Pembina Pipeline Income Fund Q1 2010 Earnings Call Transcript

Pembina Pipeline Income Fund Q1 2010 Earnings Call Transcript
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Pembina Pipeline Income Fund (PMBIF.PK)

Q1 2010 Earnings Call

May 6 2010, 4:00 pm ET

Executives

Bob Michaleski - President and CEO

Peter Robertson - VP of Finance, CFO

Glenys Hermanutz - VP of Corporate Affairs

Analysts

Robert Catellier - Clarus Securities Inc.

Bob Hastings - Canaccord Adams

Tony Courtright - Scotia Capital

Robert Kwan - RBC Capital Markets

Linda Ezergailis - TD Newcrest

Stephen Paget - First Energy

Matthew Akman - Macquarie Capital Markets

Presentation

Operator

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Welcome to the Pembina Pipeline Income Fund first quarter results conference call. All lines are place on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you, Mr. Michaleski, you may begin your conference.

Bob Michaleski

Thank you, and good afternoon, everyone. Welcome to today's call. My agenda, we will follow our standard process. I will start by providing an overview of the first quarter financial results that we released earlier today. We have sent everyone on the call a copy of the first quarter reports, so my synopsis will be fairly brief. That will leave us plenty of time to cover all the questions I am sure you will have.

Here with me today in the gallery are Glenys Hermanutz, Pembina's Vice President of Corporate Affairs and Peter Robertson, our Chief Financial Officer.

As always, I must start with a brief reminder that some of the comments made today may be forward-looking in nature and as based on, Pembina's current expectations, estimates, projections, risks and assumptions. I must also point out that some of the financials based on or referred to are non-GAAP measures. To learn more about both forward-looking statements and non-GAAP measures, pleaser see Pembina's annual report and the first quarter report available at Pembina.com and SEDAR.com.

Now off with our first quarter results. Overall, I am pleased with the quarter we have begun. Quarter-over-quarter, we are seeing some strong gains, including 13% in revenue, a 30% jump in net operating income, an 80% increase in net earnings and 63% gain cash flow.

Although some of the gains reflect a stronger economy and rising commodity prices compared Q1 2009, the primary reasons for the improvement in the first quarter were growth in all were so excellent. Actions Pembina took to generate investor value.

We saw continue success in each of our businesses, but the biggest driver of growth during the quarter were s gas services, which added more than C$14 to revenue and C$10 million to net operating income.

As you know, we acquired our gas services in July of 2009. So comparison to the first quarter of 2009 are possible. That said, gas services have maintained in a short time since we acquired it. Throughput revenue and net operating income are up over the fourth quarter of 2009.

Another driver for financial improvement was midstream in marketing, where we saw quarter-over-over increases in revenue and net operating income. The expansions we completed in 2009 that broadened the service we offer producers at our Alberta based terminals this time they gave an increased crude oil and liquids prices.

On the operational front, our conventional pipeline's business reduced operating expenses by approximately C$10 million, which in turn helped to boost net operating income despite quarter-over-quarter declines in throughput.

There are two items worth noting here. Although our conventional pipelines will continue to reduce expenses while also maintaining operational integrity. I don't expect we will maintain this level of cost reduction into the coming quarters.

Some of the reduced expenses we experienced during the first quarter reflect the timing of integrity projects, which I expect will still take place in 2010. Also, we are starting to see signs of pipeline throughput maybe strengthening.

If you compare our Q1 2010 throughputs to the fourth quarter of 2009, you will see that we are up probably 389,300 barrels per day in Q1 versus 379,400 in Q4 2009. This improvement in throughput is occurring despite our sale to come out the pipeline system, which reduced throughputs by about 10,000 barrels per day.

The operating results generated by all of our businesses help move our payout ratio into the right direction. At the end of the first quarter, our payout ratio was just over 92%.

As we head into summer and project spending increases this ratio may increase. In March I said we are looking towards the payout ratio of about 95% for the year, and so far we are on track to deliver.

I'll provide an update on our Nipisi project, of course boosting revenue will have the impact on cash flow. We're making good progress in Nipisi and Mitsue pipeline projects, which are on track to be placed into service in a little over one year from now.

We're heading into the final planning phase, engineering on both pipelines and the supporting infrastructure, including pump stations is substantially complete and we are pretty much set to begin construction this fall.

On July 6, the ERCB has scheduled a public hearing to examine concerns from two stakeholders relating to the project. We continue to consult with these stakeholders with the hope that we can resolve their concerns and avert the need for a hearing. I am very proud that consultation that has occurred over the last few years, I expect these pipelines will generate value for our customers and our investors and I am also confident our project planning will meet the expectation of our local communities as well. A final decision by the ERCB is expected to be made by early October or sooner if we can satisfy the interest of the effective parties before the hearing.

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