CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION(unaudited) |
($ millions) | June 30, 2020 December 31, 2019(1) |
Assets |
Current assets |
Cash and cash equivalents | | 73 | 129 |
Trade receivables and other | | 536 | 694 |
Inventory | | 175 | 126 |
Derivative financial instruments (Note 14) | | 39 | 40 |
| | 823 | 989 |
Non-current assets |
Property, plant and equipment (Note 4) | | 19,255 | 18,734 |
Investments in equity accounted investees (Note 5) | | 6,196 | 5,954 |
Intangible assets and goodwill | | 6,465 | 6,458 |
Right-of-use assets (Note 6) | | 700 | 730 |
Finance lease receivable (Note 6) | | 142 | 145 |
Advances to related parties and other assets | | 210 | 156 |
| | 32,968 | 32,177 |
Total assets | | 33,791 | 33,166 |
Liabilities and equity |
Current liabilities |
Trade payables and other | | 755 | 1,013 |
Loans and borrowings (Note 7) | | 462 | 74 |
Dividends payable | | 115 | 110 |
Lease liabilities | | 98 | 112 |
Contract liabilities (Note 10) | | 94 | 39 |
Taxes payable | | 51 | 103 |
Derivative financial instruments (Note 14) | | 26 | 6 |
| | 1,601 | 1,457 |
Non-current liabilities |
Loans and borrowings (Note 7) | | 10,312 | 10,078 |
Lease liabilities | | 702 | 707 |
Decommissioning provision (Note 8) | | 850 | 864 |
Contract liabilities (Note 10) | | 241 | 192 |
Deferred tax liabilities | | 2,998 | 2,919 |
Other liabilities | | 156 | 179 |
| | 15,259 | 14,939 |
Total liabilities | | 16,860 | 16,396 |
Equity |
Attributable to shareholders | | 16,871 | 16,710 |
Attributable to non-controlling interest | | 60 | 60 |
Total equity | | 16,931 | 16,770 |
Total liabilities and equity | | 33,791 | 33,166 |
(1) | | | | Pembina has recast certain comparative information to reflect changes to the Purchase Price Allocation originally presented December 31, 2019. See Note 3. |
See accompanying notes to the condensed consolidated interim financial statements |
37 | Pembina Pipeline Corporation Second Quarter 2020 |
| CONDENSED CONSOLIDATED INTERIM STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME(unaudited) |
3 Months Ended June 30 | | 6 Months Ended June 30 |
| ($ millions, except per share amounts) | | 2020 | 2019 | 2020 | 2019 |
| Revenue (Note 10) | | 1,268 | 1,808 | 2,939 | 3,776 |
| Cost of sales | | 813 | 1,292 | 1,965 | 2,742 |
| Loss (gain) on commodity-related derivative financial instruments | | 65 | (16) | (61) | 10 |
| Share of profit from equity accounted investees (Note 5) | | 65 | 97 | 148 | 193 |
| Gross profit | | 455 | 629 | 1,183 | 1,217 |
| General and administrative | | 59 | 76 | 120 | 150 |
| Other (income) expense | | (20) | 1 | (3) | 4 |
| Results from operating activities | | 416 | 552 | 1,066 | 1,063 |
| Net finance costs (Note 11) | | 72 | 78 | 281 | 157 |
| Earnings before income tax | | 344 | 474 | 785 | 906 |
| Current tax expense | | 67 | 56 | 143 | 132 |
| Deferred tax expense (recovery) | | 24 | (246) | 75 | (203) |
| Income tax expense | | 91 | (190) | 218 | (71) |
| Earnings | | 253 | 664 | 567 | 977 |
| Other comprehensive (loss) income, net of tax (Note 13 & 14) |
| Exchange (loss) gain on translation of foreign operations | | (212) | (76) | 253 | (161) |
| Impact of hedging activities | | 9 | — | 9 | — |
| Re-measurement of defined benefit liability | | — | — | 14 | — |
| Total comprehensive income attributable to shareholders | | 50 | 588 | 843 | 816 |
| Earnings attributable to common shareholders, net of preferred share |
| dividends | | 214 | 632 | 489 | 914 |
| Earnings per common share – basic (dollars) | | 0.39 | 1.23 | 0.89 | 1.79 |
| Earnings per common share – diluted (dollars) | | 0.39 | 1.23 | 0.89 | 1.78 |
| Weighted average number of common shares (millions) |
| Basic | | 550 | 511 | 549 | 510 |
| Diluted | | 550 | 513 | 550 | 512 |
| See accompanying notes to the condensed consolidated interim financial statements |
Pembina Pipeline Corporation Second Quarter 2020 38 |
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY(unaudited) |
| Attributable to Shareholders of the Company |
| | Common | Preferred | | | | | | Non- |
| Share | | Share | | | | | Controlling | Total |
($ millions) | Capital | | Capital | Deficit | AOCI(1) | Total | Interest | | Equity |
December 31, 2019 | 15,539 | | 2,956 | (1,883) | 98 | 16,710 | 60 | | 16,770 |
Total comprehensive income |
Earnings—— | 567 | — | 567 | — | | 567 |
Other comprehensive income (Note 13) | — | | — | — | 276 | 276 | — | | 276 |
Total comprehensive income—— | 567 | 276 | 843 | — | | 843 |
Transactions with shareholders of the Company |
Part VI.1 tax on preferred shares (Note 9) | — | | (4) | — | — | (4) | — | | (4) |
Share-based payment transactions (Note 9) | 90 | | — | — | — | 90 | — | | 90 |
Dividends declared – common (Note 9) | — | | — | (693) | — | (693) | — | | (693) |
Dividends declared – preferred (Note 9) | — | | — | (75) | — | (75) | — | | (75) |
Total transactions with shareholders of the Company | 90 | | (4) | (768) | — | (682) | — | | (682) |
