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Pembina Mounting C$1B Post Merger Buildout

Calgary-based Pembina Pipeline Corp. said it will proceed with a C$1 billion expansion of its natural gas liquids (NGL) infrastructure, with at least some of the development intended to build upon its acquisition of Provident Energy Ltd., which was completed last year.

The expansion plan is composed of three components:

"These projects mark the next stage of our growth in the NGL business," said CEO Bob Michaleski. "The projects are all extremely complementary and position us well to offer integrated services across the NGL value chain. With our existing ethane-plus infrastructure and marketing capability, we can offer a competitive, cost-effective solution for incremental ethane-plus production from the Western Canadian Sedimentary Basin."

Pembina said it has struck agreements with a third-party producer to proceed with Saturn II at a capital cost of about $170 million. The project will leverage the engineering completed for the original Saturn facility and could be in service by late 2015, subject to regulatory and environmental approvals. Pembina contracted for 130 MMcf/d of capacity, or about 65% of Saturn II's capacity for a term of 10 years, it said. At 100% capacity, Saturn II is expected to extract 13,000 b/d of NGLs, which will be transported on the same pipeline lateral Pembina is constructing for Saturn I.

With RFS II, Pembina will essentially be twinning its existing Redwater Fractionator to address a portion of the anticipated shortfall in fractionation capacity within the Fort Saskatchewan area. Subject to regulatory and environmental approvals, Pembina expects RFS II to be in service late in the fourth quarter of 2015 at an estimated cost of $415 million.

Under the agreements signed with producers, Pembina will receive committed take-or-pay operating margin for an initial 10-year term from the in-service date. Contracts for 97% of the operating capacity have been secured. Ethane produced at RFS II is to be sold under a long-term arrangement with NOVA Chemicals Corp. "The new fractionator is much needed and will enable more value-adding activity to occur within the province," said NOVA's Grant Thomson, president of olefins and feedstock. "As the ethane supply from RFS II is based on field sources, it also supports further diversification of our feedstock sources, and positions NOVA Chemicals well for future growth."

With the acquisition of Provident Energy Ltd. last April (see Shale Daily, Jan. 18, 2012), Pembina entered the fractionation business and was able to offer a fully integrated NGL services to its customers, from wellhead to the consumer gate. At the time, the company announced plans to expand fractionation capacity at its Redwater site. "The opportunity to develop RFS II was a key driver in our acquisition of Provident," said Pembina COO Mick Dilger.

To transport increasing NGL volumes, Pembina is proceeding with its proposed Phase II NGL pipeline capacity expansion on its Peace/Northern NGL System and is currently completing the system's Phase I expansion, which will increase capacity by 45% to 167,000 b/d by October. Phase II will increase capacity to 220,000 b/d. Pembina said it expects this expansion to cost approximately $415 million (including mainline and tie-in capital) and to be complete in early to mid-2015.

In addition, subject to regulatory and environmental approvals, Pembina will be constructing a lateral into the Ferrier region to tie a third-party's facility into Pembina's Brazeau Pipeline.

Combined, Pembina said it expects the projects to contribute between $125 and $135 million of long-term, fee-for-service earnings before interest, taxes, depreciation and amortization.

Pembina said it will soon announce an open season for additional crude oil, condensate and NGL pipeline expansions from Taylor, British Columbia, to the Edmonton/Fort Saskatchewan areas of Alberta.

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