Good morning. My name is Adam, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Pembina Pipeline Corporation fourth quarter results conference call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star then the number one on your telephone keypad. If you do want to remove yourself from the question queue, just press the pound key. Thank you. I'd now like to turn the call over to your host, Scott Burrows, Senior Vice President and Chief Financial Officer. Please go ahead.
Thank you, Adam. Good morning, everyone, and welcome to Pembina's conference call and webcast to review highlights from the fourth quarter and the full year of 2018. I'm Scott Burrows, Pembina's Senior Vice President and Chief Financial Officer. On the call with me today are Mick Dilger, Pembina's President and Chief Executive Officer; Jason Wiun, Senior Vice President and Chief Operating Officer, Pipelines; Jaret Sprott, Senior Vice President and Chief Operating Officer, Facilities; and Stu Taylor, Senior Vice President, Marketing and New Ventures. Before we start, I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina's current expectations, estimates, judgments and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations. Further, some of the information provided refers to non-GAAP measures.
To learn more about these forward-looking statements and non-GAAP measures, please refer to the company's various financial reports, which are available at pembina.com and on both SEDAR and EDGAR. Pembina once again delivered strong quarterly financial and operational performance. Adjusted EBITDA was CAD 715 million, a 6% increase compared to the same period last year. The increase was driven by strong demand on existing assets and increased utilization on assets placed into service in the Pipelines and Facilities divisions, in addition to a realized gain on commodity-related derivative financial instruments in the Marketing and New Ventures division. While earnings of CAD 368 million during the quarter was a 17% decrease when compared to the same period last year, this was largely due to a one-time increase in deferred tax expense relative to the fourth quarter last year, which was positively impacted by the one-time impact of U.S. tax reforms.
A strong fourth quarter contributed to record financial results for the full year. On an annual basis, 2018 earnings of CAD 1.3 billion was 45% higher than 2017. Adjusted EBITDA was 67% higher at CAD 2.8 billion, and adjusted cash flow from operations per share was 31% higher at CAD 4.27 per share. All three metrics set new records for Pembina. These results were driven by the full-year contribution from assets included in the acquisition of Veresen in October of 2017, in addition to CAD 4.8 billion of new projects placed into service throughout 2017. Further, the year-over-year increase was realized broadly across the organization, with all three divisions, Pipelines, Facilities, and Marketing and New Ventures, contributing to our growth. We have delivered these record results while remaining firmly within our financial guardrails. In 2018, fee-based cash flow comprised approximately 85% of Adjusted EBITDA.
Our dividend was supported by 75% of our fee-based cash flows. Roughly 77% of our credit exposure is with investment-grade and secured counterparties. We are well above our strong BBB credit rating with a ratio of FFO to debt of approximately 23%. We finished the year with a ratio of proportionally consolidated debt to adjusted EBITDA of approximately 3.5 x, below the lower bound of our target of 3.75 - 4.25 x, positioning us very well for the next wave of capital spending. Recall that in December, we announced a 2019 capital program of CAD 1.6 billion and 2019 adjusted EBITDA guidance range of CAD 2.8 billion-CAD 3 billion. I want to note that when comparing where we are now to where we were 10 years ago, we have grown our volumes by 180%, cash flow per share by 171%, and our dividend per share by 50%.
Over the same 10-year period, shareholders have realized a total return of about 380%, or 17% per year, assuming the reinvestment of their dividends. We are proud of the results we've achieved over this period and look forward to continuing to deliver for our shareholders. I will turn things over to Mick to share his perspective on 2018 and our strategy to access global markets.
Good morning, everyone. Thanks, Scott. 2018 was simply said, an outstanding year for Pembina. We placed approximately CAD 900 million of projects into service and secured over CAD 1.8 billion of new capital projects. We have already added Phase VIII Peace Pipeline expansion, as well as sanctioned our PDH PP facility, bringing our total capital backlog of secured projects to about CAD 5.5 billion. In 2018, we saw the first full year of contribution from the Veresen acquisition. The acquisition was transformational for Pembina. We are realizing the strategic and financial benefits of the combination. The Veresen acquisition was designed to offer Pembina greater diversification and ultimately provide our customers a more comprehensive service offering. I was very pleased to see this vision come together with the Hythe development project announced in November.
