Good morning. My name is Suzanne and I will be your conference operator today. At this time, I would like to welcome everyone to the Pembina Pipeline Corporation Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Scott Burrows, Vice President of Finance and Chief Financial Officer, you may begin your conference.

Thank you, Suzanne. Good morning and welcome to Pembina’s conference call and webcast to review our third quarter 2015 results. I’m Scott Burrows, Pembina’s Vice President of Finance and Chief Financial Officer. Joining me today is Stu Taylor, Senior Vice President of Natural Gas Facilities; and Mick Dilger, Pembina’s President and Chief Executive Officer. For this morning’s call, I’ll start by providing a high-level review of our financial results which we released yesterday after markets closed. Mick will then provide an update on Pembina’s growth projects and make some closing remarks before opening to the Q&A session. 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, projections and risks. Further, some of the information provided refers to non-GAAP and additional GAAP measures. To learn more about these forward-looking statements, non-GAAP and additional GAAP measures, please see the Company’s various financial reports which are available at Pembina.com and on SEDAR and EDGAR. Actual results could differ materially from the forward-looking statements we may express or imply today. I would also encourage listeners to review the news release, MD&A and financials we issued yesterday which provide our full third quarter and year-to-date results as of September 30, 2015, as I won’t go over each financial metric on today’s call. I am pleased to report that Pembina delivered a strong third quarter from an operational financial and development a perspective. Revenue volumes have remained relatively stable across our conventional and gas services business. We recorded increased operating margin, EBITDA earnings and adjusted cash flow from operating activities on a quarterly basis compared to last year. As well, our project development teams commissioned to gas plants, Saturn II and SEEP, our Resthaven gas gathering pipeline and our…

Good morning, everybody. Before I discuss our growth projects, I want to recognize the continued commitment to safety and that Pembina’s staff demonstrate every day. I’m very proud to say that Pembina is now up to seven consecutive quarters without any employee lost time injuries. Since the beginning of 2014, Pembina’s employees have worked over 4.4 million hours in total. Our goal is for everybody to return home safely at the end of each day until these outstanding results are a testament to our commitment to that goal. Also, we continue to consistently bring projects online, on time and on budget or better. We are not aware of other companies with this type of long-term construction performance. Pembina’s project development team remains very busy. By the end of Q1 2016, Pembina expects to commission our second fractionator at Redwater, additional storage caverns, truck and rail infrastructure at Corunna, and various Conventional Pipeline assets. Starting with our Conventional Pipeline business, we are committing significant capital to expand our mainline capacity with our Phase III Expansion and extending our reach of our gathering network through the construction of new pipeline laterals. Our Phase II expansion project is now substantially complete, providing for an additional 108,000 barrels per day of mainline capacity. The crude oil and condensate portion was commissioned in April and the NGL portion was placed into service mid-September and will be ramping up to full operating capacity within the next several months. We have now completed approximately 20% of the overall Phase III expansion program and are pleased with the progress to date. Earlier this year, a 70 kilometer, 16-inch pipeline segment between Kakwa and Simonette was placed into service. We’ve recently polled all Phase III customers and remain confident in our outlook on capacity utilization. Additionally, for Phase III,…

So in closing, regardless of the volatility in commodity or equity markets, Pembina is focusing on controlling the factors it can while leveraging the opportunities that the current environment presents us. Our project development team continues to improve their track record of on time and on budget project delivery, all while maintaining exemplary safety records. We’re leveraging slower activity levels to drive significant cost savings to improve project economics and provide value to our shareholders. Our development teams are very busy as oil and gas producers look for alternative sources of capital and global super majors look through the current commodity price cycle with continuing need for large-scale infrastructure developments. We are optimistic as we look forward and see new contracted projects come on almost every quarter until the end of 2017. With that, we will wrap things wrap things up. Suzanne, please go ahead and open up the line for questions.

[Operator Instructions] And your first question comes from the line of Linda Ezergailis of TD Securities. Your line is open.

From quarter – I’m wondering for your Duvernay plant, can you talk about the returns you expect either on a standalone or a combined basis with the – along the value chain? Would be typical to what you expect from your prior plants that you’ve built like that? Or you thinking about this differently?

