Ladies and gentlemen, thank you for standing by, and welcome to Pembina Pipeline Corporation's Second Quarter 2020 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Scott Burrows, Senior Vice President and Chief Financial Officer.
Thank you. Please go ahead, sir.
Thank you, Julianne. Good morning, everyone, and welcome to Pembina's conference call and webcast to review highlights from the Q2 of 2020. I'm Scott Burroughs, Senior Vice President and Chief Financial Officer. On the call with me today are Mick Dilger, President and Chief Executive Officer Jason Goone, Senior Vice President and Chief Operating Officer, Pipeline Jared Sprout, Senior Vice President and Chief Operating Officer, Facilities Stu Taylor, Senior Vice President, Marketing and New Ventures and Corporate Development Officer and Cam Goldaise, Vice President, Capital Markets. First, I hope everyone listening to this call today is safe and healthy.
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 management's discussion and analysis dated August 6, 2020, for the period ended June 30, 2020, which is available online at pembina.com and on both SEDAR and EDGAR. Before we discuss the 2nd quarter results, I'd like to first give Mick a chance to make some opening remarks.
Mick, over to you. Thanks, Scott. Good morning, everyone. Hope you're all doing well. The world has certainly changed a lot since our call in early May, and even the Q2 results feel like a distant memory.
However, the Q2 was very important one for Pembina because it was proof of concept for many of the themes you've heard us talk about for many years. 1st and foremost remains our commitment to each of Pembina's stakeholders, customers, investors, communities and employees. COVID-nineteen has tested us all and provides a challenge unlike any in our company's history. We remain proud of the actions we've taken to balance the needs of all stakeholders. Pembina's business continues to operate safely and reliably throughout the pandemic, ensuring uninterrupted service to our customers, which is a testament to the company's dedicated staff.
We also continued to project in flight to ensure customers had the services they needed. 2nd is our commitment to the financial guardrails. Our strong contractual underpinning, fee based, acre paid revenue streams, prudent dividend payout, commitment to a BBB credit rating and focus on working with solid counterparties. All our elements that have contributed to Pembina's resilience through this historic crisis. Indeed, the deliberate diversification of Pembina's business across geographies, basins, commodity types and counterparties has positioned us very well.
With this strong foundation, we expect to exit 2020 in solid financial position, providing flexibility to restart various capital projects when it is prudent to do so. Further, we remain confident in our ability to provide stable and growing dividend as we have through past recessions. It is worth noting too that our top customers, many of which have just reported their own Q2 results are performing well under the circumstances. Although higher prices are likely needed to incent significant growth in the basin given the recovery in commodity prices, many are generating free cash flow after dividends and CapEx and are focused on paying down debt and strengthening their balance sheet. This is very supportive of Pembina's counterparty credit portfolio.
I congratulate all of them. Now I'll pass it back to Scott to discuss the 2nd quarter highlights and our outlook for 2020. Thanks, Mick. In addition to the impact of COVID-nineteen and the decline in commodity prices, the major factors impacting the 2nd quarter relative to the same period in the prior year was the Kinder acquisition. The acquisition continues to outperform our expectations for 2020 and the quality of the customers and cash flows from these assets has shone through in the Q2 providing greater stability during a challenging time.
One of the major drivers of the Kinder acquisition was the opportunity to diversify and strengthen the quality of Pembina's cash flow. The acquisition of strategically located assets supported by strong contracts with investment grade counterparties strengthened Pembina's Managed Guardrail and provided enhanced diversification of basins, currencies and markets. Adjusted EBITDA for the quarter was $789,000,000 a 3% decrease compared to the same period last year. The increase was due to the contribution of new assets following the Kinder acquisition and a realized gain on commodity related derivatives. These positive contributions were partially offset by lower margins on crude oil and NGL sales in the marketing business and lower interruptible volumes on Alliance as a result of the narrow ACO Chicago price spread.
2nd quarter earnings of $253,000,000 were down 62% over the same period in the prior year, largely due to non cash factors, including higher deferred taxes due to the enactment in the Q2 of the prior year of Alberta's Bill 3, which reduced Alberta corporate income tax rate from 12% to 8%, higher unrealized losses on commodity related derivatives and lower contribution from marketing and alliance. As mentioned previously, these declines were somewhat offset by the contribution of additional assets from the Kinder acquisition and lower G and A and other expenses. During the Q2, the impact of low crude oil and NGL prices was seen through lower producer activity and a temporary decline in physical volume in certain of Pembina's businesses. Total volumes during the Q2 were just over 3,400,000 BOE per day, up 1% over the same period in 2019 or down 2% when compared to the Q1 of 2020. I'd like to highlight 2 important points regarding volumes.
Firstly, it is worth noting that the vast majority of the quarter over quarter reduction contained in our conventional pipeline business unit. Volumes in our other pipeline business units as well as the facilities division were essentially flat from the first to the second quarter. Secondly, the high proportion of take or pay contracts in our business leads to a catch up of volumes and revenue in the second half of the year. Pembina continues to expect 2020 adjusted EBITDA to remain within the previously disclosed guidance range of $3,250,000,000 to $3,550,000,000 albeit near the low end of the range. This outlook contains an expectation that the 2020 adjusted EBITDA contribution from the Marketing and New Ventures division will be approximately 125,000,000 dollars lower than was assumed in the midpoint of the original guidance range.
