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 speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Scott Burrows, Pembina 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 third quarter and first nine 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 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, 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 third quarter and the first nine months of 2018.
Earnings of CAD 334 million during the quarter was a 200% increase over the same period in 2017, while adjusted EBITDA was CAD 732 million for the third quarter, a 98% increase compared to the same period last year and an all-time quarterly high. These strong results have been driven by two primary factors. First, 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. Second, widening NGL frac spreads and volatility across the 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%-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 3.6 times, slightly below our target of 3.75-4.25 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 CAD 2.75 billion-CAD 2.85 billion on the back of our strong year-to-date performance and the positive outlook we have for the remainder of the year.
We look forward to updating the market again when we release our 2019 capital budget and guidance in December. I will turn things over to Mick to talk about our growing base business and strategies 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 two 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% across all 22 safety metrics. This is a first for our company since we introduced the safety scorecard five years ago. Also, in the month of September, Pembina's employees contributed over CAD 3 million 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 CAD 1.3 billion 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 customers' specific needs in a cost-effective and timely manner. With this announcement, we now have over CAD 3 billion of secured capital projects. To quickly summarize, the projects we announced yesterday include the CAD 950 million Phase VII expansion of the Peace Pipeline system, which is aimed at addressing capacity constraints affecting delivery of condensate on the Peace system today.
Once the Phase VII is in service, it will also divert condensate off the existing Lac La Biche 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 VII. The Phase VIII expansion of the Peace Pipeline would provide segregated ethane+ and propane+ service from Gordondale, Alberta to the Edmonton area. Pembina's ultimate vision is to have at least four segregated product pipelines in the corridors between Gordondale and the Edmonton area, maximizing our fully powered-up capacity of 1.3 million barrels per day on the Peace and Northern pipelines, which would likely in turn require a Phase 1 expansion. This 6-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 a significant amount of new business in the current competitive landscape. We also announced a comprehensive agreement with NuVista 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 three projects, an expansion of a Hythe Gas Plant, a new gathering pipeline, and construction of various laterals. Collectively, the projects are expected to cost approximately CAD 185 million, 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 Veresen 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 NuVista 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's Duvernay I and II gas plants, as well as additional condensate stabilization capacity for a total capital cost of approximately CAD 165 million. We continue to anticipate significant growth in the Duvernay based on ever-improving producer economics. We have a platform that will allow us to provide low-cost integrated solutions to our customers in that area for years to come. 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. We will have more to say about PDH, PP, 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, which 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 will wrap things up. Operator, please go ahead and open up the line for questions.
Certainly. Ladies and gentlemen, if you would like to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. 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 and 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. 4Q generally has kind of higher marketing opportunities. Just wondering, is there any kind of headwinds in the fourth quarter 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 one, I think we talked about on the last conference call, we tend to be a little more back-end weighted towards OpEx on our conventional pipeline system. 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, there shouldn't be that incremental deferred revenue in Q4. Lastly, we've seen the overall commodity complex come down pretty materially over the last month or 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 project there. Just want to dive into the returns you talked about there. You kind of outlined a 7x to 10x multiple range of outcomes there, just wondering if the 10's kind of upfront and you could ramp into the 7 over time as volumes materialize. Also, how do you see the competitive landscape at this point? There's some others trying to replicate some of the things that you guys have there. Do you see competitive pressures impacting your expected returns?
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 CAD 5 billion of growth, we gave the CAD 600 million-CAD 800 million of guidance. Really, we guided the CAD 600 being the take or pay, and CAD 800 ramping up to firm. That's essentially what we're showing you, is the low end of that case is somewhat similar to a, 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. That gives you some color in terms of how we got to that range.
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. As Scott 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. 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.
As 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'll increase the operational efficiency of the assets as we move ahead. I guess really the advantage it gives us is 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.
Mick, 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 Namao, and obviously, that's a very low build multiple, and we're sharing some of the fruit of that with our customers. 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 VII so quickly. Furthermore, the reason we have some confidence that we can get support for Phase VIII.
That makes sense. I guess building off your last point there with Phase VIII, it seems like you said this is the first deal that really highlights the integration with the Veresen and Pembina assets post the merger there, and really building off the opportunity set as you saw it 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 VIII 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.
