Pembina Pipeline Corporation (PBA) Q3 2018 Earnings Report, Transcript and Summary

Good morning. My name is Lindsay and I will be your conference operator today. At this time, I would like to welcome everyone to the Pembina Pipelines Corporation 2018 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. Scott Burrows, Pembina's Senior Vice President and Chief Financial Officer, you may begin your conference.

Thank you, Lindsay. Good morning, everyone and welcome to Pembina's conference call and webcast to review highlight from the third quarter and first nine months of 2018. I'm Scott Burrows, Pembina’s Senior Vice President and Chief Financial Officer. On the call with me today are Mick Dilger, Pembina’s President and Chief Executive Officer; Jason Wiun, Senior Vice President and Chief Operating Officer, Pipelines; Jaret Sprott, Senior Vice President and Chief Operating Officer, Facilities and Stuart Taylor, Senior Vice President, Marketing & New Ventures & Corporate Development Officer. We have adopted a new shorter format for this morning's conference call with the intent to add insight on how the quarter affects our strategy, future and guardrails rather than reiterate the details of the quarterly report released yesterday. As always we look forward to answering your questions at the end. Before we start, 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 and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations. 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. Pembina once again achieved strong operational and financial results in the third quarter and the first nine months of 2018. Earnings of $334 million during the quarter was a 200% increase over the same period in 2017 while adjusted EBITDA was $732 million for the third quarter, a 98% increase compared to the same period last year at an all-time quarterly high. These strong results have been driven by two primary factors first a larger asset-base resulting in increased sales and revenue volumes within the Pipelines and Facilities Divisions. We closed the Veresen deal just over a year ago and would note that the Veresen assets are performing better than we had expected and second widening NGL fracs present volatility across crude oil complex leading to strong results in the marketing and new ventures division. In terms of finances, we continue to be well positioned with one of the strongest balance sheets among our peers and we remain committed to our financial guardrails. We anticipate exiting 2018 with an estimated payout ratio of approximately 85% of fee-based distributable cash flow or 55% to 60% on a standard payout ratio. 85% fee-based contribution to adjusted EBITDA, 80% credit exposure from investment grade and secured counterparty and approximately 23% FFO to debt, all well within or exceeding our financial guardrails. As well we expect our ratio of debt-to-adjusted EBITDA to be approximately 3.6 times, slightly below our target of 3.75 to 4.25 times, which positions us well with the next wave of capital spending. As was previously announced, we were pleased this quarter to update our 2018 adjusted EBITDA guidance range to 2.75 billion to 2.85 billion on the back of our strong year-to-date performance and the positive outlook we have for the remainder of the year. Furthermore, we look forward to updating the market again when we release our 2019 capital budget and guidance in December. Now I’ll turn things over to Mick to talk about our growing base business and strategies to access global markets.

