Pembina Pipeline Corporation (PBA) Q3 2017 Earnings Report, Transcript and Summary

Good morning. My name is Stacy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pembina Pipeline Corporation 2017 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, Senior Vice President and Chief Financial Officer. You may begin your conference.

Thank you, Casey. Good morning, everyone and welcome to Pembina's conference call and webcast to review highlights from the third quarter 2017. I'm Scott Burrows, Pembina's Senior Vice President, Finance and Chief Financial Officer. On the call with me today are Mick Dilger, Pembina's President and Chief Executive Officer; Stu Taylor, Senior Vice President, NGL and Natural Gas Facilities and Jason Wiun, Vice President, Conventional Pipeline and Cam Goldade, Vice President Capital Markets. Before passing the call over to Mick for a review of the quarterly highlights, I’d like to remind you that some of the comments made today maybe 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 measures. To learn more about these forward-looking statements and non-GAAP measures, please see the company's various financial reports, which are available at pembina.com and on both SEDAR and EDGAR. We also mentioned non-GAAP measures for the results of Veresen, which are measured differently from ours. Our press release for the third quarter explains how the Veresen non-GAAP measures are calculated. Actual results could differ materially from the forward-looking statements we may express or imply today. Over to you Mick.

Thanks, Scott. Good morning everyone. Before I begin discussing the quarter specifically I’d like to make some overarching comments on the extraordinary achievements by our company. The past few months have been some of the most exciting ones in our company's history. Not only did we place over $3 billion of new assets into service. We also posed $9.4 billion acquisition of Veresen on October 2. 2017 truly marks a transformational year and has positioned us as a leading North American energy infrastructure company. In terms of the Veresen acquisition the integration is progressing very well. Within days of closing we welcomed the Veresen staff into their new home in Pembina offices and have since been working under the same roof. Financial and operational integration is progressing well and we expect to be largely complete by year-end. With respect to the Canadian Competition Act Pembina continues to work with the Commissioner of the Bureau and the staff post closing, relative to the Alberta Ethane Gathering System and their review relating to AEGS is ongoing. I'd also like to take a moment to applaud our teams on a job well done. The last few years have been fast paced and there has been a great deal of change at Pembina. Our staff across the business have risen to the challenges and I'm truly impressed by the dedication and commitment of our people who make our success possible. Now moving on to our quarterly discussion. I'm happy to report that we again achieved record financial results for the quarter. On a year-to-date basis we set new financial records including adjusted EBITDA, adjusted cash flow from operations and adjusted cash flow from operations per share. We begin to set new volume records in our conventional pipeline business, partly due to placing our Phase III expansion into service which is now operated for one full quarter and has continued to ramp up. Our Gas Services business unit continues to produce strong results as well. I also want to touch on our safety performance as this is a core priority at Pembina. During the quarter, we unfortunately had one of our employees have, not at fault loss time incident. Previously to that our employees that worked 14 consecutive quarters totaling over 9.7 million hours without any loss time incidents. The safety of our employees is a paramount to our success and we will continue to strive to have best in class performance in that regard. I will now pass the call back over to Scott.