No, Linda, the term – the return, all that is relatively consistent with our previously announced gas plant project and then of course, we have the incremental liquid which will flow on our Phase III. So when we talk about the 772,000 barrels under contract, that doesn’t include the incremental volume that is going to flow out of this plant. So we’ll going to see another 3,000 to 6,000 barrels a day depending on utilization and composition that will now receive Phase III totals as well so that’s upside to the project.

Okay. That’s helpful and for this large producer, do you see, kind of based on their ramp up in the region opportunities for similar future plants or other investments on their behalf in that area?

Linda it’s Stu. Yes, we do. I mean, the area, we believe is in its infancy and this producer is probably leading the development of the Duvernay to date, both from a well drilling and production basis. And so we are excited and believe that this will give us a platform to build off in that Fox Creek/ Duvernay area and see growing our process and presence there in the future.

That’s very helpful. Now just a separate question. Your hearing in front of the Alberta Energy Regulator for the one segment of your Phase III Expansion. What are the most contentious elements of that? And what happens if you’re not successful in the initial stage in terms of potential project delays, et cetera?

Linda, it’s Mick. The hearing is progressing relatively well. We think we can address all the concerns put forward and materially address all the concerns put forward. So we’re not going to speculate around what the implications are if it doesn’t get approved because we have a high degree of confidence that it will get approved and built on time and on budget. It’s just hard to – the hearing is literally underway now so it just wouldn’t be appropriate for us to dig into the inner workings of what’s going on there.

Great. Thank you.

And your next question comes from the line of Rob Hope at Macquarie. Your line is open.

Yes, thank you. Just in terms of the Phase III expansion, as well as some of your other larger projects that are proceeding, just want get a sense if any of your customers have come back to you, given the commodity price environment and looking for a different ramp-up in volumes or are – is your prior expectations of volumes and cash flow is still intact there?

Yes, we did – our Conventional Business development team did recently survey the entire customer universe there and generally, people are very confident in the nominations they made. Some said their nominations were conservative and hope that they can step up further. We did have a couple that wanted some modifications but nothing that’s not in the ordinary course or that would change, really, at all our current projections.

Great, that’s helpful and just as a follow-up, can you give us an update on how you’re looking at financing, given that the pref market has some challenges right now as well as the fact that you did redeem some debentures for shares recently? Just what your outlook is for new common equity please?

Yes, the debentures conversion really isn’t incremental capital. It’s just moving places on the balance sheet but in terms of the pref market, it has been week within the recent weeks we’ve seen a very strong rally in terms of the underlying preferred share market. There seems to be some support there. So we would still look to that market in 2016 if it was there. We have relatively modest requirements from that. We were thinking in the neighborhood of $200 million to $400 million of pref. If that market isn’t there, then the way we think about pref is 50% debt, 50% equity so it would mean another $100 million or $200 million of debt and potentially $100 million or $200 million of equity.

All right. Thank you.

And your next question comes from the line of David Galison of Canaccord Genuity. Your lie is open.

Good morning, everyone.

Good morning.

So just a quick question on the Duvernay. One, is the customer you have there, do they have 100% of that capacity? Or is it – do they have a portion of it?

They currently have a significant portion of the capacity. There is still some available room in the facility for additional contracts and we are in conversations with the variety of other shippers to build that in the near future.

Okay. Thank you. And then just on the Phase III, so what – the last time I recall the committed volumes around 362,000 barrels per day. Where do we stand right now at that?

Yes, we are not breaking that out any further. It’s in the aggregate of our total that we talk about, 770,000 barrels but if you go back in time and track that, it’s safe to say that we’re substantially higher than the 360,000 barrels.

Okay. And then on top of that would be this 3,000 to 6,000 barrels from the Duvernay?

That’s correct.

Okay. And then I guess, just a quick question on the M&A front. Obviously, your previous comments where that prices were still at a level that didn’t really seem attractive to you but you’re hoping that maybe you might see prices coming down over the next couple quarters of commodity prices remain level, which they have. So just wondering if you could give a little bit of color on you’re seeing out there?