The impact of lower interruptible revenue in the asset based business is expected to be largely offset by operating and administrative cost savings. We predict the majority of these savings can be maintained in 2021. Turning to our balance sheet and funding ability. Pembina further enhanced its liquidity position during the Q2 by terming out approximately $850,000,000 of debt drawn on the company's credit facility and establishing a new $800,000,000 revolving credit facility. Following the early redemption in July of $200,000,000 in senior notes originally due in 2021, Pembina's liquidity position currently stands at $2,800,000,000 With no debt maturities for the balance of 2020 $600,000,000 of maturities distributed throughout 2021, Pembina's liquidity position is ample.
The recent debt issuances at a weighted average term to maturity of 17 years and a rate of approximately 3.2% provide a strong endorsement from a broad cross section of the debt capital market. Combined with the recent affirmation of Pembina's BBB credit rating by both S and P and BBRS, we believe the company's strong financial position is fully affirmed. Moving on to the capital investment program. During the Q1, the company took the prudent steps of deferring $4,500,000,000 of capital projects. Pembina is on track to realize a reduction to the 2020 capital investment plan of approximately $1,100,000,000 However, challenging weather conditions and COVID-nineteen related precautions and delays resulted in capital cost overruns in 2020 of approximately $100,000,000 Additionally, during Q2 Pembina also added approximately $90,000,000 of projects.
With the modest improvement in commodity prices, many investors are asking about our deferred projects and conditions under which they would restart. We view the deferred projects in 3 groups. Firstly, the Phase 789 piece expansions will continue to be evaluated in consultation with our customers based on their needs and an assessment of future transportation requirement in the Western Canadian Sedimentary Basin. Pembina is well positioned to handle all customers' volumes. Secondly, regarding CKBC's PDHPP facility, project team has substantially completed the activities to safely and cost effectively defer the project.
The fabrication of critical long lead items has continued and key talent and knowledge have been retained all to preserve project value for an efficient potential restart. Pembina and its joint venture partner continue to evaluate a number of related to the project. 1st, the necessary condition is that the safety of all personnel to be assured. 2nd, while the immediate incremental costs associated with COVID-nineteen were contained by the decision to defer the project, the future and ongoing risks need to be understood and priced into the project cost estimate. 3rd, full impact of COVID-nineteen on the global economy and future demand for polypropylene remains uncertain and needs to be carefully evaluated.
4th, with both the fentanyl and provincial governments as well as our project financing syndicates indicating Connections have or will be drafted, we remain confident that the original investment parameters can be reconfirmed. Finally, the project restart is subject to Seagate Agency Management Committee approval and each partner's Board. Thirdly, the Prince Rupert Terminal expansion and the Empress Cogent facility are progressing for a potential restart. These projects are entirely discretionary and commence at any time. With that, I'll turn it back to Mick.
In closing, the first half of twenty twenty, Impepema arrived to an unprecedented challenge, reacting quickly and effectively in service of its stakeholders. Pembina's growth and diversification over recent years, combined with an unwavering commitment to its financial guardrails, ensured the company was well positioned for adversity. Pembina expects to deliver financial results within its original guidance range and exit 2020 in strong financial position. This will allow the company to resume its deferred capital projects and continue its long track record of growth by providing customers valuable integrated services. As always, thank you to all of our stakeholders for your support.
With that, we'll wrap things up. Operator, please go ahead and open the line for
Thank you. Your first question comes from Jeremy Tonet from JPMorgan. Your line is open.
Hi, good morning.
Hi, Jeremy.
Hi. Just want to start off with how volumes are looking today. Have all the kind of shut ins returned as you expected? And just want to get a sense for kind of producer discussions, what you're seeing right now and how you think volumes could trend over the in the different basins over the balance of the year? Just trying to get a feeling for how that resumption is going.
Yes. We'll pass that question to Jason. As Scott said, most of the wobble is in conventional and so we'll Jason will address that.
Hi, Jeremy. So I guess, May, as we mentioned in our release, was kind of the low point for our volumes. We had 1 week in May where volumes hit their low point and then they've slowly been recovering since then. As of this moment, we're not quite back up to where we were in January, February, but we are seeing things sort of recover steadily in that direction. I think our discussions with our customers continue to be positive.
There's still positive developments out there. Customers are still committed to their forecast, but obviously, they're looking at their budget right now and what they're planning to do for the 2021 year. There's some M and A activity I'm sure you've seen going on in the market that we think is positive and will lead to continued strength in some of those areas. But at the moment, things are recovering slowly. It's kind of an unprecedented situation.
So I wouldn't really say whether it's as expected because I don't know necessarily what to expect. It kind of depends on the demand for the commodities.
Got it. That makes sense. And so I mean, obviously, some a lot of moving pieces here. But just was wondering, as we think about 2021 in CapEx there, Would you expect it to kind of be in line with what you're doing in 2020 or really kind of step down from there, granted some of the projects could kind of come back into focus as you're describing there? Just trying to get a sense for how it might shake out.
So maybe I'll speak first to the piece expansions. So obviously, we are evaluating Phase 7, 8 and 9. I guess the first thing to recognize, I guess, on all of those are all of those expansions, including the piece based business, are highly contracted, so including the expansion. So there we have the ability to go out and execute follow our customers and find out what their timing and expectations were for those expansions before we just go and execute them. So we're in the process of wrapping up those conversations with most of our customers.
