Good morning. My name is Lindsay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pembina Pipeline Corporation 2018 Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. Scott Burrows, Pembina's Senior Vice President and Chief Financial Officer, you may begin your conference.
Thank you, Lindsay. Good morning, everyone, and welcome to Pembina's conference call and webcast to review highlights from the Q3 and 1st 9 months 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 Woon, Senior Vice President and Chief Operating Officer, Pipelines Jarrett Sprout, Senior Vice President and Chief Operating Officer, Facilities and Stu Taylor, Senior Vice President, Marketing and New Ventures and Corporate Development Officer. We've adopted a new shorter format for this morning's conference call with the intent to add insight on how the quarter affects our strategy, future and guardrails rather than reiterate the details of the quarterly report released yesterday.
As always, we look forward to answering your questions at the end. 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 see the company's various financial reports, which are available at pembina.com and on both SEDAR and EDGAR.
Pembina once again achieved strong operational and financial results in the 3rd quarter and the 1st 9 months of 2018. Earnings of $334,000,000 during the quarter was a 200% increase over the same period in 2017, while adjusted EBITDA was $732,000,000 for the 3rd quarter, a 98% increase compared to the same period last year and an all time quarterly high. These strong results have been driven by 2 primary factors. 1st, a larger asset base resulting in increased sales and revenue volumes within the Pipelines and Facilities divisions. We closed the Veresen deal just over a year ago and would note that the Veresen assets are performing better than we had expected.
And second, widening NGL frac spreads and volatility across crude oil complex leading to strong results in the Marketing and New Ventures division. In terms of our finances, we continue to be well positioned with one of the strongest balance sheets among our peers and we remain committed to our financial guardrails. We anticipate exiting 2018 with an estimated payout ratio of approximately 85% of fee based distributable cash flow or 55% to 60% on a standard payout ratio, 85% fee based contribution to adjusted EBITDA, 80% credit exposure from investment grade and secured counterparties and approximately 23% FFO to debt, all well within or exceeding our financial guardrails. As well, we expect our ratio of debt to adjusted EBITDA to be approximately 3.6x, slightly below our target of 3.75x 4.25 times, which positions us well for the next wave of capital spending. As was previously announced, we were pleased this quarter to update our 2018 adjusted EBITDA guidance range to $2,750,000,000 to $2,850,000,000 on the back of our strong year to date performance and the positive outlook we have for the remainder of the year.
Furthermore, we look forward to updating the market again when we release our 2019 capital budget and guidance in December. Now I will turn things over to Mick to talk about our growing base business and strategy to access global markets. Thanks, Scott, and good morning, everyone. While we've had numerous financial and operational results to be proud of this quarter, I'd like to highlight 2 more accomplishments. In the month of September, our employees and contractors proved that completely safe work and environment is possible, with all units scoring 100 percent across all 22 safety metrics.
This is a first for our company since we introduced the safety record safety scorecard 5 years ago. Also in the month of September, Pembina's employees contributed over $3,000,000 to the United Way, an all time high for the company. At Pembina, it's not just about customers and investors. We're actually focused on all employees and all the communities where we have a presence. Turning back to business results, we continue to see strong customer demand for our services, which has led to increased utilization throughout our pipelines and facilities divisions and supports the $1,300,000,000 in new pipeline and processing infrastructure we announced yesterday.
All three of our expansions further our goal of providing long term and sustainable dividends and growth to our shareholders, while also delivering timely and reliable transportation services to meet our customer specific needs in a cost effective and timely manner. With this announcement, we now have over $3,000,000,000 of secured capital projects. To quickly summarize, the projects we announced yesterday include the $950,000,000 Phase 7 expansion of the Peace Pipeline system, which is aimed at addressing capacity constraints affecting delivery of condensate on the P system today. Once the Phase 7 is in service, it will also off the existing LaPlace to Fox Creek corridor, alleviating current bottleneck on that segment and creating additional firm capacity for Pembina's customers. Based on ongoing conversations with our customers, we continue to see near term potential for additional expansions of the Peace Pipeline beyond Phase 7.