There's a lot of demand still for services. We're talking to many customers across the basin. When we think about Phase VII and Phase VIII, 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. The Montney and the Duvernay plays are still extremely active, particularly in the Kakwa, Lator, La Glace regions of the pipeline system. We have numerous customers that we're in advanced discussions there, to talk about further expansions of the system. What Phase VII really does is it sort of takes the load off one part of our system, and it allows us to continue to contract that volumes on the La Glace to Kakwa to Fox Creek corridor.
That's where the Phase VIII expansion would really take place, as we continue to sign volumes there. I'm not sure that I can say how quickly, but we're fairly confident we'll be moving forward on that.
Pembina is going as fast as we can on Phase VIII. We're engineering it. Phase VII's virtually fully subscribed. I think producers will dictate the cadence of Phase VIII. We're doing everything we can. Obviously, there's a limit to how much capital we can spend on that before having support. It's really going to be up to producers to guide us with the cadence. At this point, we're going full speed.
Gotcha. 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. There's really no change to the strategy. As you know, we've always kind of guided 50/50 debt equity on the base business. With our free cash flow generation, we've talked about funding between CAD 1 billion-CAD 2 billion 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%-70% funded from internal equity and 30%-35% debt. What that allows next year is potentially funding with roughly 30% to 35% to 40% equity and 60% debt. As you can see for next year, we have no need for external equity.
That's helpful context. Thank you. With respect to the option that NuVista Energy has to sell some assets to Veresen 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? What factors need to be in place for that to happen, do you think?
Yeah. I would call it modest capital. It's some compression and an oil battery. It's not overly material. 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. Maybe just from an operational perspective, can you help us understand, 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?
Yeah. Linda, I'm gonna 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.
Yeah. Hey, guys. Thanks for taking my question here. Just on Phase IX, does the construction of Phase VIII accomplish the vision of having those four segregated pipes, or are more pipes required in addition to the one 20-inch on Phase VII?
Thanks, Matthew. This is Jason Wiun. Phase VIII gives us product segregation from Gordondale down to Fox Creek for most of our commodities. What Phase IX 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. We achieve most of the strategy of segregation by the time we get to the end of Phase VIII. Phase IX, depending on what products we see grow, will just give us a bit more flexibility in the sort of Lator to Kakwa area on the pipeline.
I think it's important to note, Phase IX's relatively undefined. The vision is to fully utilize the Fox and the Namao corridor. We can't say with a great deal of certainty whether that volume's gonna come from the Fox Creek area, the Kakwa area, the Gordondale area, or in British Columbia. It's still pretty undefined. We talk about it as Phase IX just to highlight the fact that we'll still have capacity in the Fox to the Namao corridor, which is very readily expandable.
Okay. That's great, guys. Is there any ability to further take a 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 VII and VIII expansions actually do utilize the capacity on the northern system. We do offload, particularly ethane plus off of our system onto the northern system and utilize all of that capacity up there. That's part of the strategy in these first two phases of expansion.
Okay. 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 IV, et cetera, just depending on what sort of capacity you guys are seeing down there.
Good morning, Matthew. Jaret Sprott here. 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. 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 IV in the future. We're all over that.
Okay. That makes sense. I'm just thinking, too, 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 frack?
If the C2 barrel starts to come at us, the C2 plus barrel, RFS III, like you mentioned, is a C3 plus fractionator. We can add a very accretive, low-cost expansion to make that C2 plus capable.
Okay, that's great. 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 seeing to increase deep cut capacity or even moving some straddle capacity closer to the wellhead?
You want to talk about it, or You can. As heat content is growing with all the supposed 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 our field extraction, such as like our Saturn, our Musreau deep cuts, and those types of facilities. 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. Further to that, obviously, Alliance is a rich gas pipeline, Jason can talk about-
the throughputs on that. We're also seeing the benefits down at the Aux Sable facility down in Channahon, Illinois, at the end of the Alliance pipeline. Not only are you seeing a different type of NGL market, but you're also seeing higher heat content coming at that facility. That facility is designed to extract all those liquids, put those into that market. 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's a huge amount of propane and ethane entrained in the gas stream now leaving facilities which could be recovered if their incremental markets are created. Jason, anything else?
I agree with you. Thanks for taking my question, guys.