We would expect to make a decision on the timing of those expansions before the end of this year.
Jeremy, Mick, if we have a lot of flexibility in 2021, I mean, we're our capital program is sub $500,000,000 I mean, of the stuff we know we're doing. So kind of contrast that with where we thought we would be coming into 2020. 2019, we were $2,500,000,000 We saw $1,000,000,000 give or take off of that. And then our CapEx program in 2021 would be yet another $1,000,000,000 lower. So we have a lot of dry powder with cash flow in excess of capital in 2021.
And so as Jason indicates and same with CKPC, we have the capability to bring those back. It's just what makes sense for our customers. I mean, the last thing they need is more capacity and take or pays with no volumes going through it. So our deferral is really in line with customer needs.
Got it. That makes sense. And just want to hit marketing real quick here if I could. Just want to get a sense, you said $125,000,000 lower off the midpoint guide is expectation for marketing at this point. Just want to get a feeling, directionally speaking, for guidance for marketing in the back half 'twenty into 2021.
Just want to see is marketing kind of hit a new kind of a lower trend line based on the current commodity prices here? Just want to get a sense for directionally how that could shake out based on where the curve is?
Yes, Jeremy, it's Stu. So we've yes, I think you've seen we hit a low coming out of the commodity price collapse. We're seeing some strengthening and we believe we'll strengthen through the last half of twenty twenty related to volume increase as well as some commodity price uplift. And we see some further strengthening into 2021 and 'twelve. So yes, we believe we come out of the low period and we'll strengthen the remainder of the year going into 2021.
Yes. I mean, the thing to watch, I mean, what kind of crushed us this year was resilience in gas and imploding liquids. So that frac spread got squeezed. And so those are the key things that are going to unlock 100 of 1,000,000 of dollars if we get kind of to a stable gas price with liquids prices going up into 2021. That will unlock our full capability again.
So you can watch that Jeremy and kind of gauge for what you think is going to happen in 2021.
Got it. Thanks so much. Just real quick, does the caps deferral, has that been impacting, I guess, recontracting on Peace at all? Has that been helpful in any sense?
I think existing infrastructure always has advantages because it's real, it's reliable. And so if you're a customer, you've got to think, am I going to count on the pipeline that's there or am I going count on a pipeline that might be there. And so we think overall, it's been positive for our discussions with customers.
Great. That's it for me. Thanks for taking my question.
Your next question comes from Matt Taylor from Tudor, Pickering, Holt. Your line is open.
Hey, guys. Thanks for taking my questions here. Just wanted to follow-up on Jeremy's question on marketing. There's the $125,000,000 impact, does that include any offsetting assumptions on realizing once you're contango? I noticed that you had proactively added some lower cost NGLs.
And then also is the sharp recovery in crude pricing and volumes returning in that $125,000,000 impact as well?
Yes, Matt, it's Scott here. I mean that forecast is as of a couple of weeks ago, so it reflects the best information at that time. I think it's also since we're talking about marketing important to point out 2 other points. Number 1, we did have a $10,000,000 capron loss in Q2, which was a one time event, which dragged down earnings that quarter. We also if you look at the NGL sales volume, you'll see Q2 to Q2, they were down quite a bit.
And just given where margins were, we decided to store incremental NGLs, which we hope to monetize through the back half of this year and potentially in early 2021. So part of the weakness in this Q2 was also a conscious decision to defer some of our NGL sales volumes as well.
Great. Thanks for that, Scott. And then I wanted to move over to baseline. Can you comment on expansion potential there and how you're thinking about adding tankage at the facility ahead of TMX? I know we're a couple of years out, but I'd imagine customers are starting to think about as we're getting closer to that.
Any color on that?
Hi, Matt. It's Jason. So we're currently working with our partner there, evaluating the cost of that expansion. We're currently looking at the site starting to get some of the prep work done on the ground to get that site ready for expansion, putting the estimates together to figure out exactly what that expansion would cause. But we're aligned with your thoughts there.
Once TMX comes into service, we believe there's an opportunity to provide both storage and terminalling services to be able to provide batches onto TMX and things like that for our customers as well as storing products. So that does seem to be a catalyst and just trying to narrow in on the timing of when that is, it's a bit of a science that we're trying to do at the moment.
Great. And then one last one for me. You talked about interruptible revenues being offset by OpEx and G and A savings. Is that target still $100,000,000 I know that's what you disclosed on Q1. And I'm just wondering how much of that is left to be realized in the back half of this year?
We have high confidence that we'll achieve that. We're currently running at or above that in our forecast. So good very good confidence and we anticipate those savings to continue, especially if you consider that our committed capital is $1,000,000,000 lower than in 2021 than it was in 2020. We don't see any reason we can't maintain the $50,000,000 of G and A and $50,000,000 of OpEx savings through 2021.
Thanks. Just to clarify, is that $100,000,000 was realized in Q2?
No, it will be realized by the end of the year. Like we recall, we kind of announced it early Q2. By the time we got real organized it, we were starting those savings kind of in the June timeframe. And so that $100,000,000 was really realized and call it 6 months give or take or the back half of the year, but we're forecasting meeting or exceeding that right now and expect to be able to continue that level of efficiency through 2021.