Thanks, Mick. As Mick mentioned Pembina achieved operational and financial records in the third quarter of 2017. Adjusted EBITDA was $365 million for the third quarter, a 27% increase compared to the same period last year at an all time quarterly high, as a result of stronger performance across the businesses. The strong business performance was driven by new assets being placed into service, stronger commodity prices in the NGLs and increased revenue volumes, partially offset by higher G&A and net finance cost, which resulted in adjusted cash flow of $314 million in quarter, which was a 26% increase over the same period last year. On a per share basis, adjusted cash flow was $0.78, a 22% jump compared to the third quarter of last year. Adjusted cash flow was also positively impacted by increased current tax recoveries. Earnings were $107 million during the third quarter of 2017 compared to $120 million for the same period of 2016. In addition to the factors previously discussed which contributed to higher gross profits, earnings were partially offset by higher G&A, higher net finance costs and other expenses. Earnings were also impacted by a loss on commodity related derivative and financial instruments of $61 million. We achieved a new quarterly revenue volume record on our convention pipelines of 780,000 barrels per day, a 21% increase compared to the same period last year. Higher revenue volumes realized due to increased throughput resulting from new connections as well as a full quarter contribution from the Phase III expansion which was completed at the end of the second quarter and ramped up throughout the quarter. We expect revenue volume to continue to increase through the next two quarters and further again during the first quarter of 2019. Operating margin in conventional pipeline decreased by 44% to $174 million for the third quarter as a result of higher revenue due to increased revenue volumes, new assets being placed into service combined with lower operating costs due to lower geotechnical and integrity spending. Our gas businesses process solid quarterly revenue volumes of 1.02 Bcf per day in the third quarter of 2017. Revenue volumes were 15% higher than a comparable period in 2016. Increased revenue volumes from new assets and the Kakwa River acquisitions translated to operating margin of $66 million for the third quarter, a 27% higher than comparable quarter last year. Operating margin for our Midstream business was $125 million for the third quarter, which was 18% higher than the same period last year. The increase was primarily driven by the start up of RFS III and CDH at the end of the second quarter and improvements in commodity prices throughout the year. This was partially offset by lower NGL sale volumes due to lower supply volumes and downstream curtailment and lower revenue from marketing opportunities compared to the same period in the prior year as well as, losses on commodity related derivative financial instruments. During the third quarter, we entered into commodity related to derivative financial instruments to economically hedge operating margin derived from the spread between the value of natural gas liquids and natural gas. We have now derisked approximately 18,875 barrels per day of propane plus frac spread through March 2018, had a margin of approximately $31 per barrel excluding basis differential and costs. In our Oil Sands business, we continue to see performance in line with previous periods as expected. With the closing of the Veresen acquisition on October 2, Veresen’s financial and operating results for this quarter are not included in Pembina’s third quarter results. However we are pleased to report that the Veresen assets continue their strong 2017 performance during the third quarter, generating a proportionately EBITDA of $164 million for the third quarter Alliance pipeline continued to benefit from high seasonal and interruptible volume demand during the quarter, driven by curtailments and outages on other egress options at western Canada and a wide Chicago-AECO price differential. Additionally, our stable earnings benefited from improved frac margin as well as the ability to recognize the margin differed in previous quarters, a result of the annual nature of margin sharing agreement with the counterparty. As previously announced with our continued success and financial strength. We were also proud to have increased the dividend by 5.9% in conjunction with the closing of the Veresen acquisition. This marks the second increase to our dividend this year with a total increase of 12% in 2017. Pembina remains well positioned with one of the strongest balance sheet among our peers. As of December 30, 2017 Pembina’s debt to trailing 12 month adjusted EBITDA ratio was 3.7 times. I will now pass the call over to Jason who will provide an update on growth projects within our condensate and crude oil value chain.

Thanks Scott and good morning everyone. At the end of October, we were pleased to place our any NEBC Expansion into service on time and on budget. This expansion is underpinned by long-term cost of service agreement and has approximately 75,000 barrels a day of transportation capacity to B.C.’s liquid rich Montney. In conjunction with this expansion we also place the Altares Lateral into service on time and on budget. On November 1, Pembina took over operatorship of our Vantage pipeline systems, which was previously operated by a third party. We believe over time we will be able to drive cost synergies on the system, which will flow through to EBITDA. We continue to progress our Phase IV and V expansions, which will support the growth in the prolific Montney, Deep Basin, and Duvernay plays. In addition to these expansions, we also continue to have the ability to further expand capacity in the Fox Creek to Namao corridor to approximately 1.2 million barrels a day by adding additional pump stations. I'll now pass the call on the Stu, who will provide an update on growth projects within our NGL value chain.

Thanks Jason and good morning everyone. On November 1 of this year, we were excited to have placed our Duvernay complex into service ahead of schedule and under budget. The complex includes a shallow cut gas processing plant with net capacity of 75 million cubic feet per day connecting pipelines in the associated field hub infrastructure. Continuing with the Duvernay play, discussions surrounding our 20 year infrastructure development and service treatment with the multinational investment grade customers are progressing and we are confident that we have more details to release relating to this agreement over the coming months. Moving on to our PDH/PP facility, in October our 50/50 JV under the CKPC executed the primary FEED contract for our proposed PDH/PP facility with a leading global engineering firm. CKPC also recently entered into a Municipal Improvement Agreement with Sturgeon County, which is where the proposed PDH/PP Facility would be located, adjacent to Pembina's Redwater complex. Our West coast propane export strategy is continuing to progress. We're currently consulting with key stakeholders for the proposed Prince Rupert Terminal and are working to complete the design and engineering requirements and obtaining regulatory and environmental permits. We continue to advance the construction and commissioning of infrastructure in support of the North West refinery machine, commissioning activities are now over 50% complete and we expect replacement service by the end of 2017. In terms of our recently acquired Veresen assets both the tower and Sunrise gas plants were put into service during September, ahead of schedule and under budget. We we're also expecting to place the first 200 million cubic feet per day processing train at Saturn in service this month ahead of schedule and under budget. Combined Veresen Midstream will have placed 800 million cubic feet per day of gas processed capacity into service during 2017. The second 200 million cubic feet per day train at Saturn is expected to be placed into service in the first half of 2018. Lastly, during the third quarter the Jordan Cove LNG project officially filed this application with FERC and we would expect an outcome sometime during the latter part of 2018. With regards to Jordan Cove, we continue to engage potential customers and we remain excited about the potential of this project.