The Phase 8 expansion of the Peace Pipeline would provide segregated ethane plus and propane plus service from Gordondale, Alberta to the Edmonton area. Pembina's ultimate vision is to have at least 4 segregated product pipelines in the corridors between Gordondale and the Edmonton area, maximizing our fully powered up capacity of 1,300,000 barrels per day on the Peace and Northern pipelines, which would likely in turn require a Phase 9 expansion. This stage expansion strategy is significantly less complex and time consuming than building an entirely new pipeline system. We continue to believe we are well positioned to attract significant amount of new business in the current competitive landscape. We also announced a comprehensive agreement with New Vista yesterday.
This agreement will see Veresen Midstream construct natural gas gathering and processing infrastructure in the Montney region with Pembina also constructing laterals connecting to the company's Peace Pipeline system. There are 3 projects, an expansion of the height plant, a new gathering pipeline and construction of various laterals. Collectively, the projects are expected to cost approximately $185,000,000 net to Pembina. Also included in this agreement is liquids transportation on Peace Pipeline, natural gas transmission service on Alliance Pipeline and fractionation service at our Redwater facility. This deal clearly highlights the benefits of the Verison acquisition and the customer service strategy behind it as we can now truly offer our customer a fully integrated service across the value chain.
Our ability to respond quickly with near term infrastructure plus the transportation solution was a critical factor which enabled new Vista to advance their development by a full year when compared to other alternatives. Finally, we have executed further agreements under a 20 year infrastructure development and service agreement with Chevron, which will result in the construction of Duvernay III, a replica of Pembina Duvernay 1 and 2 gas plants as well as additional condensate stabilization capacity for total capital cost of approximately 100 $65,000,000 We continue to anticipate significant growth in the Duvernay based on ever improving producer economics. And we have a platform that will allow us to provide low cost integrated solutions to our customers in that area for years to come. And while growth in our traditional businesses remains predictably consistent, we are very encouraged by new developments within our new ventures area. Our strategy of connecting our customers' long life economic hydrocarbon reserves to new high value demand locations is progressing well and we will have more to say about PDHPP and Jordan Cove in our early December capital major projects and 2019 guidance press release.
The prospects for future growth both within our traditional business and our further extensions to our value chain remain robust. We are as rich in growth opportunities we have ever been is a testament to both the resiliency and creativity of our producer customers and the underlying attractiveness of the basin. In closing, I would like to thank all stakeholders for their continued support. We are proud of what we have accomplished and are excited to continue to realize benefits of our hard work. With that, we'll wrap things up.
Operator, please go ahead and open up the line for questions.
Our first question comes from Jeremy Tonet with JPMorgan. Your line is now open.
Good morning. Congratulations on the strong quarter.
Thanks, Jeremy.
I was just curious if we look at the balance of the year in your 4Q guide here on the numbers we see, it seems like 4Q would need to be kind of flattish just to hit the high end of the guide. And 4Q generally has kind of higher marketing opportunities. So just wondering, is there any kind of headwinds in the Q4 that maybe I'm not thinking about here that could weigh things down? Or is there an element of conservatism you could share?
Jeremy, I think it's really three factors which I'll talk about. Number 1, and I think we talked about in the last conference call, we tend to be a little more back end weighted towards OpEx on our conventional pipeline systems. So we still see a pretty significant OpEx increase in Q4 from the conventional pipeline system. Secondly, Q2 and Q3 benefited from some of the IFRS noise in terms of recognizing revenue. As you may have seen from the report, we have recognized essentially all of our deferred revenue to date.
So there shouldn't be that incremental deferred revenue in Q4. And lastly, we've seen the overall commodity complex come down pretty materially over the last month or so. And so we are seeing kind of weaker NGL prices through Q4 and Q1 than we were seeing a month or so ago.
That's helpful to think of. Thank you. Congratulations on the new projects there. Just want to dive into the returns you talked about there. You kind of outlined 7 to 10 times multiple range of outcomes there.