Thanks for the color there, Mick. That's it for me.
Your next question comes from Linda Ezergailis from TD Securities. Your line is open.
Thank you. I'm wondering if we can follow-up a little bit and drilling down to understanding some of the moving parts in your marketing business in the quarter. Can you elaborate a little bit more on the nature of the operational issue in the storage cavern? Has it been resolved? Is it discrete to this one particular cavern?
Or is there some systemic things that you might want to remedy across your franchise?
Good morning, Linda. Jared here. Yes, it was contained to 1 cavern and it has been mitigated as we speak. So it's not a systemic issue, no.
And can you describe a little bit what happened in the product or?
Product was C2 plus and I won't get into the technical nature of the loss, but yes, it was C2 plus
Okay. Thank you. And with respect to the guidance range, I'm wondering what might move the 2020 results to the upper end of the range? Is it purely volumes and margin? Or are there other factors?
And maybe you can talk about the main things to look at beyond liquids pricing?
Yes, Linda, I can unfortunately safely say we're getting to the top end of the guidance range, which is $150,000,000 or I guess $3,550,000,000 is not in the cards. We're going to be between the midpoint and the low point, at least that's what we're projecting now. For us to move from the low point, we need to see a decent resurgence from fields like Drayton Valley where we're still off the Drayton Cardium, and we need to see wider crude WCS spreads. I know they're trending in the right direction. And then we need to see a nice pop in the price of propane.
As Scott says, we've got a lot of propane in the ground. We didn't pay that much for that propane because of commodity prices through the Q2. And if propane pops, then we'd have a healthy margin in the Q4. So those are the kinds of things that could get us to trend from the low point, trending back towards the midpoint. But we don't see a scenario where we're above the midpoint at this point.
Okay. Thank you. And just as a follow-up with respect to your Pisa Northern Systems, you've got about a250,000 barrels per day of currently available physical capacity. I'm wondering how much of that is take or pay capacity or is that all your spot capacity? I'm just wondering if as that fills up, it just some of the margins might not be entirely additive as they're displacing releasing other customers from their take or pay obligations?
Hi, Linda, it's Jason. So in terms of the take or pay, most of our customers are operating somewhat close to their take or pay.
So when you think about
how much take or pay revenue we're actually recognizing in the back half of the year, it's not a huge amount of pay to pay revenue. So all incremental volume that we do get is really going to be profit from that perspective. Yes, so I think like if we do get incremental volume from customers under contract, that will add incremental margin. And then some of the trucking volumes are where you see some of the volume back up, whether they come through 3rd party terminals or our own truck terminal. So that's where some of the opportunity lies for
us at the moment.
Great. Thank you. I'll jump back in the queue.
Your next question comes from Rob Hope from Scotiabank. Your line is open.
Good morning, everyone. A follow on question on the deferred projects. When we take a look at Phase 7, 8, 9 of the Peace expansions, are you looking to pick those up as they were originally planned? Or do you have some flexibility to alter some of those projects to better suit your customers' volume outlooks?
Yes. I mean, that's a great question. And we actually probably in the last 6 weeks, we did look at different derivatives of the master plan as it were. And we certainly have less capital intensive options that are near term. But where we remain focused is building the right system for the future and that remains 4 products, 4 pipelines, almost all the way from the BC border and it just gives us a ton of flexibility, way less reliance on storage, allows us to tie products in kind of mid pipe rather than just at storage hubs.
It allows us to partially loop systems and it just gives us incredible future flexibility. And so as it stands today, we remain focused on building the right master plan.
All right. That's helpful. And then just a follow-up question. Can you comment on the changes that were made with the PG and E Ruby contracts?
We can't specifically comment on customer contracts. But I think really, I guess the way to characterize this, it is to give both them and us more flexibility.
All right. Thank you.
Your next question comes from Andrew Kuske from Credit Suisse. Your line is open.
Thank you. Good morning. The question really relates to the producer M and A that we've seen and the reduction of counterparty risks that does for you in the front end. I guess when you think about on a longer term basis, what does it mean for you? Do you wind up having better counterparties and effectively bigger volumetric opportunities?
Or do you see a little bit of competition for some of the producers that like to do their own thing on the processing side?
I guess it's customer by customer. I think your intuition that the deals are going to get bigger and more integrated, that's probably on balance, correct. Case in point in the last 5 years, our transaction with the Chevron, Cupec JV, kind of an area alliance where we build processing, we transport, we frac and then we collaborate depending on product and marketing. We think those larger deals can make a lot of sense because they bring the kind of economies of scale that I think the modern oil and gas business needs to amortize costs over large amounts of volume and be very, very competitive. And there's just so capital intensive to drill 6 or 12 well pads with many, many horizontal segments and huge liquids handling capability, water needs.
So those are really capital intensive and but they deliver incredible longevity and economies of scale. So those are going to be what impacts Pembina the most. Of course, we're really happy to work with some of the smaller producers. They might live kind of more in the Drake Valley, Swan Hills areas where we still have surplus pipeline capacity. They don't need to sign big agreements.
And but there'll be a little more commodity sensitive, I think.
Jared, do you want to add anything to that?