This was the first truly integrated deal utilizing Pembina's full value chain, including natural gas gathering and processing at Veresen Midstream, transmission on Alliance Pipeline, liquid transportation on Peace Pipeline, and fractionation at Redwater. Integration is at the heart of Pembina's strategy. We are keen to add more deals like this in the future. The prospects for future growth, both within the base business and our further extensions of the value chain, are strong. Our customers continue to approach their businesses as we do, with a long-term outlook. They are planning for continued investment many years into the future and are looking ahead for egress security. We are able to deliver timely and reliable solutions for our customers. Our growth prospects remain bright.
Finally, I wanna touch on the next evolution in Pembina's corporate strategy, which we announced in May of 2018, being the move towards accessing global markets. We are pursuing new developments that will contribute to ensuring that hydrocarbons produced where we operate and reach the highest value markets throughout the world. In the past year, we began construction of our Prince Rupert LPG export terminal and continued to progress our work on Jordan Cove. Of course, the highlight is the recent approval of our CAD 4.5 billion integrated PDH/PP facility with our partners, PIC of Kuwait. Through this project, we will capitalize on Alberta's abundant supply of propane and undertake value-added processing that benefits all Pembina stakeholders, the province of Alberta, and indeed all of Canada.
By partnering with PIC, we combine the relative strengths of each party and substantially mitigate the risk of Pembina's entry into this new market. As promised, we will develop this project firmly within Pembina's publicly stated guardrails. We have already achieved a level of fee for service of 40% and expect that Pembina's adjusted EBITDA from this project, and based on ongoing negotiations, we are confident in achieving our stated goal of 50%. Through the Prince Rupert Terminal, our PDH/PP joint venture, and ongoing progress on Jordan Cove, I'm pleased that we've been able to take such meaningful steps in our efforts to secure global market pricing for our customers. We are excited to continue the development of these and other projects. In closing, I would once again like to thank all stakeholders for their support.
We are proud of what we've accomplished in 2018. Very excited for the year ahead. With that, I'll wrap things up. Operator, please go ahead and open up the line for questions.
Certainly. At this time, I'll just remind people, if you do want to ask a question, press star, then the number one on your telephone keypad. Your first question comes from Jeremy Tonet, from J.P. Morgan. Jeremy, your line's open.
Good morning.
Morning.
Just wanted to check. We're a couple of months into the year here, right? We've had the production cuts in Alberta play out a little bit here, commodity prices moved a bit. Just wondering, how these developments stack up versus when you contemplated your guide, if this is in line with what you were expecting or if there's any kind of changes in where you see things landing in the upper end or lower end of the guide or any color you could provide on that would be helpful.
Thanks, Jeremy. This is Jason, from the pipelines division. I think the curtailments are really focused on the producers who produce crude oil over 10,000 barrels a day. It has an impact on some of the heavy oil producers. On our oil sands pipes, we've seen a bit of a reduction in volume, but those pipelines are operated on a cost of service, so it doesn't really have a direct impact on our guidance. In terms of the impact on our conventional systems, we're not expecting to see a very material impact to those production volumes. As you recall, those are mostly NGLs, conventional crudes, and condensates. The conventional crudes are generally not impacted by the curtailments because the magnitude is over 10,000 barrels a day of production. The condensate isn't expected to be directly impacted.
Got you [crosstalk].
Jeremy, overall on the guidance, like anything on a month-to-month basis, there's a few puts and takes, there's nothing that's materially changed since the time that we put out the guidance to impact that range.
Got you. That's great. I was also thinking on the marketing side, just given how commodity prices have changed and relative spreads have changed, does that impact your outlook for how much marketing could make up within the guidance this year?
I think, if you step back for a second, you think about the diversity of our marketing business and all the optionality that we have. For every spread that tightens, there tends to be something else where we can make some money. When we set the guidance, as you move through December, maybe the marketing business would've come down. As we've moved through February, it's come back up. We're comfortable with where the marketing is versus where we set the budget back at the end of November.
That's helpful. Thanks. If I look at the balance sheet, Scott, you noted 23% FFO to debt. Clearly things are trending up here. Just wondering, is the target here an upgrade would make sense? Is that what you're targeting here, or do you see more growth CapEx on the horizon, you just wanna have flexibility? Would it make sense to step up the dividend a bit here? Just wondering how you see these options trending given the success you've had.