And just wondering if the 10 is kind of upfront and you could ramp into the 7 over time as kind of volumes materialize? And also, how do you see the competitive landscape at this point? There's some others kind of trying to replicate some of the things that you guys have there. Do you see competitive pressures impacting your expected returns?
So Jeremy, maybe I'll take the first part and I'll leave my colleague to handle the second part. On the first one, traditionally, if you go back to when we had the $5,000,000,000 of growth and we gave the $600,000,000 to $800,000,000 of guidance, Really, we guided the $600,000,000 kind of being the take or pay and $800,000,000 ramping up to firm. That's essentially what we're showing you is the low end of that case is somewhat similar to what I'll call a take or pay case, with the high end being more the firm case. There is some additional upside to that when we reach full capacity. But that gives you some color in terms of how we got to that range.
So I can add a bit on that as well. I guess generally speaking, when we bring our projects and service, there's profiles to the volumes that come on and the volumes tend to ramp up. So as Scott kind of mentioned, it grows from the take or pay up to firm and then we continue to see increased customer demand for service. With respect to competition, I guess we're always aware of the competitive alternatives out there. And so our strategy around that is really about the way that we've been expanding our system, which is sort of staged expansions, which are quick to get to market.
And if you look forward to the way that we're building out our system, we're going to have segregated systems that will reduce the amount of capital we have to spend to be able to tie customers in the long term and it will increase the really the advantage it gives us is it's a little bit it's quicker for us to get projects on stream and we have to build less. We don't have to build a pipeline all the way from a location to the market. We can expand certain parts of our asset base to be able to access those volumes more quickly.
And I'll just make I'll just add a couple of points to that. We've been talking for a long time about the ability just to power up from Fox to NMAO and obviously that's a very low build multiple and we're sharing some of that the fruit of that with our customers. And so we've had very competitive tolls as a result of having that ability, as Jason says, not needing to expand our whole system, really expand half of it, power up the other half. And we've been guiding that we'll be sharing that with our customers and that's in fact the reason we're able to backstop Phase 7 so quickly. And furthermore, the reason we have some confidence that we can get support for Phase 8.
That makes sense. And I guess building off your last point there with Phase 8, it seems like you said this is the first deal that really highlights the integration with the Veresen and Pembina assets as post the merger there and really kind of building off the opportunity set as you saw at that time. Just wondering how much more could we see as far as this taking advantage of those synergies, that integration? How quickly could a Phase 8 come along? It seems like you've already done some of the work there.
So just wondering if you could give us a little peek into the future there?
So there's a lot of demand still for services. We're talking to many customers across the basin. So when we think about Phase 7 and 8, we think of them sort of as different parts of the same project. We just have certain areas that we can get out more quickly. Really, the Montney and the Duvernay place are still extremely active, particularly in the CACWA, Latour, Le Glass regions of the pipeline systems.
So we have numerous customers that were in advanced discussions there to talk about further expansion to the system. And what Phase 7 really does is that sort of takes the load off one part of our system and it allows us to continue to contract up volumes on the La Colace to Kakwa to Fox Creek corridor. And then that's where the Phase 8 expansion would really take place as we continue to sign volumes there. I'm not sure that I can say how quickly, but it's we're fairly confident we'll be moving forward on that.
Yes. I mean, we're Pembina is going as fast as we can on Phase 8. We're engineering it. Phase 7 is virtually fully subscribed. And I think producers will dictate the cadence of Phase 8.
But we're doing everything we can. Obviously, there's a limit to how much capital we can spend on that before having support. So it's really going to be up to producers to guide us with the cadence. But at this point, we're going full speed.
Got you. Good to be integrated. Thanks for taking my question.
Thanks, Jeremy.
Our next question comes from Linda Ezergailis with TD Securities. Your line is now open.
Thank you. I'm wondering if you could help us understand, I guess, the cadence of how you expect to put in permanent financing for your new projects And how you're thinking about the options and the capital structure notionally of financing?