Sure, I’m not – what I recollect we saying was that opportunities would come up, not necessarily that prices would come down and I think we are seeing that. There’s a number of announced processes out there and so the amount of deal flow is ramping up significantly. But we don’t really anticipate prices coming off materially. There either is a lot of interest in high-quality assets and if markets are rational then those who have strategic advantages in certain areas will win in those particular areas but we are at the table, looking at lots of different opportunities but we have to be discerning and to make sure we protect our balance sheet through any kind of process.

Thank you very much. That’s all I had.

And your next question comes from the line of Robert Catellier of GMP Securities. Your line is open.

Hi, good morning. Congratulations on the quarter of the safety record and the Duvernay Plant.

Thank you very much.

I just want to follow-up on your answer to Linda there. This looks like there’s a lot of runway in the Duvernay and this is the first major plant announcement. So do you think this gets things going? Or is it still going to be quite lumpy in terms of ramping up the commitments to infrastructure in the Duvernay?

Rob, it’s Stu. Yes, I think we’re just seeing the beginning and there’s certain producers have progressed through developments faster than others. This plant, again, it’s of significant size and it’s design for Duvernay-quality production so we’re excited about getting that built and getting that throughput running through there. We believe we are early days in the infancy and again, it’s with one producer at this point in time. I mentioned that we are in conversations with a number of others. We believe that with the platform that we have and with our execution expertise that we’ve got room to build numerous facilities in the Duvernay as it continues to develop. I think the producers are doing a good job, driving cost of the drilling equation and the quality of the wells and the production is coming from the wells is proving up and it’s taking the Duvernay from, what we call kind of an evaluation stage to where we’re starting to see people move into full development. And with that is going to be the requirement for significant additional facilities of which we think are well-positioned to take advantage of.

Okay. That’s what I wanted to get at there. Last year, we saw a midstream company sign a rather large open-ended deal in the Montney and I’m wondering if you have those types of conversations with respect to the Duvernay forming a broader strategic agreement area of neutral interest type deal to really cement your platform there?

To date, we start – I would say more to our classic approach to facility contracting and design here. We are entering into many conversations and looking at the opportunities, each independently depending on the producers’ acreage and the producers’ development plans. We’re not moving forward in a large way of an open-ended contract agreement that has been taken by some others.

Okay. Finally a question for Scott. I didn’t catch the comment about the EBITDA adjustment that would’ve brought the number up to $246 million. What was the adjustment?

We had other expenses in the quarter, Rob, and if the – in the MD&A, we do outline what those are. Mainly, we had some impairments on some line fill that added to that $17 million of others as well as some project development cost that were expensed so in terms of what some others called an adjusted EBITDA, I was adding back the $17 million to get to the $246 million.

Okay. But that line fill adjustment, that – would that not impact rate base returns somewhere in the portfolio?

No.

No.

No, would not.

Thank you.

Suzanne, can you move onto the next question?

I am terribly sorry. It’s my mistake. Andrew Kuske at Credit Suisse. Your line is open.

Thank you. Good morning. I guess the question is for Mick and obviously, it’s been a really heavy earnings week for everybody. The questions really relates to a comment that come off of the Plains All American call a couple days ago and they made a comment to the effect of aggressively protecting market share and clearly, they have some Western Canadian operations. Have you seen any changes in behavior, really, at a field level or an asset operating level from how they’re engaging customers that – in areas where you effectively co-exist to a certain degree?

I have no knowledge of what they were up to, to be honest. We don’t sense their presence in areas where we both operate, but I would say those areas are very limited to the South of Edmonton, the Drayton Valley area but very, very limited work. In those areas, we’re primarily accrued all condensate and C2plus whereas their systems are C3 plus so have a different set of customers generally. A little bit of competition on the chalking side but again, we don’t really sense their presence.

Okay. That’s really helpful and then just on the Duvernay announcement, just to maybe go back to this line of questioning for people. If we look at a really macro level and obviously there’s a little higher degree of variability in basins. How do you think about just your counterparty risk and the returns that you need when we look at wellhead economics for the Duvernay? The returns – just – they don’t look as good as the Montney. Obviously, you’ve got a great position in the Montney. You’re in the midst of maybe building a Duvernay. Do you see Duvernay eventually tracking to the economics from a producer’s standpoint that would be like the Montney?