With our guardrail being strong BBB, we're really targeting something around 18%-19% FFO to debt, which is at the high end of the BBB range, and our debt to EBITDA, 3.75-4.25. This year, obviously, with an outperformance of the business, it brought those metrics into ranges that were stronger than what we were targeting. I think we're comfortable with that because as we move forward, we obviously have a very heavy capital spend, as Mick pointed out, another CAD 5.5 billion of capital still to spend, with many more projects that we're potentially considering. It's more about positioning ourselves, because of course, with the multi-year build-out, two or three years into those projects, you reach peak leverage with no EBITDA.
We want to make sure that the lower end, at that kind of peak leverage, that we're still in the BBB range. We're more positioning ourselves to go into a capital spend from a position of strength than we are chasing an upgrade.
That's helpful. Thanks. Maybe just the last one, Alliance and Barrister Midstream, it seems like they performed quite nicely in the quarter. Just wondering if there was anything that was one-time beneficial in nature, or you see this kind of trajectory of growth sustainable?
Jeremy, this is Jason again. Alliance continues to perform really well. It's generally chock-full on a daily basis, has been since we've become a part owner of that asset. There's certain swings in differentials between Chicago and Alberta in certain scenarios where some of the IP volume generates some incremental uptick in revenue there, it's nothing that I would say would be materially different than what you would expect.
Great. That's helpful. That's it for me. Thanks for taking my question.
Thanks.
Your next question comes from Linda Ezergailis from TD Securities. Linda, your line's open.
Thank you. I'm wondering if you've assessed the impact of the accelerated CCA incentives announced by the government of Canada in November on your cash tax outlook in 2019 and 2020, and how we might think about that going forward.
Yeah, Linda, at the highest level, it's obviously positive. In terms of giving numbers, we're still working through it. It's obviously not legislation yet, until it's passed, we would be remiss to put out or revise our guidance. If it does go through, it's notionally positive, and I think at that time, we'd obviously update our current tax expense forecast that we have out there. I think until then, we'll just be cautious on that.
Okay. That's helpful context. Thank you. Just with respect to your phased expansions, four and five was slightly over budget, and six is trending a little bit over budget as well. Is it for the same systemic reason? Can we assume that, for whatever reason, those are slightly over budget, they're not systemic, and we might not see that in your subsequent phased expansions as well?
Thanks, Linda. This is Jason. Phase IV and V were impacted by some weather constraints and access to certain sites, particularly on the phase V segments. We've gotten to the point with our pump stations that we're very comfortable with our ability to execute those, and we generally execute them at or below budget. The challenge sometimes is on the pipe side where weather and access conditions can be a problem, and that's really what happened with our phase V portion of the project that pushed some of the costs slightly above budget. Phase VI, it's a trend.
At the time that we started the procurements on the phase VI project, we started to see some of the contracting services start to increase and we've actually sort of backed off on procuring some of those services, and we're actually going out in the first quarter and looking at those again. It's a trend. We haven't really spent a lot of the money in phase VI yet, we're expecting or hoping to be able to drive those down. We also use those higher trend costs to forecast our 7 and 8 expansion. We're pretty optimistic that we're well within target on those as well.
Yeah, Linda, it's Mick. When we look forward, though, we think it's more anomalous. We think we'll have a very positive trend right now on phase VII. Phase VIII, it's still a bit early to comment, but over the fullness of the phases, we firmly expect to be consistent with past history, which is on time and on or under budget.
That's helpful context. Thank you. I realize that you've got a significant backlog of secured projects at this point, I'm wondering if there is, beyond, I guess Jordan Cove, which is a focus as well, are there any significant projects that you're starting to contemplate? There's been some rumblings that maybe you'd be interested in ethane upgrading locally in Western Canada, might you see enough demand in your LPG export facility to consider expanding that? How does some of the financial guardrails and your capacity as an organization, both from a financing as well as resources of people and management time, affect your appetite for looking at these other projects?
Sure. I'll try to answer those six questions as quickly as I can. Good one, Linda. You have a future in the parliament. If you read the interview that Pembina did in the National Post that talked about us in terms of ethane upgrading, the rest of the sentence in that article that wasn't printed was we were mainly interested in that as a supplier not necessarily a partner in polyethylene. That could happen, more as a fee-for-service supplier.