June 30, 2020 | 15,629 | | 2,952 | (2,084) | 374 | 16,871 | 60 | | 16,931 |
December 31, 2018 | 13,662 | | 2,423 | (2,058) | 317 | 14,344 | 60 | | 14,404 |
Impact of change in accounting policy—— | 22 | — | 22 | — | | 22 |
Opening value January 1, 2019 | 13,662 | | 2,423 | (2,036) | 317 | 14,366 | 60 | | 14,426 |
Total comprehensive income |
Earnings—— | 977 | — | 977 | — | | 977 |
Other comprehensive income |
Exchange loss on translation of foreign operations——— | (161) | (161) | — | | (161) |
Total comprehensive income—— | 977 | (161) | 816 | — | | 816 |
Transactions with shareholders of the Company |
Part VI.1 tax on preferred shares | — | | (2) | — | — | (2) | — | | (2) |
Share-based payment transactions | 122 | | — | — | — | 122 | — | | 122 |
Dividends declared – common | — | | — | (592) | — | (592) | — | | (592) |
Dividends declared – preferred | — | | — | (61) | — | (61) | — | | (61) |
Total transactions with shareholders of the Company | 122 | | (2) | (653) | — | (533) | — | | (533) |
June 30, 2019 | 13,784 | | 2,421 | (1,712) | 156 | 14,649 | 60 | | 14,709 |
(1) | | | | | | | | | | Accumulated Other Comprehensive Income ("AOCI"). |
See accompanying notes to the condensed consolidated interim financial statements |
39 | Pembina Pipeline Corporation Second Quarter 2020 |
| CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS(unaudited) |
3 Months Ended June 30 | | 6 Months Ended June 30 |
| ($ millions) | | 2020 | 2019 | 2020 | 2019 |
| Cash provided by (used in)Operating activitiesEarnings |
| | | 253 | 664 | 567 | 977 |
| Adjustments for: |
| Share of profit from equity accounted investees | | (65) | (97) | (148) | (193) |
| Distributions from equity accounted investees | | 116 | 140 | 239 | 310 |
| Depreciation and amortization | | 176 | 121 | 353 | 246 |
| Unrealized loss (gain) on commodity-related derivative financial |
| instruments | | 101 | (15) | (8) | 30 |
| Net finance costs (Note 11) | | 72 | 78 | 281 | 157 |
| Net interest paid | | (74) | (53) | (173) | (134) |
| Income tax expense (recovery) | | 91 | (190) | 218 | (71) |
| Taxes paid | | (14) | (28) | (200) | (99) |
| Share-based compensation expense | | 9 | 14 | 4 | 40 |
| Share-based compensation payment | | — | — | (44) | (50) |
| Net change in contract liabilities | | 25 | (9) | 42 | (6) |
| Other | | (10) | (4) | — | (9) |
| Change in non-cash operating working capital | | (38) | 40 | (79) | 71 |
| Cash flow from operating activities | | 642 | 661 | 1,052 | 1,269 |
| Financing activities |
| Bank borrowings and issuance of debt (Note 7) | | 552 | — | 1,062 | 94 |
| Repayment of loans and borrowings | | (924) | (546) | (2,039) | | | | (599) |
| Repayment of lease liability | | (17) | (14) | (43) | (32) |
| Issuance of medium term notes (Note 7) | | 505 | 800 | 1,578 | 800 |
| Issue costs and financing fees | | (7) | (6) | (11) | (6) |
| Exercise of stock options | | 1 | 29 | 83 | 115 |
| Dividends paid | | (384) | (327) | (762) | (641) |
| Cash flow used in financing activities | | (274) | (64) | (132) | (269) |
| Investing activities |
| Capital expenditures | | (211) | (434) | (694) | (795) |
| Contributions to equity accounted investees | | (2) | (28) | (174) | (61) |
| Receipt of finance lease payments | | (9) | — | 5 | — |
| Interest paid during construction | | (12) | (9) | (26) | (17) |
| Recovery of assets or proceeds from sale | | — | 6 | 2 | 6 |
| Advances to related parties | | (11) | (32) | (22) | (42) |
| Changes in non-cash investing working capital and other | | (167) | 50 | (59) | 77 |
| Cash flow used in investing activities | | (412) | (447) | (968) | (832) |
| Change in cash and cash equivalents | | (44) | 150 | (48) | 168 |
| Effect of movement in exchange rates on cash held | | (15) | 6 | (8) | 3 |
| Cash and cash equivalents, beginning of period | | 132 | 172 | 129 | 157 |
| Cash and cash equivalents, end of period | | 73 | 328 | 73 | 328 |
| See accompanying notes to the condensed consolidated interim financial statements |
Pembina Pipeline Corporation Second Quarter 2020 40 |
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED INTERIM FINANCIAL STATEMENTS |
1. REPORTING ENTITY |
Pembina Pipeline Corporation ("Pembina" or the "Company") is a Calgary-based, leading transportation and midstream service provider serving North America's energy industry. The condensed consolidated unaudited interim financial statements ("Interim Financial Statements") include the accounts of the Company, its subsidiary companies, partnerships and any investments in associates and joint arrangements as at and for the three and six months ended June 30, 2020. These Interim Financial Statements and the notes hereto have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to the preparation of interim financial statements, including International Accounting Standard 34, Interim Financial Reporting ("IAS 34"). These Interim Financial Statements have been prepared following the same accounting policies and methods of computation as the annual consolidated financial statements of the Company as at and for the year ended December 31, 2019 ("Consolidated Financial Statements"), except as noted below, and should be read in conjunction with those Consolidated Financial Statements. The Interim Financial Statements were authorized for issue by Pembina's Board of Directors on August 6, 2020. |
