Pembina Pipeline

Pembina Pipeline Corporation

Type	Public
Traded as	TSX: PPL NYSE: PBA S&P/TSX 60 Component
Industry	Oil & Gas Pipeline Transport Storage Petroleum Industry
Founded	September 24, 1954
Headquarters	Calgary, Canada
Key people	Michael (Mick) H. Dilger President,CEO & Director Peter D. Robertson VP,CFO Stuart Taylor VP,NGL & Natural Gas Facilities Paul Murphy VP,Pipeline & Crude Oil Facilities Lorne B. Gordon Chair,Director
Products	Hydrocarbon Liquids: Conventional & Synthetic Crude Oil Heavy Oil & Oil Sand Products Condensate(Diluent) and Natural Gas Liquids
Revenue	C$5,025 mil
Number of employees	700+
Divisions	NGL & Natural Gas Facilities Pipeline/Crude Oil Facilities Technical Services Unit
Website	www.pembina.com

Pembina Pipeline is a leading transportation and midstream service provider that has been serving North America's energy industry for 60 years. Pembina owns and operates pipelines that transport various hydrocarbon liquids including conventional and synthetic crude oil, heavy oil and oil sands products, condensate (diluent) and natural gas liquids produced in western Canada. Pembina also owns and operates gas gathering and processing facilities and an oil and natural gas liquids infrastructure and logistics business. With facilities strategically located in western Canada and in natural gas liquids markets in eastern Canada and the U.S., Pembina offers a full spectrum of midstream and marketing services that spans across its operations.^[1]

History

The company's roots can be traced back to 1954 when the Pembina Pipeline system was built to serve the Pembina oil field in the region of Drayton Valley, Alberta; Pembina Pipe Line Ltd was incorporated that year on November 22. For the next 37 years the company remained focussed on delivering oil to Edmonton using the Pembina pipeline. In 1991 it made its first acquisition, Peace Pipe Line Ltd. Four years later it made its second move, buying half of the Bonnie Glen System, a 250 km long network serving oil fields in central Alberta. It wasn't until the 4th quarter of 1997 that Pembina joined the Toronto Stock Exchange, going public with an IPO of over $600 mn; at the same time it converted to an income fund (trust).^[2] 1997 was also the year Inter Pipeline Fund the leading transporter of oilsands bitumen, was established.^[3] Three years later in 2000 Pembina made its biggest move to date that doubled its size overnight when it took over Federated Pipe Lines Ltd which added 3,200 km of pipeline to Pembina's transportation network.^[4] After the takeover, Pembina's network in Western Canada was 7000 km long and transported nearly 550,000 b/d of oil and natural gas.^[5]

Pembina first entered the Alberta oil sands industry in 2001 when the company acquired Alberta Oil Sands Pipe Line Lts.(AOSPL). The AOSPL system comprises a 434 km mainline system and related facilities and has a single receipt point: Syncrude Canada's oil sands operation near Fort McMurray, Alberta.^[6] In 2003 Pembina completed an expansion of the AOSPL line, which boosted the pipeline's capacity by 275,000 bbls/d. The AOSPL is now known as the Syncrude Pipeline. The pipeline provides transportation service to Syncrude Canada Ltd., which operates an oil sands extraction and upgrading facility.^[7] Also in 2013 Pembina acquired a 50 percent non-operating interest of the Fort Saskatchewan Ethylene Storage Facility. The facility, located near Fort Saskatchewan, Alberta, consists of underground storage caverns used to store ethylene and a related central operating facility. The facility is the only large-scale ethylene storage facility in Alberta and is an integral component of the Alberta petrochemical infrastructure.^[8]

In 2007 and 2008 Pembina completed two vital pipeline systems. In 2007 the Cheecham Lateral was completed, the pipeline serves oil sands producers operating southeast of Fort McmUrray, Alberta. The Horizon Pipeline was completed the following year. The Horizon Pipeline provides transportation service to Canadian Natural Resources Ltd's oil sands operation located north of Fort McMurray, Alberta. This was Pembina's largest pipeline project to date and increased the company's contracted oil sands transportation capacity by 250,000 barrels per day (bbls/d) to 775,000 bbls/d.^[9] In June 2009, Pembina made a strategic entry into the Gas Services business when they acquired the Cutbank Complex for $300 million. The purchase included 300 km of gathering lines and ownership in three sweet gas processing plants with 360 million cubic feet per day (mmcf/d) of processing capacity (capacity of 305 mmcf/d is net to Pembina). These assets are connected to their Peace Pipeline system and serve an active exploration and production area in the Western Canadian Sedimentary Basin.^[10]

