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Pembina (PBA) Issues Capex Budget & Earnings View for 2019

A major chunk (almost 53% or C$900 million) of Pembina's (PBA) projected capital expenditure for 2019 is likely to be allocated toward its Pipelines Division.

Pembina Pipeline Corporation PBA recently unveiled its 2019 capital expenditure budget and earnings guidance. While two of the other Canadian energy players, namely Canadian Natural Resources Limited CNQ and Cenovus Energy Inc. CVE, recently released reduced year-over-year capex amid discounted crude prices, pipeline operator Pembina has hiked its spending levels to C$1.6 billion for 2019 from C$1.3 billion in 2018.

Digging Into the Details

A major chunk (almost 53% or C$900 million) of Pembina’s projected capital expenditure for 2019 is likely to be allocated toward its Pipelines Division. The spending will be mainly associated with Phase VI and Phase VII expansions of the Peace Pipeline System, which are likely to come online by the second half of 2019 and first-half 2021, respectively. In addition, the company plans to utilize the funds directed to the completion of NEBC Montney Infrastructure and the Wapiti Condensate Lateral, both of which will become functional by the end of the second quarter of 2019.

Further, 25% of the total capex or C$425 million is likely to get allocated toward its Facilities Division. This would mainly comprise investment in the development of Duvernay II and III (which are basically gas-processing plants), supported by a 20-year contract with Chevron Corporation CVX. Duvernay II and III plants are likely to come online by 2019 and 2020, respectively. Additionally, the funds will be utilized toward the advancement of the Prince Rupert LPG Export Terminal, Empress Expansion and Hythe Developments project.

Moreover, the company intends to invest C$105 million in its Marketing & New Ventures Division, with 95% of the spending directed toward the Jordan Cove LNG project. The project is likely to receive FERC approval by 2019-end and is expected to commence exporting LNG within 2024.

Lastly, apart from the estimated spending of C$50 million in its corporate segment, Pembina intends to allocate C$205 million toward joint venture partnership projects with Veresen Midstream and Canada Kuwait Petrochemical Corporation.

Preliminary Guidance for 2019 Initiated

In addition to unveiling its 2019 capital budget, Pembina also initiated a preliminary guidance for 2019. The company expects to generate an annual EBITDA of C$2.8-$3 billion, up 3.5% from this year’s expected EBITDA. Robust contributions from Phase IV and Phase V Peace Pipeline expansions, along with its Burstall Storage and Redwater cogeneration facilities will contribute to improved earnings. Importantly, the company’s Pipelines Unit is expected to be aided by increasing volumes from the Peace Pipeline and Alberta Ethane Gathering System.

Final Thoughts

As we know, pipeline construction in Canada has failed to keep pace with rising domestic oil, forcing producers to sell their products at a discounted rate. The explorers are struggling to stay competitive owing to the infrastructural bottlenecks. With production soaring, prospects of the Canadian energy sector will shine bright, given new infrastructural developments that are coming up, along with a sound regulatory and environmental framework, which is crucial for the development of pipeline projects.

As such, it is important for the Canadian players, mainly the midstream companies, to rev up their spending to bring up new pipeline projects, which could provide some respite in the years to come.

Considering Pembina’s various long-term projects that are underway, we expect the company to witness healthy growth in the coming years, which will enable it to maintain or enhance its attractive dividend yield of 5.4%. Notably, this Zacks Rank #3 (Hold) company expects year-over-year growth of 29% in 2019, per our proprietary model. Further, its long-term EPS is expected to grow at the rate of 6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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