Your original question is, do we see lots of growth opportunities? Man, do we ever. Every division is full of ideas, it's super exciting. We couldn't be more optimistic about the things that we can do for our customers and bring lasting advantage to our stakeholders. You're not going to be surprised when I say that everything we look at will be in the guardrails, whether it's providing fee-for-service ethane, whether it's even participating in a polyethylene plant. You know we're going to be fee-for-service guys and gals. Otherwise, we just don't do it. You know how we finance. We're just going to keep doing what we have been doing, we have no new anticipated risks or doing any kind of business that would disappoint our stakeholders.
In terms of demand for LPG, could you see one of those projects over the next little while potentially be some sort of expansion on that front, or is that a lower-
Butane. We could see this coming, obviously. Butane is not getting good value. Propane isn't either, but we see the fix. The fix is in our LPG project. AltaGas, the 2 PDHs. The fix is in for propane. We need a fix for butane, clearly, and we need a fix for ethane. Maybe these government grants that are being proposed will start the fix for ethane. I don't know how they start the fix for butane yet, but that's clearly on our drawing board. We need to get our customers better butane pricing, without a doubt, and we'll put our minds to that.
Thank you. I'll jump back in the queue.
Your next question comes from Matthew Taylor of Tudor, Pickering, Holt & Co. Matthew, your line's open.
Hey, good morning. Thanks for taking my questions here. You've talked about Phase IX there, powering up existing capacity. Just curious where discussions are to expand and think through going even further northwest of Gordondale. Gundy and Attachie, it seems like, are increasingly talked about by producers, and that's where the focus for growth plans is.
I'll just make an opening comment. Jason will follow on. We still have capacity on Phase VIII. Ink's barely dry on that press release. There's still potential up and down our line, and we're considering all possibilities for getting more producers' volumes to market. Jason?
Yeah, that's accurate. I think bringing on Phase IV and V and VI this year start getting us to at least keep up with our producers in terms of what they're producing. Phase VII and VIII give us some running room. After Phase VIII, when we talk about Phase IX, a lot of it's about how we operate the system and less about necessarily capacity. We've already got, with the main lines going into Fort Saskatchewan and Edmonton, we've got the ability to power up to 1.1 million barrels a day on Peace. We have room there. Phase VII and the phases before really created access for us to get all of the volume to Fox Creek from basically La Glace.
When we think west of La Glace, it's some pretty specific sort of small looping projects, pump station projects, and things like that to be able to allow us to access the capacity that's east, I guess, of Gordondale. We are looking at those, and there is a lot of activity up in that area.
Okay, that's great. What about going further northwest? Do you still have some room on the Northeast B.C. expansion, or would you need to look at doing some additional expansion to bring more B.C. volumes down as producers start focusing on Gundy and Attachie?
Yeah, we have the ability to power that line up. It's not anywhere near its capacity at the moment, and we do have room to contract volume, but we also have room to power that system up. We can add booster stations on it and get it up into the 100,000 barrel a day range.
The contractual nature of that line is cost of service. As producers can essentially manufacture their own toll collectively, as Jason says, that line gets full, the toll drops. The impediment people may perceive of being that far away is mitigated somewhat by tolls dropping as volumes increase out there.
Yeah, that's great color. Thanks for that. Then one more question on ethane there. Do you have any potential to rethink or reverse Vantage, given we're structurally long in Canada? Obviously, it'd probably need to connect into overbuilt third-party pipes. I'm just trying to think if there's some way to get more ethane out of the province.
That's under a really long-term contract with a key shipper, so that wouldn't be our decision to make in the next, what, 15 years anyway?
is it physically possible? Perhaps.
just on NGL services, I noticed an uptick in volumes there quarter-over-quarter and year-over-year. I didn't notice a corresponding marketing volume uptick. Just trying to think through that disconnect and how we should be thinking of capturing more marketing volumes through 2019 as you're processing more volumes in your facility segment.
I don't know the answer to that.
I think a couple things. Volumes that flow through the frac, not all are pure frac spread barrels, which get the full margin. We have different marketing arrangements. Some we have return fees where we return back to the producers. RFS two and three are under slightly different marketing arrangements than others. I think, quite frankly, you saw prices come off pretty hard in December. If you follow the trend of NGLs, they tended to trend up all year. There wasn't the usual seasonality factor. You went into Q4 with, I'd say, probably higher than average COGS. What we saw in late November and all of December was pretty reduced pricing. That really squeezed margins for that month.
