Pembina Pipeline Corporation (PBA) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Pembina Pipeline Corporation's Third Quarter 2020 Results Conference Call. [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, sir.

Thank you. Good morning, everyone, and welcome to Pembina's conference call and webcast to review highlights from the third quarter of 2020. I'm Scott Burrows, Senior Vice President and Chief Financial Officer. On the call with me today are Mick Dilger, 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. 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 management's discussion and analysis dated November 5, 2020 for the period ended September 30, 2020, which is available online at pembina.com and on both SEDAR and EDGAR. Before we discuss the third quarter results, I'd like to first turn things over to Mick to make some opening remarks. Mick, over to you.

Thanks, Scott. Good morning, everyone, and I hope you and your families are doing well. Once again, I'm really pleased with the quarter, particularly in our assets, asset-based businesses, the pipelines and facilities, which, once again, displayed the resilience of Pembina's business and the underlying strategy we've been executing for more than a decade. Our focus on integration across the value chain began over 10 years ago and has been extended many times through both construction and acquisition. Along with the integration came greater diversification of customers, commodities and currencies, and we have become a stronger and more diversified company. We're proud of our resilience and the fact that Pembina expects 2020 adjusted EBITDA to remain within the company's original guidance range, albeit near the lower end of that range. While this guidance was provided almost 1 full year ago, and despite all that has happened in the world to both the energy sector and our business, we still expect to be about 95% of the midpoint of that original range. That's a strong testament, not only to our business model, but to the strength of our customers and the commitment of our employees who are tasked with delivering over $100 million of cost savings. And we've operated these assets safely and reliably through this challenging year. Looking ahead, we see positive signs. Consolidation amongst Canadian energy companies is beginning to occur, and it will strengthen our customer base. We are hopeful that an effective COVID-19 vaccine will be broadly available in 2021, and we expect the balancing of oil supply and demand by 2022 and all of which those statements entail. Pembina remains well positioned to deliver tremendous shareholder value by sticking to the same basic principle we have used in the past, meaning, we will focus on our 4 stakeholders: customers, investors, communities and employees. We'll continue to prudently allocate capital to the projects that provide competitive returns, improve our customers' profitability and make Pembina better. We'll also continue to fund stable and growing dividend in the future. With that, I'll pass it back to Scott.

