Mick Dilger - President, Chief Executive Officer Scott Burrows - Senior Vice President, Chief Financial Officer Jason Wiun - Senior Vice President, Chief Operating Officer, Pipelines Jaret Sprott - Senior Vice President, Chief Operating Officer, Facilities Stu Taylor - Senior Vice President, Marketing & New Ventures, Corporate Development Officer

Ladies and gentlemen, thank you for standing by, and welcome to the Pembina Pipeline Corporation, Third Quarter Results Conference Call. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Scott Burrows, Senior Vice President and Chief Financial Officer. Thank you. Please go ahead.

Thank you, Christina. Good afternoon, everyone, and welcome to Pembina's conference call and webcast to review highlights from the third quarter of 2019. 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 Stu Taylor, Senior Vice President, Marketing & New Ventures and Corporate Development Officer. Before we start, 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 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. Earnings during the quarter were positively impacted by higher gross profit in both Facilities and Marketing & New Ventures, due to hire terminalling revenue combined with realized and unrealized gains from commodity-related derivative contracts respectively, partially offset by lower pipelines gross profit as a result of higher deferred revenue recognition during the third quarter of 2018 compared to the third quarter of 2019. Pembina’s third quarter results included adjusted EBITDA of $736 million, which was consistent with the same period in 2018. Quarterly results were driven by period-over-period increases in the Pipelines and Facilities divisions, as a result of new assets being placed into service, including Phase IV and Phase V peace expansions, Redwater Co. generation and Burstall Ethane Storage. Also impacting adjusted EBITDA was the adoption of IFRS 16, offset by decreased NGL and crude margins in marking and new ventures due to a lower pricing environment, and a $5 million onetime payment within one of our joint ventures. Adjusted cash flow from operating activities was also consistent with the same period in 2018 at $530 million, primarily due to an increase in operating results after adjusting for non-cash items, offset by an increase in current tax expense, timing of preferred share dividend payments and lower distributions from our equity account and investees. Based on year-to-date results and our outlook for the balance of the year, we have raised the low end of our adjusted EBITDA guidance range by $100 million. The revised guidance range is now $2.95 billion to $3.05 billion. Further, current income tax expense in 2019 is now anticipated to be $250 million to $270 million, with the increase of our prior guidance related to higher taxable income in the current year, and adjustments to prior period tax deductions. Now I will turn things over to Mick for an update on some of our key growth projects and business development activities.

Thanks Scott. Good morning, everyone. The highlight of the quarter was of course the announcement of our $4.35 billion acquisition of Kinder Morgan Canada and the U.S. portion of the Cochin Pipeline. This acquisition is highly strategic for Pembina, providing enhanced integration with our existing franchise, extension of our value chain and clear visibility to creating long-term value for all stakeholders. Since our initial announcement we have received clearance under the Canada Transportation Act., and early termination from the U.S. Federal Trade Commission pursuant to the Hart-Scott-Rodino Act. We're making progress on satisfying the remaining closing conditions and look forward to the December 10, 2019 Kinder Morgan Canada shareholder vote. Our teams are busy preparing for closing, which we now expect will occur in the first quarter of 2020. We remain solidly of the view that this transaction will make us better not just bigger. We're also pleased to announce that we have approved the first stage of the Peace Phase IX expansion. Since our Phase VIII announcement earlier this year, we have continued to secure additional long term contracts with producers operating in the Montney. The first stage of Phase IX includes pipelines to debottleneck the corridor north of Gordondale, as well as upgrade one pump station. This will allow us to access approximately 100,000 barrels a day of latent downstream capacity. Phase IX also enables us to complete our vision of full product segregations across these pipelines. This will drive operational and capital efficiencies, strengthen Pembina's competitive advantage and ultimately benefit our customers. This all leads to further very low cost debottlenecking opportunities throughout the system, which we call Phase X and which we are working on next. We have now approximately $1.8 billion of Peace expansions underway, which in aggregate are trending on time and on budget.…

Certainly, thank you. [Operator Instructions]. Our first question comes from Jeremy Tonet from JP Morgan. Please go head, your lines open.