All right. Yeah, that's helpful color there. Just one more on the conventional business. Can you just talk about-- It was marginal downtick in volumes and higher OpEx. I'm just trying to think of the main drivers there and how you're seeing those drivers potentially play out in 2019.
Yeah, I'll just make one comment. Then I'll turn it over to Jason to talk. No one, I think, should be surprised by the higher OpEx. If you recall Q2, Q3 conference calls, as everyone was asking us about the full-year guidance. We warned people that we had a pretty substantial integrity and geotechnical program that tends to happen in Q4 due to winter access only. That's something that we had discussed pretty openly. That shouldn't have caught too many people off guard. Maybe, Jason, I'll let you talk about volumes.
Yeah, I think on the volume side, it's actually more related to the IFRS treatment of volumes and makeup rates. As we go through the year, we make estimates of the rate that we expect people to be able to make up their shortfalls to take or pay. Really, with the volume difference that you're seeing in the fourth quarter versus the third quarter is really accounting adjustments, not physical volume reduction.
We recognized quite a bit more in Q3 versus Q4. If you would've averaged those two IFRS recognitions, you would be roughly the same quarter-over-quarter, absent a marginal uptick in OpEx due to integrity. I'd say it's more noise than anything fundamentally or structurally wrong with the business.
Great. Thanks, everyone, for taking my questions.
Your next question comes from Patrick Kenny of National Bank Financial. Patrick, your line's open.
Hey, good morning, guys. I'll let you off easy here and just stick to two questions. First one, just on the contracting efforts for Jordan Cove. Given the level of interest here exceeds the capacity of the plant, is this process through the rest of Q1 simply a bidding war amongst the offtakers and you're just letting that process play out? Or are these customers waiting for certain milestones yet, either on capital cost estimates, pipeline regulatory progress, or any other state-level support that still might need to be firmed up?
Patrick, it's Stu. It's essentially, we're turning paper with all of the parties and working through that. There's nothing on the commercial side that we're waiting for milestones. The prize is to get the agreements done as fast as we can. We continue to progress all the commercial conversations at the same time.
Okay, that's great. The second question, now that KKR has a new partner in Montney, wondering if that changes anything for Veresen Midstream with respect to appetite for future growth? Or perhaps, does this increase the tension around the ownership structure? Just trying to get a sense as to whether or not anything has changed for Veresen Midstream since that deal was announced a month or so ago.
Hey, Pat. Jaret here. Right now, no, it doesn't increase, I would say, the tension within our partnership. Veresen Midstream is really focused northwest of Grande Prairie and in Northeast BC with a fairly large footprint with a great long-term, 30-year area of dedication. In down where the new entity is, I would say that gets more into Pembina's traditional processing and liquids transportation business. No, based on your original question, we don't see increased tensions or crossing over of borders there.
Yeah. The MLP is an exploitation-focused entity right now within the area dedication. They are not focused on new geographic areas at all. If you think about the Hythe project, that was exploiting existing capacity, and we're sweating those assets to make them as profitable as we can with full support from our partner, KKR. It's not a growth mandate.
Got it. Appreciate those comments, guys. Thanks.
Your next question comes from Rob Hope from Scotiabank. Rob, your line's now open.
Good morning, everyone. Maybe a follow-up on Pat's question there. We have seen some producers talk a bit more openly about willing to shed some assets. Want to get your sense of the M&A market in Western Canada right now and whether or not there are some pieces of infrastructure that could be of interest to you.
Not surprisingly, we do look at everything. What we ask ourselves when assets are for sale is, does this make us better or just bigger? It really is an important question. If buying something just makes us bigger, not better, even if it's slightly accretive, it may not be compelling to us. We're more focused on things that diversify us at a higher level of customer service, create synergies, reduce risk, enhance our guardrails, things like that. Adding, for example, more and more gas plants, particularly ones where we already transport the liquids and provide fractionation services, so on and so forth, may be a little less interesting to us than projects which have the characteristics that I just outlined.
All right. Thank you for that. Just as a follow-up, turning attention to Jordan Cove, appreciate the commentary on the contracting there. When you looked at that project over the next year, what do you think the key choke points are, and what do you think will be the impediments to an FID there?