Thanks, Mick. Similar to the last quarter, the major factors impacting the third quarter relative to the same period in the prior year were the positive impact of the Kinder acquisition, offset by the impact of COVID-19 and the decline in commodity prices. Adjusted EBITDA in the quarter was $796 million, an 8% increase compared to the same period last year. The increase was due to the contribution from new assets following the Kinder acquisition. These positive contributions were partially offset by lower margins on crude oil and NGL sales in the marketing business as well as lower contributions from Alliance due to lower interruptible volumes and a lower contribution from Aux Sable, both largely due to lower NGL margins and a narrow AECO-Chicago price spread, which reduced revenue. Third quarter earnings of $318 million were down 14% over the same period last year, largely due to lower contribution from marketing. These declines were somewhat offset by the contribution of additional assets from the Kinder acquisition and lower G&A and other expense. Total revenue volumes during the third quarter were over 3.4 million BOE per day, consistent with the same period in 2019 and up slightly when compared to the second quarter of 2020. On a physical basis, activity levels have stabilized and are beginning to improve. Pembina's Conventional Pipelines business physical volumes in July and August were consistent with levels seen at the end of the second quarter of this year or roughly 8% below first quarter levels and well above the lows experienced in April and early May. We saw physical volumes decline in September due to operators electing to perform routine maintenance and turnaround activities, which is typical in the third quarter, as well as extended, unplanned outages at third-party facilities. October physical volumes recovered and increased to levels slightly above those seen in July and August. Subsequent to the quarter, we were pleased to bring into service new fractionation and terminaling facilities at our Empress facility. This project was placed into service on time and on budget and adds approximately 30,000 barrels per day of propane-plus fractionation capacity, enabling Pembina to optimize propane marketing from the facility between Eastern and Western markets. This project, along with Duvernay II and the Phase VI Peace pipeline expansion brought into service earlier this year are part of the roughly $1.5 billion capital program that we continue to deliver in 2020. The company is advancing the construction of Duvernay III, which is scheduled to come into service before year-end; and the Prince Rupert propane export terminal, our first project to provide global market access, which we expect to complete in the first quarter of next year. We continue to evaluate our portfolio of deferred projects and with the Phase VII Peace pipeline expansion in particular, engineering work is ongoing and focused on optimizing the scope of the project to meet customers' needs and future transportation requirements in the basin. As a result of this work, estimated project costs are trending materially lower. Phase VII and other deferred projects, including CKPC's PDH/PP facility, and the conditions under which they may be restarted continue to be evaluated within the context of our customers' future plans and ongoing COVID-19 pandemic and resulting global economic outlook. Finally, we continue to assemble a multiyear inventory of development opportunities. The scale, breadth and diversification of our business inherently affords us a strong suite of greenfield, brownfield optimization and new market development opportunities. These opportunities range in size from $100 million to several billion dollars and have risk-adjusted rates of returns consistent with Pembina's track record. While the time line is not certain, we are diligently advancing a number of opportunities. Turning to the outlook for the full year. With 3 quarters of results behind us, the company has narrowed its guidance range and expect to generate adjusted EBITDA of $3.25 billion to $3.3 billion in 2020. The primary drivers of the range include the results of the crude oil and NGL marketing business, the level of interruptible volumes, timing and completion of typical fourth quarter integrity and maintenance expense spending as well as the company's share price specifically relating to the impact on share-based incentive compensation. Assumed in this guidance are the previously discussed reductions in operating and general and administration expenses, which we now expect to be in the range of $150 million, exceeding our original target by approximately 50%. A significant portion of these savings are expected to be sustainable. In his opening comments, Mick spoke about the resilience of Pembina's business, which was achieved by building an integrated value chain, diversifying across commodities, customers and currencies and developing reliable and predictable asset revenue streams. Equally important has been our unwavering commitment to Pembina's financial guardrails. Pembina's underlying business is highly contracted with approximately 95% of 2020 adjusted EBITDA, supported by long-term fee-based contracts, including approximately 72% coming from cost of service for take-or-pay contracts with no volume or price risk. Approximately 75% of our credit exposure is with investment-grade and split-rated counterparty or with counterparties secured by letters of credit. Direct commodity exposure in Pembina's business is limited to our marketing business, and we are not reliant on this to fund our dividend. As we have maintained a strong balance sheet and have been recently affirmed as BBB by both S&P and DBRS with the outlook or trend maintained as stable. It is worth noting that Pembina is among a select group within the energy infrastructure sector that has not suffered a negative ratings action over the past 5 years. In addition, at the end of the third quarter, available liquidity totaled $2.5 billion. We will exit 2020 in a strong financial position with the ability to fund the next wave of future growth, pay down debt or return capital to shareholders. With that, I'll turn things over to Mick for some closing comments.

Thanks, Scott. Good job. With so much political and economic uncertainty amidst the ongoing pandemic, the overall industry sentiment remains understandably cautious. Yet as we approach the end of 2020 and prepare for 2021, we remain optimistic. Roughly half of our Calgary staff have now returned to the office. As we refocus our efforts on the growing business, the in-person collaboration amongst our teams, which has been the key ingredient to our success, has returned. In early December, we are looking forward to providing a fulsome business update, including the latest status of each of the company's currently deferred capital projects as well as our 2021 outlook, capital budget and funding plans. Finally, with growing attention on ESG issues, we are looking forward to the release of our next sustainability report in the coming weeks. The 2020 version of this report will again provide a comprehensive perspective on commitment to all of our stakeholders. And in this report, we'll also be significantly enhancing our disclosure, particularly in the areas of environment and employee diversity. As always, we thank all of you, all of you shareholders, who have literally stuck with us through this difficult time. With that, we'll wrap things up. Operator, please go ahead and open the line for questions.

[Operator Instructions]. Your first question comes from Jeremy Tonet from JPMorgan.

I just want to start off with consolidation in general here. I'm wondering if you could talk a bit more as far as producer consolidation, what that means for Pembina, what you've learned now versus what you knew before. And also, I guess, in the midstream sector as well, what do you think happens with regards to consolidation? And how does that impact Pembina there?