Hi, this is Joe for Jeremy. I wanted to start off with the Peace Phase IX. Congrats on getting that sanctioned and, you mention it's kind of the first stage there. Could you talk about what the second stage could look like, and maybe a timeline for potentially announcing that?

Sure Joe, this is Jason. So really if you think about what Phase IX, the broader project that we talked about earlier in the year was, it was really debottlenecking on the west end of our east pipeline system, and then it was a power-up of our pipeline system going into Edmonton from Fox Creek. So the portion of the project that we're really talking about is the debottlenecking on the west end of the pipeline, and that really accesses the capacity that we're creating with Phase VII and Phase VIII. The downstream power-up you know it's sort of – I guess its volume dependent as our volumes begin to ramp-up. We have a fair bit of running room that's been created with our extension up to this point, so for the first phase is this really accesses the 100,000 barrels of capacity that’s there available for us and then Mick introduced the concept of Phase X. We are probably going to be looking at optimization opportunities now that we have the ability to segregate our product probably from the glass in, because we are not batching. We’ll be able to tune the way that we operate our pipeline system and we expect to be able to leverage the more capacity out of the assets that are already in the ground. And so, you know ideally we’ll be able to – before we have to proceed with the downstream expansion which we formerly referred to as Phase IX. We’ll be looking at the optimization project and seeing how much capacity we can get which is very cheap, effectively free I guess.

Okay, thanks. That's helpful. And then I also wanted to ask quickly on I guess the alliance expansion mentioned kind of I guess discussions with customers continuing, but anything more you can say there? I guess when you kind of expect discussions with customers to conclude and kind I guess how that's progressing?

I guess, we’ve been working on that project for a while now. There's a physical separation between production north and south. There’s a large river in the United States that sort of segregates that play. We are really focused on the northern side of that, and we are talking to the customers producing on that side. The development up there is starting to become more clear as we get toward the end of the year and you know producers put their budgets together and things like that. So we think as we come to the close of the year or very early next year, I think that's when we'll be able to get some more concrete information about it.

Thanks, that's helpful. That's all for me.

Our next question comes from Matt Taylor from Tudor Pickering Holt and Company. Your line is open please go ahead.

Hey, good morning guys. It looks like volumes are down in pipelines because of take-or-pay recognition that was less year-over-year. Just kind of work through how do you explain that in the context of Phase IV and Phase V coming on, and are you seeing less volumes than you expected there as customer slow joint plans.

Yeah, Matt, I would say it's more of a timing issue. Obviously IFRS 15 came into account last year and the recognition and the timing of those barrels was more backend loaded. So we didn't really recognize any take-or-pay revenue in Q1 or Q2 last year, and then we took almost all of it into account in Q3 last year. And then if you look at this year, there has been kind of more of a smoothing of the recognition of that just as we’ve refined some estimates and volume profile. So on a full year basis when it's all said and done, we obviously will be up in our pipelines, conventional pipelines because of Phase IV and Phase V, but really if you look at the difference between this quarter and Q3 of last year, there is about a $20 million difference. So if you normalize that, pipelines would actually be up close to $20 million this quarter. It’s really just the timing of the recognition.

Got you, and what about the physical volumes. Are you guys seeing the volumes that you expected?

Yeah, the physical volumes there ramping up throughout each quarter. We're seeing volumes, you know increment there. They are progressing as we expect and then on our contract profiles as well, we see a ramp in 2020 and 2021 in terms of the firm contract and take-or-pay profiles as we go forward. So if you recall, we put Phase IV and V into service at the end of 2019. So the first year of the contract is really the end of 2019 and 2020 and – sorry, pardon me, end of 2018 and 2019, and as we go into 2020, 2021 that's when volumes continue to ramp on a contract basis.

Okay, that's helpful. Now over to LPG, is that expected to be primarily sourced just from Redwater being propane or would you also consider exporting butane there as well. And then I just wanted to get some color on how you're thinking about improved Edmonton NGL spreads relative to U.S. benchmarks and how that would impact other pieces of your business. Specifically how has this improved domestic pricing been accounted for in your PDH/PP assumptions?