Thanks.
Our next question comes from David Gallison with Canaccord Genuity. Your line is now open.
Good morning, guys. Just wanted to expand a little bit on Linda's financing question. When you look at your unsecured capital program, there's a few large ones there, do you see a scenario where you could have to look at considering external equity at all? Can you give us what your thoughts are there?
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 CAD 1 billion-CAD 2 billion. Right now, I think all options are on the table. For example, if we were successful in securing Jordan Cove, we've talked about monetizing potentially up to 40%-50% of that project to help with the capital program. There's many options that we have available. Is there a potential scenario? There is, but there's also scenarios where there isn't that requirement. 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. Just to touch on Veresen 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.
You know, 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 Hythe deal is an excellent example of a deal that Pembina couldn't have won without the Hythe plant, and Veresen Midstream certainly couldn't have won without Alliance or Peace Transportation. 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.
Okay. Thank you very much.
Our next question comes from Robert Hope with Scotiabank. Your line is now open.
Good morning, everyone. Turning the attention back to Phase VII, can you give us some additional clarity on what the contract profile looks like once it is 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 and 2020 volumes as well?
Generally speaking, the volumes ramp up in the early years of the contracts, they 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 4 and 5 on stream, we do see ramp-up in volumes coming on with the existing contracts that we already have signed. We are currently effectively full on our condensate main line coming out of Fox Creek. Once Phase 4 comes on, we will expect to see that start to ramp up at the beginning of 2019. 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.
History would prove, Phase 2, Phase 3, 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. I think, you hit the nail on the head there. We will see some of that. That's an important point because as we ramp up in Phase 4 and 5, some of those volumes are already hitting our system today.
All right. I appreciate the color. Just moving over to the PDH and PP. 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 there. 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. 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 some of the questions on the EBITDA guidance, think about Q4, and you mentioned the OpEx grind more in the second half. I think you mentioned CAD 30 million on the last call. You look at the quarter, it looks like conventional actually put a pretty good quarter-over-quarter improvement versus Q2. 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. As Scott mentioned, we've recognized all that deferred revenue, and we won't really see that recognition in Q4. Q4 and Q1, many of the areas on our pipeline system, you can only access them in winter, you need frozen conditions to access them. Historically, from freeze-up to thaw is when we get in and do a lot of that work. 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. Maybe I can go back to some of my questions on Phase VIII and trying to get a better sense, more from myself is producers' desire on ethane, propane moving it east? Is that really just a reflection of more of a supply push that you're seeing rather than going west on export? Is it, you had some comments about freeing up capacity. Is it really just to get Condi moving more south of a Phase VIII, or is it really just the demand side, PDH in Edmonton, that area? I'm just trying to get a sense of the fundamentals of how you're setting out a project.
Well, I think that's a longer question than we can answer today. There is really, in Canada, no West Coast propane, butane egress. There's some on the West Coast of the United States, and that's full. By definition, product's got to go east or south, we're moving all the product that we can. Rolling forward a few years, we have a project, Another company in our sector has a project, and we think a lot of those barrels will move to Asia. Then, of course, the local consumption with PDH, if it gets approved, will create a local market. I think we're making inroads to digesting the growing propane supply, we also expect propane supply to continue to grow.
I also think you've got the infrastructure located in those places, too, it's more efficient to sort of continue to use the traditional unutilized capacity of some of these assets that exist. I think that's why you see it go that way. It'd be a pretty expensive proposition to start looking at taking NGL, if you wanted to build major infrastructure and start moving it west, or that doesn't exist, as Mick mentioned, it would be highly intensive capitally to make that happen.
Okay. Maybe one last one. I'm just curious about what the M&A appetite is now. When you bought Veresen, you mentioned it was more of a dip your toe in the U.S., maybe expand longer term. It looks like you can build stuff now at 8 times EBITDA, 9 times. Why buy at 12, 13? I'm just more curious, the thought on M&A side of things.
I think you already answered the question.
Okay. All right. I know. I'm asking and answering all 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 Veresen. In what ways has it exceeded your expectation? Where are the areas of strength?
