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Reports Strong Third Quarter 2015 Results Key financial metrics increased quarter over quarter All financial figures are in Canadian dollars unless noted otherwise. This news release contains forward-looking
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Reports Strong Third Quarter 2015 Results Key financial metrics increased quarter over quarter All financial figures are in Canadian dollars unless noted otherwise. This news release contains forward-looking statements and information that are based on Pembina Pipeline Corporation's ( Pembina or the Company ) current expectations, estimates, projections and assumptions in light of its experience and its perception of historic trends. Actual results may differ materially from those expressed or implied by these forward-looking statements. Please see Forward- Looking Statements & Information herein and in the Company's Management's Discussion & Analysis ( MD&A ) for more details. This news release also refers to net revenue, operating margin, earnings before interest, taxes, depreciation and amortization ( EBITDA ), adjusted cash flow from operating activities (and cash flow from operating activities per common share and adjusted cash flow from operating activities per common share), and total enterprise value, which are financial measures that are not defined by Generally Accepted Accounting Principles ( GAAP ). Pembina's methods of calculating these financial measures may not be directly comparable to that of other companies. Pembina considers these non-gaap financial measures to provide useful information to both management and investors in measuring Pembina's financial performance and financial condition. For more information about the measures which are not defined by GAAP, including a reconciliation to the most directly comparable GAAP measure, see Non-GAAP and Additional GAAP Measures to be included in the MD&A, which is available at Pembina's website at and on SEDAR at Pembina's entire quarterly report for the period ended, 2015 is also available online at and and on Pembina's website at CALGARY, AB, November 5, 2015 Pembina Pipeline Corporation ( Pembina or the Company ) (TSX: PPL; NYSE: PBA) announced today its financial and operating results for the third quarter of Financial Overview ($ millions, except where noted) 3 Months Ended 9 Months Ended Revenue 1,026 1,445 3,393 4,810 Net revenue (1) ,100 1,165 Operating margin (1) Gross profit Earnings Earnings per common share basic and diluted (dollars) EBITDA (1) Cash flow from operating activities Cash flow from operating activities per common share basic (dollars) (1) Adjusted cash flow from operating activities (1) Adjusted cash flow from operating activities per common share basic (dollars) (1) Common share dividends declared Preferred share dividends declared Dividends per common share (dollars) Capital expenditures , (1) Refer to Non-GAAP and Additional GAAP Measures. Q Highlights Pembina delivered strong operational results which included increases to our operating margin, EBITDA, adjusted cash flow from operating activities, and earnings in the third quarter of 2015 compared to the same period last year, said Scott Burrows, Pembina's Vice President, Finance and Chief Financial Officer. During the third quarter, Pembina also successfully placed two new gas plants, a gathering pipeline and the natural gas liquids portion of the Company's Peace and Northern Phase II pipeline expansion into service. Bringing growth projects into service adds incremental, fee-for-service cash flows to our business and ultimately benefits our shareholders, said Mr. Burrows. As previously mentioned, we will be bringing new assets into service almost every quarter for the next two years all of which will help drive shareholder value. By the end of the first quarter in 2016, we expect to place into service our second Redwater fractionator, a new contracted cavern, multiple pipeline laterals and our truck and rail expansion at Corunna. Mick Dilger, Pembina's President and Chief Executive Officer commented: The third quarter of 2015 was a busy quarter for us, having placed multiple, large capital projects into service. I am proud to say that not only did we bring the majority of these projects into service on time and under budget, but we also accomplished this with an exemplary safety record. I want to congratulate our teams for achieving such successes. Further on our safety record, Pembina has now achieved seven consecutive quarters with no employee lost-time injuries, continued Mr. Dilger. I am pleased to report that our employees continue to work safely despite having worked 16 percent more hours in the third quarter of 2015 compared to the same period last year and over 4.4 million hours in total since the beginning of Our goal is for everyone to return home safely at the end of the day and so these outstanding results are a testament to our commitment to that goal. Mr. Dilger added: With only a few months left to finish the year, we remain