Good morning Matt, Jaret here. With respect to the Prince Rupert terminal, currently we're only focused on exporting propane from that facility. Customer demand and with some soft pricing on butane in Western Canada, there are a lot of people asking us about the opportunities to export other LPG products off of that. But primarily, right now we're focused on just the propane molecule and I’ll let Stu talk about some of the pricing.

Yeah, we obviously are watching all of the commodity markets, and yes we take into account as we update our economics, we are always updating with the most recent. There has been some offsets in some of the commodity value in recent days and we do account for all of that as we look at it and we still see the basin with an abundant resource and are confident of the Peace stock value beating the PDH and our export facilities being low cost opportunities that we can get to better net back pricing in international markets or within better value added commodities. So we watch it all the time. We adjust all our economics and are still excited about both opportunities.

And just to clarify, were you guys anticipating or expecting improve domestic pricing here in some of your PDH/PP assumption, so this is kind of as expected.

Yes, it’s been pretty much as expected. Again, it's a long term. We’re long ways from being in service and there is – we launch it and again its more relative to what the other opportunities are, you know what is Mont-Belvieu pricing and Conway pricing versus Edmonton pricing. We still believe that we will be advantaged B-stock in the Edmonton area which supports the PDH/PP economics.

Yeah Matt, maybe just one incremental comment I'd make is when we sanctioned these projects we obviously ran multiple scenario analysis and Monte Carlo analysis to take a long term view of the pricing. It wasn't based off of you know strip pricing at a point in time that sanctioned the economic. We took a very long term view of it, so that should give you some comfort around that.

Right. Thanks for taking my questions guys.

Our next question comes from Rob Hope from Scotiabank. Your line is open, please go ahead.

Good morning everyone. The first question is just on a KML transaction. Can you give us an update on any status of the Rofers [ph] there and as a follow-up there, you know if they are not exercised, would those be of interest to acquire additional interest in?

So in terms of your first question, I mean obviously we are willing to acknowledge that there's a Rofer. We really can't talk about the dynamics of that. We are covered under confidentiality agreements, so can't comment on the specifics, but we would hope to have that wrapped up you know one way or another by the end of this year. And in terms of interest on the other assets, you know obviously we bought KML overall so we like all the assets. You know we haven't had those discussions, but certainly we do like those assets.

Alright, and then just more broadly speaking. With KML it does add some additional assets, let's call it in the Chicago area region. With the Alliance expansion and potential Aux Sable expansion, just want to get a sense of how you're thinking about your assets in that region and whether or not you know that could be you know a new platform to build off of down there.

Its Mick. Clearly we've been – since we did the Veresen deal and stepped into Aux Sable, you know we just took over operatorship of that asset and we're starting to focus on what is possible around that asset. The east leg of Cochin is you know proximate to the asset and we're looking at that. It's nothing we paid for in the acquisition, but that certainly is you know an asset we're studying. But we're studying all possibilities downstream. Rob, you know that's how we do it rightly. We buy something, we study it and then we look for additional vertical integration opportunities, so absolutely we're looking.

Right, I maybe a little early there. I appreciate the colors, thank you.

Thank you.

Our next question comes from Robert Catellier from CIBC Capital Markets. Your line is open; please go ahead.

Robert Catellier from CIBC; just a couple of questions here. Obvious we saw in Canada re-domicile. I wondered if you can make a comment in what your expectations are for the Veresen midstream partnership and specifically their commitment to invest more capital in the area.

Jaret, you want to take than.

Sure. Hey, good morning Robert, Jaret here.

Hi Jaret.