No, I think you nailed it, Mick. I think in this new world where everyone needs a higher netback, I think not only will you see consolidation on the upstream side, Andrew, but I think as Nick said and Jason said, we've got a lot of capacity on the pipe. We need to stop overbuilding our infrastructure and consolidating a lot of this and putting maximum amount of molecules through these facilities. So even though some customers, I would say, may typically have wanted to build those assets themselves, I think they may be looking at alternative solutions to focus their core competencies on what they do and let people like ourselves focus our competencies on what we do great.
Okay. That's helpful. And then I'll go from the big broad to a bit more narrow. And just on the Vancouver Wars business, how are you thinking about that? And I guess about the year that you've had it on the books thereabouts?
Well, I mean, for people who are familiar with it, not a lot of that terminal is hydrocarbon based. And we are assessing the opportunity for hydrocarbons there. I mean, as an example, there's diesel being handled through that facility. Currently, there are hydrocarbon tanks. There's a bunch of fair land, the birds aren't fully utilized, but you're in the middle of a big city and that city is Vancouver.
So we're weighing all of that and trying to find out what the appropriate use and is for our company versus what it might be worth in other people's hands.
Okay. That's great. Thank you very much.
Your next question comes from Robert Kwan from RBC Capital Markets. Your line is open.
Good morning. Just wanted to kind of come back to some of the mothballed projects and you laid out the 3 buckets and as it stands right now, which of those 3 buckets or can you order which ones you think are most likely to come back the fastest?
Well, that's like a great question. It's like trying to judge what's going to happen next with COVID, I think, because COVID drives demand and if demand were for example, if the U. S. Wouldn't have had all the cases, then I'd be saying we're probably going to bring all of those projects back. But trying to judge, Robert, what demand is going to be for hydrocarbons and what pricing falls out of that, which will be drilling.
It's difficult. I would say though, the positive quarters that our customers, as I said in the piece, is really encouraging. And so we're going to be consulting with them and we're going to put the bat in our hands on gono go and we'll go from there. I think the little bit more opaque one is cKPC because we need to get comfortable with global GDP marching forward and that's really quite opaque right now. Of course, nobody knows exactly what's going to happen.
I think it's
due to
2025 would be the on stream date now. So that is a long way out. So we're making some educated guesses there. But I can tell you in the next 8 weeks, we've got to make some decisions whether it's this winter or we're going to reaffirm those this year or we're going to wait another year. So stay tuned.
These are really difficult decisions. I hope you can appreciate that.
And I guess, Mick, at the beginning of the call, you made a statement that you have a focus to exit 2020 strong and you're looking at the ability to resume the growth when prudent. Just if you pair that with your outlook that the business is still uncertain and you're trending to that lower half guidance range based on the outlook you've got, is there any reasonable possibility that you bring these projects and start putting them into construction in 2020? Or is this very squarely 2021 at best?
Well, I mean, I guess, yes, there is a chance that we come forward and say, yes, we're going to go in 2021. The start date for CKPC would be March of 2021. The start for Phase 7, we've got 65 kilometers in the ground at Phase 7 and stockpiled the pipe. So we've got a Class 3 estimate. We were approved.
So I mean we could bring that one back faster. So literally, we'll be calling customers here in the next 4 weeks. And conversation kind of goes like this. You've got a contract. We can start.
Do you want to start or do you want to delay? And if they say, yes, on balance, we want to start, we're going to start. So we'll have to see what they say.
Okay. And then just last on this topic. Can you maybe square some of that up with it's a pretty small number admittedly, but the new growth that you put on the books, is the nature of that just kind of high return, quick payback? And if that's the case, how do you think about Phase 7, 8, 9 versus some of the lower capital, more configuration options versus laying new pipe in the ground?
I mean, yes, some of the smaller projects like Prince Rupert expansion or Empress cogeneration, those are projects we can unilaterally start when we think the time is right. We want to see what the lay of the land is on exports here coming into the fall. So that will gauge whether we start that one up or not. Cogeneration, I mean, we can start that at any time. So we'll be assessing that.
But fair point, those can come back any time. They aren't as reliant like the cogeneration and self supply power. We're doing very well at our other cogeneration facilities. And so we may well bring that back. We talked about the baseline tank project.
That's something that we could bring back. Certainly, our marketing group could become the customer of that for many good reasons or we could farm that out for customers on a fee basis for the TMX coming into service. So we have lots of projects and many more that we didn't pull back or defer that we're getting what we call shovel ready, which means adequate precision in engineering and regulatory approval so that we can really respond quickly to market developments. I mean, getting regulatory approval in engineering in the scheme of the size of our capital program is a rounding error. And that's one thing we can do in these slower times is get ahead of that instead of always being a little bit behind on those two factors.
We can get ahead of that and it's just going to give us a lot of flexibility. Overall, we're cautiously optimistic that we will see gradually improving circumstances for the sector.
Okay. And if I can just finish the question on marketing. So the $125,000,000 down from your original midpoint, Has this changed recently or is this just you giving more granularity to the Street? And I'm just wondering, it doesn't look like your 5% to 10% of EBITDA coming from commodity has changed from prior disclosures?
Yes. Robert, this I mean really again, this is kind of the best information we have at the time. This is our current forecast. This is really about giving incremental disclosure, trying to give people the information that the vast majority of the kind of reductions below into the guidance range was from the commodity exposed portion of the business. Most of this is COVID related, but and the downturn in pricing.