Robert, it's Stu, we continue to progress the regulatory process. Our teams continually are in contact with both the federal and the state permitting bodies. We're answering questions. We're progressing all the conversations. We are, again, hoping to have our commercial arrangements completed here in the first quarter. We've talked about an equity sale down process, of which we will kick off very soon after that, and progress that, we hope, quickly. There isn't a choke point or a bottleneck. At this point, we're continuing to anticipate our FERC draft EIS here in the next few weeks, followed up by the actual certificate in 2019. Those things are all on track for what our expectations are.
Thank you.
Your next question comes from Robert Catellier from CIBC Capital Markets. Robert, your line's open.
There's been a bit of senior management change at Chevron, and there's been some other producers leaving the basin. I wonder if there's been any change to the outlook of the rollout and the pace of the program you have with Chevron for the Duvernay.
Robert, Jaret here. Everything is business as usual. We're currently executing the first expansion for the CREO One. We announced in Q4 2018, the next phase of CREO Two, and no short order, no change.
Just on the producer side, there's a Redwater case and the abandonment liabilities and things like that, and there's also IFRS 16. I'm wondering if IFRS 16 is going to require producers to capitalize G&P arrangements or whether the Redwater case will limit access to debt and maybe curtail capital spending a bit. Do you have a take on that?
When it comes to IFRS 16, maybe just start there. I can't speak to what's going to happen to the E&P space. From our own perspective, we have certain assets that'll be leases that'll go on the balance sheet, and we have some lessor arrangements as well. We're still finalizing all of that analysis, and we'll probably update the market with our Q1 results just on the overall impact, the pluses and the minuses of that. I can't speak from a producer's perspective. In terms of the Redwater abandonment, and I'm assuming you're talking to the liability of abandoned wells. That's not anything that's come up in our conversations to date. I'm looking around the room to my colleagues to see if they've had any of those discussions with their customers. Certainly, I haven't heard anything. Jaret, Jason?
No.
No feedback.
Okay. Just my last question here is more of a curiosity. The press release referenced creativity a few times. Does this refer to commercial structures, sort of trading lower fees for extending a term or things like that? Or what are you referring to with the creativity reference?
Well, two things really. It's the creativity, I think, of our customers. If you look back to, say, middle of 2014 and you said we're going to have a growing basin. We keep expanding Peace. The basin's growing. If you would've said, we're going to have a rapidly growing basin at these kinds of commodity prices, people would've said you were crazy. The creativity of our customers to persevere with tough capital markets and tough pricing, I think our hats are off to them, and we're going to do everything we can to improve their netbacks, which brings us to our creativity. Taking on a global strategy and getting propane onto Tidewater, converting propane into polypropylene is a brand-new market.
We hope to slay butane at some point, we want to supply ethane to make sure that product isn't kept in the gas stream and sold based on methane pricing. I think we can take a little bit of credit for being creative as well to change the face of the basin.
Okay. You've mentioned butanes a couple of times now. What are the options as you see them for it to increase other than expanding LPG capacity?
We're in the early stages of that, Robert, so more to come. When products trade down like they do, it attracts attention. Even if it's not Pembina, I'm sure there are other companies working on how to solve that.
Okay, fantastic. Thanks.
Your next question comes from Andrew Kuske from Credit Suisse. Andrew, your line's open.
Thank you. Good morning. Mick, I think you've mentioned sort of a few times the number of market dislocations that exist in Western Canada and how Pembina could graciously fix some of those challenges. I guess if you sort of step back a little bit and you think about just your business development capital that you allocate to opportunities, how do you divide it among sort of down the fairway kind of projects that are really network extensions of your existing asset base versus the amount of capital you allocate to really the bigger, bolder, lower probability things that are maybe complete business extensions or brand-new opportunities? How do you think about that?
Well, that's actually the topic of our next strategy session and our executive strategy session as well as the board, because it's tough. I think you're trying to balance a bunch of things. Your ratio of project spending for large capital projects like Jordan Cove, you have to keep that ratio of spending on those to your overall EBITDA at a minimum. Yet the flip side is you have to do things that are going to make a difference to your company and to the basin. There's that trade-off. There's trade-off on geographic basin diversity, currency diversity. Should Pembina be spending more money, for example, in the Bakken or elsewhere in the U.S. to diversify, which may not be quite as accretive as doing things in our backyard where we leverage our entire value chain. Those interplays are what is both difficult but also exciting.