Thanks Stu. We have are pleased with our strong financial and operational results over the third quarter. This quarter truly marks an inflection point in our company’s history. Looking ahead we are focused on completing our secured growth projects on time and on budget and converting our unsecured opportunities into secure projects, as well as, working to integrate Veresen and realize the near term expected synergies, all while continuing to support our dividend and create value for shareholders. We are proud of what we've accomplished and are excited to continue realizing the benefits of our hard work. With that we’ll wrap things up. Casey please go ahead and open the line up for questions.

[Operator Instructions] Our first question comes from the line of Jeremy Tonet of JPMorgan. Your line is open.

Good morning.

Good morning.

Just want to start off with the Phase III ramp as you talked about here. It sounds like it could go into beginning of 2019 and was wondering if you could provide more color with regards to the degree of the ramp is it more kind of front end loaded here or back-end loaded? Or how should we be thinking about this now that you've had kind of one quarter under your belt here?

Hey, Jeremy, its Cam speaking. Yeah, I think the ramp from our perspective is relatively consistently I mean, we went into the disclosure. This quarter what we saw obviously we had some one-time adjustments that boosted the Phase III volumes, the revenue volumes for conventional, slightly in this quarter. But we expect to see a pretty consistent ramp through the next couple of quarters. And then as we said previously leveling off and seeing another step function in 2019 as new contract begin.

Okay, great, thanks. And turning over towards the NGL crude oil marking there, it seems like there was some nice upticks quarter-over-quarter and was wondering what you could share there, how you think about the run rate, especially on the crude oil side, you talked about the 160 to 180. Is that something you still think about in a normalized environment and that’d be a big uptick in 4Q? How should we think about that? NGL margin had a good step up quarter-over-quarter, propane prices have really shot up, but there's some backwardation in the market structure now. So, any thoughts you can provide for us there on those lines?

Yeah, Jeremy maybe I'll start on the crude oil side. I would say on a normalized year, I think that we’re still comfortable with what we’ve talked about. Now that being said, I wouldn't expect a significant increase in Q4, now that we’re already a month into it, we haven't seen anything in the differentials that would make us believe that Q4 be any different than what we've experienced on a year-to-date basis. On the NGL side, obviously strong Q3 as frac spreads were very wide with what's going on on the AECO side. That being said our Q4 and Q1 will be tempered obviously with the hedges that we’ve put in place. So, we're comfortable with the hedges that we’ve put in place and locking in margin significantly above historical numbers. But they will be tempered somewhat by the hedging. Now that being said we are not hedged obviously and are stable, so we will just continue to see strong results coming out of that asset base as well. So, everything is shaping up for what looks like a nice Q4 and Q1, with where propane inventory levels are and current pricing are. But we do acknowledge that the current forward strip does have the backwardation, which is, I’m not sure, we fully believe it yet, but it does moderate our complete 2018 outlook, just with the way the strip is.

That's helpful, thanks. And just want to touch on Veresen a bit more here, this is really kind of your first opportunity I think to talk more about the synergies on the commercial side. I was wondering if you could address more, where you guys stand right now. Do you see more opportunities than when you first started or is there anything that you can say now that you couldn’t say before? Now that the deal has closed?

We're going to stick to the script so far, Jeremy. We disclosed 75 to 100 of cost synergies, we actually had that discussion with our board yesterday. We think that’s still about the right range, but recall that was our base case synergies on things that we thought we had complete or at least a strong degree of control in our development case. We certainly think there's cost opportunities and revenue opportunities in the joint venture asset, I’ll call them that, Alliance and Aux Sable and our Midstream joint venture. But we are in complete control there. So, we've been reluctant to quantify something we can't control, but certainly there are opportunities you know not necessarily in the near term because we got to get to know our partners. But over the medium kind of a year out and beyond I think for greater synergies and then in the base case of that’s kind of 75 to 100 range.

That makes sense. Thanks. And then just one last one if I could. It seems like there are some Midstream packages out there from some of the producers either building assets or them selling assets. Just wondering if you could update us and how you think about the market right now in D.C. opportunities that could make sense for you guys.