It’s certainly days in the Duvernay and I think, again, we’re seeing – you’re right. It does vary across the play and we’re seeing certain producers with well results and will economics that are improving continuously here and looking a lot better to closer to the Montney development. And we’re hoping that as costs continue to come down, and people move from their appraisal type drilling to more full development, that, that will drive costs further down. Depending on where you are in the Duvernay itself, the commodity that you’re going be producing will vary and people will be taking advantage of that and specializing in their own environments. We do believe the cost of the Duvernay can improve. The well results will improve as people move forward and those economics will trend closer to the Montney.

And then just finally, on how you’ve approach it. It hasn’t really changed your risk parameters and how you think about returns on capital from a Pembina perspective? Being in the [indiscernible]

Sorry about that. No, we’ve stuck pretty close to our typical proposals and plans on how to proceed here.

Okay, that’s great. Thank you.

And your next question comes from the line of Matthew Akman of Scotiabank. Your line is open.

Good morning.

Good morning, Matt.

A couple questions first. Good morning Mick. On the Duvernay plan, obviously the integrated solutions is that you guys provide are a competitive advantage in winning these types of projects. I’m also wondering though whether operational reliability considerations came into play and/or will come into play there? Some of – there’s – it’s not like there isn’t existing capacity on some other plants right around there, but I know that operational challenges have surfaced with so much condensate coming out of some of the plays and being unpredictable in that regard. And I’m wondering if that kind of thing comes into play in building a new plant for someone?

If I may, I think – I’m glad you asked that question. First of all, though, as you alluded, a lot of the plants out there are large, old, sour plants with probably not the right operating cost profile for sweet gas and this is generally sweet oil, sweet gas, lots of condensate and so producers are opting for new solutions there. I think that’s an important point. In response to your other assertion, the major – super major customers that are out there are very focused on safety. They are very focused on reliability. They’re looking for track record of building on time and on budget because for every $1 we’re investing they are investing CAD5 to CAD10. And so if we’re not on time, then the repercussions to them are huge and so we’ve been talking about safety and reliability on our calls here for two or three years. You guys are picking up on that and it’s more important than just a nice thing to say. That is the ticket to get into the game with these very, very large customers that are spending billions of dollars or tend to spend billions of dollars in this area. So thank you for the question. Stu, do you have anything to add…

Exactly, Matthew. I mean, when we go and meet with these customers and obviously, the financial aspects of deals are important but at the same time, we very quickly get to with their leadership teams, conversations around our track record of developing and building these facilities. Our track record of our reliability, our on-line time, and as Mick has already mentioned, our safety record and people want to make sure that we are up. We’re running; we’re running on time and we’re running at low cost.

Thanks for that. Follow-up on the Conventional Pipelines and clearly, we’re going to see revenues go up as you bring assets online in that segment, but I’m wondering if it’s too early or if you have any comments on where you see volumes trending in to 2016 and through 2016?

Well, when we look at the fourth quarter, we will have a lot better idea. We only brought Phase IIb, I guess, onstream late in the quarter and so 2014 will give us a better idea but as I mentioned earlier in the call, we did solicit feedback from all of our customers who are staying the course on their nominations. We had approached those calls thinking, look, if somebody wants out of capacity another person wants more, we’ll – we’re going to – we can accommodate to some extent. We do want to be a great service provider, but we just had no interest in that and people reaffirmed their nom so that’s a lot of product that’s going to have to come to market and we are very, very excited. The development in the Duvernay, I think, I agree with Stu, it is turning over to be commercial and a lot is possible there. I mean, you go back two years and people in that area were saying the Duvernay could be the new Eagle Ford and yes prices are low but again, with the size and capability of some of the people we’re talking to in that area, they can see through times of lower prices and these are 25 to 50 year developments. That’s kind of resource potential we have now and like Pembina, they’re taking advantage of time to build less extensive infrastructure built, drill less expensive wells and as they see through that, I believe so. So I think we’re just getting started there and we couldn’t be more excited about building the first large-scale new plant in that area. With our proven template design and our ability to keep replicating these plans, there are scenarios where we’re building half a dozen of these type of plants in that area for just a single customer. That’s the kind of capability we have there and how prolific the geology could well be.

