Pembina PipelineCorporation
TSX: PPL | NYSE: PBA
Acquisition of Kinder Morgan Canada and
Cochin Pipeline
August 21, 2019
Forward-looking statements and informationThis presentation contains certain forward-looking statements and information
that are based on Pembina's expectations, estimates, projections and
assumptions in light of its experience and its perception of historical trends as
well as current market conditions and perceived business opportunities. In some
cases, forward-looking information can be identified by terminology such as
"expects", "will", "would", "anticipates", "plans", "estimates", "develop", "intends",
"potential", "continue", "could", "create", "keep", and similar expressions
suggesting future events or future performance.
In particular, this presentation contains forward-looking statements, including
certain financial outlooks, pertaining to, without limitation: the proposed
acquisition of (i) Kinder Morgan Canada Limited (“KML”) and (ii) the U.S. portion
of the Cochin Pipeline system from Kinder Morgan, Inc. (collectively, the
"Transaction"), including the expected closing date, strategic rationale and the
anticipated benefits of the Transaction to Pembina's and KML's securityholders
and customers, the expected size and capabilities of the combined company, as
well as anticipated synergies (including strategic integration and diversification
opportunities and the accretion to cash flow of Pembina), future growth projects,
financial results and financial ratios related to and growth opportunities
associated with the assets acquired pursuant to the Transaction and the
combined entity including: EBITDA expectations, enterprise value, counterparty
exposure, fee-for-service cash flows, future dividends which may be declared on
Pembina's common shares and timing thereof; the ongoing utilization and
expansions of and additions to Pembina's business and asset base,
expectations regarding future commodity market supply, demand and pricing
and supply and demand for hydrocarbon and derivatives services.
Undue reliance should not be placed on these forward-looking statements and
information as they are based on assumptions made by Pembina as of the date
hereof regarding, among other things, the ability of the parties to satisfy the
conditions to closing of the Transaction in a timely manner, that favourable
growth parameters continue to exist in respect of current and future growth
projects (including the ability to finance such projects on favorable terms), future
levels of oil and natural gas development, potential revenue and cash flow
enhancement; future cash flows, with respect to Pembina's dividends: prevailing
commodity prices, margins and exchange rates, that Pembina's businesses will
continue to achieve sustainable financial results and that the combined
company's future results of operations will be consistent with past performance
of Pembina and KML and management expectations in relation thereto, the
availability and sources of capital, operating costs, ongoing utilization and future
expansion for the combined company, the ability to reach required commercial
agreements, and the ability to obtain required regulatory approvals.
While Pembina believes the expectations and assumptions reflected in these
forward-looking statements are reasonable as of the date hereof, there can be
no assurance that they will prove to be correct. Forward-looking statements are
subject to known and unknown risks and uncertainties which may cause actual
performance and financial results to differ materially from the results expressed
or implied, including but not limited to: the ability of the parties to receive, in a
timely manner, the necessary regulatory, court, securityholder, stock exchange
and any other third-party approvals, including but not limited to the receipt of
applicable competition approvals; the ability of the parties to satisfy, in a timely
manner, the other conditions to the closing of the Transaction; the failure to
realize the anticipated benefits or synergies of the Transaction following closing
due to integration issues or otherwise and expectations and assumptions
concerning, among other things: customer demand for the company's services,
commodity prices and interest and foreign exchange rates, planned synergies,
capital efficiencies and cost-savings, applicable tax laws, future production
rates, the sufficiency of budgeted capital expenditures in carrying out planned
activities, the impact of competitive entities and pricing; reliance on key industry
partners, alliances and agreements; the strength and operations of the oil and
natural gas industry and related commodity prices; the regulatory environment
and the ability to obtain regulatory approvals; fluctuations in operating results;
the availability and cost of labour and other materials; the ability to finance
projects on advantageous terms; and tax laws and tax treatment. In addition,
the closing of the Transaction may not be completed, or may be delayed if the
parties' respective conditions to the closing of the Transaction, including the
timely receipt of all necessary regulatory approvals, are not satisfied on the
anticipated timelines or at all. Accordingly, there is a risk that the Transaction will
not be completed within the anticipated time, on the terms currently proposed or
at all.