I'll start and then I'll turn it over to Scott or others. Generally, in the past, let's take a longer time frame, say, the last 10 years, consolidation has helped Pembina. In the depths of March and April, I think investors were worried about some of the weaker players out there, and they're starting to be consolidated and become stronger players. The recent terminaling example, I think, is an excellent one where 2 of our less strong customers will be consolidated into an industry leader, which helps not just with credit, but also capability in tougher times. So we welcome it. We think it's good for the areas in which we operate, and it's good for credit. In terms of your second question, midstream consolidation, Pembina has been a consolidator over the years. But in Canada, it's a rare thing. It happens very slowly. I expect in the U.S. to see much more consolidation than in Canada. I think Canada has much greater -- on average, much greater balance sheet strength than what we see in the U.S.. And indeed, I think, just scanning some of our sector competitors, they're all around their guidance range. So they're on average doing, I think, better than what we see in the U.S. Scott, do you want to add anything?

No.

Your next question comes from Linda Ezergailis from TD Securities.

Just building on Jeremy's question with respect to how, I guess, North America might consolidate. Might there be an opportunity for Pembina to extend into the U.S. and maybe find some opportunities to either do more with the hydrocarbons you have, as has been your successful strategy so far, or actually extend into other markets and basins given some of the weakness that your U.S. peers have?

Linda, that's a great question. And I'm going to answer it as best I can right now, but realize things changed. Again, taking a longer-term perspective, let's go back to 2015. We kind of sensed advantaged U.S. in that time frame, and we wanted to start to march the value chain into the U.S. And the result was the Veresen acquisition, which was done to diversify into nat gas away from just liquids, but also to up our U.S. exposure. As we look forward -- and I'm not trying to predict the election. But as we look forward, the relative environments of Canada and the U.S., assuming a Biden win, we think it's advantaged Canada, particularly as we develop egress. So whether it's the Shell LNG, Trans Mountain, our export terminal -- AltaGas' export terminal, we get egress. We think that the best markets in the world will be non-North American markets in the future. And I don't mean the next 5 years. I do think we'll have a robust and -- North American market. But beyond that, if you're looking 20 years, we think the Asian-Indian market is going to be the place to be. And we're the closest to that. And we have and produced some of the cleanest hydrocarbon, most ethical hydrocarbons in the world as a basin. And so we now think it's advantaged Canada. That doesn't mean we're never going to look in the U.S. Of course, we will. We have assets there. But we're most comfortable, I think, with our capital allocation in Canada in the next number of years.

And maybe just as a follow-on. Recognizing that the Alberta government is promoting petrochemical investments in the province, I'm wondering how that might influence your -- the relative attractiveness of that opportunity versus others? And maybe we can also hear your updated views on whether there might be some emerging hydrogen opportunities for Pembina as well.

Obviously, that kind of support at all levels of government is helpful. And we hope people step into that space. And it's certainly helpful when we think about CKPC, which we'll be providing an update for in early December. In terms of hydrogen, it's early days for us. I mean, clearly, we have infrastructure that can be used in that development. But it really is early days for us. We think it's a number of years away. And we are studying it. And in fact, we have a presentation to our senior management, I think, next week, on hydrogen and how we can participate. But Stu, any additional thoughts?

No. I mean, we're watching it closely, Linda, and are excited about what that opportunity may develop into with respect to Pembina itself and the industry in general. We're quite positive. And I think our efforts in some of our work on the petrochemical side and export, we're getting lots of contact and are excited to be recognized and have conversations with future opportunities that may present itself.

Your next question is from Matt Taylor from Tudor, Pickering, Holt.

Can you speak to conversations you're having with customers? It seems physical volumes seem to be slowly recovering here, but more importantly, on new projects, more to come in December, obviously. But is there some caution here that you're seeing with customers? I mean, is it fair to say that you'll be prudent about adding new projects that match customers' willingness to backstop that CapEx with contracts?

I'm going to start and then, Jason, I'm sure you're eager to respond to that. We're unwavering really on how we do projects, and because of that, we slowed down in the pandemic. And when the market is supporting us and we have adequate financial backstopping from the right kind of customers, then we will restart. And we'll talk more about that in December. But we are literally following the Pembina playbook, all the guardrails, decent rates of return, good counterparty credits, good geology, all those things. And we'd love to grow fast as we have over the last 10 years, but that is just -- has not been in the cards since we had this kind of double-pandemic. But as things resume, we'll be ready. We'll actually be more ready for what I perceive will be a return to normal than we've ever been because for the first time in a decade, we've been able to measure twice and cut once in project readiness. So Jason, maybe a bit of color on what you're seeing on the ground.