Pembina owns an integrated system of pipelines that transport various hydrocarbon liquids and natural gas products produced primarily in western Canada. The Company also owns gas gathering and processing facilities and an oil and natural gas liquids infrastructure, storage and logistics business. Pembina's integrated assets and commercial operations along the majority of the hydrocarbon value chain allow it to offer a full spectrum of midstream and marketing services to the energy sector. |
Financial Instruments |
Derivative Financial Instruments and Hedge Accounting |
Pembina holds derivative financial instruments to manage its interest rate, commodity, power costs and foreign exchange risk exposures. Derivatives are recognized initially at fair value with attributable transaction costs recognized in earnings as incurred. Subsequent to initial recognition, derivatives are measured at fair value with changes in non-commodity-related derivatives recognized immediately in earnings as part of net finance costs, unless hedge accounting is applied, and changes in commodity-related derivatives recognized immediately in earnings. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative meet the definition of a derivative, and the combined instrument is not measured at fair value through earnings. |
Pembina applies hedge accounting to certain financial instruments that qualify for and are designated for hedge accounting treatment. This includes certain designated derivatives used to hedge the variability in cash flows associated with highly probable forecasted transactions arising from changes in interest rates, and designated non-derivative financial liabilities used to hedge foreign exchange risk on Pembina's net investment in foreign operations. Hedge accounting is discontinued prospectively when the hedging relationship no longer qualifies for hedge accounting or the hedging instrument is sold or terminated. |
At inception of a designated hedging relationship, formal documentation is prepared and includes the risk management objective and strategy for undertaking the hedge, identification of the hedged item and the hedging instrument, the nature of the risk being hedged and how Pembina will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item. |
For derivatives designated as cash flow hedging instruments, the effective portion of changes in fair value of the derivatives is recognized in other comprehensive income and accumulated in the cash flow hedge reserve. The effective portion of derivative fair value changes recognized in other comprehensive income is limited to the cumulative change in fair value of the hedged items. Any ineffective portion of derivative fair value changes is recognized immediately in earnings. The amount accumulated in the cash flow hedge reserve is reclassified to earnings in the same period or periods during which the hedged expected future cash flows affect earnings. |
41 | Pembina Pipeline Corporation Second Quarter 2020 |
| When hedge accounting for cash flow hedges is discontinued, the amount accumulated in the cash flow hedge reserve remains in equity until it is reclassified to earnings in the same period or periods as the hedged expected future cash flows affect earnings. If the hedged future cash flows are no longer expected to occur, the amounts accumulated in the cash flow hedge reserve are immediately reclassified to earnings. |
| For non-derivative financial liabilities designated as hedging instruments in a hedge of the net investment in foreign operations, the effective portion of foreign exchange gains and losses arising on translation of the non-derivative is recognized in other comprehensive income and presented in the currency translation reserve within equity. Any ineffective portion of the foreign exchange gains and losses arising from the translation of the non-derivative is recognized immediately in earnings. The amount accumulated in the currency translation reserve is reclassified to earnings on disposal of the foreign operation. |
| Use of Estimates and Judgments |
| Management is required to make estimates and assumptions and use judgment in the application of accounting policies that could have a significant impact on the financial results. Actual results may differ from estimates and those differences may be material. By their nature, judgments and estimates may change in light of new facts and circumstances in the internal and external environment. There have been no material changes to Pembina's critical accounting estimates and judgments during the three and six months ended June 30, 2020, except for the general impact of significant uncertainties created by the coronavirus ("COVID-19") pandemic, as discussed below. |