Yeah, I mean I’d start out and then, I’m sure Stu will add something. The way we are structured notwithstanding we've taken a big bite, the integration is going honestly ordinarily well and it’s because we've built a capable and resilient company including back office. So Veresen is sliding completely within our existing systems. We’ll be able to shut down all their computer systems by the end of the first quarter. Everybody is over here. So, what that means is that we're still open for business and our business units each have their own mind in management and capability. So just because we're doing something corporately or one business unit is you know busy, it doesn't mean our other business units can’t continue to transaction and we purposely set ourselves up that way. So, we're still open for business, but maybe I’ll let Stu talk about specific opportunities.

Well, we don't have and I will start from specifics, but in general I think as Mick described, we continue to look at and evaluate our opportunities and must do within our investment criteria and areas that we like. We spend a great deal of time focusing on the geology and some of the package that’s our believed to be out there. We do like their location, so we will continue to look and put effort into that and if it makes sense, we’ll pursue that. But at this point, we're busy with what we have and are continuing to look for new opportunities already.

Great. That's helpful. Thanks for taking my questions.

Have a good weekend.

You too.

The next question comes from Ben Pham with BMO. Your line is now open.

Okay, thanks. Following on the last question about the ramp up on page 3. It is the ramp up is that primarily driven by contractual increases that you have embedded each quarters? Or is there sort of an (amount) of volumes that need to flow through the your system.

This is Jason. It's a bit of a combination, its predominantly the ramp that Cam referred to in 2018 and then another one in 2019, its really driven by the contractual profile, which are done on an annual basis. So, every January our contracts ramp up for the new volume profiles, then underlying those the physical volumes sort of follow those trends, as we build up towards the contractual capacities that we've contracted.

Can I ask is Phase IV and V have similar type of trend?

Yes, they would. I guess, there is a firm part of the basis of the growth that you see in 2018 and 2019.

Okay. All right. My second question, some commentary about Jordan Cove and regulatory filings and I'm wondering more as you're looking at that project now from your lens as if you look at anything differently than how the predecessor looked at it. Is there any sort of BD costs that you could be moving around that's reflecting that synergy expectation that you have?

Well, let's just start we'll get to your question. When we combined with Veresen certainly we were aware of that opportunity. Again the way we evaluate things is we have a base case and a development case. In our base case, we did not subscribe value to that asset we were neutral on it and we really were new to that space entirely. However, in our development case we did see the opportunity there. I would characterize where we are now that’s having gone from neutral to favorable on the project. We have been kind of around the world meeting with potential customers and it does seem to us that the timing and location of the project are favorable and we are seeing quite a substantial interest in the project. In terms of what different obviously the scale and capability, operating capability construction capability of Pembina, the balance sheet may make the project quite a bit different. I would say the team, the existing Jordan Cove team had an extremely strong handle on the plant itself and have a Class 2 estimate, so we’re very comfortable with that. But what we bring is the ability to construct that pipeline and all that’s associated with the pipe. So, from the perspective of the Jordan Cove team, they welcomed the capabilities that Pembina brought, Stu?

Yeah, Ben its Stu. We're excited, I thinker we were lucky to have inherit through the acquisition, this great LNG team down in Houston. They've been working extremely hard to progress this project as mentioned the FERC application and has recently been filed 31,000 to 33,000 pages of documentation for that filing. We've progressed the engineering as Mick said the plant side throughout Class 2 estimate. We're very comfortable, we're working hard on the pipeline side and simultaneously all the engineering work is route on our consultation meeting along the right away and individuals and are hoping to make some good progress coming up in the last part of 2017 and in 2018. All in all, I think as Mick described our view of the project is are moving from neutral to favorable. We like the opportunity. We believe it competes very, very favorably with LNG exports out of North America and particularly off the west coast of North America.

Okay. Thanks for update.

Welcome.

Your next question comes from Rob Hope with Scotiabank. Your line is now open.

Yes, good morning. On another potential Veresen project, I just want to get your thoughts on Alliance, we had another strong quarter there. It seems to be quite a bit of demand there just given some pipeline constraints. Can you update us on your thoughts on contracting that pipeline, as well as, expanding it longer term?

Well, certainly the market predisposed is that pipe to have the ability to recontract and expand. I mean, the AECO pricing situation versus the Chicago created quite a bit of differential and so it is a hot commodity. We are just starting to get to know the Alliance team and our partners at Enbridge and so I don't want to go too far in terms of what’s possible there yet. Jason, you went to your first board meeting, what are your thoughts.