Sure. Thanks, Mick. And so Matt, we've actually canvassed all of our customers, particularly on Peace pipeline in the corridor, and determined what their needs were. And I had a number of discussions with customers who need to make changes around their contracts and things like that. So relative to what Mick was saying, we're trying to make sure that we weren't building assets that customers didn't need as we were going through that process. And so we've gotten a lot of positive indications from our customers in terms of their continued need for capacity on our assets. There's continued growth in certain areas that we're continuing to pursue. So there's some optimism around those things. And I would say, it also gave us time, as Mick pointed out, to look at the project and determine how to rightsize it for -- since 2013, we've been building pretty rapidly, just trying to keep up with our producer expansion. This time, we actually get to go through and do a lot of assessment on exactly what we need and plan it very effectively. And the market is good for services as well, so our capital is looking really good at this stage. So we think we can match the timing with the customer needs and then also do it on a very economic basis.

Jason, do you want to talk a little bit about what you're seeing on the ground with volumes?

Oh, sure. Yes. Scott mentioned it earlier in the call that we have seen volumes recovering. September and August are typically turnaround season, and the summer is generally a breakup and slow drilling season. We're starting to see, albeit very slow, recovery in drilling in the basin. We are seeing volume ramp-up. Facilities came back from turnaround very strong, and we've seen consistent volume growth on both the LVP and the HVP side of the system. The HVP has been performing very strong across the board, actually staying relatively close to what our expectations were when we set our budget. We're seeing things going back closer to what we expected to see at this time of year. We're about level with what we were at this time last year. So with every week and every day going by, seeing the volumes continue to grow. The counter to that, I would say, is the Drayton area. I think we've seen some of our other midstream peers talking about that area is a bit slow. It's a little behind the curve in terms of recovery. But we're starting to have discussions down there as well.

That's great. And then if you could then, could you just slot -- obviously, you're being prudent about the backlog here. Can you slot them? You put some items in the press release on growth, debt repayments and increased shareholder returns. Do you mind prioritizing those items? And then where the stock sits today, how are you thinking about buybacks and that increased shareholder return box?

Scott, do you want to start that one? Or are we going to defer back to the press release?

Sure. Well, Matt, obviously, we're not -- we're still working through our budget and the project backlog. But your question is a valid one. As we sit here today, and I think we've said this a couple of times, if none of the projects come back, we're obviously going to have significant free cash flow available. If we bring some of the projects back, we'll have a little bit less, obviously. And then if we bring them all back, we'll need all that free cash flow for the project. So those are kind of the goalposts about what we're thinking about. But in the scenarios where we are generating free cash flow, certainly, when we think about how we funded the business, we've funded it typically 50-50 debt-equity over the last decade or so. And so when we think about redeployment of capital, our starting point really is to think about redeploying it back 50-50. So potentially 50% of the free cash flow will go to debt repayment, 50% will go to share buybacks. Now that all depends, obviously, on a couple of factors. Where we see the leverage trending, if we get to a level that's slightly higher than where we're comfortable, then I think we'll skew a little bit more of that capital towards debt repayment. And likewise, depending on where the share value is, that could also skew something to the upside or the downside on share buybacks. Where we sit today, yielding 9% -- a little over 9%, certainly, we see value in our own shares as we feel they're being underappreciated.

Your next question comes from Ben Pham from BMO.

On asset sales, anything to update us? I didn't see much in the package on that.

Scott, you want to address that?

Yes. Yes. So we continue to work through 2 asset packages, and that's about all we can say there, Ben. We'll probably provide a little more color and should have a little more clarity with our December update.

No problem. And maybe just more of a detailed question on your exhibits on deferred revenues and makeup rights and recognized revenue. Is the expectation heading to Q4 that you're going to see that balance get closer to 0, similar to last year?

Yes. For the most part, those are 12-month makeup rights, Ben. So that's a fair assumption, yes.

Okay. So when you say 12 months, that seems like as you go -- 12 months, that's on a calendar year basis, like there's not some portion in Q3 you book and it pushes into next year?