But to be honest, some of this was starting to kick in, in February when we had the initial kind of price war between Saudi and Russia. So this has kind of been a trend throughout the year and since the point where we are today. And then as incremental disclosure, we thought we'd let the Street know. So you're right, our kind of commodity exposed portion of the business, we've kind of talked about in that 5% to 10% range. If we were to update that today, it would be 5% or less, maybe 5% to 3%.
And I'll just build on that. I mean, when we set our guidance, we truly said it at the midpoint of what we think is going to happen. And the wiggle in our guidance is usually highly correlated to kind of a 10.90 on marketing, net of what we think we might be able to mitigate in a down market. So, when we go 2 years back when we raised our guidance twice, because we were kind of at a P95. And then last year we were in the upper end of our guidance.
And so it did cover the positive wiggle in guidance in this year. Through a bit of hard work, it still is covering the negative wiggle in marketing outcomes. And so I think looking back, the way we do guidance has served us quite well.
That's great. Thanks very much.
Your next question comes from Robert Catellier from CIBC Capital Markets. Your line is open.
Hi, good morning, everyone, and thanks for your comments so far. I was wondering if you could give an update on the outlook for Alliance pipeline with respect to the eventual renewal there in light of the Ayco Chicago differential and some recent customer comments about the fee structure. And maybe if you could add to that, how the outlook for associated gas in a book plays into the equation?
Robert, this is Jason. So 2020 has been a kind of a different year for Alliance in terms of the strategy between Chicago and AECO. Historically, it's all been very in the money, and this year has been a bit of an anomaly. So when you look out beyond Q3, Q4 into 2021, we're seeing those spreads come back. So we're pretty optimistic in the second half of the year that those IT volumes start to recover.
And we think there's reason for hope in terms of renewals. Historically, it's always been a good market for our customers. So we believe they're going to still like that diversification. And we also think you kind of mentioned the associated gas in the Bakken. And if you think about the whole sort of lower 48 gas production picture, We think there's reason for optimism that gas prices will be pretty strong in the Chicago market for the long term.
So I think that we're fairly confident that over time, things will start to look better for Alliance in terms of re contracting than it has in the first half of twenty twenty.
Yes. And I would just add, if you zoom out and Jason's comments are wrong, we're going to make a lot more money on our extraction business because that means gas prices are lower. And so whether it's an Aux Sable or at Empress, there kind of is a bit of a natural edge in there.
Right. Just moving to the TKPC and what's required to restart there, you had some pretty good color. But I just want to make sure I understand the nuance here and what you're looking for on the future polypropylene demand given that you do have some contracts. So are those contracts still in place and still valid? And what do you really need to see in light of those contracts from the demand side of the equation?
Or is it just a question of you have a partner and everyone has to be comfortable on where they see demand?
Robert, it's Stu. We're looking at, I think, the global context. We'll revisit and look at the project economics, ensuring that the investment thesis is still valid and whole to drive through. We still believe that, again, the Western Canadian Sedimentary Basin provides a cost advantage to produce the polypropylene product. We think we are in a logistic advantage location for market access.
And we'll rerun the economics here in the Q3 and update our perspective of our ability to be a low cost polypropylene provider into the North American and global markets. That's the intent of the statement.
And then in terms of contracts, just like the phases of Peace, those contracts remain good and valid and they don't have any kind of outside date concern at this time. So when we go those contracts will go as well.
Okay. And just on the security of the propane supply, I know you're working on the project at Empress to help with that. But in light of the decreased production of NGLs, that might be temporary, but they're also increasing export options. So how do you how comfortable are you with the being a low cost supplier in the context of the propane situation?
We remain comfortable. I mean, whenever this basin has seen any kind of a price signal, so let's just play it out. The West Coast terminals start to pull hard on propane. There's a temporary blip. It starts to become more valuable and people just cool down their plants and take out more propane or somebody builds another deep cut.
If you look at that, we've always looked at how the ethane business has done over the last 40 years. And these concerns, I guess I'm getting old, but these concerns have arisen from time to time in situations like this and things look like there wouldn't be enough supply for the polyethylene business. I think that's a quarter of a 1000000 barrels a day and now ethane every single gas pipeline is whether it's the Enbridge system or TCPL or Alliance, we're all running at complete max heat capacity and there's tons and tons of ethane being exported from the province. And so we're awash in ethane. So we think that this basin is just so prolific and good.
As soon as there's a price signal sent, we'll react. And it's just because of the quality of the rock at the end of the day.
Okay. Thanks very much, guys.
Your next question comes from Ben Pham from BMO. Your line is open.
Okay. Thanks. Good morning. I also had a question on the CKPC and one of the references, the 3 you mentioned is respect to the federal and provincial government. I was wondering, is that anything to do with the royalty credit?
Is there something to know about in terms of expiration dates or ability to monetize those credits?
Yes. We've gone back and we have confirmed and reconfirmed our both the provincial and the federal government's commitments to the funding. Again, the royalty credit, the Alberta government has come and stated that those are theirs and we're working with them on documentation for the extensions. And we're working as well with the federal government on the city program grants that we received and are confident that everything will be extended as per the government grants.
Okay. So it sounds like when this was set up, I think 2016 or so, there was some sort of expiration that you might be hitting into and it sounds like you feel pretty good about extending that.