Thanks Scott and good morning, everyone. While we have had numerous financial and operational results to be proud of this quarter, I would like to highlight two more accomplishments. In the month of September, our employees and contractors proved that completely safe work and environment is possible with all units scoring 100% across all 22 safety metrics. This is the first for our company since we introduced the safety record -- safety scorecard five years ago. Also in the month of September, Pembina's employees contributed to over $3 million to the United Way an all-time high for the company. At Pembina, it’s not just about customers and investors, we’re actually focused on all employees and all the communities where we have a presence. Turning back to business results, we continued seeing strong customer demand for our services, which has laid to increased utilization throughout our pipelines and Facilities divisions and supports the $1.3 billion in new pipeline and processing infrastructure we announced yesterday. All three of our expansions further our goal of providing long-term and sustainable dividends and growth to our shareholders while also delivering timely and reliable transportation services to meet our customer specific needs in a cost effective and timely manner. With this announcement we now have over $3 billion of secured capital projects. To quickly summarize, the projects we announced yesterday include the $950 million based of an expression of the Peace Pipeline system, which is aimed at addressing capacity constraints affecting delivery of condensate on the Peace System today. Once the Phase VII is in service, it will also devoured condensate often existing corridor, elevating current bottleneck on that segment and creating additional firm capacity for Pembina's customers. Based on ongoing conversations with our customers, we continue to see near-term potential for additional expansions of the Peace Pipeline beyond Phase VII. The Phase VIII expansion of the Peace Pipeline would provide segregated ethane-plus and propane-plus service from Gordondale, Alberta to the Edmonton area. Pembina is also envision as to have at least four segregated product pipelines in the quarters between Gordondale and the Edmonton area maximizing our fully covered up capacity of 1.3 million barrels per day on a Peace and Northern pipeline, which will likely in turn require a Phase IX expansion. This state expansion strategy is significantly less complex and time consuming and building an entirely new pipeline system. We continue to believe we are well positioned to attract significant amount of new business in the current competitive landscape. We also announced a comprehensive agreement with NuVista yesterday. This agreement will see Veresen Midstream construct natural gas gathering and processing infrastructure in the Montney region with Pembina also constructing laterals connecting to the company's Peace Pipeline system. There are three projects, an expansion of a high plant and new gathering pipeline and constructions of various laterals. Collectively, the projects are expected to cost approximately $185 million net to Pembina. Also included in this agreement is liquids transportation on Peace Pipeline natural gas transmission service on Alliance Pipeline and fractionation service at our Redwater facility. This view clearly highlights the benefits of the Veresen acquisition and a customer service strategy behind it as we can now truly offer our customer a fully integrated service across the value chain. Our ability to respond quickly with near-term infrastructure plus the transportation solution was a critical factor which enabled investor to advanced development by full year when compared to other alternatives. Finally, we have to execute further agreements under a 20 year infrastructure development in service agreement with Chevron which will result in the construction of Duvernay III a replica of Pembina's Duvernay I and II gas plants as well as additional condensate stabilization capacity for total capital cost of approximately $165 million. We continued to anticipate significant growth in the Duvernay based on ever produced our economics and we had a platform that will allow low-cost integrated solutions to our customers in that area for years to come and while growth in our traditional businesses remained predictably consistent, we are very encouraged by new developments within our new ventures area. Our strategy of connecting our customers long life economic hydrocarbon reserves to new high value demand locations is progressing well and we will have more to say about PDHPP and Jordan Cove in our early December capital major projects in 2019's guidance press release. The prospects for future growth both within our traditional business and our further expansions to our value chain remained robust where rich and growth opportunities we have ever been which is a testament to both the resiliency and creativity of our producer customers and the underlying attractiveness of the basin. In closing, I would like to thank all stakeholders for their continued support. We are proud of what we have accomplished and are excited to continue to realize benefits of our hard work. With that, we will wrap things up. Operator, please go ahead and open up the lines for questions.

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

Good morning, congratulations on the strong quarter.

Thanks, Jeremy.

I was just curious if you look at the balance of the year and your 4Q guide here on the numbers we see it seems like the 4Q would need to be kind of flattish just to hit the high end of the guide and 4Q generally has kind of higher marketing opportunities. So just wondering is there any kind of headwinds in the fourth quarter that may be I'm not thinking about here that could weigh things down or is there an element of conservatism you could share?

Jeremy, I think it's really three factors which I'll talk about. Number one and I think we talked about in the last conference call we tend to be a little more back-end waited towards OpEx on our conventional Pipeline systems that we still see a pretty significant OpEx increased in Q4 from the conventional Pipeline system. Secondly, Q2 and Q3 benefited from some of the IFRS noise in terms of recognizing revenue. As you may have seen from the report we have recognized that essentially all of our deferred revenue to date so there shouldn't be that incremental deferred revenue in Q4. And lastly, we’ve seen the overall commodity complex come down pretty materially over the last month or so and so we are seeing kind of weaker NGL prices through Q4 and Q1 than then we were seeing a month or so ago.

That's helpful to think of. Thank you. Congratulations, on the new project there. Just want to dive into the returns you talked about their kind of outlined seven to 10 times multiple range of outcomes there and just wondering as the 10 kind of upfront. And you could ramp into the seven overtime as kind of volumes materialize and also how do you see the competitive landscape at this point there is some others kind of trying to replicate some of the things that you guys have there, do you see competitive pressures impacting your expected returns?

So, Jeremy maybe I'll take the first part and I'll leave my colleagues to handle the second part. On the first one, traditionally if you go back to when we had the $5 billion of growth and we gave six to $$800 million up guidance really we guided $600 kind of being to take or pay and 800 ramping up to firm. That's essentially what we’re showing you is the low end of the case is somewhat similar to what I'll call it a take-or-pay case with the high-end being more of a firm case. There is some additional upside to that when we reach full capacity but that gives you some color in terms of how we got to that range.