There's a small amount. But for the most part, it's on the calendar year.

Your next question comes from Rob Hope from Scotiabank.

Just wanted to get a sense of how you're thinking about contract roles at Alliance given the dynamics in the basin, including potentially a little bit of a delay in LNG Canada as well as any update on Ruby.

Maybe, Jason, you can talk about Alliance role. And then, Scott, over to you after.

Sure. Rob, so I think the basis between Alberta and Chicago is going to be challenged, as we're all aware, in 2020. And so I think we have seen some of the interruptible volumes a little bit lower than we had seen in the past. But we're starting to see a strengthening in that basis between Alberta and Chicago at the moment, especially in the winter. So a lot of our capacity that came available this year, we've been able to do seasonal sales to keep the pipeline at high utilization. So optimistic there. We have a view towards the end of 2021 that the pipeline is still highly contracted. And we're currently working with customers, both in Alberta and the Bakken, to determine their needs for egress. We do think it's been a challenging environment at the moment, but we do think things are looking positive. And there are some certain areas where we do think there's opportunity to be able to bring gas on to that pipeline on a term basis. We've had some smaller successes recently in Alberta, terming up some volume there. And then on Ruby, similar story in terms of recontracting. The basis between Opal and Malin is very narrow. It's making it quite difficult for Ruby to attract volumes. We still have the PG&E contract there that goes on for a number of years. So we're working with our partner, Kinder Morgan, on assessing some options there. The California market for gas is a bit challenged with a lot of renewables and things like that coming on in California. So we're looking at opportunities to use some of the advantages that Ruby has as a low-carbon pipeline to be able to access some of the California market there. Scott, did you want to add anything to that?

No, Jason. I think you covered it.

Your next question comes from Patrick Kenny from National Bank Financial.

Appreciate the update on the frac spread hedges into next year. But just looking more specifically at the propane inventory from the summer that you'll be looking to flush out this winter, can you just confirm what percentage of your expected propane sales through the winter, assuming average weather, of course, that you've locked in with forward sales? And then maybe perhaps you could just comment -- I know more to come in December, but just directionally for marketing into 2021 relative to 2020, how you're seeing things play out here based on current market dynamics.

We're going to take that one.

Go ahead, Jaret.

Yes. So in terms of our propane sales, we're largely sold on a forward basis. So we still expect, based on our current sales program, to exit March as we typically do with little to no propane in storage. I'm not going to disclose the specific amount path, but what I can say is a high percent, 75% or higher, is already sold on a forward basis. So we feel confident about our forward sales profile. As it relates to 2021, based on the current forward strip that we typically use to run our budget, we are seeing slightly higher NGL prices compared to 2020, offset, obviously, by the higher natural gas prices. So on an all-in frac spread, I think we're a little higher on a Younger basis and a little lower on a Mont Belvieu basis. So net-net on a frac spread, we're looking to be roughly the same as we are in 2020. And then crude oil, again, the strip is slightly higher than where 2020 is tracked. But the key to us is the differentials, and the differentials largely are the same as what we saw in 2020. So as we sit here today, absent volatility or movement in prices, we see kind of margins forecasted to be roughly the same in 2021 as we see in 2020.

Okay. That's very helpful. And I just wanted to clarify too on the customer contract renegotiations that were publicly announced in the quarter. I know some of the fee reductions are tied to the highest development still coming on. But can you just confirm from a same-store sales perspective how much, if any, you expect your conventional tolls and processing fees to be down in 2021 versus 2020?

I think from a convention -- I'll take that. I mean, from a Conventional Pipeline basis and a Gas Services and a fractionation, I don't think we see any degradation in tolls.

Okay. Perfect. Last one for me. Scott, just going back to your comments around share buybacks and uses of potentially some excess cash here until your growth is secured. I know you've taken a look at the math before behind trying to go out and buy back some of the pref shares. Obviously, that would be a big discount to par. I think that math was pre-COVID. But now with further pressure on the market value of the prefs and the Canadian hybrid debt market opening up this summer, just wondering if you've refreshed that look at what a meaningful refinancing of your prefs might do to open up some room on the balance sheet?