| Ongoing Impact of the COVID-19 Pandemic |
| Following the World Health Organization declaring the COVID-19 outbreak to be a pandemic, many governments have taken steps to contain the spread of the virus, resulting in a slowdown of the global economy, which has led to a significant disruption of business operations and a significant increase in economic uncertainty. This uncertainty has created volatility in asset prices, currency exchange rates and a marked decline in long-term interest rates. In addition, the resulting decrease in demand for crude oil has resulted in a decline in global energy prices. Management applied judgment and will continue to assess the situation in determining the impact of the significant uncertainties created by these events and conditions on the carrying amounts of assets and liabilities in the Interim Financial Statements. |
| 2. DETERMINATION OF FAIR VALUES |
| A number of the Company's accounting policies and disclosures require the determination of fair value for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure based on methods as set out in the Consolidated Financial Statements. These methods have been applied consistently to all periods presented in these Interim Financial Statements. |
| Ongoing Impact of the COVID-19 Pandemic |
| Measuring fair values using significant unobservable inputs has become more challenging in the current environment, where events and conditions related to the COVID-19 pandemic are driving significant disruption of business operations and a significant increase in economic uncertainty. Management applied its judgment in determining the impact of the significant uncertainties created by these events and conditions on the assessed fair values of assets and liabilities in these Interim Financial Statements. |
Pembina Pipeline Corporation Second Quarter 2020 42 |
3. ACQUISITION |
On December 16, 2019, Pembina acquired all the issued and outstanding shares of Kinder Morgan Canada Limited ("Kinder Morgan Canada") by way of a plan of arrangement and the U.S. portion of the Cochin Pipeline system (collectively the "Kinder Acquisition") for total consideration of $4.3 billion. |
The purchase price equation, subject to finalization, is based on assessed fair values and is as follows: |
As at December 16, 2019($ millions) |
| Previously Reported | Adjustments | Recast |
Purchase Price ConsiderationCommon shares |
| | | | 1,710 | — | 1,710 |
Cash (net of cash acquired) | | | | 2,009 | — | 2,009 |
Preferred shares | | | | 536 | — | 536 |
| | | | 4,255 | — | 4,255 |
Current assets | | | | 68 | 2 | 70 |
Property, plant and equipment | | | | 2,660 | (41) | 2,619 |
Intangible assets | | | | 1,254 | — | 1,254 |
Right-of-use assets | | | | 348 | (92) | 256 |
Finance lease receivable— | 116 | 116 |
Goodwill | | | | 809 | 28 | 837 |
Other assets | | | | 9 | — | 9 |
Current liabilities | | | | (124) | — | (124) |
Deferred tax liabilities | | | | (281) | (13) | (294) |
Decommissioning provision | | | | (74) | — | (74) |
Lease liability | | | | (348) | — | (348) |
Other liabilities | | | | (66) | — | (66) |
| | | | 4,255 | — | 4,255 |
For more information, see Note 6 of the Consolidated Financial Statements. During the six months ended June 30, 2020, Pembina adjusted the purchase price equation to reflect updated assumptions for the identification and classification of leases, which resulted in the recognition of finance lease assets of $118 million, and reductions in the property, plant and equipment of $26 million and in the right-of-use assets of $92 million. Pembina's verification of information supporting the fair value of assets acquired also resulted in a $15 million reduction to the fair value of certain Canadian property, plant and equipment with a corresponding decrease in deferred tax liabilities of $3 million and increase in goodwill of $12 million. Pembina also adjusted the allocation of fair value between Canadian and U.S. legal entities, resulting in a $16 million increase in the deferred tax liability and a corresponding increase in goodwill of $16 million. The purchase price allocation is not final as Pembina is continuing to obtain and verify information required to determine the fair value of certain assets and liabilities including the identification and classification of other provisions relating to income taxes. |
43 | Pembina Pipeline Corporation Second Quarter 2020 |
| 4. PROPERTY, PLANT AND EQUIPMENT |
| | | | Facilities | Cavern |
| | Land and | | and | Storage and | Assets Under |
| ($ millions) | Land Rights | Pipelines | Equipment | Other | Construction | Total |
| CostBalance at December 31, 2019(1) |
| | 440 | 8,803 | | | | 8,730 | 1,945 | | | 1,493 | 21,411 |