Yeah, through Veresen midstream we’re still seeing you know CRP, the partnership with Mitsubishi in Canada. We're still seeing a lot of drilling up in that area. They are – and this is you know well documented. They are extremely focused on the liquid rich portion of that, you know and obviously Pembina benefits. You know Jason talked about having to debottleneck, going west of Gordondale. Obviously that is primarily due to a significant amount of liquids being found up in that Dawson Creek, whose all the way up into Fort St. John area. So right now we don't see any changes based on that announcement yesterday at all. And then further to that, we are extremely well positioned obviously on the dry gas side with LNG Canada Phase one going to be coming on stream and then the one side of that partnership, Mitsubishi's ownership in that and in their desire obviously to fill dryer gas molecules to take those west. So it’s business as usual from what we know.

Okay, I wonder if you could just comment longer term on what happens with Ruby pipeline. Obviously I think the big leverage point is whether or not Jordan Cove moves forward, but failing that we're seeing some expansion from GTN, etcetera coming in the market. So what's your updated view on the outlook for Ruby pipeline?

Rob, this is Jason. I guess with Ruby, you know the contract renewals start coming up at you know middle to end of 2021 and so we're working with Kinder Morgan on that. There is a number of different things going on. You know including the – there is the Oneok pipeline that could be reversed, the goes down into the Rockies base and they’ll create a need for more egress for gas. There’s conversions that certain parties are considering a gas egress pipeline to the crude service. So you know we are definitely looking at it, and we are looking at the options and working really closely with Kinder Morgan who is the operator of that asset and looking at all the different scenarios there. Obviously Jordan Cove would be a really positive outcome there and the timing of that is still unknown at the moment. So I think at the moment, it's a bit of a wait and see.

It's just my view, but I think that for buyers of gas at Molen, Ruby is an important diversification. If they have a single source of gas, that hub is not nearly as valuable to buyers of gas of having multiple inlets and that really goes back to the reason it was built in the first place. So my personal view is that people are not going to ban a diversification, it’s just too risky for the buyer of that hub.

Yeah, that makes sense. Also my last comment was to just thank you for putting up that ESG update. Thank you.

Thank you. Thanks for noticing.

Our next question comes from Robert Kwan from RBC Capital Markets. You line is open, please go ahead.

Good morning. Coming back to KML and the timing, so you’ve tightened it up here in the first quarter of 2020. I'm just wondering is that based on specific feedback and interactions with the competition bureau.

Yes.

Okay. I guess turning to the Empress Co-gen facility, you've talked about reducing costs. I'm just wondering, the economics around that from your perspective, is that based on kind of current mass or do you have concerns about future delivered power costs?

What we see happening is in the future is wire costs continuing to go up and this particular co-gen will not be on the grid. We’ll have demand in excess of this production and because we are capturing waste head to offset other natural gas we’d otherwise have to buy, ergo, there’s great economics in it, so it’s just a model. We are very pleased with how the Redwater Co-generation plant worked out and we see this as a strong analogy to that. The identical unit you know, Robert how we build stuff, we build one, we like it and then we build a lot of them and we see two, maybe three future opportunities. These are just all at base hits for us that just helps supply and consider that you know other projects like Suncor and other projects like this are going to continue to hold demand off the grid, which in turn will make the wire costs higher. So I think you know this maybe the start of that kind of a trend.

And is owning, like you are clearly developing and constructing these facilities, but is owning the co-gen kind of a long term business strategy or just given how many – how much private capitals are running around low cost of capital. Would you look to monetize these things?

It's an option. I mean Scott’s got layers of protection if anything ever went wrong at MNO, you know we’ve got layers of stuff that we could do and that could be one of them. But we're in the business of constructing and operating infrastructure and so this is right down the fairway. As I say, these are these are solid economic and we learned something about the electricity business while we're at it and it's an upstream vertical integration, behind our assets into the value stand, so directly connected. So for now it's right down the fairway. It wouldn't be the first thing we would sell, put it that way.

Got it. And if I could just finish with guidance and you tightening up the range outside of things like commodity prices and say some volumes of facilities. Are there any other key drivers that would move you around in the range or potentially even take you out of the range. And how much would those drivers actually have to move to do that?