Yeah, I think it is early days, I think our focus now at the beginning are probably on the cost synergy side of the equation and trying to see if there's opportunities there. And then as we are like Mick said we’re really just learning the market and learning the assets. I think over the next month or two, I’d say we're going to get to the point of understanding the asset market a little bit better and knowing where we're going with it from that point.

But I mean, we obviously would love to see the pipe recontracted long-term according to our investment criteria. So, you already know what we’d like to do it, I think it's more of what we've done on these and all of our other assets.

All right. That’s good color. Then switching gears a little bit, since putting out your indicative 2018 EBITDA guidance. We’ve seen a number of tailwinds to your business whether it’d be commodity prices and some projects entering service quicker than anticipated, as well as, some strong volumes. Just want to get a sense on how you're looking at your 2018 guidance levels from here?

At this point Rob, there is no change to those levels.

All right. That's good. And then one last follow-up, just you mentioned the kind of contracting profile of Phase III. What about RFS III, how should we think about the kind of contractual volume trending up there?

So, on the contractual volume, there really is no shape to that asset base. It really is the contract kicking with the in-service date. And recall, it’s entirely completely contracted 100% take or pay. So, we're getting paid for every barrel of capacity there right now. Physical volumes are lower than contractual volumes and therefore we're not able to touch as many physical barrels on the marketing side as we like at this point. But assets are ramping up, the assets we combined with on Veresen Midstream for example are coming on. And they are kicking off a lot of liquids. Duvernay is kicking off a lot of liquids. So, we think that notwithstanding its full contractually, we'll get a tailwind from increased marketing volumes over the next year or two as you know these different plays develop.

Thank you.

And your next question comes from Robert Catellier with CIBC. Your line is now open.

Hey, good morning guys. I was just wondering if you could discuss which of the Veresen projects interest you the most at this point.

We like them all. Honestly the Veresen folks did a masterful job of recontracting AEGS. So, that's like an Oil Sands asset, its recontracted full for 20 years. Alliance the market that pipe puts us into, we like a lot. We like the fact that it gives a gas leg to our commodity diversification and additional customer service offering. So, we like it. Frac spread assets like Aux Sable sometimes you love them, sometimes you hate them. Right now, we love them. Really impressed with the leadership at Aux Sable and the attitude of the people there and their ability. So, I like that asset. The Veresen Midstream, we've taken over the Hythe/Steeprock operations. At some point in the future envision taking over the Dawson operatorship as well. The Cutbank or the Encana and Mitsubishi partnership is strong and growing that asset. So, really they're doing well. I think the results speak for themselves. Of course Jordan Cove we’ve talked about going from neutral to favorable. Clearly, it’s a huge project and we're looking at it carefully. It does have a significant burn rate and we need to evaluate the risk reward profile and that’s part of what we’re going to do in our 2018 budget cycle.

Okay. Then on the NGL hedging strategy. The barrels you hedged over the next couple of quarters. How much is that as a percentage of your exposure? And what would you say the strategy is going to be sort of medium and longer term. You have more frac spread exposure with Aux Sable obviously. But you're also a much larger organization, which could arguably carry a little bit more volatility?

Rob, its Scott here. So, on the overall hedged position on the – and for these barrels, we are largely hedged, call it close to 90% of our term sales. Now that being said, to the extent we have incremental spot sales, those are unhedged. And then very little on the Redwater side. So, on a combined basis we’re probably somewhere in the neighborhood of 50% to 60% hedged on the propane barrel. Now just to be clear that is on the legacy Pembina assets, as I mentioned previously Aux Sable is unhedged. So, on an aggregate basis were probably in the neighborhood of, I’m going to say 25% to 35% hedged on that. And that just really goes through Q1 of 2018. We are relatively unhedged for the balance of 2018. In terms of the longer term strategy, I’d say your question is bang on and something that we're discussing as an executive team right now. So, I don't have the answer for you, but as we do look forward, we're seeing probably less and less reason to hedge, given the size of the company and the balance sheet that we see that. Yeah, I mean, 2018 we’re north of 85%. Fee for service and that's - by contrast in 2015, 2016, we needed some of our commodity exposed stream to pay our dividend. And clearly the need to hedged when you're using some of your commodity exposed cash flow stream to your dividend is completely different than where we’re sitting now where, we have a relatively comparatively low payout ratio coming completely out of our fee for service. It does really, mitigate since the they need to hedge at all, but we're going in a process to kind of risk award, in fact, I think is that meeting next week, its coming right up. So, we should be able to give you more color here by the next quarterly call.