Yes. Pat, I think we're always looking at what those options are. From a common perspective, if you look at the yield of buying out of pref compared to the yield of buying out our common, plus assuming that we're going to get back to growing the dividend at some point, it still makes sense, we believe, from a cost of capital, if you have a spare dollar to buy back a share versus buy back preferred. Now that being said, we are looking at all options around the preferreds and certainly assessing the hybrid debt market, especially given where rates are today. We see that to be an attractive market. So it's certainly in the toolkit as we formulate our 2021 financing plan.

Your next question comes from Robert Catellier from CIBC Capital Markets.

I just want to follow up the capital allocation questions a little bit here and just to clarify what you've said previously. I appreciate the logic and the 50-50 funding leading to how you might deploy cash flow -- free cash flow, some to repayment of debt and some to returning to shareholders. I just want to clarify, in 2020, we haven't seen a dividend increase other than the one related to Kinder Morgan closing. And then pointing to a very high yield right now in the current dividend. So does that suggest that there's a chance it will go another year without a dividend increase? Or can you still stomach one even though the yield is high in 2021 with our view more towards long term?

We're studying that, obviously. It's -- we'd love to keep the streak going. But at some point, Rob, it doesn't make sense either when you're yielding 9%. And when I do conferences, I always ask who I'm talking to what they would do. And so I'm going to ask you what you would do here because it's a difficult question to answer. On one hand, you want to keep the streak alive. On the other hand, no one's appreciating what you're paying them now. So why would you pay them more? You can redeploy that capital into projects. So what would you do?

Well, it's a good question. That's why I'm asking. But obviously, it's a pretty circular discussion. But I would say capital, next to your people, is the most precious thing you have. So 9% is just a lot, not just in isolation, but relative to the spreads in fixed income and other options you have in front of you. And if timing is really a matter of trivia, I guess, you could always raise the dividend more later when that's a more attractive choice. So that's kind of where I see it. The other part of it, though, of course, is your dividend yield now is not really anomalous versus the U.S. peer group. But at the same time, they're not raising either. So it's a challenging one. I mean, steady, consistent dividend growth probably gets the best value over time. But there's a line in the sand for everyone, and maybe I've crossed it.

Yes. And there you have it. You're arguing both sides of it. And you can see our dilemma as well. I mean, there's no doubt. I can give you assurance that Pembina is going to maintain its dividend, and we do want to grow it over time. It's a hard question right now in this unusual bad trough. It becomes clearer, I think, as the world returns to normal. And certainly, I mean, our payout ratio is -- I think it's 60% or sub-60%. We certainly could do it. I just don't know if that's really what the shareholders would want us to do. So a very challenging question. And the good news is we have many months to noodle on it before we get to that time of the year where we have to make that decision. So thanks for the question.

Yes. And on that last point, I mean, there's no doubt you have the money. But just because you have it, it doesn't mean you want to...

Yes.

You still want to do this, but sticking with it. So just on that -- just to follow that up, as you're well aware, there's been a lot of conversation in the market recently about terminal values. So I'm wondering how that's filtering into how you look at capital allocation, specifically, obviously, the return thresholds and knowing that those compete with share buybacks. But also, is this having any impact on screening out certain asset classes or otherwise accelerating sales in other asset classes just to tighten up the ESG profile?

We hear that argument. Honestly, it doesn't impact our thinking. We're pretty confident the world is going to need the services we provide for decades to come, for longer than many of our assets will physically last. So our view of terminal value is the life of these assets, we don't see laying down any of our infrastructure because there's no demand for the products. We look at the OPEC and the EIA who -- and others who suggest that we're not at peak hydrocarbon yet. Even if we were to get there the next decade, it's a long, long, long tail. And particularly, Western Canada has fought hard to get West Coast egress, and we'll have that in an enhanced form here in the next 2 or 3 years. And that will make that tail much, much longer, even if North America is a demand-flat environment.

Your next question comes from Robert Kwan from RBC Capital Markets.

Just to start, on the last call, you alluded to evaluating some of your growth projects and making some decisions over the coming weeks post that call and then potentially restarting some of that growth. So I'm just wondering, what changed in the environment that you were expecting but didn't unfold such that everything is still remaining on hold right now?