Thank you very much guys. Those were my questions.

And your next question comes from the line of Robert Kwan of RBC Capital Markets. Your line is open.

Good morning. If I can just follow-up on that last statement, Mick. Is there anything in the current contract that would have you building Duvernay, call it, II or III, or is that something that you would just kind of bid for as the need might arise?

Not in this particular agreement. There’s nothing that would, contemplate that formally.

Okay. You’ve really seem to carve out a niche here on 100 million a day shallow cut plant. And you talked about some of the other things around safety and just operational availability. Do you have a sense as to how competitive the process was with this customer? Was it kind of a wide process? I’m sure they talked to a lot of people but just in terms of – did you feel that it was a little bit more of an exclusive negotiation as you think about your track record in addition to the integrated offering?

Mike – we always – whenever we start to talk to somebody, we always think about this could be exclusive but it never really ends up that way. Again, when you have customers that have that kind of capability, the people we’re talking to, you always have to remember, Robert, that they can do the stuff themselves. So you already have a built-in competitor which is they do it themselves and so what you really have to put forward is a better mousetrap; cheaper – an integrated offering; greater – a great safety record and all those other things just to get past their question of doing it themselves. And again, when they’re large customers, they have service providers all over the Western Canada or the world for that matter and so they can bring a lot of judgment even without a formal process. Typically though, you’re always competing against one or two other people capability and as I said, in terms of M&A what our experience is so far in the last 5 years or 10 years is, generally, the people who bring the most synergies to the area or the field that they’re expert in or dominate are the ones so far that are winning and so there has been a lot of discipline, I think, shown by the infrastructure sector people win they should win.

I guess with that, Mick, your service offerings, as you think about the pipe, and then further downstream with Redwater positions you very well so if you think about whether it’s Duvernay 1 here or the 2 Musreau II and III kind of similar type plants, is your sense though that really, it’s a negotiation that gets you to whether it’s you or the customer themselves? Or do you think there are in a number of other parties that could be very close?

I think there are parties that are close, particularly on the GMP and that it gets, I think into the other factors which is have they built a plant like this? What’s their safety record? What’s their reliability record? Can they coordinate outages through their system? What happens if we don’t get the product we expected? We thought we were going to condensate and we got crude or what if we want to go from C3-plus today to C2-plus in the future? Who can give us that flexibility? Who has the integrated service offering? Who can market these products? All those other things, with the expansion potential we have, you’ve heard to go from 420,000 and 680,000 barrels a day to the multi-product service the C2-plus product, the C3-plus product, if you want your products back? Do you want us to market them? All those things, I think, in totality, are really the reason we’re winning these things. I would say the competition on gathering and processing has been fierce but the fiercest competition from the kind of customers we have there is from themselves. But there are others certainly who are very credible in gathering and processing. Stu?

Okay.

Robert, I’d say that the – there were others working to secure this asset as an opportunity. We’re not naive to think that other people are aware of the Duvernay, the Duvernay development, and the opportunities are presented there. And we know that these customers, their scope and their size allows – they have lots of suitors coming to talk to them about extended gathering and processing options here. So you know, there was lots of competition to win and we’re happy that we have the assets and the organization to put forward a proposal that, at the end of the day, is enticing to have people come to Pembina.

Okay. That’s great. And if I can just finish with a quick question on the Phase III pipe? As you’ve gone out to customers, you – I think you noted that there was a small number who were interested in changing the ramp. Did you accommodate and if you did, directionally, was that just tacking extra period on to the back of the contract? Or are you changing things in terms of some of the financial terms and to make sure that your whole, call it, from present value perspective?