Okay. And then just the similar type of question on PDH. You've been very disappointed in your guardrails in terms of risk reward and things you’re willing to do with the same sort of of logic might apply here as you're a larger organization. Do you have a little bit more risk tolerance on the PDH? Maybe have less of it contracted before reaching FID, you still have a chance to backfill some of the contracts during the construction period. Just that you’re a larger organization now, you might have more appetite there?

Well, our straw dog remains 50/50 and you're bringing up an interesting point. I mean with our size we could do the whole thing at risk and still stay, well, until within our guardrails. But the way we think about it is we don't want to use - we don't want to drop from 85 to right to 80 and use all of our room, so to speak on one project because there are other opportunities were we might want to take an 80/20 risk profile. So, our straw dog remains 50/50 for that project. We’re gaining confidence that the 50% fee portion is possible and we could even go north of that. But at this time we’re still using that straw dog and, of course, even though that is a material project for us at 2 billion our share, it does not really put a dent in the guardrails in terms of our fee for service component given our larger size.

Okay. Thank you.

Your next question comes from Andrew Kuske from Credit Suisse. Your line is open.

Thank you. Good morning I think the question is probably for Mick and obviously you just closed the Veresen deal, you've got a product portfolio of assets on what was already a pretty big footprint in Western Canada. But when you look at your network of assets and just the capital that you’re allocating in the future. Really, what's missing in your portfolio at this stage. So, if you had your wish list out, what would you want to put on the portfolio, whether organically building it or buying it. What's really missing in the value chain for you?

Well, I think it's what every person in the energy business in Alberta want for Christmas is access to global markets. You know when we see the gas price in Tokyo and reflect on what that could mean, we could you know net that back to western Canada through Jordon Cove and associates pipelines or the propane price what that means to Western Canadian producers if we can get world pricing or world pricing for polypropylene. If Pembina and others that we wish well actually sincerely can connect Western Canada to the rest of the world that’s really the Christmas present we all want. And we think is fantastic for our industry, but also for all Canadians. The amount of money that we are leaving on the table as a country, it’s absolutely sad, we're a single customer industry and that's just got to change. So, that's the biggest thing that’s missing from my perspective.

Okay. That’s helpful. And when you think about the Christmas list and potentially getting that present, you've had experience in the past in trying to push things off of the coast and what happened in Portland. Just maybe give us your thoughts on just the regulatory side on how your process has changed for pushing forth regulatory approvals because you've got a couple of really interesting projects, which would accomplish your wish list?

Well in terms of our Rupert Terminal, it being in Canada, we’ve been out there for a long time. I'm feeling pretty confident that we've learned what we didn't know two years or three years ago. In terms of Jordan Cove you know to echo Stu’s comments, there's a super talented, knowledgeable team the environment in the U.S., you know the regulatory political environment. You need years of experience in that arena and our talented folks out at Houston have that experience and as do some of our new board appointees. So, we have structured at a management level and the board level is to have expertise. And from what I see the past challenges with the FERC application for Jordan Cove have been fully addressed. And so, we added lot of smart people to the team that should enable us to be successful both in Canada and in the U.S. Stu, what do you –

Yeah I think we learned and we've taken those learnings. We are your trying to reach out a more local presence in all our projects. We’re out discussing our projects with the locals. We are listening to them, trying to work with them and trying to address issues that are there. Our Watson Island, our Prince Rupert export terminal is on city owned land. It already has an existing dock that we’re working with. So, we're trying to avoid some of the challenges that we face in other areas. So, all the learnings that we've taken, Andrew, we've tried to apply it on a go forward basis. None of them are easy and it takes a lot of talented people and hard work to get to where we are today.

I think the biggest single thing is the local support that Jordan Cove the Prince Rupert locations have. We thought we had that in our Portland endeavor, but it turned out that it wasn't as broad as we had hoped. But at Rupert and in [indiscernible] there is overwhelming local support and these are viewed both as respectively transformational projects for the community. And really local support is key.

Okay. That's great. Thank you.

Your next question comes from Robert Kwan with RBC Capital Markets. Your line is open.

Good morning. You had a comment earlier that just on the Duvernay expecting more in the coming months. Obviously, I don’t want to get too granular, but can you just comment on what some of the recent pace of discussions has been under the existing gas infrastructure agreement there.

Robert, we're meeting regularly with our counterparts. We expect to be – we're optimistic and working well together and we expect before you're into to becoming forward with proposals and plans and announcements to the community.

And is that a little bit faster than was initially anticipated?