| Additions and transfers | | | | | | | | 8 | 413 | | | | | | | | | | 225 | 45 | | | 55 | 746 |
| Change in decommissioning provision | | | | | | | | — | (39) | | | | | | | | | | 23 | — | | | — | (16) |
| Foreign exchange adjustments | | | | | | | | 4 | 41 | | | | | | | | | | 16 | — | | | 13 | 74 |
| Disposals and other | | | | | | | | — | (6) | | | | | | | | | | (8) | (5) | | | (13) | (32) |
| Balance at June 30, 2020 | 452 | 9,212 | | | | 8,986 | 1,985 | | | 1,548 | 22,183 |
| DepreciationBalance at December 31, 2019 |
| | | | | | | | | 16 | 1,363 | | | | 1,015 | 283 | | | — | 2,677 |
| Depreciation | | | | | | | | 2 | 91 | | | | | | | | | | 64 | 98 | | | — | 255 |
| Disposals and other | | | | | | | | — | (1) | | | | | | | | | | (2) | (1) | | | — | (4) |
| Balance at June 30, 2020 | | | | | | | | 18 | 1,453 | | | | 1,077 | 380 | | | — | 2,928 |
| Carrying amountsBalance at December 31, 2019 |
| | 424 | 7,440 | | | | 7,715 | 1,662 | | | 1,493 | 18,734 |
| Balance at June 30, 2020 | 434 | 7,759 | | | | 7,909 | 1,605 | | | 1,548 | 19,255 |
| Assets subject to operating leasesDecember 31, 2019(1) |
| | | | | | | | | — | 477 | | | | | | | | | | 514 | 62 | | | — | 1,053 |
| June 30, 2020 | | | | | | | | — | 472 | | | | | | | | | | 513 | 62 | | | — | 1,047 |
| (1) | December 31, 2019 balances have been recast. See Note 3. |
| 5. INVESTMENTS IN EQUITY ACCOUNTED INVESTEES |
| | | Share of Profit from Equity |
Investments |
| | | | | | | | | | | Ownership Interest | Equity Investments | 6 Months Ended June 30 |
| ($ millions) | | | | | | | | | | June 30, 2020 | December 31, 2019 | 2020 | | | | | | | | | | 2019 | June 30, 2020 | | | December 31, 2019 |
| Alliance | | | | | | | | | | 50% | 50% | 56 | | | | | | | | | | 86 | 2,623 | 2,620 |
| Aux Sable | | | | | | | | | | 42.7% - 50% | 42.7% - 50% | 2 | | | | | | | | | | 23 | 432 | 426 |
| Ruby(1) | | | | | | | | | | | - | - | 61 | | | | | | | | | | 60 | 1,331 | 1,273 |
| Veresen Midstream | | | | | | | | | | 45% | 45% | 27 | | | | | | | | | | 23 | 1,367 | 1,348 |
| CKPC | | | | | | | | | | 50% | 50% | 1 | | | | | | | | | | — | 328 | 171 |
| Other | | | | | | | | | | 50% - 75% | 50% - 75% | 1 | | | | | | | | | | 1 | 115 | 116 |
148 | | | | | | | | | | 193 | 6,196 | 5,954 |
| (1) | Pembina owns a 50 percent convertible preferred interest in Ruby. |
| Pembina has U.S. $2.3 billion in investments in equity accounted investees that is held by entities whose functional currency is the U.S. dollar. The resulting foreign exchange gains and losses are included in other comprehensive income. For the three and six months ended June 30, 2020, Pembina recognized a loss of $110 million and a gain of $138 million (2019: $68 million loss and $145 million loss), respectively. |
Pembina Pipeline Corporation Second Quarter 2020 44 |
Financing Activities |
Prior to CKPC's decision to defer further investment in the PDH/PP Facility, on February 27, 2020, CKPC closed a syndicated senior secured U.S. $1.7 billion amortizing term facility and a U.S. $150 million revolving facility both of which have been guaranteed equally on a several basis by the owners of CKPC through the completion of construction. The final maturity date of both the term facility and revolving facility is February 27, 2027. The parental guarantee resulted in the recognition of a financial guarantee liability, currently valued at U.S. $15 million, net of amortization, on Pembina's balance sheet, with an offsetting amount recorded as an equity contribution to the investment in CKPC. |
On April 27, 2020, Ruby fully repaid its 364-day term loan. Concurrent to repayment, Ruby entered into a new term loan that will mature on March 31, 2021. The term loan will amortize U.S. $32 million in 2020 and 2021 (U.S. $16 million net to Pembina), in two equal payments each year with the first payment executed in June 2020. |
On June 30, 2020 CKPC and the lenders agreed to amend and waive certain terms and conditions of the CKPC credit facility. In connection with the amendment, CKPC voluntarily repaid the U.S. $26 million drawn under the non-revolving term loan. CKPC also retained the ability to re-draw and access the full term loan of U.S. $1.7 billion upon resumption of key activities. |
6. LEASES |
Lessee Leases |
Pembina enters into arrangements to secure access to assets necessary for operating the business. Leased (right-of-use) assets include terminals, rail, buildings, land and other assets. Total cash outflows related to leases were $33 million and $64 million, respectively, for the three and six months ended June 30, 2020 (2019: $20 million and $41 million). |
Right-of-Use Assets |
($ millions) | Terminals | Rail | Buildings Land & Other | Total |
Balance at December 31, 2019(1) | | | | | 225 | 238 | | | | 118 | 149 | 730 |
Additions—— | | | | 15 | — | 15 |
Amortization | | | | | (6) | (20) | | | | (10) | (9) | (45) |
Balance at June 30, 2020 | | | | | 219 | 218 | | | | 123 | 140 | 700 |