Sure, Linda. I'll take that one. I mean, there's really no change to the strategy. As you know, we've always kind of guided fifty-fifty debt equity on the base business. And with our free cash flow generation, we've talked about funding between $1,000,000,000 to $2,000,000,000 of CapEx per year without needing any external equity.
If you look at what's going on in 2018 because of the strong performance, by the end of the year we'll be 65% to 70% funded from internal equity and 30% to 35% debt. So what that allows next year is potentially funding with roughly 30% to 35% to 40 percent equity and 60% debt. And so as you can see for next year, we have no need for external equity.
That's helpful context. Thank you. And with respect to the option that Navista has to sell some assets to Verus and Midstream by mid November, can you talk about the magnitude of the price, the basis of the price? And is it at a cost basis or some sort of premium? And what factors need to be in place kind of for that to happen, do you think?
Yes, I would call it modest capital. I mean, it's some compression in an oil battery. So it's not overly material, but we're not in a position to disclose that. And it would be on a cost base and we would earn a standard return on that cost.
That's helpful. And maybe just from an operational perspective, can you help us understand kind of there's a lot of complexity, I guess, in terms of where you might have exposure to commodity prices. You've got a lot of continued tailwinds on that front. But can you give us any sort of updated rules of thumb on how we might think of next year the bookends of various commodity price sensitivities and how those might range?
Yes. Linda, I'm going to punt that question till our guidance press release in December. I think that's a better context to talk about it.
Thank you. I'll jump back in the queue.
Thanks, Linda.
Our next question comes from Matthew Taylor with Tudor, Pickering, Holt. Your line is now open.
Yes. Hey, guys. Thanks for taking my question here. Just on Phase IX, does the construction of Phase VIII accomplish the vision of having those 4 segregated pipes or are more pipes required in addition to the 120 inches on Phase 7?
Thanks, Matthew. This is Jason. Phase 8 gives us product segregation from Gordondale down to Fox Creek, for most of our commodities. What Phase 9 does is it gives us a little bit more segregation on the LVP side of the business and it just debottlenecks more of the segments of the pipeline. So we achieved most of the strategy of segregation by the time we get to the end of Phase 8.
And then Phase 9, depending on what products we see grow, will just give us a bit more flexibility in the sort of look forward to CACO area on the pipeline.
And I think it's important to note, Phase IX is relatively undefined. I mean, the vision is to fully utilize the Fox and the Mayo corridor. We can't say with a great deal of certainty whether that volume is going to come from the Fox Creek area, the Kakwa area, the Gordondale area or in British Columbia. So that's it's still pretty, pretty undefined. We talk about it as Phase IX to highlight the fact that we'll still have capacity in the Fox to the Mayo corridor, which is very readily expandable.
Okay. That's great guys. Is there any ability to further take load off the system by making use of existing steel, say going a little bit north on the northern system there to alleviate some of those Fox Creek bottlenecks?
Part of the Phase 7 and 8 expansions actually do utilize the capacity on the northern system. So we do offload particularly ethane plus off of our system onto the northern system and utilize all of that capacity up there. So that's part of the strategy in these first two phases of expansion.
Okay. And then just thinking downstream, can you give us some sense of available propane plus capacity after incorporating these new volumes? Just seems like an RFS for etcetera, just depending on what sort of capacity you guys are seeing down there?
Good morning, Matthew. Jared Sprott here. Yes, as we see the gas volumes increase in Western Canada and obviously more condensate and more C3 plus C2 plus Slowly the complex within not only our complex is seeing higher physical throughput volumes, but overall we're seeing higher physical throughput volumes. So we're actively watching that to make sure that we're ahead and aligned with our customers to be able to expand like you mentioned possibly an RFS-four in
the future. So we're all over that.
Yes. Okay. That makes sense. And I'm just thinking 2 RFS III is largely propane plus kind of smaller than some of the other ones too. Could you just expand that facility or would it have to be a new frac?