Additional information on these factors as well as other risks that could impact
Pembina's operational and financial results are contained in Pembina's Annual
Information Form and Management's Discussion and Analysis for the year
ended December 31, 2018, and described in our public filings available in
Canada at www.sedar.com and in the United States at www.sec.gov. Readers
are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this document speak only as of the
date of this document. Except as expressly required by applicable securities
laws, Pembina and its subsidiaries assume no obligation to update forward-
looking statements and information should circumstances or management's
expectations, estimates, projections or assumptions change. The forward-
looking statements contained in this document are expressly qualified by this
cautionary statement. Readers are cautioned that management of Pembina
approved the financial outlooks contained herein as of the date of this
presentation. The purpose of the financial outlooks contained herein is to give
the reader an indication of the value of Pembina's current and anticipated
growth projects, including with respect to the acquisition of assets pursuant to
the Transaction. Readers should be cautioned that the information contained in
the financial outlooks contained herein may not be appropriate for other
purposes.
The estimates of adjusted EBITDA set forth in this presentation may be
considered to be future-oriented financial information or a financial outlook for
the purposes of applicable Canadian securities laws. Financial outlook and
future oriented financial information contained in this presentation about
prospective financial performance (including future expected adjusted EBITDA
and expected incremental adjusted EBITDA), financial position or cash flows are
based on assumptions about future events, including economic conditions and
proposed courses of action, based on management’s assessment of the
relevant information currently available, and to become available in the
future. These projections contain forward-looking statements and are based on
a number of material assumptions and factors set out above. Actual results may
differ significantly from the projections presented herein. These projections may
also be considered to contain future-oriented financial information or a financial
outlook. The actual results of Pembina’s operations for any period will likely vary
from the amounts set forth in these projections, and such variations may be
material. See above for a discussion of the risks that could cause actual results
to vary. The future-oriented financial information and financial outlooks
contained in this presentation have been approved by management as of the
date of this presentation. Readers are cautioned that any such financial outlook
and future oriented financial information contained herein should not be used for
purposes other than those for which it is disclosed herein. Pembina and its
management believe that the prospective financial information has been
prepared on a reasonable basis, reflecting management’s best estimates and
judgments, and represent, to the best of management’s knowledge and opinion,
the Company’s expected course of action. However, because this information is
highly subjective, it should not be relied on as necessarily indicative of future
results. Accordingly, readers are cautioned that events or circumstances could
cause results to differ materially from those predicted, forecasted or projected.
Such forward-looking statements are expressly qualified by the above
statements. The forward-looking statements contained in this document speak
only as of the date of this document. Pembina does not undertake any
obligation to publicly update or revise any forward-looking statements or
information contained herein, except as required by applicable laws.
In this presentation, Pembina has used the terms adjusted EBITDA and
adjusted cash flow per share, which are non-GAAP measures. For more
information about these non-GAAP measures, see the" Non-GAAP Measures"
section below. The information contained herein with respect to future adjusted
EBITDA is to assist investors in understanding the combined company's
expected financial results, and this information may not be appropriate for other
purposes.
The forward-looking statements contained in this document are expressly
qualified by this cautionary statement.
1
Non-GAAP measures
In this presentation, Pembina has used the terms adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA")
and adjusted cash flow from operating activities per common share ("adjusted cash flow per share"), which do not have any standardized
meaning under IFRS ("Non-GAAP Measures"). Since Non-GAAP financial measures do not have a standardized meaning prescribed by GAAP
and are therefore unlikely to be comparable to similar measures presented by other companies, securities regulations require that Non-GAAP
financial measures are clearly defined, qualified and reconciled to their nearest GAAP measure. These Non-GAAP measures are calculated and
disclosed on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods. The intent of Non-GAAP
measures is to provide additional useful information respecting Pembina's financial and operational performance to investors and analysts and
the measures do not have any standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in
substitute for measures of performance prepared in accordance with IFRS.
Other issuers may calculate these Non-GAAP measures differently. Investors should be cautioned that these measures should not be construed
as alternatives to revenue, earnings, cash flow from operating activities, gross profit or other measures of financial results determined in
accordance with GAAP as an indicator of Pembina's performance. For additional information regarding non-GAAP measures, please refer to
Pembina's financial reports, which are available on SEDAR at www.sedar.com and at www.pembina.com.