What we – I would say what we – our strategy there is to accommodate without necessarily costing our shareholders money. And so, if you people, that say, they say, we’d like 80% as much as we first nominated, what we do there is say noted and then the next customer comes up and says we want something new, we can offset and accommodate that way. So we’re accommodating as best we can but we’re doing so without harm to our shareholders. And I don’t see a lot of issues helping people out, but it may not be instant satisfaction; it might take us time to sign up a few new volumes or new volumes or whatever. We’re pretty confident we can keep up our great reputation of customer service without harm to our shareholders or needing to change our predictions in any way and so now I would say in general, Robert, we expect volumes to keep building on the Phase III expansion and not reducing at all and in the NPV, the IRR, that project continuing to improve even if we are accommodating people along the way.

Okay, that’s great. Thank you very much.

And your last question comes from the line of Steven Paget of FirstEnergy. Your line is open.

Thank you. And good morning. Have any producers indicated to you that they will ask you to build new facilities as LNG developments go ahead? Or do you have new facilities to propose that would work with LNG if LNG were sanctioned?

Steven, it’s Stu. Yes, we have been conversations with a variety of producers looking at the LNG world. There’s no question. Our conversations are – we think we have facilities that we could propose from our gathering and processing perspective to get that production online. We continue to work our process of identifying who’s going to grow? When is the timing of those facilities going to be required to paying on the timing of LNG? And we have lots of conversations around that and I think I’ve stated before, we’re supportive of the LNG effort off of Canada. We believe LNG kicks out a bunch of processing requirements and with the processing will become new liquids to be transported on Pembina’s Pipeline system down to fractionators. So any LNG development will, I think, open up facility requirements right in Pembina’s wheelhouse.

Thanks, Stu. Does the 5,500 barrels a day and NGL capacity at the Duvernay plant include continency dropout?

Yes.

At the Duvernay plant, what if the gas turns out to be richer in liquids in 5.5 barrels per million?

We’re continuing to work. We’re building in some flexibility there and we’re working with the customer to – they have progressed further than most of the Duvernay’s producers, so they have a good idea of what the product is going to look like but at the same time, we’re ensuring, from an engineering design perspective, that we can accommodate a variety of streams if that does occur.

Yes, Steven, like our plant, Stu’s teams are making that plant ever more flexible so it’s just really matter of putting a different stabilizer on the front end and we’re also looking at scenarios if the volumes were slightly sour, to put a sweetening trend of the front end. The same core building block and we are able to build that with great reliability and at less and less cost as start to assembly line these but we’re also looking at different front ends, whether it’s 50 barrels, 1 million, 100 million or 200 million; it’s really a front end matter and we are evolving the design. As Stu mentioned, the anchored cannon doesn’t have all the capacity so – but we opted to build our standard design and then chase the one or two customers we need to fill it rather than deviate from the proven designs.

Mick, Stu, thank you. Scott, you talked about $225 million in savings. Is that all on the capital cost side?

Yes, that’s our target on the capital cost side, Steven.

And you’re halfway there?

Yes. [Indiscernible] To be clear, some of that is that to be – we’ve negotiated lower rates but the hours have not yet been worked so we expect to get there over time as we build these projects. Some has been realized in terms of like pipe bursts and that is what it is but the construction is still ahead of us so yes, we can say those are savings but construction is the place where you have variability. We are turnkeying a lot of our construction contracts in this environment so we’re highly confident of those savings or perhaps a little bit more, but they’re not absolutely guaranteed.

Thank you. Will there be any cost savings passed along to the shippers?

s the contracts provide for those cost savings to be passed on, they will. To the extent the contracts don’t provide for that, they won’t.

Great. Thank you, those are my questions.

Thank you.

There are no further questions in the queue. I’ll turn the call back over to the presenters.

Okay, well, thanks, everybody. I think you can sense our excitement about this new opportunity in the Duvernay and the excitement about that looking ever more commercial. I think we’re well-positioned here. As we look into the future, things are progressing well. We look at the current year. Yes, we’ve had a setback in terms of commodity prices but we’re more than making up for it in terms of capital efficiencies. Next year, the years after, are coming together well as new facilities are coming on every quarter. So our morale high and our execution remains strong and our safety record is great. So I want to thank everybody who participated in the call and I wish you a happy weekend. Thanks.

And this concludes today’s conference call. You may now disconnect.