diligently focused on continuing to do the important things right which includes operating our business safely and reliably, constructing our growth projects safely, on time and working to achieve capital cost savings. So far, we have made great strides to achieve our cost savings goal of reducing capital expenditures by approximately $225 million and have realized aggregate cost savings in excess of half this amount. Pembina remains on track to deliver its over $6.4 billion of secured growth projects, including projects brought into service this year, which, depending on utilization rates, is expected to add $700 million to $1 billion of incremental annual EBITDA in I am confident in Pembina's ability to manage the current market headwinds given that we are well positioned with our assets ideally situated on world class, long-life geology. We are committed to generating long-term shareholder value well into the future, said Mr. Dilger. Q Financial Review Revenue in the third quarter of 2015 was $1.0 billion compared to $1.4 billion for the third quarter of Yearto-date revenue was $3.4 billion for 2015 compared to $4.8 billion for the same period in The reduction in revenue is largely a result of the reduced commodity prices impacting the Company's Midstream business in the current year. Net revenue (revenue less cost of goods sold including product purchases) was $374 million for the third quarter of 2015, compared to $358 million in 2014 and $1.1 billion year-to-date in 2015 as compared to $1.2 billion for the same period in The Company's Conventional Pipelines and Gas Services businesses had an increase in revenue of 24 percent and 42 percent in the third quarter, respectively, and 27 percent and 32 percent year-to-date, respectively, over the same periods in This strong performance, resulting from higher volumes and new assets being placed in service, combined with steady results in the Company's Oil Sands and Heavy Oil business, helped to offset decreased performance in the Company's Midstream business. The decline in the Midstream business was largely due to lower commodity prices, and, to a lesser extent, tighter price differentials across all commodities. Operating expenses were $111 million for the third quarter of 2015 compared to $98 million during the same period of 2014, primarily due to the addition of assets and recognition of reclamation costs in the Company's Conventional Pipelines business. For the nine months ended, 2015, operating expenses were $316 million compared to $284 million in the same period of The year-to-date increases in operating expenses were primarily related to the addition of assets in the Company's Conventional Pipelines business and Gas Services business, offset by decreases in the Midstream business, stemming from the sale of the Company's non-core trucking subsidiary. 2 During the third quarter of 2015, operating margin was $271 million compared to $264 million in the third quarter of Stronger performance in the Company's Conventional Pipelines and Gas Services businesses, from new assets being placed in service and increased volumes, were offset by the decrease in the Company's Midstream business as described above. For the first nine months of 2015, operating margin was $814 million compared to $883 million for the same period of 2014 primarily due to decreases in the Midstream business which included a $28 million increase in realized gains on commodity related derivatives in 2015 as compared to 2014, that were partially offset by increases in the Company's Conventional Pipelines business and the Gas Services business. The Oil Sands and Heavy Oil business remained stable, as expected, for both the third quarter and nine months ending 2015 as compared to the same periods in Depreciation and amortization included in operations during the third quarter of 2015 was $67 million compared to $51 million for the same period in This increase was primarily due to the year-over-year growth in Pembina's asset base associated with the Company's pipeline expansions, including the Vantage pipeline assets acquired in the fourth quarter of 2014, new in-service gas processing plants and certain useful life adjustments. For the nine months ended, 2015, depreciation and amortization included in operations was $176 million compared to $154 million in the first nine months of 2014 primarily due to the same reason noted above offset by decreased amortization in the Midstream business associated with intangibles that were fully depreciated in the prior year. Also included in 2014 was the impairment of non-core trucking related assets. Gross profit for the third quarter of 2015 was $201 million compared to $216 million during the third quarter of This seven percent quarter-over-quarter decrease was a result of increased depreciation and amortization included in operations and a $6 million decrease in unrealized mark-to-market positions of commodity-related derivative financial instruments partially offset by higher operating margin, as previously discussed. For the