If the C2 barrel starts to come at us, the C2 plus barrel, RFS III like you mentioned is a C3 plus fractionator, but we can add a very accretive low cost expansion to make that C2 plus capable.
Okay, that's great. And then just one last one for me. As we're seeing heat content tracking higher on long haul pipes, can you just speak to opportunities that you guys highlighted on Q2 there that might be seen to increase deep cut capacity or even moving some straddle capacity closer to the wellhead?
Yes. So as heat content is growing with all of these, let's call it solution gas and coming from these condensate wells, That's one of the areas where the facilities division saw some of the largest growth is on the our field extraction such as like our Saturn, our Musgrove Deep Cut and those types of facilities. And obviously, so as the NGL AECO stayed low, NGL prices were going up. There's heat content challenges. We have seen a lot of that gas migrate into those types of facilities.
And then further to that, obviously, Alliance is a rich gas pipeline. And Jason can talk about the throughputs on that. But we're also seeing the benefits down at the Aux Abel facility down in Shanahan, Illinois, at the end of the Alliance pipeline, not only you're seeing a different type of NGL market, but you're also seeing higher heat content coming at that facility. And then that facility is designed to extract all those liquids, put those into that market. So it's a positive outcome.
I'll just add. When we think about some of the things that Stu and the New Venture Group are working on to increase demand for propane, whether it's the Rupert Export Terminal or polypropylene. With those projects, if we can create incremental demand and send the right price signal, I think producers will have the appropriate motivation to take more NGL out of the gas stream. Certainly, there is a huge amount of propane and ethane entrained in the gas stream now leaving facilities which could be recovered if the incremental markets are created. Jason,
anything else?
Yes, I agree with you. Thanks for taking my question guys.
Thanks,
guys. Our next question comes from David Galvin with Canaccord Genuity. Your line is now open.
Hey, good morning guys. Just wanted to expand a little bit on Linda's financing question. So when you look at your unsecured capital program, and there's a few large ones there, do you see a scenario where you could have to look at considering external equity at all? Or can you give us what your thoughts are there?
Yes. I mean recognizing that those are unsecured right now, I think we still look to when we look into the future to say we can fund between $1,000,000,000 to $2,000,000,000 And right now, I think all options are on the table. So, look, for example, if we were successful in securing Jordan Cove, we've talked about monetizing potentially up to 40%, maybe even 50% of that project to help with the capital program. So there's many, many options that we have available. Is there a potential scenario?
There is, but there's also scenarios where there isn't that requirement. So it's a little tough to answer in this environment. I think as we move forward, if we are successful in those projects and make FID announcements, we'll obviously have more to share at those times.
Okay. And then just to touch on Verus and Midstream, You're continuing to grow there. So just wondering if you could talk a bit about how you see the ownership structure sort of evolving, particularly with the potential additional options that you may have for new projects down the road?
It's Mick. We're really happy with our partner there and the way that's evolving. We certainly don't feel the need to purchase the other half. We clearly are the logical buyer were they to sell, but I'm not sure they're in a hurry. I'm not sure we're in a hurry.
Everything's working very well. The Height deal is an excellent example of deal that Pembina couldn't have won without the Height plant and Barris and Midstream certainly couldn't have won without Alliance or Peace Transportation. So we think the current state is working out well and certainly don't feel any duress to make a move there. If that opportunity comes up, I do think we're the logical buyer.
Thank you very much.
Our next question comes from Rob Hope with Scotiabank. Your line is now open.
Good morning, everyone. Turning the attention back to Phase 7, can you give us some additional clarity on what the contract profile looks like once it's in service as well as is there potential that we could see some of these volumes show up on your existing infrastructure and thus kind of adding a bit of a tailwind into 2019 2020 volumes as well?
Generally speaking, the volumes ramp up in the early years of the contracts and then they sort of just because of the producer ability to predict the future and when what might happen, they tend to show a bit of a decline through a 10 year term. In terms of accessing the capacities on our existing expansions, once we bring Phase IV and V on stream, we do see ramp up in volumes coming on with the existing contracts that we already have signed. We're currently effectively full on our condensate mainline coming out of Fox Creek. So once Phase 4 comes on, we'll expect to see that start to ramp up at the beginning of 20 19. And then the rest of the product stream, we will see a ramp.