2
Transaction
Overview
• Overall transaction size of $4.35 billion, comprised of:
› Acquisition of all outstanding shares of Kinder Morgan Canada (“KML”) in exchange for Pembina shares,
representing a share price for KML of $15.02 calculated using Pembina’s 30-day volume weighted average share
price; each outstanding KML security will be exchanged for 0.3068 of a Pembina share;
› The assumption of $550 million of KML preferred shares; and
› The acquisition of the U.S. portion of the Cochin Pipeline system from Kinder Morgan, Inc. for US$1.546 billion in
cash
Key Assets • Cochin Pipeline System, Edmonton Terminals, Vancouver Wharves
Financial
Highlights
• The assets being acquired in the Transaction are expected to generate adjusted EBITDA of approximately $350
million in 2019
• Through the integration of these assets with the Company's existing businesses, Pembina estimates that
incremental run-rate adjusted EBITDA of $50 million can be realized within five years with nominal capital
investment; in addition, Pembina expects that the assets could generate an additional $50 million of run-rate
adjusted EBITDA through expansion opportunities
• Strengthens Pembina’s Financial Guardrails
• Accretive to adjusted cash flow per share
• Pembina will increase its monthly dividend by $0.01 per share, or approximately 5%, subject to successfully closing
the Transaction
Regulatory /
Timing
• Expected closing in the first half of 2020, subject to customary regulatory approvals required in Canada and the U.S.
Transaction highlights
3
This Transaction further enhances the quality of Pembina’s overall asset base and provides confidence to increase the dividend
See “Forward-looking statements and information” and “Non-GAAP measures”.
Strategic rationale
4
This Transaction is another unique opportunity to create long-term value and enhance our customer service offering
High Quality,
Integrated
Assets
• Highly strategic acquisition of the Cochin mainline, a fully contracted, cross-border pipeline system connecting
Pembina’s Channahon, Bakken and Edmonton assets
• Cochin is connected to Mont Belvieu, Conway and Edmonton markets
• Eastern leg of Cochin presents a future possibility to also connect to Pembina’s assets and markets in Sarnia
• Includes a significant crude oil storage and terminalling business in Western Canada’s key energy complex, which
connects Pembina’s conventional and oilsands pipelines to all major export pipelines while providing customers
with increased flexibility and greater egress options
• Potential for further integration of the Vancouver Wharves assets into the Pembina value chain
Strong
Commercial
Platform
• Asset base is predominantly supported by long-term, fee-for-service, take-or-pay contracts which are underpinned
by investment grade counterparties
• Strengthens Pembina’s Financial Guardrails and hence Pembina as a whole
Enhanced
Diversification
and Future
Growth
• Enhances basin (Bakken), currency and market diversification; ~50% of acquired EBITDA is USD based and
connects to Chicago area’s premium quality condensate supply
• Meaningful upside available from currently identified capital projects and integration with Pembina’s existing
businesses
Positive
Financial
Impact
• 5-year target to increase adjusted EBITDA from the acquired assets by 15-30%
• Immediately accretive to adjusted cash flow per share
• Increases fee-for-service and take-or-pay component of adjusted EBITDA
See “Forward-looking statements information” and “Non-GAAP measures”.
COCHIN
MAX BASS
TERMINAL
KANKAKEE
WINDSOR
COCHIN
KANKAKEE
TERMINAL(1 mmbbl storage)
RIGA
VANCOUVER WHARVES
EDMONTON
TERMINALS
Cochin Pipeline System
Edmonton Terminals
Strategically located and highly integrated assets
6
Acquisition of KML and Cochin represents a low-risk, high quality extension and enhancement of Pembina’s value chain
• Large merchant terminal position in the Canadian energy industrial complex (~10 million barrels, net), backed by long-term, fee-based
contracts with primarily investment grade customers
› A significant crude oil storage and terminalling business in the core of Western Canada’s crude oil complex
› KML’s Edmonton storage franchise represents a 10x increase in Pembina’s above-ground storage capacity and includes excellent inbound and
outbound connectivity
› Strong strategic fit with Pembina’s core liquids pipelines business; provides greater product egress
• One of two cross-border condensate import pipelines, underpinned by take-or-pay contracts with investment grade customers
› Cross-border pipeline currently in condensate import service; formerly in propane export service
› Connects various Pembina assets, basins and markets; provides significant optionality
› Development possibilities exist in the Bakken and at Sarnia
Vancouver Wharves
• Provides stable, fee-based revenue and access to a critical port providing essential services on the Canadian West Coast
• Possibility to further integrate into Pembina’s value chain
See “Forward-looking statements and information” and "Non-GAAP measures“.
555
389
335
230
133
625
330
133
125
245
110
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Pre Expansion
1997
Syncrude
2001
Horizon
2007
Cheecham
2007
Nipisi & Mitsue
2011
Phase I, II & III
2013 - 2017
AEGS &
Vantage
2014 - 2017
Alliance Pipeline
(Net)
2017
Ruby Pipeline
(Net)
2017
Peace Pipeline
Phase IV & VII
2018, 2021
Cochin (Net)
(Pending)
Capacity
mboe/d
Pipeline transportationNet pipeline capacity through time
7
Total hydrocarbon transportation capacity set to reach ~3.2 mmboe/d(1) Pembina's 68 mbpd (thousand barrels per day) Vantage ethane pipeline is a key supply source for AEGS (Alberta Ethane Gathering System),
and feeds into the total system capacity (2) Alliance Pipeline and Ruby Pipeline capacities are presented net to Pembina and converted to mboe/d
(thousands of barrels of oil equivalent per day) from million cubic feet per day (mmcf/d) at 6:1 ratio.