Yes. Everything had a schedule, and then there's requirements for information filings. And so we've been diligently working with the both the federal and provincial governments of providing all the documentation and working through extensions of those agreements. Okay.
All right. On the 0% interest rate there, anything to do with balance sheet optimization you see whether buying back preferred shares or calling some debt. Is there anything that looks interesting right now?
Hey, Ben, it's Scott. We did capitalize on some of those low interest rates recently. As we disclosed subsequent to Q2, we did refinance one of our existing 2021 notes at an interest rate 3% to 4% below where that note was issued at. So we've started to chip away at that. We also have roughly $800,000,000 on our credit facility, which will likely look to term out in the back half of the year as well to capture some of that long term interest rate savings.
But in terms of optimization of the preferred shares, we've looked at it, but ultimately doing a normal course issuer bid for your preferred shares, just no liquidity in that market. So those that would be very, very tough to enact. So it's something we've thought about, but at this time not something we're pursuing. Okay.
Can I ask you then
lastly, this big news flow around Dominion and Warren Buffett and I guess just your own calcification M and A? I mean if your stock price wasn't so mispriced and you wanted to get into a box match of 1 box, I mean, is that strategically those type of assets, would that strategically fit with Pembina?
I mean, I think you made a hell of a deal like we bought the railroads, what, a decade ago at the right time and looks pretty smart now. And I think he looks like he's going to look really smart again here. I mean those assets have a long life and there's a scarcity value associated with them because that part of the world is hard to build new ones. But for us to do that, we again, we're trying to grow our business so that 1 plus 1 plus 1 equals 5 and not 4 through the value chain. And so we've been disciplined.
We'll continue to be disciplined to make sure that whatever we buy has synergy and notwithstanding that was a good buy. It doesn't create the kind of synergy that we've seen when we bought Providence and added a downstream piece to our pipes or Kinder Morgan with the storage. And then the cross border pipes that attach to our infrastructure or export facilities that connect through our rail fleet. But those are the kinds of things that we think can create exceptional results over time. And it is tough to watch good deals come and go that maybe aren't as synergistic, but are nevertheless good deals.
But we remain on our path.
Okay. Thanks, everybody.
Your next question comes from Patrick Kenny from National Bank Financial. Your line is open.
Hey, guys. Just to clarify on CKPC, if the project might be eligible for these additional grants that are being rolled out by Alberta this fall, I believe, on top of the royalty credits that you've already secured? And then also just any thoughts on how this new program might bring some of your ethane based infrastructure opportunities more into focus over the near term?
So we've we're investigating that. Again, our facility was granted under PDP-1 with royalty credits. PDP-two was put forward by the Alberta government. And they've since then come out with the new program. You cannot, as we understand, collect both PDP-two and the new program credits.
We are investigating whether there would be additional opportunity for us given that we were in the PDP-one program. We look at it and we're trying to manage that and we have meetings set up to go and investigate more of that.
At a macro level, ethane is being sold for gas value right now. Just being sold as heat and no premium. And so it seems like the sector is right for additional ethane consumption infrastructure and we're well positioned to be the ethane production infrastructure.
As far as the new program, again, I think the government has listened and is trying to look at how other jurisdictions have gone about their incentivizing development and infrastructure development. This is a program that is not a one time event. It's ongoing, which I think from an investment cycle purposes, that's advantageous. And the government isn't picking winners and losers. Here they're saying if you go forward and you build your assets, there are credits that could be made available to you.
So I think it is an improvement. As far as the ethane development, I think it opens up more people and perhaps greater competition for development as
well. Okay. That's good stuff. And then on the potential sale of the $200,000,000 to $500,000,000 of non core assets, I guess given all the actions you've taken over the past few months to boost your liquidity position, It doesn't seem to be the same financial incentive to sell these assets, at least relative to maybe earlier in the year. So maybe just to comment on what the benefits might be from a synergies or strategic rationale perspective that still support the decision to dispose of these assets?
Yes, Pat.
The decisions to potentially monetize some assets were made kind of well before COVID-nineteen hit. We started some of this work late last year and in the early part of this year. Really, we just disclosed it in March with the rest of the initiatives that were going on since it was underway. But really, this started pre COVID. And the point there is that these were never done for liquidity or balance sheet reasons.
These were really born out of some pretty significant inbounds that we got and we thought it was our job to at least explore them. So I think the point I'm trying to make through all this is we're in the process of investigating some of those bids in the context of our retention value. And if we get good value, we'll make the decision at a time. And if we don't get good value, we're happy to own the assets.
Got it. Okay. And then also, appreciate the updated disclosure on your frac spread hedges. Just back to your comments though on looking to monetize your propane storage position that you've been building here recently ahead of next winter. Are you also looking to lock in some of your propane marketing margins on top of your frac spread exposure or will those barrels be mainly exposed to an open position?
Pat, we do have in addition to our frac spread position that we talked about in our release, We also do have some of our winter inventory hedged as well. So we do have price protection through the winter.
Okay. That's great. That's it for me guys.
Your next question comes from Shneur Gershuni from UBS. Your line is open.
Hi, good morning, everyone. Glad to hear everyone is well and surviving COVID well. Don't want to beat to death here. Just a follow-up on all these propane related questions is the fact that you've introduced this variability in your guidance on the $125,000,000 Given the fact that you've sort of hedged it and so forth, is it really just kind of a timing thing? You've got the NGLs in storage right now, some of it based on where frac spreads shake out means you could realize it in 4Q or could roll into 1Q and so forth?