And historically, we have seen the volumes for expansion start to show up before we bring them into service.
Yes, I'll just maybe history would prove Phase 2, Phase 3 and now before Phase 4 and 5, typically a quarter before those go into service, we start to see those volumes overflow to some of our other systems Swan Hills and Drayton Valley. So I think you hit the nail on the head there. We will see some of that. And that's an important point because as we ramp up in Phase IV and V, some of those volumes are already hitting our system today.
All right. I appreciate the color. And then just moving over to the PDH and PP. So we've seen that the FEED is done. Just want to get your sense on what the other gating factors are?
Or are we looking more towards the sanctioning in December?
We're continuing to progress the conversations with our partner. We have a number of finalizing some agreements with our partner. We have to bring forward to both a number of boards, our board, PIC's board and KPC as well. So there still is a series of gating events that have to occur. We are progressing all of those in, I think, in great effort and great speed and are excited about the near future of an announcement.
Thank you.
Our next question comes from Ben Pham with BMO. Your line is now open.
Thanks. Good morning. I wanted to go back to the some of the questions on the EBITDA guidance, think about Q4. And you mentioned the OpEx grind more and more in the second half. I think, you mentioned $30,000,000 on the last call.
But when you look at the quarter, it looks like conventional actually put a pretty good year over year or sorry, quarter over quarter improvement versus Q2. So was that just the deferred revenue that kicked in there that pushed that up a little bit? Or is it the OpEx, is it more in Q4 that you're referring to?
It's a combination of both of those things, Ben. So as Scott mentioned, we've recognized all that deferred revenue and we won't really see that recognition in Q4. And Q4 and Q1, many of the areas on our pipeline system, you can only access them in winter. So you need frozen conditions to access them. So historically, from freeze up to thaw is when we get in and do a lot of that work.
So it's pretty consistent with what we've seen in the past that we would spend a lot of our OpEx dollars in Q4 and Q1 around the integrity spend on our pipeline.
Okay. And maybe I can go back to some of my questions on Phase 8 and trying to get a better sense more from myself is producers desire on ethane propane moving at east, is that really just a reflection of more of a supply push that they're seeing you're seeing going west on exporters that you got some comments about freeing up capacity. Is it really just to get Condie moving more south above Phase 8? Or is it really just at the demand side PDH and Edmonton at that area? I'm just to get a sense of the fundamentals of how you're setting up the project.
Well, I think that's
a longer question than we can answer today. But there is really in Canada no West Coast propane, butane egress or some on the West Coast of the United States and that's full. So by definition then, products got to go east or south and we're moving all the product that we can. Rolling forward a few years, we have a project 1 of another company in our sector has a project and we think a lot of those barrels will move to Asia. But and then of course the local consumption with PDH, if it gets approved, will create a local market.
So, I think we're making inroads to digesting the growing propane supply, but we also expect propane supply to continue to grow.
I also think it's you've got the infrastructure located in those places too. So it's more efficient to sort of continue to use the traditional unutilized capacity of some of these assets that exist. So I think that's why you see it go that way. It'd be a pretty expensive proposition to start looking at taking NGL like on a if you wanted to build major infrastructure and start moving it west, that doesn't exist, as Mick mentioned, and it would be highly intensive capitally to make that happen.
Okay. And then maybe one last one. I'm just curious about what the M and A appetite is now. When you bought Verusen, you mentioned it was a more and more of a dip your toe in the U. S, maybe expand longer term.
It looks like you can build stuff now at 8x EBITDA, 9x. I mean, why buy at 12, 13? I'm just but I'm just more curious to the thought on the M and A side of things?
I think you already answered the question.
All right. I know. I'm answering all the questions. Okay. All right.
Thanks a lot for your help.
Our next question comes from Robert Catellier with CIBC Capital Markets. Your line is now open.