(3) (mmboe/d) million barrels of oil equivalent per day
See "Forward-looking statements and information”.
~3.2mmboe/d(3)
(1)(2)(2)
In-service
Project under development
KML acquisition (pending)
Oil Sands Growth NGL, Crude &
Condensate GrowthNatural Gas Growth
NGL, Crude &
Condensate
Growth
18065
Condensate
Import
pipeline
1.7
0.6 1.5
1.6
1.0
0.3 0.6
0.5
9.6
0
5
10
15
20
25
Provident
Acquisition
(2012)
3 Caverns
(2013)
2 Caverns
(2015)
3 Caverns
(2016)
3 Caverns
(2018)
Burstall Storage
(2018)
Edmonton North
Terminal (ENT)
(2010)
ENT Expansion
(2016)
Canadian
Diluent Hub
(CDH) (2017)
KML Acquisition
(Net) (Pending)
Total Capacity
mm
bbls
Leading hydrocarbon storage positionNet storage capacity
8
One of Canada's largest storage owners, providing our customers great flexibility(1) (mmbbl) million barrels
See "Forward-looking statements and information“.
6.5mmbbl
23.8mmbbl(1)Merchant Underground Storage Capacity Merchant Above Ground Storage Capacity
(initial Redwater capacity)
Pembina
Provident acquisition
Veresen acquisition
KML acquisition (pending)
The Pembina Store with KML and Cochin
9
Addition of KML and Cochin further vertically integrates the Company along the value chain and enhances access to global markets
Domestic
C5 Pipelines
Canadian Diluent
Hub
NGL
Pipelines
Redwater
StorageRedwater &
Aux Sable
Fractionation
Consumers
Gathering,
Processing,
Field Extraction
Field
Terminals
Producers
Mainline Extraction
and Fractionation
(Younger, Empress,
Aux Sable)Alliance
Pipeline
Prince Rupert LPG
Export Terminal
(under construction)
PDH/PP(under
construction)
Industrial Users
Oil Sands &
Heavy Oil PipelinesCrude Oil
Pipelines Refining
(& Upgrading)
3rd Party
Pipelines &
Facilities
Heavy Oil
Producers
3rd Party
Pipelines
C2+ mix
C3+ mix
NGL
Marketing &
Distribution
C2
NGL
Gas & NGL (HVP)
Gas
Oil & Condensate (LVP)
C2
C3
C4
(proposed)
Truck
Terminals
C5+
Import
C5 Pipelines
C5Vancouver
Wharves
NG
L
Edmonton
North Terminal
Edmonton North
Terminal + ~10 mmbbl
See "Forward-looking statements and information”.
Enhanced pro forma Financial Guardrails
Illustrative 2019 Pro Forma (5)
The Transaction strengthens the quality of Pembina’s adjusted EBITDA, enhancing the Financial Guardrails
Maintain target of 80% fee-based
contribution to Adjusted EBITDA (1)~85% ~87%
Target <100% payout of fee-based
distributable cash flow (2)~78% ~77%
Target 75% credit exposure from investment
grade and secured counterparties (3) 85% ~85%
Maintain strong BBB credit rating (4) ~21%FFO / Debt
~19% FFO / Debt
2019E
1
2
3
4
10(1) Includes inter-segment transactions. (2) Calculated as common share dividends divided by distributable fee-
based cash flow (wholly owned fee-based EBITDA plus fee-based portion of distributions for equity accounted
investees less preferred share dividends, interest and illustrative cash taxes).
(3) Based on gross 60-day exposure. Counterparty ratings are representative of the counterparties' current rating
as of July 19, 2019. Non-investment grade exposure that is secured with letters of credit from investment grade
banks are considered investment grade.
(4) Based on Standard and Poor's methodology and adjustments.
(5) Illustrative case assuming annualized results from the Transaction applied to Pembina’s 2019 forecast.
See “Forward-looking statements and information” and "Non-GAAP measures“.