In October 2010, Pembina Pipeline Income Fund was converted to Pembina Pipeline Corporation. The TSX began listing Pembina common shares (TSX symbol: PPL) and convertible debentures (TSX symbol: PPL.DB.B). The first day PPL was listed on the TSX the closing price was $21.25 per share. In 2011,Pembina completed construction and start-up of the Nipisi and Mitsue Pipelines, which service the Pelican and Peace River heavy oil regions of Alberta.Later that year Pembina announced plans to construct new enhanced liquids extraction facilities in the Resthaven and Berland areas of west central Alberta, subject to regulatory and environmental approvals.^[11]

In 2012 Pembina announced the proposed acquisition of Provident Energy Ltd.to create a leading player in the North American energy infrastructure sector.On April 2, 2012,Pembina announced that it had completed its acquisition of Provident Energy Ltd. and began trading on the New York Stock Exchange under the symbol "PBA".^[12]

In December 2013, Pembina announced that they had reached binding commercial agreements to proceed with constructing approximately $2 billion in pipeline expansions (the "Phase III Expansion"). The Phase III Expansion is underpinned by long-term take-or-pay transportation services agreements with 30 customers in Pembina's operating areas and is expected to be in service between late 2016 and mid 2017, subject to environmental and regulatory approvals. The 540 kilometre ("km") Phase III Expansion will follow and expand upon certain segments of the Company's existing pipeline systems from Taylor, British Columbia southeast to Edmonton, Alberta to fulfill capacity needs for Pembina's customers, with priority being placed on areas where debottlenecking is essential.^[13]

Operations

Conventional Pipelines

Pembina's business originated in 1954 with one of its Conventional Pipelines assets. Over the years, the company has grown these assets substantially and today Pembina owns and operates a well-maintained and strategically located 8,200 km pipeline network that extends across much of Alberta and B.C. Pembina’s Conventional Pipelines transport approximately half of Alberta's conventional crude oil production, about thirty percent of the NGL produced in western Canada, and virtually all of the conventional oil and condensate produced in B.C. and these numbers are growing with their numerous expansion projects.^[14]

2013 Highlights:

2013 throughput averaged 492 mbpd compared to 456 mbpd for 2012 with the 8 percent increase driven by greater oil and gas producer activity in Conventional Pipelines' service areas, which led to a number of newly connected facilities and higher volumes at existing connections and truck terminals. Full-year operating margin in 2013 grew 20 percent to $251 million compared to $209 million for 2012 due to higher revenue driven by growth in volumes. Capital expenditures for 2013 were $325 million compared to $187 million in 2012. The majority of this spending relates to the expansion of certain pipeline assets as well as the completion of several new connections to bring additional producer volumes on-line.^[15]

Gas Services

Gas Services provides gas gathering, compression, and both shallow and deep cut processing services primarily on a fee-for-service basis under long-term contracts. The NGL extracted through these processes are transported on Pembina’s Conventional Pipelines. Operating assets in this business include:

• Pembina's Cutbank Complex – located near Grand Prairie, Alberta, this facility includes three shallow cut sweet gas processing plants (the Cutbank Gas Plant, the Musreau Gas Plant and the Kakwa Gas Plant) and one deep cut gas processing plant (the Musreau Deep Cut Facility). In total, the Cutbank Complex has 425 MMcf/d of processing capacity (368 MMcf/d net to Pembina) and 205 MMcf/d of ethane-plus extraction capacity. This facility also includes approximately 350 km of gathering pipelines.
• Pembina's Saturn I Facility – located near Hinton, Alberta, this facility includes 200 MMcf/d of ethane-plus extraction capacity as well as approximately 25 km of gathering pipelines.