Hi, thank you. You've actually answered my operational questions, but maybe I'll just ask a little bit on Vericin. So in what ways has it exceeded your expectation? Where are the areas of strength?
Well, I mean, we didn't really expect that entity to grow the way it has. There's some midstream, the gas subsidiary, I mean, really good growth. There's lots of exploitation potential that's going on. We've realized significant financing synergies earlier than we expected. Alliance Onstream operational performance has been outstanding.
Aux Sable, I think, is producing records amount of cash. So it's always the case, some skill and some luck. Clearly, the Aux Sable performance, kudos to the people running that plant, clearing that much product, but and that's the skill part and then the luck part is the frac spread. So, it's really working out well. And we're just actually going to complete a look back for our Board here at November 29 to compare projected synergies to actual.
And we'll give you a more color here in the next call on how we're actually doing in terms of cost synergies. But overall, EBITDA performance has well exceeded our modeling assumptions at the time we acquired.
Yes. So it sounds like it's part everything operations just executing the synergies and a little bit of upside on the commodity exposure?
Yes. That's right.
So when you give that number of $300,000,000 $450,000,000 from those projects, I just want to make sure I understand how we should think about that. So $300,000,000 what I heard, Scott, you said that's the basically the take or pay component. And then I also heard the $450,000,000 is when you get into the upper end of volumes including firm volumes. My question is whether or not there's any commodity related income in there and if so how much?
On the upper end, there's a little bit, but it's not material to that overall range.
So what is the upside or is there much, plenty upside to those figures?
There is, but there's also upside on volumes as well.
Okay. So that right. So this is a range on there and there's upside in both volume and commodities. Okay. Thank you.
Our next question comes from Andrew Kuske with Credit Suisse. Your line is now open.
Thank you. Good morning. I guess the starting question is, given the size of the market opportunity in Western Canada being very large, is competition on the NGL pipeline side really an inevitability for you, but given your network, you're just going to have a massive cost advantage versus anyone that anyone else does?
I can take that. I think the fact that a competition exists today, right? It exists in many forms. Is the ability to track NGLs, there is the ability to rail. And we also have competing pipelines right in our corridors as we speak today, things like coed and other lines like that.
So competition is there. So to say that it doesn't exist isn't quite correct. And I think your comment about the growth of the market and the size of the market, it does seem like that's the reason I guess we've come up with a strategy for the way we expand our system because we can we feel that we can do the most quick to market expansions and the most cost effective expansion. So in our minds, the way to stay ahead of competition is by doing those two things. If you're cheaper and faster, you should be and more certain, I guess, as well, you should be able to stay ahead of the competition from that perspective.
And I
guess just in addition to those factors, given the network that you've got, you've got much more flexibility on the service offering. So ultimately, you should be able to offer more value to the producers through the value chain.
I think another way to say what you said is just gives producers I think a lot of flexibility with that or product service Jason is talking about. They don't have to worry about if they drill a well and it's got a little different composition or commodity prices change and all of a sudden they want to extract ethane, start deep cutting their stream because there's money in ethane. Well, if they're our customer, they can go ahead and do that because we have an ethane pipeline, whereas a competitor might not or if they with all the gray zone condensate as we call it, one day you got crude, one day you got condensate and we can flip them back and forth between lines. We can move receipt points, all that kind of flexibility. And then just the certainty of knowing Pembina can build pipe on time, on budget.
We've got very well proven operations. We know how to get the regulatory done. So I think it's just that really that flexibility when you're spending 100 of 1,000,000 of dollars in the field to know that EGRIS is a certainty and not a hope.
Yes. And the other thing I think I'd add to that is that Pembina has both on the upstream and downstream side of our pipelines. We have interconnectivity to everything you need. So, you can deliver it to multiple refineries, multiple different NGL markets, condensate markets on the upstream side. There's multiple different mid streamers who tie into our pipeline system.
You have options on both the upstream and the downstream side as well.
