Pembina(PBA) - 2025 Q1 - Quarterly Report

Management's Discussion and Analysis (MD&A) Q1 2025 Company Overview and Strategy Pembina is a North American energy transportation and midstream service provider focused on core business sustainability, energy transition, global product export, and stakeholder experience - Pembina is a leading energy transportation and midstream service provider with an extensive network of assets including pipelines, gas gathering and processing facilities, and export terminals[6] - The company's strategic priorities are centered around resilience, energy transition investment, meeting global demand through exports, and enhancing stakeholder experience[8][9] Financial & Operating Overview Pembina's Q1 2025 earnings increased to $502 million, driven by Alliance/Aux Sable consolidation, higher volumes, and NGL margins, partially offset by Cochin Pipeline revenue and corporate costs Consolidated Financial Highlights (Q1 2025 vs Q1 2024) | ($ millions, except where noted) | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | 2,282 | 1,540 | 742 | | Adjusted EBITDA | 1,167 | 1,044 | 123 | | Earnings | 502 | 438 | 64 | | Earnings per common share – basic ($) | 0.80 | 0.74 | 0.06 | | Cash flow from operating activities | 840 | 436 | 404 | - The increase in earnings was primarily driven by the Alliance/Aux Sable Acquisition, which led to the full consolidation of these entities starting April 1, 2024, adding $327 million in consolidated net revenue in Q1 2025[14][15] - Adjusted EBITDA increased by $123 million, largely due to approximately $140 million from the increased ownership in the acquired entities (Alliance/Aux Sable) and higher demand on the Alliance Pipeline[15] - Partially offsetting the gains were lower net revenue on the Cochin Pipeline ($37 million) due to new contracts with lower tolls, and higher corporate and income tax expenses[14][15] Segment Results All operating segments reported Q1 2025 adjusted EBITDA growth, primarily due to the Alliance/Aux Sable acquisition, while the Corporate segment's loss increased from higher costs Adjusted EBITDA by Division (Q1 2025 vs Q1 2024) | ($ millions) | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Pipelines | 677 | 599 | 78 | | Facilities | 345 | 310 | 35 | | Marketing & New Ventures | 210 | 188 | 22 | | Corporate | (65) | (53) | (12) | | Total Adjusted EBITDA | 1,167 | 1,044 | 123 | - The Alliance/Aux Sable Acquisition, completed on April 1, 2024, was a primary driver of performance changes, as these entities shifted from being equity-accounted investees to fully consolidated subsidiaries[22] Pipelines Division Pipelines division's adjusted EBITDA increased by $78 million to $677 million, driven by Alliance consolidation and higher volumes, partially offset by lower Cochin Pipeline revenue Pipelines Financial Overview (Q1 2025 vs Q1 2024) | ($ millions, except where noted) | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net revenue | 881 | 677 | 204 | | Earnings | 518 | 455 | 63 | | Adjusted EBITDA | 677 | 599 | 78 | | Volumes (mboe/d) | 2,808 | 2,598 | 210 | - The primary driver for increased net revenue was the Alliance/Aux Sable Acquisition, with Alliance contributing $243 million as a wholly-owned entity in Q1 2025[25] - Growth was partially offset by a $37 million decline in net revenue on the Cochin Pipeline due to lower tolls on new contracts that replaced long-term agreements expiring in mid-July 2024[25] Facilities Division Facilities division's adjusted EBITDA rose by $35 million to $345 million, primarily from Aux Sable consolidation, despite a $10 million decrease in PGI's share of profit Facilities Financial Overview (Q1 2025 vs Q1 2024) | ($ millions, except where noted) | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | 307 | 231 | 76 | | Earnings | 184 | 177 | 7 | | Adjusted EBITDA | 345 | 310 | 35 | | Volumes (mboe/d) | 896 | 805 | 91 | - The increase in revenue and adjusted EBITDA was largely due to acquiring a controlling interest in Aux Sable; Q1 2025 includes $80 million in revenue and $48 million in operating expenses from Aux Sable as a wholly-owned entity[30] - Key ongoing projects include RFS IV (a propane-plus fractionator), the Wapiti Plant expansion, and the K3 Cogeneration Facility, all expected to be in-service by the first half of 2026[34][35][36] Marketing & New Ventures Division Marketing & New Ventures' adjusted EBITDA increased by $22 million to $210 million, driven by Aux Sable