So I can add at that as well, I guess generally speaking, when we bring our projects and services profiles to the volumes. They come on in the volumes tend to ramp up. So, as Scott kind of mentioned the growth from the take-or-pay up to firm. Then we continue to see increased customer demand for service. With respect to competition, I guess we're always aware of the competitive alternatives out there and so our strategy around that is really about the way that we've been expanding our system which is sort of staged expansion which are quick to get to market and if you look forward the way that we’re building out our system, we’re going to have segregated systems that will reduce the amount of capital we have to spend to be able to tie customers in and in the long-term and it will increase the operational efficiency of the assets as we move ahead. So I guess really the advantage that gives us that’s a little bit, it's a quicker for us to get project on stream and we have to build less we don't have to build the Pipeline all the way from a location to the market we can extent certain parts of our asset based vehicle to access those volumes more quickly.

I'll just add a couple of points to that. We’ve been talking for a long time about the ability just to power up from and obviously that's the very low build multiple and we are sharing some of that the fruit of that with our customers. And so, we’ve had very competitive tools as a result of having that ability as Jason says that it not needed to expand our whole system really extend half of it power up the other half and we’ve been guiding that will be sharing out with our customers and that's in fact the reason where to backstop Phase VII so quickly and furthermore the reason we have some confidence that we can get support for Phase VIII.

Yeah, that makes sense and I guess building of your last point there with Phase VIII, it seems like you said this is the first deal that really highlights integration with Veresen and Pembina assets post the merger there really kind of building off the opportunities there we saw at the time. Just wondering how much more could we see as far as taking advantage of those synergies that integration, how quickly could have Phase VIII come along, it seems like you're already done some of the works there so just wondering if you could give us a little peek into the future there.

So there is a lot of demand still for services, we are talking to many customers across the basin. So when we think about Phase VII and VIII with think of them sort of as different part of the same project we just have certain areas that we can get out more quickly. Really in the Montney and the Duvernay plays are still extremely active particularly in the Kakwa, Lator and LaGlace region of the Pipeline system so we have numerous customers that we are in advanced discussion there to talk about further expansions to the system. And what Phase VIII really does is that sort of take the loaded off one part of our system and it allows us to continue to contract that volumes on the LaGlace to Kakwa, the Fox Creek corridor and that's where the Phase VIII expansion would really take place as we continued to sign volumes there. I'm not sure what I can see how quickly but we're fairly confident we will be moving forward on that.

Pembina is going as fast as we can on Phase VIII, we're engineering it. Phase VII virtually fully subscribed and I think producers will dictate the cadence of Phase VIII. But we are doing everything we can. Obviously there is a limit how much capital we can spend on that before having support so it's really going to be up to the producers to guide us with the cadence but at this point we are going full speed.

Got you. Good to be integrated. Thanks for taking my question.

Thanks, Jeremy.

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

Thank you I'm wondering if you could help us understand I guess the cadence of how you expect to put in permanent financing for your new projects and how you're thinking about the options and the capital structure notionally of financing?

Sure Linda, I will take that. I mean there is really no change to the strategy. As you know we've always kind of guided 50-50 debt to equity on the base business and with our free cash flow generation, we've talked about funding between $1 billion to $2 billion of CapEx per year without needing any external equity. If you look at what's going on in 2018 because of the strong performance by the end of the year we'll be 65% to 70% funded from internal equity and 30% to 35% debt. So what that allows next year is potentially funding with roughly 30% to 35% to 40% equity and 60% debt and so as you can see for next year we are, we have no need for external equity.

That's helpful context thank you. And with respect to the options that Navistar has to sell some assets to Veresen Midstream by mid November. Can you talk about the magnitude of the price, the basis of the price and is it out of the cost basis, there is some sort of premium and what factors need to be in place kind of for that to happen do you think?

Yeah I would call it a modest capital I mean it is some compression and in oil batteries so it's not overly material but we are not in a position to disclose that and it would be on a cost base and we would earn a standard return on that cost.

That's helpful and maybe just from an operational perspective, can you help us understand kind of there is a lot of complexity I guess in terms of where you might have exposure to commodity prices, you've got a lot of continued tailwind on that front but can you give us any sort of any updated rules of thumb and how we might think of next year and bookings of various commodity price sensitivity and how those might range?

Yeah Linda I'm going to punt that question till our guidance press release in December, I think that's a better context to talk about it.

Thank you, I will jump back in the queue.