(1) | The December 31, 2019 balance of Terminals Right-of-Use Assets has been recast. See Note 3 Acquisition and further discussion below. |
Lessor Leases |
Pembina has entered into contracts for the use of its assets that have resulted in lease treatment for accounting purposes. Assets under operating leases include pipelines, terminals and storage tanks and caverns. See Note 4 for carrying value of property, plant and equipment under operating leases. Assets under finance leases include office sub-leases and terminal assets. |
As disclosed in Note 3, Pembina continued to obtain and verify information required to determine the identification and classification of lessor leases acquired on December 16, 2019 as part of the Kinder Acquisition. Finance lease conclusions completed during the six months ended June 30, 2020 resulted in the recognition of an additional $118 million in finance lease receivables, of which $92 million related to lessee leases recognized at the acquisition date, resulting in the December 31, 2019 right-of-use asset balance being recast for leased terminal assets from $822 million to $730 million. |
45 | Pembina Pipeline Corporation Second Quarter 2020 |
| Maturity of Lease Receivables |
| As at June 30, 2020 |
| | Operating Leases | Finance Leases | ($ millions)Less than one year |
| | | | 158 | 23 |
| One to two years | | | 146 | 24 |
| Two to three years | | | 143 | 21 |
| Three to four years | | | 132 | 22 |
| Four to five years | | | 117 | 22 |
| More than five years | | | 927 | 235 |
| Total undiscounted lease receipts | | | 1,623 | 347 |
| Unearned finance income on lease receipts | | | | (206) |
| Discounted unguaranteed residual value | | | | 8 |
| Finance lease receivable | | | | 149 |
| Less current portion(1) | | | | (7) |
| Total non-current | | | | 142 |
| (1) | Included in trade receivables and other on the Condensed Consolidated Interim Statement of Financial Position. |
| Expected credit losses on lease receivables are determined using a probability-weighted estimate of credit losses, measured as the present value of all expected cash shortfalls, discounted at the interest rates implicit in the leases, using reasonable and supportable information about past events, current conditions and forecasts of future economic conditions. Pembina considers the risk of default relating to lease receivables low based on Pembina's assessment of individual counterparty credit risk through established credit management techniques as disclosed in the Consolidated Financial Statements. |
Pembina Pipeline Corporation Second Quarter 2020 46 |
7. LOANS AND BORROWINGS |
This note provides information about the contractual terms of Pembina's interest-bearing loans and borrowings, which are measured at amortized cost. Carrying Value, Terms and Conditions, and Debt Maturity Schedule |
| Carrying Value |
| | Authorized at June | | Nominal | Year of |
($ millions) | | | 30, 2020 | interest Rate | Maturity | June 30, 2020 | December 31, 2019 |
Senior unsecured credit facilities(1)(3)(4) | | | 4,159 | 1.57(2) | Various(1) | 1,213 | | | | | | | 2,097 |
Senior unsecured notes – series A | | | | | | | | | — | 5.57 | 2020 | — | | | | | | | 74 |
Senior unsecured notes – series C | | | 200 | 5.58 | 2021 | 212 | | | | | | | 199 |
Senior unsecured medium-term notes series 1 | | | 250 | 4.89 | 2021 | 250 | | | | | | | 250 |
Senior unsecured medium-term notes series 2 | | | 450 | 3.77 | 2022 | 449 | | | | | | | 449 |
Senior unsecured medium-term notes series 3 | | | 450 | 4.75 | 2043 | 446 | | | | | | | 446 |
Senior unsecured medium-term notes series 4 | | | 600 | 4.81 | 2044 | 596 | | | | | | | 596 |
Senior unsecured medium-term notes series 5 | | | 450 | 3.54 | 2025 | 449 | | | | | | | 449 |
Senior unsecured medium-term notes series 6 | | | 500 | 4.24 | 2027 | 498 | | | | | | | 498 |
Senior unsecured medium-term notes series 7 | | | 600 | 3.71 | 2026 | 603 | | | | | | | 498 |
Senior unsecured medium-term notes series 8 | | | 650 | 2.99 | 2024 | 646 | | | | | | | 646 |
Senior unsecured medium-term notes series 9 | | | 550 | 4.74 | 2047 | 542 | | | | | | | 542 |
Senior unsecured medium-term notes series 10 | | | 650 | 4.02 | 2028 | 662 | | | | | | | 398 |
Senior unsecured medium-term notes series 11 | | | 800 | 4.75 | 2048 | 844 | | | | | | | 298 |
Senior unsecured medium-term notes series 12 | | | 650 | 3.62 | 2029 | 654 | | | | | | | 398 |
Senior unsecured medium-term notes series 13 | | | 700 | 4.54 | 2049 | 713 | | | | | | | 714 |
Senior unsecured medium-term notes series 14 | | | 600 | 2.56 | 2023 | 598 | | | | | | | 598 |
Senior unsecured medium-term notes series 15 | | | 600 | 3.31 | 2030 | 597 | | | | | | | 597 |
Senior unsecured medium-term notes series 16 | | | 400 | 4.67 | 2050 | 397 | | | | | | | — |
Senior unsecured medium-term notes 3A | | | | | | | | | 50 | 5.05 | 2022 | 52 | | | | | | | 52 |