And maybe just following up on that point, the development multiples on the projects you announced last night were impressive. And it seems like from the commentary earlier in the call, that's pretty plain vanilla. Obviously, there's a bit of a ramp rate that can happen. But given your network connectivity, do you expect upside from the EBITDA on a longer term basis assets?
The range is what we think is probable and based on the contracts we have today. If we can sign more producers and of course we market some of this product and if those marketing profits are higher and the volumes end up being higher, we could see more favorable results. But we try to be pretty realistic if not conservative. You followed our story for a long time. We try to under promise and over deliver.
So that's the range we're comfortable with for now.
I know it's conservative. That's why I was asking the question.
Thank you.
Our next question comes from Robert Kwan with RBC Capital Markets. Your line is now open.
Great. Good morning. If I can maybe just come back then to that EBITDA range in the new projects. Does that include as well all related revenues where you aren't putting capital out the door, so anything that's happening downstream? Or is that just the EBITDA associated with the capital projects
themselves? Rob, there is some related revenue, but it's small, I'd say, less than 5% of that range. We haven't really layered on a whole bunch of commodity upside or trading upside, because that's not something that we generally bank on. As Mick said, that range is based on the contracts we have today and what we feel is probable. So from that range, we talked about there is potential volume upside as well as potential commodity marketing upside, but that's not something we can bank on today.
We really like to talk about the contractual underpinning.
Got it. Okay. If I can turn to financing and now with just over $3,000,000,000 and it sounds like there's likely more to come. As you come back to that $1,000,000,000 to $2,000,000,000 a year that you think you can finance, that all seems like it can be accommodated based on the timelines. But I'm just wondering, coming back to the large projects and maybe focusing on the one you seem optimistic with the FID on PDHPP.
How are you thinking about how that then kind of layers in?
Yes. And let's not forget that a bunch of the well, not a bunch, but a portion of the $3,000,000,000 has been spent over the last 2 years, like Phase 4 and 5 are going into service this year and those are included in the $3,000,000,000 So we'll have a capital program next year of $1,000,000,000 plus, same with 2020, somewhere around $800,000,000 to $1,000,000,000 And we think that's all readily financeable with free cash flow and accessing the debt markets. If you recall, on CKPC, the headline number, we're 50% of that and we're going to project finance that entity. So when you actually get down to the equity portion, we still think that that's pretty manageable within cash flow from operations.
Got it. So when you're saying project financing, are you thinking at least within your targeted metrics that you would take that off the balance sheet, as well as have you had that conversation with the rating agencies about deconsolidating?
So the actual project finance is still being negotiated whether there's we warehouse some of the completion risk or not. We have had preliminary discussions with the rating agencies and we feel comfortable with the structure we're putting in place.
Okay, got it. And if I can just finish on the actual results in the quarter and around marketing and new ventures, the marketing volumes or the marketed volumes were up significantly year over year. I'm just wondering is that Veresen related? Or did you pull a bunch of propane volumes into the Q3 that normally would have gone into storage just given the pretty wide diffs down into the U. S?
Yes, I think it's a factor of 2. One is we now include our Aux Sable volumes in there and Aux Sable, so that's obviously one of the big uplifts. But as we mentioned through the year, as the pipelines have filled up, so have the fracs, which has provided us more marketing barrels, just overall to market year over year. So it is a combination of the traditional business, having more barrels to market, but also uplift from Aux Sable as well.
Okay. But to be clear then, it doesn't sound like there was any kind of pulling of volumes that normally would have been in the kind of Q4, Q1 winter period, you didn't pull them forward into Q3?
No. If anything, we were a little light. There was logistical rail issues in Q3, which actually limited our ability to move some barrels. So if anything, we could have moved more in Q3 had rail the rail traffic been a little easy to navigate.
Okay. That's great. Thank you.
There are no questions in queue at this time. I'll turn the call back over to our presenters for closing comments.
All right. Well, thanks everybody. We're looking forward to the balance of the year and our December capital major projects update and guidance press release. We'll be sure to talk to you then. Have a good weekend.