Right in line, I think is what we have thought. There is no change there and again we continue to work. I think it’s actually quite encouraging to work with some of our counterparts. They’re very disciplined and we're following a process that was laid out through negotiations of proposals and both of production forecast, timing and proposals on our part, so we are following a process that was laid out entirely in the conversations.

You might not remember this, but it's been three years, so when you say it’s happening a little faster. We have to remember we've been at this for three years, so it is evolving as expected.

Sure. I was just thinking about the formalization of the agreements and I thought at the time maybe it was kind of a 12 month thing. So, there has been a number of gas processing announcements, you know in the operating *pipe soon on by other parties. I’m just wondering what’s your pipeline takeaway or available takeaway capacity for liquids coming out of the region on your system.

So, this is Jason, Robert. The takeaway capacity really that's the point of our Phase V expansion is driving a 20 inch pipeline at the Lator and debottlenecking that whole area. So, we have lots of running room in that area, I think we're not concerned once we get the Phase V expansion in place, the capacity in that corridor.

Okay. And I guess just maybe need to clarify on that, given a lot of those plants are really third party plants. There's no concern from your perspective on the competitiveness of moving those liquids versus competing liquids proposal.

I mean, we're always aware that it’s a competitive market, so obviously we look at all the alternatives and evaluate them when we're proposing commercial deals with our customers. So, to date we've been pretty successful and I think we would expect it to be that way as we go forward.

Robert, we're not I mean for the customers who are bringing us a lot of volume, we can have very sharp pencils and we do offer volume incentives and we have multi-product service and expansion right, step up right, all those kinds of features that we think keep us aligned with our customers. So, we're certainly not get to the fact that we need to as the pipe ramps up we need to keep our tools very competitive and that some of the upside we can experience from filling pipes we need to share it with the producer community.

Got it. If I can just finish on Alliance. I’m sure if it’s too early at this point, do you have a sense as to where the seasonal firm might be shaping up for this winter, at least directionally versus where it was last winter?

We don't, yes, I think it's a bit early. We will probably have that after next quarter though.

The only thing I'd add to that is the pipe is running pretty much full every day, so I think that's a pretty good sign for that.

Okay. S, do you expect actually much in the way of seasonal firm capacity to be available or is that all be eaten up by that priority interruptible?

I think it's too early to speculate, give us another quarter please Robert.

Okay. That's great. Thank you.

Your next question comes from Linda Ezergailis from TD Securities. Your line is open.

Thank you. I realize it's early days, but I'm interested in getting some sort of conceptual understanding of the nature of additional synergies that you might realize from your JVs that you now have through Veresen acquisition or even beyond that. Would some of those potentially be related to financing, having balance sheet room incrementally or any sort of tax synergies that you're looking at? How might again, I realize it's really early days, but how might U.S. tax reform affect how Pembina looks at your U.S. operations at that all.

Linda, its Scott here. So on the financing side, I do think that we’re evaluating, using Pembina’s balance sheet and size in the market. So, we’ll be looking at some of the opportunities at both the MLP as well as Alliance to leverage our cost of capital. We definitely think there are some opportunities there. We’re also, as we’ve laid out in the original press release evaluating the opportunity to accelerate some of the tax pool usage at the MLP and other assets to help shelter some of Pembina’s more near term tax profile. So, both of those are actively being worked on and will probably have more to say on that at Q1 in our ability to actually affect those changes. But those are definitely things that we’re currently working on. In terms of the business, sorry, if everyone is getting an echo. But in terms of the business, we have a lot of capability pipeline integrity, financing, list goes on and on. At Pembina, as does Enbridge in the jointly owned, so we’re looking for synergies there in terms shared services. We have a shared service agreement with Veresen Midstream, LP joint venture. We have an agreement in place already. So, those are things that we’re going out discover over the next year together with our partners.

And have you started monitoring the potential for U.S. tax reform and how it might influence how you either operate your existing business or expand into the U.S. over time?

I would say we haven't looked at the longer term strategy yet in terms of entering the U.S. I mean, at the end of the day, we make decisions based on the business rationale, not the tax rationale. So, that would be a nice win, but it's not going to change our thinking in the short term. That being said, we are looking at how our assets are structured, both ours and the Veresen assets in terms of optimizing our tax profile in U.S. Certainly, at the win, especially when you look at something like Jordon Cove. It does have a positive impact on the economics. It's not something that we're counting on, but it would be a nice upside

Thank you.

[Operator Instructions] Your next question comes from Jeremy Tonet from JPMorgan. Your line is open.