And is it really just a timing issue and that's why you've kind of introduced this variability here? Or was $125,000,000 opportunity completely it's an opportunity loss at this point right now?
Yes. I think a large portion of it, the vast majority of it would be pricing, so degradation in margin. But there is a small piece of it that's timing depending on when we monetize some of the volumes that we stored in Q2. Some of those will likely be monetized in Q1 of 2021. So there's a small portion of that that's timing, but the majority of it is generally lower volumes on the crude oil side just due to shut ins that we've seen in kind of Q2 and into Q3 and then NGL margins as well.
And if everything came back, I realize this is hypothetical, but everything comes back full boat volume wise, do you have the capacity to take everything out of storage while running your systems full boat at the same time? Or would that create a timing issue or a capacity issue as well?
No, that obviously we couldn't do it instantaneously, but no, we do have the infrastructure and the capacity to process all the incoming NGL volumes and be taking adequate storage out the back end.
Okay. And just one last question on costs. You've done a great job on it. I think we've sort of seen this kind of across the board within the industry. But the thing that has been notable as of late is how deep some of the costs have been at some of the midstream companies and some of the broader energy companies as well too.
I realize that you've definitely delivered on it. But are you challenging your staff to potentially double the type of cost reductions that you've seen or go even more than that? Just like the fact that you've gone through a whole shelter in place type of environment, have you been able to like reassess everything? And do you think that there's opportunities that we could see significantly more cost reductions being announced over the next couple of quarters?
We're really proud and thank you for saying we've done a good job. I agree with that. We're not looking at further staff reductions. Like we think we want to maintain the capability that we have. We do think things are going to come back.
And so having people that can win commercial contracts, build facilities, make sure we have the flexibility in IT and systems. We need those people and we're going to keep them. We do think there is future opportunity. I'm not going to nail it to any given quarter, but a lot of those opportunities are going to come with technology. For example, we're completing a brand new telecom system along our piece right away that will give us incredible bandwidth to do things remotely with cameras and telemetry and things like that that we didn't have before.
And so it opens up a new possibility with machine learning and other ways to and Jason has talked about piece based 10 that a lot of that unearthing another 50,000 or 100,000 barrels a day capacity by optimizing your pipeline flows, that's very, very possible. We've just never really had a law like this. If you think about we've, I think, employed roughly $15,000,000,000 in green and brownfield projects over the last 10 years. We've never really caught our breath and said, okay, well, here's what we got, let's really optimize it. So I think there's not just cost synergies, but revenue synergies that we're going to work really hard on and we've said as our top priority for 2021 to improve the return on our invested capital.
And there's a lot of enthusiasm in the company to do that. I think maintaining the synergies that we've outlined in 2020 into 2021 that is our near term objective. But that's not the end of the journey at all. We think we can take more ground, but it's going to take some time.
I completely appreciate those comments. And just to clarify, I was thinking about further layoffs. I was thinking more about productivity enhancements, as you were able to assess. And it sounds like you're seeing opportunities to see those enhancements on kind of on a revenue optimization basis. Is that a fair characterization?
Revenue and cost. What we're trying to do is along with getting projects shovel ready, the question we're asking ourselves is and if we built all those projects, how would we do that without adding people? And so the way to do that to amortize your people cost and your asset cost is through technology is having people, every person at Pembina be able to do more through technology. And so it's not just cost in our existing business, it's how do you grow without adding people. And I think that's really where technology can help you.
So I do think it's revenue synergies, it's going to be op cost synergies, it's G and A synergies, but it's also growing without adding fixed costs. And I think that's the last thing I mentioned is perhaps where the biggest opportunity is into the future.
That makes perfect sense. Really appreciate the color guys. Have a safe day and enjoy the weekend.
You as well.
Your next question comes from Puneet Satish from Wells Fargo. Your line is open.
Hi, thank you. Just one quick question for me. I think you mentioned in the prepared remarks that you're seeing higher spot volumes on Ruby this quarter. I guess what's driving that? And is there any opportunity to turn some of those interruptible volumes into longer term contracts?
Thanks.
Yes. So it's really just driven by the spreads between Malian Hotel and Alberta. And so with the stronger gas prices in Alberta, we're seeing some opportunity to move spot barrels on the Ruby pipeline. And yes, we do we are looking at with Kinder Morgan and how to actually lock those into some long term contracts and obviously looking at that as we speak.
Yes. I mean, it's a macro. You can see it at the E and Ps in our basin, which I know better than in the U. S. Basin.
There's some buoyancy for gas based producers these days. And that means obviously gas prices are going up, which means gas volumes can go up. So that buoyancy continues. We're back to an earlier call, we get ever more optimistic that the Alliance recontracting will continue as it has positively as well as Ruby. That all kind of hangs together.
If you're optimistic on prices, then you're going to be optimistic on volume. So we'll see it's early days. I'd also just add that it goes to show you over the last couple of years, all these different pricing points have changed over time. So most producers like to have diversity of endpoints because you actually can't predict which market is going to be making more money than the other. So we still think that having the Alliance and the Ruby, Milan and Chicago exposure is great because lots of producers are going to want a diversity of supply