Robert, the only thing that would really take us out of the range is an absolute crash in commodity prices. But recall that we've put in close to 50% hedges on our NGL business, as well as some pretty significant hedges on our storage book over the winter. So it would have to be a pretty dramatic fall off in commodity prices.

Got it. Okay, thanks very much.

[Operator Instructions] Our next question comes from Andrew Kuske from Credit Suisse. Your line is open, please go ahead.

Thank you. Good morning. Maybe just following up on the power conversation, but to the extent you had Co-gen that were actually physically connected to the grid, do you see a market environment in the future that's more volatile and that you’d actually sell power into the grid that’s excess for you?

I mean, we're not in this to be merchant power player. We are just in it to help supply and operate facilities are clearly more attractive. That's possible, but it's certainly not how we presented it to our board as a merchant power play. You know with our – our guard rails are being 80% fee-for-service. You know that would not be something we would be entering into as a merchant power business.

Okay, I appreciate the clarity on that. And maybe just on the budget status, on a couple of projects. So Prince Rupert is trending a little over budget and I think Duvernay is under budget. What are the drivers that are happening on those two projects? Is everything else sort of down the fairway on time and on budget?

You know we take more of a portfolio approach and everything is under budget, then it means our guys are sandbagging their costs, so that's not good. And the inverse, you know we’re focusing from here forward about what the portfolio looks like and I think that that’s the most important guidance that we can give the Street. What's happening or the minutia of what's going on in any given project can be related, so you know scope changes, maybe we are pre-building, can be weather related and all that and so we're, you know our guidance is going to be generic in that regard looking forward.

Okay, one final one if I may. With the rail curtailment announcement that came out, do you see any major benefits to your business?

Well, I mean we're co-owners, if tender closes we are co-owners and really the Marquee rail facility in Canada and so we don't really know what that means, but it has our attention for sure.

And I would just add any incremental heavy oil production usually comes with condensate demand. So obviously not a direct benefit, but an indirect benefit through hopefully higher produced volumes.

Okay, great. Thank you.

Our next question comes from Patrick Kelly from National Bank Financial. Your line is open, please go ahead.

Thanks. Hey guys, just pulling up on Alliance outside of the expansion and I’m sorry if I missed it here, but when do you expect to extend the existing contracts? How should we think about those in terms – relative to the existing five year deal?

So the first round of contract renewals come up at the end of October and we've been in active discussions with all our customers and we’ve – I think we've made good progress on the extension at some of those terms. I think maybe in the fourth quarter we can provide an update in terms of what the term of the overall average terms and things like that look like.

Okay, great. And then just with KML closing right around the corner here, curious to get your thoughts on what might be the most attractive market right now on before stock here just in terms of the purchase price for U.S. Cochin and thinking about Canadian versus U.S. public debt or perhaps no new bank debt or private debt?

Yes, so we have multiple options on that front. I mean to start off we hedged over 50% or just about 50% of the purchase price at economics, slightly better than our board economics. That was a good start to the funding plan. We obviously took a lot of money off the table back in September with the bond deal we did then at pretty attractive rates to prefund a portion of it. As we sit here today, you know we have an undrawn credit facility. We have an accordion with that credit facility to increase it even further. We have $1 billion term loan that we've negotiated that we can draw on as well. So from a pure liquidity on closing, obviously no issues there. We have ample capacity. Longer term, right now we are doing that exact analysis between looking at the U.S. Public, the U.S. Private and the Canadian Public and just kind of going through the pros and cons. If you put me on the spot today, I’d say there we’re probably likely going to do an issue in the U.S. private placement market.

Okay, that's perfect. Thanks guys.

Our next question is from Elias Foscolos from Industrial Alliance Securities. Your line is open, please go ahead.

Good morning.

Good morning.

I would like to focus a bit on the co-gen facilities, because I sort of clearly see a pattern here with Redwater Empress today and the Central Utility Block. Do you see a further trap line that's internal and I'll push it a bit further, would they roughly be the same size in terms of dollars or how do you look at that, because you mentioned that you see a trap line.