The great news for Pembina is, Scott talked about the balance sheet. Thanks to all you folks, we have a strong share price. We have options to do many things that make sense at the same time. If we are confronted with numerous opportunities, we may do them all. We're in a very good spot.
I appreciate that. Maybe just thinking on the core business again. Realistically, when we look out, say, the next five years, how many more Peace expansions are possible and how many more Redwaters are possible? The numbers just keep going up and up and up on the expansion capability, given the nature of the basin itself.
Well, we're about five further than I thought we would be already. Honestly, I really believe that we are only just getting started in the Montney and the Duvernay. If we have three or four Chevron-type deals in the basin and LNG maybe Shell not being the last LNG project, we're just getting started. I mean, the resource is abundant. If the Duvernay's like the Eagle Ford, and it rockets up to 500,000 or 1 million barrels a day, we're just getting started. The resource is there. We just have to get some of these export pipes, export terminals built, and then we're just getting started. We are thinking very long-term.
You think about what we're trying to do with Phase VIII and Phase IX to have four completely segregated pipelines to, as Jason said, operate the pipelines much more efficiently, need less storage, less product contamination, and all hopefully ending up with lower tolls as well due to operating and capital efficiencies. We are planning for growth way beyond Phase VIII.
Okay. That was great. Thank you.
Your next question comes from Robert Kwan of RBC Capital Markets. Robert, your line's open.
Great. Good morning. Mick, maybe if I can just kind of start and continue on the pipeline side of things. First, in terms of bringing on Phase IV and Phase V, your system was quite full. I think you had volumes being tracked around and on some other parts of the system. Can you just talk about how the volumes have ramped up on four and five, but feeding kind of that into the whole Phase IX discussion? What are you seeing just out there in terms of early indications, general customer sentiment, particularly given some of the competitive options out there?
Yeah. I'm going to let Jason answer that question. The only thing I'm going to say is it is always very tough on us and our producers when we can't be ready fast enough. We had a situation like that where we couldn't quite get all our producers condensate to CRW until we got expansions done. We really sincerely try our hardest to stay ahead of that. Of course, it's a give and take. You need commitments to spend capital, and sometimes the commitments are a little slow. The rate at which producers can drill now, they get a six-well pad and hundreds of fracs. They can bring on volumes so quickly, more quickly than we can react, given the regulatory constraints we have. We are trying very hard to stay ahead of that.
One of the nice things about going from being a 10 to a 20 to a 30, hopefully to a CAD 40 billion company, is we can start to front-run some of that capacity and engineering, which we're starting to have the balance sheet to do so we never let our producers down.
Just maybe directly to the first part of your question about ramp up, I'd say, if you think about it was the end of December that we brought those on stream. Talking about ramp up is a little bit premature, I would say. The volumes are continuing to grow and we continue to talk to customers all across our basin. I do think Phase VII and VIII give us some breathing room, to Mick's point, and our next round of expansion will be smaller and more trying to access some of the capacity that gives us. I think we're in a good spot right now in terms of being able to quickly get to those volumes.
I'd also say we're optimistic about the way things are going on our Phase VII and VIII projects already from the perspective of regulatory and that part of the world as well. I think all things are looking positive from that point of view.
That's great. If I can just finish with a couple of smaller cleanup. Scott, you mentioned you're still assessing IFRS 16, I assume that your EBITDA guidance does not include the impact of the expected IFRS 16 on at least the EBITDA side of things.
That's correct, Robert.
Okay. On Alliance, just looking in the quarter, they distributed quite a bit less than the cash it generated, which is a little out of line with prior quarters. I was just wondering if something was going on there, if there's a change in the distribution policy.
No. There's no change. The way that that pipeline pays out is, typically, the cash gets paid out two months after the EBITDA is seen. Despite a strong EBITDA performance in Q4, those distributions likely show up in Q1 of 2019. Some of it's just timing.
Okay. Even though the distribution in Q4 was lower than prior quarters.
Correct.
Okay. Thank you.
Your next question comes from Jeremy Tonet of J.P. Morgan. Jeremy, your line's open.
Thanks for squeezing me in for a follow-up here. I just want to build off some of the points you discussed here in the call. You talked about since you're in, I'll say, last May. You talk about wanting to extend the value chain further down and get the molecule to premium markets to enhance producer netbacks there. Just thinking out loud, would it ever make sense to build more pipes further south, crossing the border, and get the molecule on pipes into more of the U.S. markets? I realize it's a long distance and probably costly, but just wanted to ask, would it ever make sense to pair up with the U.S. players south of the border to try to provide that type of solution?