Summary
11
While this Transaction is focused on quality enhancement and risk reduction, accretion opportunities are also meaningful over the longer term
• This transaction is an excellent opportunity to acquire strategically aligned assets that are a low-risk, high quality
extension of Pembina’s value chain that will enhance our customer service offering;
• The acquired assets improve the quality of Pembina’s adjusted EBITDA and the Transaction strengthens the
Financial Guardrails, enabling Pembina to confidently increase its monthly dividend by approximately 5%, subject
to closing;
• We have demonstrated a strong track record of successfully integrating acquisitions; given the potential synergies
resulting from combining KML, Cochin and Pembina, we estimate that within five years, incremental run-rate
adjusted EBITDA of approximately $50 million can be realized with nominal capital investment, plus $50 million of
additional run-rate adjusted EBITDA through expansion opportunities;
• The Transaction continues to add to Pembina’s value chain, this time increasing asset quality; enhancing
diversification of assets, basin, currency, and markets; all while reducing overall business risk;
• Pembina remains committed to prudent financial management and maintaining a strong BBB credit rating; and
• Our long-term strategy remains unchanged and continues to reduce risk and create shareholder value
See "Forward-looking statements and information” and "Non-GAAP measures“.
Appendix
COCHIN
MAX BASS
TERMINAL
WINDSOR
Redwater
Aux
Sable
Sarnia
Significant integration and
connectivity potential
around Pembina's Redwater,
Aux Sable, and Sarnia assets
KANKAKEE
COCHIN
KANKAKEE
TERMINAL(1 mmbbl Storage)
CONDENSATE
FROM THIRD
PARTY
PIPELINES
RIGA
• The combined assets offer
integration on the condensate
value chain and enhance the
customer service offering to oil
sands users of condensate
• The acquisition provides
diversification across condensate
production basins, customers and
currency
• The Transaction will provide
Pembina with greater exposure to
the oilsands producer customer
base
Cochin Pipeline
The Cochin Pipeline integrates seamlessly into Pembina’s existing assets
NAMAO CDH
CRW HARDISTY
KFS
COLD LAKE OR
ACCESS PIPELINE POLARIS
PEMBINA
TERMINALS
THIRD PARTY
TERMINALS
PEMBINA
PIPELINE
THIRD PARTY
PIPELINE
NORLITE
ALBERTA CONDENSATE
DELIVERY SYSTEM
13See "Forward-looking statements and information."
Edmonton Terminals
14
Pembina’s existing assets run through the heart of KML’s Edmonton Terminal assets
• KML’s Edmonton storage franchise represents a 10x
increase in Pembina’s above-ground storage capacity
`
North 40
(N40)
Edmonton
South
Terminal
(EST)
Base Line
Tank
Terminal
(BTT)
Edmonton
South Rail
Terminal
(ESRT)
Alberta
Crude
Terminal
(ACT)
Sto
rag
e T
erm
ina
lsR
ail
Te
rmin
als
100%
100%
50%
50%
50%
1
5
2
3
4 1
2
3
4
5
Pembina’s
Edmonton
North Terminal
(ENT)
OIL SANDS
PIPELINES
TRANSMISSION
PIPELINES
CONVENTIONAL
PIPELINES
• Extends Pembina’s value
chain by further
extending the integrated
service offering
• Enhances ability to
manage potential
apportionment issues
• Strong strategic fit with Pembina’s core LVP(1)
pipelines and marketing businesses through
substantial blending and storage opportunities
(1) Low vapor pressure
See "Forward-looking statements and information."
NORTHEAST
B.C.
VANCOUVER
WHARVES
Vancouver Wharves
15
Vancouver Wharves has potential further integration into Pembina’s value chain and extends Pembina’s presence along the Pacific coast
PRINCE
RUPERT
KAIEN
ISLAND
PORT EDWARDRIDLEY
ISLAND
Port Edward
Site of
Pembina’s LPG
export terminal
JORDAN COVE LNG(PROPOSED)
• Bulk capacity of 1 million
tonnes
• Enclosed mineral storage
for over 500,000 tonnes of
concentrate
• ~175,000 tonnes of sulfur
storage
• Agri-products storage bins
that hold ~25,000 tonnes
• Four liquid storage tanks
that store ~250,000 bbl
Storage Capacity
• Vancouver Wharves is a bulk commodity terminal operated by KML
• Largest mineral concentrate export and import facility on the West
Coast of North America
› 125 acre bulk marine terminal facility, which transfers over four
million tonnes of bulk cargo annually
› Terminal comprised of five berths
› Only merchant terminal for import and export of distillates in B.C.
› One of two sulfur export ports in B.C.
See "Forward-looking statements and information."