nine months ended, 2015, gross profit was $629 million compared to $732 million in the first nine months of 2014 due to increased depreciation and amortization included in operations, decreased operating margin and an unrealized loss of $9 million on commodity-related derivative financial instruments as compared to a gain in the previous year. For the three and nine month periods ending, 2015, Pembina incurred general and administrative expenses (excluding corporate depreciation and amortization) of $27 million and $107 million compared to $53 million and $121 million during the same periods of These decreases were primarily due to lower long-term incentive expenses due to a lower share price, lower short-term incentive expenses, partially offset by increased rent. Every $1 change in share price is expected to change Pembina's annual share-based incentive expense by approximately $1 million. Pembina generated EBITDA of $229 million for the third quarter of 2015, compared to $199 million for the same period in This increase was due to higher operating margin coupled with lower general and administrative expenses (excluding corporate depreciation and amortization). Year-to-date, in 2015 Pembina generated EBITDA of $695 million compared to $750 million in The decrease was due to lower operating margin partially offset by decreased general and administrative expenses (excluding corporate depreciation and amortization). Net finance costs incurred during the third quarter of 2015 were $10 million compared to $30 million for the third quarter of This decrease was primarily due to fluctuations in the fair value of the conversion feature on the series E and F convertible debentures ( Conversion Feature ) associated with a reduction in the number of instruments outstanding as well as changes in share price. In the third quarter of 2015, Pembina recognized a gain on revaluation of the Conversion Feature of $30 million, compared to a loss of $8 million for the same period of 2014, partially offset by a $20 million increase in interest expense on loans and borrowings and convertible 3 debentures in the third quarter of For the first nine months of 2015, net finance costs were $49 million compared to $139 million for the first nine months of This decrease is largely attributable to the revaluation of the Conversion Feature identified above. In the first nine months of 2015, Pembina recognized a gain on revaluation of $40 million, compared to a loss on revaluation of $63 million in the first nine months of In addition, interest expense on loans and borrowings and convertible debentures increased from $70 million in the first nine months of 2014 to $83 million in the first nine months of Income tax expense for the third quarter of 2015 totaled $30 million, including current and deferred tax of $15 million, respectively, compared to income tax expense of $21 million in 2014, including current tax of $26 million and a deferred tax recovery of $5 million. Current tax expense for 2015 was lower than the comparable period in 2014 predominantly due to lower taxable income. The increase in deferred tax expense in the current quarter is mainly attributable to an increase in the income tax rate. On June 18, 2015, Alberta's Finance Minister introduced Bill 2 An Act to Restore Fairness to Public Revenue, Alberta Corporate Tax Rate Change to increase the general corporate tax rate from 10 percent to 12 percent, effective July 1, 2015 (substantively enacted June 18, 2015). Income tax expense was $168 million for the nine months ended, 2015, including current taxes of $60 million and deferred taxes of $108 million, compared to income tax expense of $128 million in 2014, including current taxes of $75 million and deferred taxes of $53 million in the same period of The decrease in current taxes is attributable to a decrease in income subject to tax in the first nine months of 2015 as compared to the prior year. The increase in deferred taxes was due to the increase in the income tax rate previously noted. For the three and nine month periods ending, 2015, Pembina incurred other expenses of $17 million and $14 million compared to $14 million and $16 million during the same periods of Other expenses incurred in 2015 include $8 million of derecognized project development costs and a $5 million loss on disposal of assets. The Company's earnings were $113 million ($0.29 per common share) during the third quarter of 2015 compared to $75 million ($0.20 per common share) in the same period of This was driven by lower gross profit and higher deferred tax expense more than offset by lower general and administrative expenses, lower net finance costs and decreased share of loss from equity accounted investees. Earnings were $276 million ($0.70 per common share) during the first nine months of 2015 compared to $299 million ($0.85 per common share) during the same period of the prior year. The year-to-date decrease was due to lower gross profit and reduced deferred tax expense partially offset by lower net finance costs and general and