We're just learning the Bakken. We're learning where does product go after Aux Sable processes it. It still is early days. We've been focused hard in the fourth quarter and the first quarter with PDH and Phase VIII and doing engineering for phase nine and those kinds of things. I know we've been saying it for a long time, but we are looking at projects like you're describing at other geographic locations. Our success in other areas is keeping us a bit too busy. We feel we've brought in just some terrific people through Alliance, Jeremy, we're operating Aux Sable, and we're starting to get to know those folks, and they're super impressive. They have had ideas for a long period of time that they haven't been able to execute.
Jaret and Jason are collaborating closely to see what's possible all along that corridor where we believe we have a good franchise and a position of strength and what can be done around those assets. I think it's promising for us to be looking in those areas.
Got you. Understood on the Aux Sable side, just curious on an Edmonton South NGL pipeline, that's probably cost prohibitive?
The thing with NGLs, Jeremy, it's the same with a West Coast NGL discussion, is to build a long-haul pipeline, you need a half a million barrels a day just to make the economies of scale work. The entire propane market in Western Canada is about 200. You just don't tend to have the economies of scale. The only pipeline that met that description was Cochin when it was moving propane south and now it's in higher value molecule service. That's just not easy. I know it looks good on a map, but when you do the math on the economies of scale with 100 or, let's be optimistic, 200,000 barrel a day NGL pipe, the math just doesn't work. You're better off railing.
Understood. That's helpful. Thank you.
Your next question comes from Ben Pham of BMO. Ben, your line's open.
Okay, thanks. On that data point, propane 200,000 barrels a day. How does that look, supply demand in Western Canada in 2025? You're adding in your PDH PP plant. Is there room for an expansion there or new export facilities?
There's a ton of propane, butane, and ethane being left in the gas stream right now. Those numbers can grow dramatically and swiftly if people choose to take them out of the gas stream. Pembina hasn't really built a deep cut plant for what, five, 6 years here? Because the value hasn't been there. It kind of goes back to price signal. If the price signal for propane, butane, ethane changes in Alberta, those molecules are readily available. If you can get the price, which hopefully conversion from propane to polypropylene nets back a higher propane price, the producers will get the right signal and want to deep cut their gas streams and/or drill additional liquids-rich wells. Again, the resource is massive. I'm never worried about running out of propane, butane or ethane. It just needs the right price signal.
When you look at that 200,000, that could be a lot more if we just had decent pricing for a short while and hopefully we're doing the right things as an industry, at least I can say with confidence on propane right now to create that price signal.
Okay. Thanks for that. You had also comment earlier around heading to strategic planning and growth, it sounds like there's a lot of things you're looking at right now and you certainly weighed it against your self-funding model, CAD 1 billion-CAD 2 billion. I wanted to clarify, does it sound like that CAD 1 billion-CAD 2 billion, that's not going to necessarily constrain you with growth and that you could look to preferred shares, turning a drip, external equity if good growth opportunities arise?
We can always raise equity for terrific projects. I don't think we feel constrained by that necessarily, particularly now that we're Again, we've got a share price that's starting to come into the range of fair value, albeit on the low side still. When you're trading at CAD 40, and you should be trading at CAD 50, it just hurts to raise equity. Scott and Cam are vigilant in making sure we don't have dilution, and the CAD 2 billion avoids that. It's not necessarily a ceiling. It's a guideline. Scott, do you want to add anything?
No, I think it's well said. Right now, as you guys well know, we're tapped out from a preferred share basis. We will be looking to change our threshold at our upcoming AGM, which would allow us access to incremental preferred shares, if we get approval for that resolution.
Okay, thanks. My last one I want to clean up. Are you able to share your recent frac spread sensitivity?
Yeah, I think that's something that we'll usually update with our investor day. I might just pause that until our investor date.
Okay. All right, sounds good. Thank you, everybody.
Thank you.
Well, everybody, thanks for your support. Hopefully you feel even better about the story. We sure do, seeing some uptick in share prices that's raised everybody's spirits, which were a bit down at the end of last year, just counting on us to keep doing what we've been doing. Thank you for your support.
This concludes today's conference call. You may now disconnect.