consolidation and NGL margins, despite a $36 million loss from Cedar LNG Marketing & New Ventures Financial Overview (Q1 2025 vs Q1 2024) | ($ millions, except where noted) | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net revenue | 239 | 49 | 190 | | Earnings | 160 | 64 | 96 | | Adjusted EBITDA | 210 | 188 | 22 | | NGL sales volumes (mboe/d) | 281 | 215 | 66 | - Higher NGL net revenue was driven by the Alliance/Aux Sable Acquisition and higher WCSB NGL margins and volumes; Q1 2025 includes $49 million in net revenue from Aux Sable as a wholly-owned entity[40] - The division recorded a share of loss from equity accounted investees of $36 million, primarily from unrealized losses on interest rate derivatives at Cedar LNG[40] - A positive final investment decision was made on the Cedar LNG Project in June 2024, with an anticipated in-service date in late 2028; Pembina is actively negotiating with potential customers for its 1.5 mtpa capacity[44][45] Corporate and Income Tax Corporate segment's adjusted EBITDA loss increased by $12 million due to higher incentive costs, while net finance costs and income tax expense also rose significantly - General and administrative expenses increased by $16 million, largely due to higher incentive costs driven by Pembina's share price performance[47] - Net finance costs increased by $41 million, primarily from higher interest expense on long-term debt following the Alliance/Aux Sable Acquisition and higher interest rates[47] - Income tax expense rose to $137 million from $91 million, reflecting a higher effective tax rate of 22% (vs. 17% in Q1 2024) due to increased earnings and a prior-year tax basis adjustment[47] Liquidity & Capital Resources Pembina maintained strong liquidity with $2.1 billion in cash and unutilized debt facilities, holding investment-grade credit ratings and complying with covenants, while total contractual obligations reached $32.1 billion Liquidity Position as of March 31, 2025 | ($ millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total loans and borrowings outstanding | 11,883 | 12,048 | | Cash and unutilized debt facilities | 2,147 | 2,518 | - Pembina's credit facilities total approximately $3.5 billion, including a $1.5 billion revolving facility, a $1.0 billion sustainability-linked facility, and various term loans[51] - The company was in compliance with its financial covenants, with a Funded Debt to Capitalization ratio of 0.40 (maximum 0.70) and Debt to Capital ratio of 0.39 (maximum 0.70)[57][58] Contractual Obligations as of March 31, 2025 | ($ millions) | Total | Less than 1 year | After 5 years | | :--- | :--- | :--- | :--- | | Long-term debt | 19,479 | 1,584 | 12,483 | | Transportation and processing | 10,879 | 78 | 10,027 | | Leases | 844 | 112 | 377 | | Total | 32,101 | 2,209 | 23,139 | Share Capital As of May 2, 2025, Pembina had 580.9 million common shares outstanding, renewed its NCIB, redeemed Series 22 Preferred Shares, and continues regular dividend payments - Pembina renewed its NCIB, allowing for the repurchase of up to approximately 29 million common shares until May 15, 2025; no shares were repurchased during Q1 2025[70] - On January 8, 2025, the company redeemed all outstanding Series 22 Class A Preferred Shares for a total of approximately $26 million[72] Outstanding Share Data (as of May 2, 2025) | (thousands) | Issued and outstanding | | :--- | :--- | | Common shares | 580,908 | | Stock options | 3,181 | | Total Class A Preferred Shares | 73,972 | Capital Expenditures Q1 2025 capital expenditures decreased to $174 million, with Facilities accounting for the largest share, and future 2025 spending estimated between $570 million and $770 million Capital Expenditures by Division (Q1 2025 vs Q1 2024) | ($ millions) | 2025 | 2024 | | :--- | :--- | :--- | | Pipelines | 60 | 141 | | Facilities | 103 | 32 | | Marketing & New Ventures | 5 | 3 | | Corporate and other projects | 6 | 10 | | Total capital expenditures | 174 | 186 | - Future capital expenditures for the rest of 2025 are projected to be between $570 million and $770 million, primarily for projects like RFS IV and NEBC volume growth support[77] Selected Quarterly Information This section summarizes eight quarters of operating and financial data, showing increasing volumes and a general upward trend in revenue, adjusted EBITDA, and earnings, influenced by the Alliance/Aux Sable acquisition Quarterly Financial Highlights | ($ millions) | Q1 2025 | Q4 2024 | Q3 2024 | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 2,282 | 2,145 | 1,844 | 1,855 | 1,540 | | Adjusted EBITDA | 1,167 | 1,254 | 1,019 | 1,091 | 1,044 | | Earnings | 502 | 572 | 385 | 479 | 438 | - Quarterly results have been significantly impacted by the Alliance/Aux Sable Acquisition (Q2 2024), an impairment reversal in Pipelines (Q4 2023), and contributions to Cedar LNG (2024)[84] Selected Equity Accounted Investee Information Pembina's proportionate share of equity accounted investee loans and borrowings increased to $3.44 billion, primarily due to the Cedar LNG project's $2.7 billion construction loan facility and PGI's credit expansion Proportionate Loans and Borrowings of Equity Accounted Investees | ($ millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Pipelines | 18 | 19 | | Facilities | 2,976 | 2,941 | | Marketing & New Ventures | 448 | 373 | | Total | 3,442 | 3,333 | - The Marketing & New Ventures debt relates to the U.S. $2.7 billion senior unsecured construction/term loan facility for Cedar LNG[86] - In March 2025, PGI exercised an accordion feature and opened a new $500 million revolving credit facility, maturing in March 2027[87] Related Party Transactions Q1 2025 services provided to related parties decreased to $67 million, primarily because Alliance and Aux Sable are now consolidated subsidiaries, with PGI remaining the main related party Services Provided to Related Parties (Q1 2025 vs Q1 2024) | ($ millions) | 2025 | 2024 | | :--- | :--- | :--- | | PGI | 63 | 73 | | Aux Sable | — | 32 | | Alliance | — | 4 | | Cedar LNG | 4 | 3 | | Total services provided | 67 | 113 | - Following the Alliance/Aux Sable Acquisition on April 1, 2024, Alliance and Aux Sable became consolidated subsidiaries and are no longer treated as related parties[92] Accounting Policies & Estimates Q1 2025 accounting policies are consistent with 2024, with no material impact from new standards, while the company assesses future impacts of IFRS 18 and IFRS 9/7 amendments - There were no material changes to accounting policies or critical accounting estimates and judgments in Q1 2025[93][96] - Pembina is assessing the impact of IFRS 18 (effective Jan 2027) on financial statement presentation and IFRS 9/7 amendments (effective Jan 2026) related to its wind-based power purchase agreements[94][95] Non-GAAP & Other Financial Measures This section defines and reconciles non-GAAP measures like Adjusted EBITDA and Adjusted Cash Flow from Operating Activities, which management uses to evaluate performance and provide supplementary investor information Reconciliation of Earnings to Adjusted EBITDA (Q1 2025) | ($ millions) | Amount | | :--- | :--- | | Earnings | 502 | | Income tax expense | 137 | | Adjustments to share of profit from equity accounted investees | 147 | | Net finance costs | 150 | | Depreciation and amortization | 233 | | Unrealized (gain) from derivative instruments | (9) | | Other adjustments | 7 | | Adjusted EBITDA | 1,167 | Reconciliation of Cash Flow from Operating Activities to Adjusted Cash Flow (Q1 2025) | ($ millions) | Amount | | :--- | :--- | | Cash flow from operating activities | 840 | | Change in non-cash operating working capital | (16) | | Current tax expense | (133) | | Taxes paid, net of foreign exchange | 62 | | Accrued & paid share-based compensation adjustments | 59 | | Preferred share dividends paid | (35) | | Adjusted cash flow from operating activities | 777 | Condensed Consolidated Interim Financial Statements The unaudited condensed consolidated interim financial statements for Q1 2025 are presented, showing total assets of $35.7 billion and total equity of $17.6 billion, with detailed notes on key financial aspects Consolidated Statement of Financial Position Highlights | ($ millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total assets | 35,710 | 35,967 | | Total liabilities | 18,140 | 18,457 | | Total equity | 17,570 | 17,510 | Consolidated Statement of Earnings Highlights | ($ millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | 2,282 | 1,540 | | Gross profit | 928 | 730 | | Earnings | 502 | 438 | - Note 3 confirms the finalization of the purchase price allocation for the Alliance/Aux Sable Acquisition, with no further adjustments in Q1 2025[147] - Note 5 discloses an impairment test was performed on the Alliance Canada assets CGU due to an ongoing toll review by the CER; no impairment was recognized as the recoverable amount exceeded the carrying value[153][154]