Senior unsecured medium-term notes 5A | | | 350 | 3.43 | 2021 | 353 | | | | | | | 353 |
Total interest bearing liabilities | 10,774 | | | | | | | 10,152 |
Less current portion | (462) | | | | | | | (74) |
Total non-current | 10,312 | | | | | | | 10,078 |
(1) | Pembina's unsecured credit facilities include a $2.5 billion revolving facility that matures in May 2024, a $500 million non-revolving term loan that matures in August 2022, a |
$800 million revolving facility that matures in April 2022, a U.S. $250 million non-revolving term loan that matures in May 2025 and a $20 million operating facility that |
matures in May 2021, which is typically renewed on an annual basis. |
(2) | The nominal interest rate is the weighted average of all drawn credit facilities based on Pembina's credit rating at June 30, 2020. Borrowings under the credit facilities bear |
interest at prime, Bankers' Acceptance, or LIBOR rates, plus applicable margins. |
(3) | At June 30, 2020, includes U.S. $315 million (December 31, 2019: U.S. $454 million). |
(4) | The U.S. dollar denominated non-revolving term loan is designated as a hedge of the Company’s net investment in selected foreign operations with a U.S. dollar functional |
currency. Refer to Note 14 for foreign exchange risk management. |
On January 10, 2020, Pembina closed an offering of $1.0 billion of senior unsecured medium-term notes. The offering was conducted in three tranches, consisting of $250 million issued through a re-opening of Pembina's senior unsecured medium-term notes, series 10, having a fixed coupon of 4.02 percent per annum, payable semi-annually and maturing on March 27, 2028; $500 million issued through a re-opening of Pembina's senior unsecured medium-term notes, series 11, having a fixed coupon of 4.75 percent per annum, payable semi-annually and maturing on March 26, 2048; and $250 million issued through a re-opening of Pembina's senior unsecured medium-term notes, series 12, having a fixed coupon of 3.62 percent per annum, payable semi-annually and maturing on April 3, 2029. |
On April 6, 2020, Pembina entered into an unsecured $800 million revolving credit facility with certain existing lenders, which provides additional liquidity and flexibility in Pembina’s capital structure in the current market conditions. The credit facility has an initial term of two years. The other terms and conditions of the credit facility, including financial covenants, are substantially similar to Pembina's unsecured $2.5 billion revolving credit facility. |
47 | Pembina Pipeline Corporation Second Quarter 2020 |
| On May 7, 2020, Pembina entered into an unsecured U.S. $250 million non-revolving term loan with a global bank, which provides additional liquidity and flexibility in Pembina's capital structure in the current market conditions. The term loan has an initial term of five years. The other terms and conditions of the credit facility, including financial covenants, are substantially similar to Pembina's unsecured $2.5 billion revolving credit facility. |
| On May 28, 2020, Pembina closed an offering of $500 million of senior unsecured medium-term notes. The offering was conducted in two tranches, consisting of $400 million in senior unsecured medium-term notes, series 16, having a fixed coupon of 4.76 percent per annum, payable semi-annually, and maturing on May 28, 2050 and $100 million issued through a re-opening of Pembina's senior unsecured medium-term notes, series 7, having a fixed coupon of 3.71 percent per annum, payable semi-annually and maturing on August 11, 2026. |
| On July 10, 2020, Pembina's $200 million senior unsecured notes, series C, were fully repaid through an early redemption, of which notice was provided to holders on June 5, 2020. The series C notes were originally set to mature in September 2021. |
| 8. DECOMMISSIONING PROVISION |
| ($ millions) | 2020 |
| Balance at January 1 | 867 |
| Unwinding of discount rate | 9 |
| Additions | 15 |
| Change in cost estimates and other | (39) |
| Total | 852 |
| Less current portion(1) | (2) |
| Balance at June 30 | 850 |
| (1) | Included in trade payables and other on the Condensed Consolidated Interim Statement of Financial Position. |
| Pembina applied a risk-free real return rate of 0.3 percent (December 31, 2019: 0.3 percent) to estimate the present value of the decommissioning provision. Changes in the measurement of the decommissioning provision are added to, or deducted from, the cost of the related property, plant and equipment or right-of-use asset. |
| 9. SHARE CAPITALCommon Share Capital |
| | | Number of |
| | | Common Shares | Common |
| ($ millions, except as noted) | | (millions) | Share Capital |
| Balance at December 31, 2019 | | | | 548 | 15,539 |
| Share-based payment transactions | | | | 2 | 90 |
| Balance at June 30, 2020 | | | | 550 | 15,629 |
| Preferred Share Capital |
| | | | | | Number of Preferred |
| | | Shares | Preferred |
