance sheet. We have a -- thanks to all of you folks, we have a strong share price. And so we can -- we have options to do many things that makes sense at the same time. And so if we are confronted with numerous opportunities, we may do them all. We're at a very good spot.
I appreciate that. And then maybe just thinking on the core business again. Realistically, when we look out, say, the next 5 years, how many more Peace expansions are possible and how many more Redwaters are possible, as the numbers just keep going up and up and up on the expansion capability, given the nature of the basin itself?
Well, we're about 5 further away already. So I honestly, I really believe that we are only just getting started in the Montney and Duvernay. If we have 3 or 4 Chevron-type deals in the basin and LNG, maybe Shell has not been the last LNG project, we're just getting started. I mean, the resource is abundant. So if the Duvernay is like the Eagle Ford and Rock, it's up to 500,000 or 1 million barrels a day. We're just getting started. So the resource is there. We just have to get some of these export pipes, export terminals built and then, we're just getting started. So we are thinking very long term. I mean, if you think about what we're trying to do with Phase VIII and Phase IX to have 4 completely segregated pipelines to, as Jason said, operate the pipelines much more efficiently, need less storage, less product contamination, and all, hopefully, ending up with lower tolls as well due to operating and capital efficiencies. We are planning for growth way beyond Phase VIII.
And your next question comes from Robert Kwan of RBC Capital Markets.
Mick, maybe if I can just kind of start and continue on the pipeline side of things. Just -- first in terms of bringing on Phase IV and Phase V, your system was quite full. I think you had volumes being tracked around on some other parts of the system. Can you just talk about how the volumes have ramped up on IV and V? But feeding kind of that into the whole Phase IX discussion. What are you seeing just out there in terms of early indications, general customer sentiment, particularly, given some of the competitive options out there?
I'm going to let Jason answer that question. The only thing I'm going to say is, it is always very tough on us and our producers when we can't be ready fast enough. And we had a situation like that where we couldn't quite get all our producers condensate to CRW until we got expansions done. And we really sincerely try our hardest to stay ahead of that, but of course, it's a give and take. You need commitments to spend capital and sometimes the commitments are a little slow. And the rate at which producers can drill now, they get a 6-well pad and hundreds and hundreds of fracks. They can bring on volumes so quickly, more quickly than we can react, given the regulatory constraints we have. So we are trying very hard to stay ahead of that. And one of the nice things about going from being a $10 billion to a $20 billion to a $30 billion, hopefully, to a $40 billion company is we can start to front-run some of that capacity and engineering, which we're starting to have the balance sheet to do. So we never let our producers down.
So just maybe directly for the first part of your question about ramp up, I'd say, if you think about it, it was the end of the December that we brought those on stream, so saying -- talking about ramp up is a little bit premature, I would say. But the volumes are continuing to grow, and we continue to talk to customers all across our basin. I do think Phase VII and VIII give us some breathing room to Mick's point, and our next round of sort of expansion of these smaller and more trying to access some of the capacity that, that gives us. So I think we're in a good spot right now in terms of being able to quickly get to those volumes. I'd also say, we're optimistic about the way things are going on our Phase VII and VIII projects already from the perspective of regulatory and in that part of the world as well. So I think all things are looking positive from that point of view.
That's great. And if I can just finish with a couple of smaller clean up. Scott, you mentioned you're still assessing IFRS 16. So I assume that your EBITDA guidance does not include the impact of the expected IFRS 16 on, at least, the EBITDA side of things?
That's correct, Robert.
Okay. And then on Alliance, just looking at the quarter, they distributed quite a bit less than the cash it generated, which is a lot aligned with prior quarters. Just wondering if something is going on there? If there is a change in the distribution policy?
No. Not that -- there's no change. I mean, the way that, that pipeline pays out is that typically the cash gets paid out 2 months after the EBITDA is seen. So despite a strong EBITDA performance in Q4, those distributions likely show up in Q1 of 2019. So some of it's just timing.
Okay. Even though the distribution in Q4 was lower than prior quarters?
Correct.
And your next question comes from Jeremy Tonet of JPMorgan.