I think really it was COVID, Robert. I mean, we believed at that time, I think the world did, that we understood what was happening. And we saw, as a result, oil starting to come back and nat gas was pretty strong. And so we had hoped we could speak into the mic on our deferred projects, which is what we're going to do in December. So it was just a little bit of second guessing going on, on timing, on the -- as Rob was saying, you just have to be very cautious. You have to really be careful with your capital. And so it was just out of an abundance of caution that we decided to continue to evaluate different options.

So is it fair to say then that if nothing materially changes here in the next month, what we should expect in December is really more of the framework for how you'd move forward versus a sanctioning, or I guess, a restart of those projects? Is that the intention in December?

Not really, no. Jason mentioned earlier, we have consulted now with all of our customers and stakeholders on all of our deferred projects. So we expect to give a detailed update on those, and we'll do so with more confidence than we would have had compared to the time you're referencing.

Okay. And if I can just finish with -- coming back to the share buybacks. I think, Scott, you mentioned earlier on the call that it sounds like the decision to go forward with buybacks is going to be a function of how many of these projects come back, i.e., how much cash is left over. And so I'm just kind of wondering, though, if you turn that around, is it fair when you look at your yield? And really, that's just the payout, that you're probably more like in the mid-teens on a free cash flow or an AFFO yield, that all of these projects, their returns are beating that number.

Mick, are you taking that or do you want me to?

I'll start. Generally, yes, Robert. Like we were aware of the marker of our cost of money. And it's a fair question. And we do look at that as a marker. I mean, we can buy our own stock and we love our upside and very -- not every project can give you a risk-adjusted rate of return the same way buying back our shares have. The problem with just buying back your shares is it doesn't increase your company's capability. So let's just say, to answer your question, there was a tie. We would always expand our business in a tie because we increase our capability, we increase our customer service and we increase the leverage and the platform for when things return. And so in a tie, we would choose to deploy capital to projects because it will create additional leverage, whereas redeeming your shares won't. But it is -- you can assume that we, on a risk-adjusted return basis, that the things we say go to will have equal to or favorable returns to buying back our shares. Scott, do you want to add something?

No, I think that was well said. It's certainly a marker that we look to, Rob.

Your next question comes from Shneur Gershuni from UBS.

Glad you're all safe. Sorry for the probably 11th question on buybacks. It was an interesting last question. I was wondering if I can flip it the other way. Have you looked at -- when you sort of consider the environment that -- hydrocarbon demand is clearly uncertain right now for at least a period of time until a vaccine arrives and so forth. Have you sort of looked at the same free cash flow yield type of analysis, but looked at it more on a time continuum? The NPV of a project usually remains the same NPV. But if you were to delay capital for a year and buy back instead, would that not be a potential optimization strategy that you know you can buy back your shares where they're yielding where they are today, yet still retain the optionality of being able to deploy the CapEx 12, 18 months from now. And who knows where your share price would be at that point. You may not have the same opportunity.

Yes. That's an interesting idea. And I got to think about the math of it, but it seems logical. The part that's missing, though, from that question is your customers. Your customers -- the things we're selling, they want to buy and we have contracts. And so they get to say when you have that option for that project. You can't unilaterally delay projects a year when customers want them. And so in theory, I think you're right. But in practice, that project may not be there if you delay a year, or a competitor may step into that project. And so it's not quite as easy. Some of our projects, to be fair, like our Empress co-gen, we can think about that way. But when we think about CKPC or Peace pipeline, the things that are contractually backed, we have to do them when the customer wants them as well.

Well, that makes perfect sense. Just -- it was more of a thought. Your results this quarter in your guidance with respect to cost reductions have frankly been pretty impressive. As you've sort of gone through this entire process, and you've been kind of on a growth plain and sprinting and you're more in a standing still mode right now, do you see further optimization opportunities and potential cost reductions as well on the opportunity front? Or is kind of the $150 million kind of what we should expect going forward? Or do you see -- do you think you're in the second or third inning of this exercise?

The $150 million realized, some of that was incentive-based comp because share prices are much lower. So on this side of the coin, we're all going to make less money, and as it should be. We don't love that, but it's as it should be when the shareholders aren't doing quite so well, either should the employees. So we accept that. But we are -- like the way I would characterize it is we are exiting 2020 having achieved things -- cost savings we're proud of. But I would characterize those as the things that we know how to do. And in the next year, we're going to get some third-party help to take us beyond what we know how to do into a realm of the things we don't know how to do, and we expect there to be further opportunities. Would I say they'd go over $150 million in total? It's hard to say because we got to make up for, hopefully, incentive comp getting back to target, getting back to normal, which will eat into that $150 million. But would I guess that we could replace that incentive comp deficit? I -- that would be an objective we would have for '21 and '22.