administrative expenses. On a year-to-date basis, earnings attributable to common shareholders net of dividends attributable to preferred shareholders are $238 million (2014: $275 million). Cash flow from operating activities for the third quarter of 2015 was $187 million ($0.54 per common share basic), relatively consistent with the third quarter of 2014 of $188 million ($0.57 per common share basic). Increased change in non-cash working capital in the 2015 period compared to the respective period in 2014 was offset by higher taxes paid, higher interest paid and decreased operating margin. For the nine months ended, 2015, cash flow from operating activities was $516 million ($1.51 per common share - basic) compared to $604 million ($1.87 per common share - basic) during the same period last year, largely as a result of decreased operating margin and increased taxes paid in 2015, partially offset by a decreased change in non-cash working capital. Adjusted cash flow from operating activities for the third quarter of 2015 was $209 million ($0.60 per common share basic) compared to $158 million ($0.48 per common share basic) during the third quarter of The increase is largely due to higher operating margin, lower tax expense and lower share-based compensation 4 expense. For the nine months ended, 2015, adjusted cash flow from operating activities was $598 million ($1.75 per common share - basic) compared to $613 million ($1.90 per common share - basic) during the same period last year. The decrease was primarily due to lower operating margin partially offset by lower tax expense and lower share-based compensation expense. Third quarter and year-to-date 2015 per share numbers were impacted by increased common shares outstanding due to the Premium Dividend and Dividend Reinvestment Plan, debenture conversions and share-based payment transactions that were issued to help fund Pembina's capital expenditure program. Operating Results 3 Months Ended 9 Months Ended (mbpd, except where noted) (1) Conventional Pipelines revenue volumes (2) Oil Sands & Heavy Oil contracted capacity Gas Services average revenue volumes (mboe/d) net to Pembina (2)(3) Midstream NGL sales volumes (4) Total volume 1,704 1,622 1,718 1,640 (1) (2) (3) (4) mbpd is thousands of barrels per day. Revenue volumes are equal to contracted and interruptible volumes. Gas Services average revenue volumes converted to mboe/d (thousands of barrels of oil equivalent per day) from million cubic feet per day ( MMcf/d ) at 6:1 ratio. NGL is natural gas liquids. ($ millions) Net Revenue (1) 3 Months Ended 9 Months Ended Operating Margin (1) Net Revenue (1) Operating Margin (1) Net Revenue (1) Operating Margin (1) Net Revenue (1) Operating Margin (1) Conventional Pipelines Oil Sands & Heavy Oil Gas Services Midstream Corporate Total , , (1) Refer to Non-GAAP and Additional GAAP Measures. Third quarter and the first nine months of 2015 financial and operating results in Conventional Pipelines were higher than the comparable periods of 2014 primarily due to the Phase I crude oil, condensate and natural gas liquids ( NGL ) pipeline expansion and the associated contracted volumes, which were placed into service in December The additional volumes increased over time as new connections were placed into service during Also contributing to improved results was the completion of Pembina's Peace and Northern Phase II expansion (the Phase II Expansion ) which includes the crude oil and condensate expansion or the low vapour pressure ( LVP ) expansion ( Phase II LVP ), which was placed into service in April 2015, and the NGL or the high vapour pressure ( HVP ) expansion ( Phase II HVP ), which was placed into service in September 2015 and is expected to be fully commissioned by the end of These expansions allowed for increased volumes at Pembina's existing connections and truck terminals, as well as additional volumes from the acquired Vantage pipeline beginning in late New storage facilities and portions of pipeline associated with other expansion programs, which were commissioned during the first nine months of 2015, also resulted in increased mainline throughput. 5 In the Oil Sands & Heavy Oil business, net revenue was consistent and operating margin was slightly lower in the third quarter compared to the same period in 2014 due to slightly higher flow-through operating expenses, which are eligible to be recovered under Pembina's contractual arrangements with its customers, offset by a reduction of interruptible volumes. For the first nine months of 2015 compared to the same period of 2014, net revenue and operating margin were higher due to increased flow-through operating expenses. In the Gas Services business, financial and operating results increased in the third quarter and the first nine months of 2015 compared to the same period of 2014 primarily due to the addition of the Resthaven Facility, which was placed into service in October 2014, and the Musreau II Facility, which was placed into se
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