The Cutbank Complex and Saturn I Facility are connected to Pembina's Peace Pipeline system. Pembina continues to progress construction and development of numerous other facilities in the Gas Services business to meet the growing needs of producers in west central Alberta.^[16]

2013 Highlights:

Volumes increased 16 percent to 319 MMcf/d in 2013 compared to 275 MMcf/d in 2012. This growth was driven by new volumes from the Saturn I Facility being placed in-service along with sustained activity by producers in the surrounding areas and their focus on liquids-rich natural gas due to its higher price relative to dry gas. Full-year operating margin in 2013 grew 32 percent to $78 million compared to $59 million for 2012 due to higher revenue driven by growth in volumes. Capital expenditures for 2013 were $258 million compared to $163 million during the same period of 2012. This increase in spending was primarily to complete the Saturn I Facility and to progress the multi-year construction projects at Resthaven, Saturn II, and Musreau II.^[17]

Oil Sands & Heavy Oil Pembina plays an important role in supporting Alberta’s oil sands and heavy oil industry. Pembina is the sole transporter of crude oil for Syncrude Canada Ltd. (via the Syncrude Pipeline) and Canadian Natural Resources Ltd.‘s Horizon Oil Sands operation (via the Horizon Pipeline) to delivery points near Edmonton, Alberta. Pembina also owns and operates the Nipisi and Mitsue pipelines, which provide transportation for producers operating in the Pelican Lake and Peace River heavy oil regions of Alberta, and the Cheecham Lateral, which transports synthetic crude to oil sands producers operating southeast of Fort McMurray, Alberta. The Oil Sands & Heavy Oil business operates approximately 1,650 km of pipeline and has approximately 880 mbpd of capacity under long-term, extendible contracts, which provide for the flow-through of eligible operating expenses to customers.^[18]

2013 Highlights:

Full-year operating margin in 2013 grew 12 percent to $131 million compared to $117 million for 2012 due to higher revenue driven increased contribution from the Nipisi system which resulted from a new pump station being placed into service. Capital expenditures for 2013 were $38 million compared to $30 million during 2012. This increase in spending was primarily related to the construction of additional pump stations in the Slave Lake, Alberta, area on the Nipisi and Mitsue pipelines.^[19]

Midstream Pembina offers a comprehensive suite of midstream products and services through their Midstream business as follows:

• Crude oil midstream targets oil and diluent-related development opportunities from key sites across Pembina’s network.
• Assets include 16 truck terminals (including two capable of emulsion treatment and water disposal), terminalling at downstream hub locations, storage, crude oil by rail services and the Pembina Nexus

Terminal ("PNT"). PNT includes: 21 inbound pipeline connections; 13 outbound pipeline connections; in excess of 1.2 million bpd of crude oil and condensate supply connected to the terminal; and 310,000 barrels of surface storage in and around the Edmonton, Alberta area.

• NGL midstream includes two NGL operating systems – Redwater West and Empress East.
• The Redwater West NGL system includes the Younger extraction and fractionation facility in B.C.; a 73 mbpd NGL fractionator and 7.8 mmbbls of finished product cavern storage at Redwater, Alberta; and

third-party fractionation capacity in Fort Saskatchewan, Alberta. Redwater West purchases NGL mix from various natural gas and NGL producers and fractionates it into finished products for further distribution and sale. Also located at the Redwater site is Pembina's rail-based terminal which services Pembina's proprietary and customer needs for importing and exporting specification NGL and crude oil.

• The Empress East NGL system includes a 2.1 bcf/d capacity in the straddle plants at Empress, Alberta; 20 mbpd of fractionation capacity and 1.1 mmbbls of cavern storage in Sarnia, Ontario; and ownership

of 5.1 mmbbls of hydrocarbon storage at Corunna, Ontario. Empress East extracts NGL mix from natural gas at the Empress straddle plants and purchases NGL mix from other producers/suppliers. Ethane and condensate are generally fractionated out of the NGL mix at Empress and sold into Alberta markets. The remaining NGL mix is transported by pipeline to Sarnia, Ontario for fractionation, distribution and sale. Propane and butane are sold into central Canadian and eastern U.S. markets.^[20]

2013 Highlights:

Full-year operating margin in 2013 grew 69 percent to $486 million compared to $288 million for 2012. The increase in operating margin was primarily due to a full year of results generated by the NGL assets in 2013 compared to 2012, which only captured nine months of results due to the timing of the Provident acquisition, along with improved propane pricing. Stronger margins and increased storage opportunities for crude oil and condensate in the first quarter of 2013 also help drive operating margin higher during the full year.^[21]

Capital expenditures for 2013 were $254 million compared to $204 million during 2012. Capital spending in this business was primarily focused on the development of Pembina's second fractionator, storage caverns and associated infrastructure and unit train capability at Redwater, the build-out of Pembina's full-service terminal network, the acquisition of the Heartland Hub and increased interconnectivity and optionality at PNT.^[22]

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