Your next question comes from Andrew Kuske from Crédit Suisse.

I promise not to ask a share buyback question. But in relation to the negative sentiment that exists in the sector and just with the producers in general, do you see an opportunity to really surface value within your existing asset base? Or even extend your asset base by partnering up with either private capitals, private equity or pension funds and either targeting existing assets that you have in surfacing value to the market? Or engaging in M&A with a partner that has deep pockets?

I'm going to answer that in the two parts. I have never been at Pembina where we have greater embedded value in our asset base. Just consider that we're only operating at about 3/4 of capacity and our marketing business is at decade lows right now. So the embedded value that we have is unbelievable. I mean, if we add 10% throughput, it's a lot of money. And if our -- even if our marketing business reverts to the mean, that's a lot of money without spending a dime. As we think about future projects and the leverage in our pipeline systems of -- complete segregation of products in different lines, the impact of nonbatching to throughput is massive. And as the previous caller mentioned, we're still mid-stride in terms of finding efficiencies after years of growing. We actually have time, as I said earlier, to measure twice and cut once and assess. So we have tremendous inherent value, and we're really excited about getting back to normal because we think that, that will really shine through in the quality of what we have and the underlying quality of our customers and the geology. In terms of M&A and other -- we call what you're talking about, OPM, other people's money. Certainly, we've watched Coastal GasLink and some of those deals and the leverage that can be liberated with partnerships or partial sell-downs. And that -- those are certainly available to us. We have the quality of asset base to do those in different places, and that's on our mind. We're not too excited about issuing equity at these prices. But it is -- as long as you can buy in a way that's reflective of your share value, you can still do things that make sense. For sure, it's much harder, though. Does that help at all?

That does. And I guess it strikes at the heart of it. Does the OPM, as you called it, if you had OPM, does that allow you to grow buyback and possibly do M&A that tick all the boxes at once and be massively accretive?

Yes. And as I said, we're looking at that and have been for some time, and we're intrigued by some of the things others have done.

Our last question comes from Jeremy Tonet from JPMorgan.

I just want to come back, pick up a bit more on how you see activity trending across basins in your footprint. And could the improvements that you talked about in producer activity, the volume is picking up, as you said, lead to an uptick in EBITDA overall next year? I know it's a pretty early look, but it seems like you benefit also from a full year of cost reductions at that point. So just wondering how you feel about that at this point.

Jeremy, I hate to be evasive, but that's really what we're going to talk about in our -- in 3 weeks. So if you'd kindly just hang on, you'll get the full picture. Suffice to say, volumes are improving on some systems. But on other systems, we're going to enter the year significantly declined from the year earlier. So there's lots of gives and takes. So sorry, I can't answer that, but really putting our full effort into giving you a fulsome answer in early December.

Got it. I appreciate that. And then maybe just separately, I hate to touch on this, I feel like it's been kind of beaten into the ground, but when it comes to the topic of share repurchases, within the context, I guess, of just returning capital to shareholders, has your thinking changed at all over time just given how high the yield is right now and how the market is not rewarding it? And would it ever make sense to kind of be flexible on your return of capital strategy? Will you take some of that dividend cash flow and buy back shares at what could be kind of historically cheap levels?

Scott, do you want to take a crack at that?

Yes. Sure. Jeremy, understand the math you're talking about. But I think at this point, we have no plans whatsoever to cut the dividend and buy back shares.

We have no further questions. I would now like to turn the call back over to Mick Dilger, President and Chief Executive Officer, for closing remarks.

Thank you, operator. I'm going to leave you with an interesting stat here that we did a bit of work, and given that this is a shareholder call -- a shareholder/stakeholder call. Our top 20 shareholders from a year ago still own roughly the same number of shares that they do now. And so I was just delighted to learn that, that people are sticking with us and they see the potential that remains in the company and its ability to operate safely and reliably and maintain its ability to earn money and its dividend. So I really do appreciate that, and we won't let you down. So thanks for the support. With that, we'll close the line.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.