We didn't really expect that entity to grow the way it has. Veresen Midstream, the gas subsidiary, really good growth. There's lots of exploitation potential that's going on. We've realized significant financing synergies earlier than we expected. Alliance on stream operational performance has been outstanding. Aux Sable, I think, is producing records amount of cash. As is always the case, some skill and some luck. Clearly the Aux Sable performance, kudos to the people running that plant, clearing that much product. That's the skill part, and the luck part's the frac spread. It's really working out well, and we're just actually going to complete a look back for our board here at November 29th to compare projected synergies to actual, and we'll give you more color here on the next call on how we're actually doing in terms of cost synergies.
Overall, EBITDA performance has well exceeded our modeling assumptions at the time we acquired Veresen.
Yes. It sounds like it's part everything operations, just executing the synergies and a little bit of upside on the commodity exposure.
Yep. That's right.
When you give that number of CAD 300 million and CAD 450 million from those projects, I just want to make sure I understand how we should think about that. CAD 300, what I heard, Scott, you said that's basically the take or pay component. I also heard the CAD 450 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.
What is the upside, or is there much commodity upside to those figures?
There is, but there's also upside on volumes as well.
Okay. Right. This is a range on there, and there's upside with 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? Given your network, you're just going to have a massive cost advantage versus that anyone else does.
I can take that. I think the fact that a competition exists today, right, it exists in many forms. There's the ability to truck NGLs, there's the ability to rail. We also have competing pipelines right in our corridors as we speak today, things like Cochin and other lines like that. Competition is there. To say that it doesn't exist isn't quite correct. I think your comments 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 the strategy for the way we expand our system, because we feel that we can do the most quick-to-market expansions and the most cost-effective expansions. 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.
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, 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 core product service Jason's 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. 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, we can flip them back and forth between lines. We can move receipt points, all that kind of flexibility. 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. I think it's just really that flexibility when you're spending CAD hundreds of millions in the field to know that egress is a certainty and not a hope.
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. You can deliver to multiple refineries, multiple different NGL markets, condensate markets on the upstream side. There's multiple different midstreamers we tie into our pipeline system. You have options on both the upstream and the downstream side as well.
Maybe just following up on that point, the development multiples on the projects you announced last night were impressive. 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, given your network connectivity, do you expect upside from the EBITDA on a longer-term basis?
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. We try to be pretty realistic, if not conservative. You've followed our story for a long time. We try to underpromise and overdeliver. 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.
As a reminder, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Robert Kwan with RBC Capital Markets. Your line is now open.
Great, good morning. If I can just come back to that EBITDA range from the new projects. Does that include as well all related revenues, where you aren't putting capital out the door? 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 Mike said, that range is based on the contracts we have today and what we feel is probable. From that range, we talked about how 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 now with just over CAD 3 billion, it sounds like there's likely more to come. As you come back to that CAD 1 billion-CAD 2 billion a year that you think you can finance, that all seems like it can be accommodated based on the timelines. I'm just wondering, coming back to the large projects and maybe focusing on the one you seem optimistic with the FID on PDH/PP, how are you thinking about how that then layers in?
Yeah, let's not forget that a portion of the CAD 3 billion has been spent over the last two years. Phase 4 and 5 are going into service this year, those are included in the CAD 3 billion. We'll have a capital program next year of CAD 1 billion plus. Same with 2020, somewhere around CAD 800 million-CAD 1 billion, we think that 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, we're going to project finance that entity. When you actually get down to the equity portion, we still think that that's pretty manageable within cash flow from operations.
Got it. When you're saying project financing, are you thinking at least within your targeted metrics that you would take that off the balance sheet? Have you had that conversation with the rating agencies about deconsolidating?
The actual project finance is still being negotiated, whether we warehouse some of the completion risk or not. We have had preliminary discussions with the rating agencies, we feel comfortable with the structure we're putting in place.
Okay. Got it. 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 third quarter that normally would've gone into storage, just given the pretty wide diffs down into the U.S.?
Yeah, I think it's a factor of two. One is we now include our Aux Sable volumes in there. That's obviously one of the big uplifts. 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. It is a combination of the traditional business, having more barrels to market, but also uplift from Aux Sable as well.
Okay. To be clear then, it doesn't sound like there was any kind of pulling of volumes that normally would've been in the Q4, Q1 winter periods. 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. If anything, we could've moved more in Q3, had 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.
This concludes today's conference call. You may now disconnect.