Thanks Linda.

Our next question comes from Matthew Taylor with Tudor, Pickering, Holt. Your line is now open.

Yeah hey guys thanks for taking my questions here. Just on Phase IX does the construction of Phase VIII accomplish the vision of having those four segregated pipes or are more pipes required in addition to the 120 in Phase VII?

Thanks Matthew this is Jason. Phase VIII gives us product segregation from Gordondale down to Fox Creek for most of our commodity. What Phase IX does is it gives a little bit more segregation on LVP side of the business and it just debottlenecks more of the segment of the pipeline. So we achieve most of the strategy of segregation by the time we get to Phase VIII and Phase IX, depending on what products we see grow will just give us bit have more flexibility on the sort of Lator to Kakwa area on the pipeline.

And I think it's important to note Phase IX is relatively undefined, I mean the vision is to fully utilize the Fox and corridor. We can't say with a great deal of certainty whether that volume is going to come from the Fox Creek area the Kakwa area the Gordondale area or British Columbia so it's still pretty undefined. We talk about it as Phase IX to highlight the fact that we still have capacity in the corridor, which is very early expendable.

Okay that's great guys. Is there any ability to further take load off the system by making use of existing steel say going little bit North on the northern system there to alleviate some of the Fox Creek bottlenecks?

Part of the Phase VII and VIII expansions actually do utilize the capacity on the northern system so we do off load particularly ethane plus off of our system onto the northern system and utilize all of that capacity up there. So that's part of the strategy in these first two phases of expansion.

Okay. And then just thinking downstream can you give us a sense of available propane plus capacity after incorporating these new volumes. Just seems like in RFS IV cetera just depending on what sort of capacity guys are seeing down there?

Good morning Matthew, Jaret Sprott here. As we see the gas volumes increase in Western Canada and obviously more concentrated and more C3 plus C2 plus slowly the complex within not only our complex is seeing higher physical throughput volumes but overall we are seeing higher fiscal throughput volumes so we are actively watching to make sure that we are headed and aligned with our customers to be able to expand like you mentioned possibly an RFS IV in the future so we are all over that.

Yeah. Okay, that makes sense and just I am thinking to RFS III is largely propane plus kind of smaller than some of the other ones too. Could you just expand that facility or would it have to be a new frac?

If the C2 barrels start to come out of the C2 plus barrel RFS III like you mentioned is a C3 plus fractionator but we can add a very creative low cost expansion to make that C2 plus capable.

Okay. That's great and then one last one from the me as we're seeing heat content tracking higher on long haul pipes, can you just speak the opportunity that you guys highlighted on Q2 there that might be seeing to increase [indiscernible] capacity or even moving some startle capacity closer to the well head?

Yeah, as heat content is growing with all of these, all the exposed solution gas and coming from the condensate wells that's one of the areas where the facilities divisions saw some of the largest growth is on the our field extraction such as like our deep cuts and those types of facilities and obviously so as the NGL [indiscernible] stayed low, NGL prices were going up, there is heat content challenges we have seen a lot of that gas migrate into those types of facilities. And then further to obvious Alliance is rich gas pipeline and Jason can you talk about the throughputs on that but we're also seeing the benefits at the Aux Sable facility down in Channahon, Illinois at the ND Alliance pipeline not only you are seeing a different type of NGL market but you're also seeing higher heat content coming at that facility and then that facility trying to extract all of those liquids with those into that market so it's a positive outcome.

I'll just add you know when we think about some of the things that's new in the venture group we're working on it to increase demand for propane whether it's the Rupert Export Terminal or polypropylene. With those projects, if we can create incremental demand and send the right price signal, I think producers will have the appropriate motivation to take more NGL out of the gas stream. Certainly there is a huge amount of propane and ethane in trend in the gas stream now leading facilities which could be recovered if their incremental markets are created.

Yeah, yeah I agree with you. Thanks for taking my question, guys.

Our next question comes from David Galison with Canaccord Genuity. Your line is now open.

Hey, good morning guys. Just wanted to expand a little bit on Linda's financing question so when you look at your unsecured capital program and those are few large ones there, do you see a scenario where you could tend to look at considering external equity at all or can you give us what your thoughts are there?