Yeah, again if you look at our history we build the same gas plan over and over the same track over and over and so we - you might see us keep the build in the same kind of 100 million plus or minus unit in a bunch of different locations. The co-gen is not part of our PDH/PP now, but it very well could be in the years to come. Certainly there'll be sufficient power demand to support that. So that’s just another example of the opportunities, but again our focus in the plan we have in front of us is self-supplied, not merchant power.

Okay, thanks for that. Moving a bit to PDH/PP, a large capital project that I would consider, moderately complex, what are you doing on the construction cost mitigation side that might be different to or what you would consider maybe standard practice, but still like to hear it to keep those costs in line?

Elias, its Stu Taylor talking. So we've been very clear from the outset of our EPC contracting strategy to be a lump sum process, lump sum contracts for us. So our model at this point time is that for the two large packages, the PDH/PP, we are seeing and working with EPC contractors to receive those lump sum bids. We continue to look at and work with those parties at this point time in time, look at all cost reductions. From watching our labor rates, we've negotiated labor rates in advance, we've ordered our long lead equipment remit [ph] cost and uncertainty. So we are following a process of as you describe, removing cost uncertainty from the project and we continue to evolve and press that forward.

Great, so no change in strategy, correct?

No change in strategy.

Okay, one last thing. Just wondering if within six weeks or so you'll provide another capital budget update or not and could there be potentially new projects. I know there were two announced today that might come up.

Yeah, we typically put out capital press release in early December. So that, you should expect see that. We may have some discolor on our business and what we’re up to, that won't be in the form of promises, but more directional, you know similar to what you would see it in Investor Day as part of that release.

Great! Thank you very much for all those answers, and that's it for me.

Our next question comes from in Ian Gillies from GMP. Your line is open, please go ahead.

Good morning, everyone. With respect to the Watson Island, LPG terminal, I know it's not up and running yet obviously, but are you able to provide a bit of an update on what the potential scope and size could be if the first phase is successful and what you have room for there?

Yeah, absolutely Ian; Jaret here. So obviously customer demand to get products off of the west coast of British Columbia to either Latin America and/or Asian markets is extremely high. We are – I do want to make sure that we are very, very focused on getting Phase I on stream as per the time line that we publicly disclosed and getting all of our permits in place. But with respect to that, in the Northeast DC area, as that increased condensate and crude is coming on to fill Jason’s pipeline, with that comes incremental associated gas and a lot of NGLs which is driving a lot of the customer requests with respect to Northeast DC Frac and tying it to potentially a Watson Island expansion in the future. So the demand is definitely there, but we are extremely focused on getting Phase I up and running.

To be clear, there are expansion opportunities there, but we're evaluating those in concert with Northeast DC Frac development.

Got it. Its perhaps too early to talk about this, but are you able to provide any high level details around some of, I guess the operational optimization opportunities with running condensate up Cochin and also having some, obvious the Peace system running in Edmonton and some of the benefits you may be able to realize there?

We’ll do that if and when we close. It’s not our place to do that at this time. We got to focus on closing and then we'll talk more about our plans there. Realistically we have our Investor Day in May. That would probably a good time to further outline in detail what our plans are. We stand by that and we should be able to realized 50 million of synergies at very low nominal cost through this acquisition and then another 50 million kind of according to the types of metrics you've seen from Pembina on average in terms of capital deployment.

Okay. Last one from me, I mean Scott obviously the cash tax guidance got bumped up for 2019. Are you able to provide any insights into 2020? I know EBITDA guidance has been provided, but that could be helpful.

Yep, on a current tax expense basis, we would expect it to be lower than what we're seeing in 2019. And again, that's just the timing of when certain assets are in deferral partnerships, some aren't, as well as some accelerated CCA deductions that start to come into place in 2020. So as we sit today, you could expect it to be marginally lower than 2019.

Perfect! Thank you very much and I'll turn it back over.

There are no further questions at this time. I’ll turn the call back over the presenters.

Well, thanks everybody. Hope you had a great Halloween last night and thanks for your ongoing support. Have a great weekend!

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.