Hi, just one quick follow-up here and granted you guys have lots of irons in the fire based on everything we've discussed this morning. But it does seem like there's some unique opportunities out there south of the border. Where the market is really forcing MLPs to move towards a model like yours with a lower payout ratio and bringing down leverage? And as such this is really kind of forcing some really good assets to the market. Just wondering if you could refresh us as far as your thoughts for further expansion down granted you guys have a lot going on right now.

Jeez Jeremy, we just closed the $9.4 billion acquisition three weeks ago. Like I said, we're capable of evaluating multiple opportunities. We're going to take a minute though to fully understand Alliance, what its role is in the U.S. market. What other pipes might be synergistic. We have Ruby. Ruby is a great asset, preferred cash flow stream. What's going on in the Rockies, what other assets might be synergistic? Now we have a gas egress through Alliance and ethane egress out of the Bakken. What are their synergistic? Our plan is always to try to vertically integrating and physically connect our assets and our operations. So, we’re going to need a minute to see what asset is out there, have those characteristics and ask where we’ll start looking.

That makes sense, I know you guys have a lot of irons in the fire, but I just wanted to ask the question, given it is kind of a unique point in the market right now with the strain some MLPs are under. So, thank you for taking my question.

100%. Thank you.

Your next question comes from Elias Foscolos from, Industrial Alliance Securities. Your line is open.

Good morning.

Good morning.

I’ve got a couple of questions. The first one is on the ramp up of the annualized synergies from Veresen. You think we'll see that occur, we’re nearly over the next 12 months or it might take a bit longer?

Well, some of them are chunky in nature, like to the extent you can refinance and stuff that will come in obvious fully at the time that we’re able to execute that. Other items such as cost synergies, I think will be more rolled in on time. So, I don't think we would fully expect to get the full run rate in 2018, it'll ramp up through 2019.

Okay. Thanks for that clarification. The next one is sort of a segmented question on gas services. We saw relatively flat performance sequentially Q2 over Q3, given the projects that are coming online? Should we see – will we see more of a step in Q4, Q1 or will it be sort of a combination?

I’ll jump in and maybe Stu can add any color if he’d like. I mean, I think yes it was flat quarter-over-quarter, but we actually think that that was a very positive outcome, just given of the dynamics in the market in terms of curtailment and pricing. So, from our perspective a flat quarter-over-quarter was a fantastic result. We did as we talked about to put our Duvernay I into service. We are seeing volumes build quite strongly in that plant. So, for sure we will see volumes in that business unit go up, just from that plant alone. And then of course the MLP has put in a significant amount of infrastructure in late September. So, if you look at the MLP results in Q4, they should be significantly above where they were at in the previous quarters.

Okay. Thanks. One more question. In terms of just segmented results going forward, do you anticipate any change in how you might segment or provide segmented results going forward with the Veresen acquisition?

Absolutely. So, it's really going to be a two phase approach. So, our Q4 results will really be Pembina plus the Veresen assets as a standalone entity, similar to how we’ve reported the Veresen results in our Q3 report. In Q1 of 2018, we are changing our segmented reporting in terms of where the asset sit and how we're going to report. I'm not going to delve too much into that because we'll be working with the investment community over the next several months to seek advice and input, that'll really be under Cam’s accountability. Then once we're through Q4 we will be working with the street and the investors to kind of give them an understanding of where we're going, so people can be ready for our Q1 results. So, by the time the Q1 results roll out, nobody should be surprised with how we're going to report and we're going to have an active communication strategy around that.

Okay. Maybe one more question and thanks for that and it has to do with how I’ll characterize 2018 and 2018. 2018 if I would characterize that, as a year of sorting through and working through the acquisition of Veresen. Going through the closet of [indiscernible] towards the end of 2018 and into 2019, its sorting out, which projects will sort of go ahead with and sort of back to organic capital I call it that. Would that be a very good way to characterize the next two years?

You know what maybe, the way things have gone like Jeremy's question previously we’re always on the lookout. So, all those things you described are going to happen, but if the right opportunity comes along, Scott and Cam have kept our balance sheet extremely strong and we have tremendous access to capital markets. So, we can respond for the right assets. If the right asset comes along and meets our guardrails and our investment criteria, its synergistic, then we're going to move on that. We have that capability, we’ll be fully restructured organization by Jan 1 and we can deal with multiple projects, multiple industries at the same time and we have the balance sheet. So, you could well be right and we're going to do all the things you mentioned, but that doesn't preclude us from proactively seeking synergistic assets.

Great. Thank you very much for that clarification. That’s it for me.

Thank you. Have a good weekend.

And there are no further questions at this time. Thank you all for joining today. This concludes today's conference call and you may now disconnect.