Yeah, I mean recognizing that those are unsecured right now, I think we still look to when we look into the future to say we can fund between a $1 billion to $2 billion and right now I think all options are on the table. So, for example, if we were successful in securing Jordan Cove we have talked about monetizing potentially up to 40%, maybe 50% of that project to help with the capital program. So there is many, many options that we have available. Is there a potential scenario? There is but there are also scenarios where there is that requirements. So, it’s a little tough to answer in this environment. I think as we move forward if we are successful in those projects and make FID announcements, we’ll obviously have more to share at those times.

Okay. And then just to touch on Veresen Midstream. You're continuing to grow there so just wondering if you could talk about how you see the ownership structure sort of revolving particularly with the potential additional options that you may have for new projects down the road?

We're really happy with our partner there in the way that’s evolving. We certainly don't feel the need to purchase the other half. We clearly are the logical buyer where they to sell but I'm not sure they’re in a hurry, I'm not sure we’re in a hurry. Everything is working very well. The high deals is an excellent example of deal that Pembina couldn't have one won without the [indiscernible] plant and Veresen Midstream certainly couldn’t have won without Alliance or Peace transportation. So, we think the current state is working out well and certainly don't feel any to make a move there if that opportunity comes up I do think we are the logical buyer.

Okay. Thank you very much.

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

Good morning, everyone. Turning the attention back to phase VII, can you give us some additional clarity on what the contract profile looks like service as well as is there a potential that we did see some of these volumes show up on your existing infrastructure and thus kind of adding a bit of tailwind into 2019 and 2020 volumes as well?

Generally speaking the volumes ramp up in the early years of the contracts and then they sort of just because of the producer ability to predict the future and what might happen. They tend to show up bit of a decline through a 10 year term. In terms of accessing the capacity on our existing expansions, once we bring IV and V on stream, we do see ramp-up in volumes coming on with the existing contracts that we already have signed. We are currently effectively full on our condensate mainline coming out of Fox Creek. So, once Phase IV comes on, we will expect to see that side to ramp up at the beginning of 2019. And then the rest of the product stream, we will see a ramp and historically we have seen the volumes for expansion tried to show up before we bring them into service.

Yeah, I'll just maybe history would prove Phase II, Phase III and now Phase IV and V typically a quarter before those go into serve. We start to see those volumes overflow to some of our other systems one held in Drayton Valley. So, I think you hit the nail on the head there. We will see some of that and that's an important point because as we ramp up in Phase IV and V some of those volumes are already hitting our system today.

All right, I appreciate the color. And then, just moving over to the PDH and PP, so we’ve seen that the [indiscernible] has done, just want to get your sense on what the other getting factors are or are we looking more towards the sanctioning in December?

We are continuing to progress the conversations with our partners there. We have a number of finalizing some agreements with our partner. We have to bring forward both the number of boards, our board and KPC as well. So, there still is a series of dating events that have to occur. We are progressing all of those in I think in great effort and great speed and are excited about the near future of an announcement.

Thank you.

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

Thanks, good morning. I wanted to go back to the some of the question on the EBITDA guidance I think about Q4 and you mentioned the OpEx more in the second half I think much $30 million on our last call but if you look at the quarter it looks like conventional put a pretty good year-over-year, sorry quarter-over-quarter improvement versus Q2 so, was that just the deferred revenue that kicked in, in there that pushed that up a little bit and is it the OpEx, is it more in Q4 that you're referring to?

It's a combination of both of those of things, Ben. So, as Scott mentioned we recognized all that deferred revenue and we won’t really see that recognition in Q4 and Q4 and Q1. Many of the areas on our pipeline system you can only access them in winter. So, you need frozen conditions to access them. So historically from freeze up to thaw is when we get in and do a lot of work. So, it's pretty consistent with what we’ve seen in the past that we would spend a lot of our OpEx dollars in Q4 and Q1 around the integrity spend on our pipeline.

Okay. And maybe I can go back to my questions on Phase VIII and trying to get a better sense more for myself, is producers desire ethane, propane moving it east, is that really just a reflection of more of a supply push that they are seeing you are seeing reading and going west on exporter or is that you got some comments about freeing up capacity that really just get moving more south of the Phase VIII or is it really just see at the demand side PDH and I’ve been not better, I’m just trying to get a sense of the fundamentals of how you sent out the project.