Just want to kind of build off some of the points you discussed here in the call and you talked about since your Analyst Day last May. You talk about wanting to extend the value chain further down and get the molecule to premium markets to enhance producing net backs there. And just kind of thinking out loud, would it ever make sense to build more pipes kind of further south crossing the border and get the molecule on pipes into more of the U.S. markets? I realize it's a long distance and probably costly. But just want to ask would that ever make sense to kind of pair up with the U.S. players, south of border to try to provide that type of solution?
We're just learning the Bakken. We're learning where does product go after Aux Sable processes it. So it still is early days. We've been focused hard in the fourth quarter and the first quarter with PDH and Phase VIII and doing engineering for Phase IX and those kinds of things. So I know we've been saying it for a long time, but we are looking at projects, like, you're describing, at other geographic locations. But our success in other areas is keeping us a bit too busy. But we feel we brought in just some terrific people through Alliance. And Jeremy, we're operating Aux Sable, and we're starting to get to know those folks and they're super-impressive. And they have had ideas for a long period of time that they haven't been able to execute. And so Jaret, Jason are collaborating closely to see what's possible all along that corridor, where we believe we have a good franchise and a position of strength and what can be done around those assets. So I think it's promising for us to be looking in those areas.
Got you. Understood on the Aux Sable side, but just curious on Edmonton South NGL pipeline that's probably cost-prohibitive?
The thing with NGL, Jeremy, it's the same with West Coast NGL discussion is to build a long-haul pipeline, you kind of need 0.5 million barrels a day just to make the economies of scale work. And the entire propane market in Western Canada is about 200,000. So you just don't tend to have the economies of scale. The only pipeline that met that description was Cochin when it was moving propane south and now it's in higher-value molecule service. And so that's just not easy. I know it looks good on a map, but when you do the math on the economies of scale with a 100,000 or let's be optimistic, 200,000 barrel a day NGL pipe, it's the math that doesn't work, you're better off railing.
Your next question comes from Ben Pham of BMO.
On that data point, propane 200,000 barrels a day. How does that look supply demand in Western Canada in 2025 you're adding in your PDH/PP plant? Is there room for an expansion there or new export facilities?
You know, there is a ton of propane, butane and ethane being left in the gas stream right now. So those numbers can grow dramatically and swiftly, if people choose to take them out of the gas stream. Pembina hasn't really built the deep cut plant for what, 5 or 6 years here because the value hasn't been there. So it kind of goes back to price signal. If the price signal for propane, butane, ethane changes in Alberta, those molecules are readily available. So it's kind of, if you can get the price, which, hopefully, conversion from propane to polypropylene, netback the higher propane price, the producers will get the right signal and want to deep cut their gas streams and/or drill additional liquids-rich wells. So again, the resource is massive. I'm never worried about running out of propane, butane or ethane, it just needs the right price signal. So when you look at that 200,000 that could be a lot more if we just had decent pricing for a short while. And hopefully, we're doing the right things as an industry, at least, I can say with confidence on propane right now to create that price signal.
Okay. And you also had commented earlier around heading to strategic planning and growth, and it sounds like there's a lot of things looking at right now. And you certainly weighted against your self-funding model $1 billion to $2 billion. But I wanted to clarify, does it sound like that $1 billion to $2 billion that's not going to necessarily constrain you with growth and that you could look to preferred shares, turn on a DRIP, external equity, if good growth opportunities arise?
We can always raise equity for terrific projects. I don't think we feel constrained by that necessarily. Particularly now that we're -- again, we've got a share price that's starting to come into the range of fair value, albeit on the low side still. So when you're trading at $40, you should be trading at $50, it just hurts to raise equity. Scott and Cam are vigilant in making sure we don't have dilution and the $2 billion avoids that. But it's not necessarily a ceiling, it's a guideline. Scott, do you want to add anything?
No, I think, it's well said. I mean, right now, as you guys well know, we're tapped out from a preferred share basis, but we will be looking to change our threshold at our upcoming AGM, which would allow us access to incremental preferred shares if we get approval for that resolution.
Okay. And then my last one on cleanup. Are you able to share your recent frack spread sensitivity?
Yes. I think that's something that we'll usually update with our Investor Day. So I might just pause that until our Investor Day.Well, everybody, thanks for your support. Hopefully, you feel better -- even better about the story. We sure do see some uptick in share prices that raised everybody's spirits which were a bit down at the end of last year. And just count on us to keep doing what we've been doing. So thank you for your support.
And that concludes today's conference call. You may now disconnect.