Well I think that's a longer question that we can answer today, but there is really in Canada no West Coast propane, butane, egress or some on the West Coast of United States and that's full. So, by the net definition and products got to go east or south and we’re moving all the product that we can rolling forward a few years. We have a project one of another company in our sector has a project and we think a lot of those barrels will move to Asia. But and then of course the local consumption with PDH if it gets approved will create a local market. So, I think we are making inroads to digesting the growing propane supply but we also expect propane supply to continue to grow.

I also think it's you’ve got the infrastructure located in those places to so it's more efficient sort of continued to use the traditional unutilized capacity of some of these assets that exist. So, I think that's why you see it go that way be a pretty expensive proposition to start looking at taking NGL like on a few you wanted to build major infrastructure and start moving it that does not exist as Nick mentioned then it would be highly intensive capital to make that happen.

Okay. And then maybe I want to ask one. I'm just curious about what the M&A appetite is now when you bought Veresen, you mentioned it was more of tip your toe in the U.S. may be expand longer term but also you’re going to build stuff now at eight times EBITDA and nine times and why buy it 12, 13 but I'm just more curious the thought on the M&A side of things?

Thank you. You already answered the questions.

All right I know I’m answering your questions, okay, all right. Thanks a lot for your help.

Our next question comes from Robert Catellier with CIBC Capital Markets. Your line is now open.

Hi. Thank you. You’ve actually answered my operational questions but maybe I'll just ask a little bit on Veresen, on what ways it exceeded your expectation? Where are the areas of strength?

Well I mean we didn't really expect that energy to grow the way it has Veresen Midstream the gas subsidiary I mean really good growth. There is lots of exploitation potential that's going on. We've realized significant financing synergies earlier than we expected. Alliance on-stream operational performance has been outstanding, Aux Sable I think is producing records amount of cash, so as always the case some scale and some luck clearly the Aux Sable performance, kudos to the people running that plant, clearing that much product but - and that's the scale part and the luck part is that the fracs spread. So, it's really working out well and we are just actually going to complete a look back for our board here at November 29 to compare projected synergies to actual and we'll give you a more color here in the next call on how we're actually doing in terms of cost synergies but overall EBITDA performance has well exceeded our modeling assumptions at the time we acquired.

Yeah, so it sounds like it’s part of everything operations just executing the synergies in a little bit of upside on the commodity exposure.

Yeah, that's right.

So, when you give that number of $300 million and $450 million from those projects, just want to make sure I understand we should think about that so $300 million, what I heard Scott you said that's the basically the take-or-pay component and then I also heard that $450 million is when you get into the upper end of volumes including firm volumes, my question is whether or not there is any commodity-related income in there and if so how much?

On the upper end, there is a little bit, but it's not material to that overall range.

So, what is the upside or is there much commodity upside to those figures?

There is, but there is also upside on volumes as well.

Okay. Right. So, this is the range and there is upside in both volume commodities. Okay thank you.

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

Thank you. Good morning. I guess the starting question is given the size of the market opportunity in Western Canada being very large, is competition on the NGL Pipeline side really viability for you but given your network you're just going to have a massive cost advantage versus that anyone else does?

I can take that. I think the fact that a competition exists today right it did exist in many forms. There is viability to track NGLs, so the ability to rail and we also have competing pipelines right in our corridors as we speak today things like Kuwait and other lines like that. So, competition is there. So, if you say that it doesn't exist, it’s quite incorrect and I think your comments about the growth of the market and the size of the market, it does seem like that's the reason I guess we have come up with the strategy for the way we expand our system because we feel that we can do the most quick to market expansions and the most cost-effective expansion, so in our minds the way to stay ahead of competition is by doing those two things if you are cheaper and faster, you should be - and more certain I guess as well - you should be able to stay ahead of the competition from that perspective.

And I guess just in addition to those factors given the network that you've got – you've got much more flexibility on the service offering, so ultimately you should be able to offer more value to the producers through the value chain?

I think another way to say what you said is it just gives producer I think a lot of flexibility with more product service Jason is talking about. They don't have to worry about if they drill a well and it's got a little different composition or commodity price has changed and all of the sudden they want to extract ethane, start deep cutting their stream because there is money in ethane. Well, if there are customers, they can go ahead and do that because we have an ethane pipeline or as a competitor might not or if they - with all the grey zone condensate we call it, one day you got crude, one day you got condensate and we can flip in back and forth between lines. We can move and receive points. All that kind of flexibility and then just a certainty of knowing Pembina can build pipes on time on budget. We have got very well-proven operations. We know how to get the regulatory done. So, I think it's just really that flexibility when you’re spending hundreds of millions of dollars in the field to know that egress is a certainty and not a whole.

Yeah and the other thing I think I would add to that is the Pembina has both on the upstream and downstream sides of our pipelines. We have interconnectivity to everything you need. So, you can deliver some multiple refineries, multiple different NGL markets condensate markets on the upstream side. There is multiple different midstream tied into our pipeline system. So, you have options on both the upstream and the downstream side as well.

And maybe just following up on that point. The development multiples on the projects you announced last night were impressive and it seems like from the commentary earlier on the call that's pretty plain-vanilla. Obviously, there is a bit of ramp rate that can happen but given your network connectivity, do you expect upside from the EBITDA on a longer-term basis assets?

The range is what we think is probable and based on the contracts we have today. If we can sign more producers and of course we market some of this product and if those marketing profits are higher and the volumes end up being higher, we could see more favorable results, but we try to be pretty realistic if not conservative. You followed our story for a long time. We try to underpromise and overdeliver, so that's the range we are comfortable with for now.

Oh, I know it’s conservative that's why I was asking the question. Thank you.

[Operator Instructions] Our next question comes from Robert Kwan with RBC Capital Markets. Your line is now open.

Great. Good morning. If I can just come back on to that EBITDA range in the new projects, does that include as well all related revenues where you aren't putting capital out the doors, or anything that’s happening downstream or is that just the EBITDA associated with the capital projects themselves?

Rob, there is some related revenue, but it's small I would say less than 5% to that range. We haven't really layered on a whole bunch of commodity upside or trading upside because that's not something that we generally bank on as Mick said that range is based on the contracts we have today and what we feel is probable, so from that range we talked about there is potential volume upside as well as potential commodity marketing upside, but that's not something we can bank on today. We really like to talk about the contractual underpinning.

Got it. Okay. If I can turn to financing and now with just over $3 billion and that sounds like there is likely more to come as you come back to that $1 billion to $2 billion a year and that you think you can finance, that all seems like it can be accommodated based on the timeline so I'm just wondering and you are coming back to the large projects and maybe focusing on the one you seem optimistic with the FID on PDH/PP? How are you thinking about how that been kind of layers in?

Yeah and let's not forget that a bunch – not a bunch but a portion of the $3 billion has been spent over the last two years like Phase IV and V are going into service this year and those are included in the $3 billion. So, we'll have a capital program next year of a billion plus same with 2020 somewhere around $800 million to $1 billion and we think that's all readily financeable with free cash flow and accessing the debt markets. If you recall on CKCC, the headline number were 50% of that and we’re going to project finance that entity. So, when you actually get down to the equity portion, we still think that's pretty manageable within cash flow from operations.

Got it. So, when you're saying project financing, are you thinking at least within your targeted metrics that you take that off the balance sheet as well as have you had that conversation with the rating agencies about de-consolidating.

The actual project finance is still being negotiated whether there is – we warehouse some of the completion risk or not. We have had preliminary discussions with the rating agencies and we feel comfortable with the structure we’re putting in place.

Okay. Got it, and if I can just finish on the actual results on the quarter and around marketing in new ventures, the marketing volumes or marketed volumes were up significantly year-over-year, so I’m just wondering is that Veresen related or did you pull a bunch of propane volumes into the third quarter that normally would have gone into storage just given the pretty wide dips down into the U.S.

Yeah, I think it's a factor of Q1 is we now include our Aux Sable volumes in there and Aux Sable - so that's obviously one of the big uplift but as we mentioned through the year as the pipelines have filled up so have the fracs which has provided us more marketing barrels just overall to market year-over-year so it is a combination of the traditional business having more barrels to market but also uplift from Aux Sable as well.

Okay but to be clear then it doesn't sound like there was any kind of pulling of volumes that normally would've been in the kind of Q4 to Q1 winter periods you didn't pull them forward into Q3.

No, no way, if anything we were a little light, there was logistical rail issues in Q3 which actually limited our ability to move some barrels so if anything we could have moved more in Q3 had the rail traffic been a little easy to navigate.

Okay. That's great. Thank you.

There are no questions in the queue at this time. I'll turn the call back over to our presenters for closing comments.

All right, well thanks everybody. We are looking forward to the balance of the year in our December capital major projects update and guidance press release. We'll be sure to talk to you then, have a good weekend.

This concludes today's conference call. You may now disconnect.