| ($ millions, except as noted) | | (millions) | Share Capital |
| Balance at December 31, 2019 | | | | 122 | 2,956 |
| Part VI.1 tax | | | | — | (4) |
| Balance at June 30, 2020 | | | | 122 | 2,952 |
Pembina Pipeline Corporation Second Quarter 2020 48 |
Dividends |
The following dividends were declared by Pembina: |
6 Months Ended June 30($ millions) |
| 2020 | 2019 |
Common shares |
$1.26 per common share (2019: $1.16) | 693 | 592 |
Preferred shares |
$0.61 per Series 1 preferred share (2019: $0.61) | 6 | 6 |
$0.56 per Series 3 preferred share (2019: $0.56) | 3 | 3 |
$0.57 per Series 5 preferred share (2019: $0.61) | 6 | 6 |
$0.54 per Series 7 preferred share (2019: $0.56) | 5 | 6 |
$0.59 per Series 9 preferred share (2019: $0.59) | 5 | 5 |
$0.71 per Series 11 preferred share (2019: $0.71) | 5 | 5 |
$0.71 per Series 13 preferred share (2019: $0.71) | 7 | 7 |
$0.56 per Series 15 preferred share (2019: $0.56) | 4 | 4 |
$0.60 per Series 17 preferred share (2019: $0.61) | 4 | 4 |
$0.63 per Series 19 preferred share (2019: $0.63) | 5 | 5 |
$0.61 per Series 21 preferred share (2019: $0.61) | 10 | 10 |
$0.66 per Series 23 preferred share (2019: nil) | 8 | — |
$0.65 per Series 25 preferred share (2019: nil) | 7 | — |
| 75 | 61 |
On June 1, 2020, Pembina announced that it did not intend to exercise its right to redeem the eight million Cumulative Redeemable Rate Reset Class A Preferred Shares, Series 19 shares outstanding on June 30, 2020. |
On July 6, 2020, Pembina announced that its Board of Directors had declared a dividend of $0.21 per common share ($2.52 annually) in the total amount of $115 million, payable on August 14, 2020 to shareholders of record on July 24, 2020. Pembina's Board of Directors also declared quarterly dividends for Pembina's preferred shares as outlined in the following table: |
| | | | | | Dividend Amount |
SeriesRecord DatePayable DatePer Share Amount | ($ millions) |
Series 1 | | | August 4, 2020 | September 1, 2020 | | | $0.306625 | 3 |
Series 3 | | | August 4, 2020 | September 1, 2020 | | | $0.279875 | 2 |
Series 5 | | | August 4, 2020 | September 1, 2020 | | | $0.285813 | 3 |
Series 7 | | | August 4, 2020 | September 1, 2020 | | | $0.273750 | 3 |
Series 9 | | | August 4, 2020 | September 1, 2020 | | | $0.296875 | 3 |
Series 11 | | | August 4, 2020 | September 1, 2020 | | | $0.359375 | 2 |
Series 13 | | | August 4, 2020 | September 1, 2020 | | | $0.359375 | 4 |
Series 15 | | | | | | | | September 15, 2020 | September 30, 2020 | $0.279000 | 2 |
Series 17 | | | | | | | | September 15, 2020 | September 30, 2020 | $0.301313 | 2 |
Series 19 | | | | | | | | September 15, 2020 | September 30, 2020 | $0.292750 | 2 |
Series 21 | | | August 4, 2020 | September 1, 2020 | | | $0.306250 | 5 |
Series 23 | | | July 31, 2020 | August 15, 2020 | | | $0.328125 | 4 |
Series 25 | | | July 31, 2020 | August 15, 2020 | | | $0.325000 | 3 |
49 | Pembina Pipeline Corporation Second Quarter 2020 |
| 10. REVENUE |
| Revenue has been disaggregated into categories to reflect how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors. |
| a. Revenue Disaggregation |
| | 2020 | 2019 |
| 3 Months Ended June 30 | Marketing | | | Marketing |
& New | | | | | | | | | & New |
| | | | Pipelines | Facilities | Ventures | | | | | | Total | Pipelines | Facilities | Ventures | | | | | | | Total | ($ millions)Take-or-pay(1) |
| | | | 390 | 177 | — | | | | | | 567 | 301 | 157 | | | | | | — | 458 |
| Fee-for-service(1) | | | | | | | | | | 66 | 28 | — | | | | | | 94 | | | | | | 92 | 24 | | | | | | — | 116 |
| Product sales(2) | | | | | | | | | | — | — | 561 | | | | | | 561 | | | | | | — | — | | | | | | 1,210 | 1,210 |
| Revenue from contracts with customers | | | 456 | 205 | 561 | | | | | | 1,222 | 393 | 181 | | | | | | 1,210 | 1,784 |
| Operational finance lease income | | | | 4 | — | — | | | | | | 4 | | | | | | — | — | | | | | | — | — |
| Fixed Operating Lease Income | | | | | | | | | | 32 | 10 | — | | | | | | 42 | | | | | | 16 | 8 | | | | | | — | 24 |
| Total external revenue | | | 492 | 215 | 561 | | | | | | 1,268 | 409 | 189 | | | | | | 1,210 | 1,808 |
| (1) | Revenue recognized over time. |
| (2) | Revenue recognized at a point in time. |
| | 2020 | 2019 |
| 6 Months Ended June 30 | Marketing | | | Marketing |
& New | | | | | | | | | & New |
| | | | Pipelines | Facilities | Ventures | | | | | | Total | Pipelines | Facilities | Ventures | | | | | | | Total | ($ millions)Take-or-pay(1) |
| | | | 778 | 359 | — | | | | | | 1,137 | 574 | 318 | | | | | | — | 892 |
| Fee-for-service(1) | | | 165 | 58 | — | | | | | | 223 | 188 | 41 | | | | | | — | 229 |
| Product sales(2) | | | | | | | | | | — | — | 1,484 | | | | | | 1,484 | | | | | | — | 3 | | | | | | 2,606 | 2,609 |
| Revenue from contracts with customers | | | 943 | 417 | 1,484 | | | | | | 2,844 | 762 | 362 | | | | | | 2,606 | 3,730 |
| Operational finance lease income | | | | 8 | — | — | | | | | | 8 | | | | | | — | — | | | | | | — | — |
| Fixed Operating Lease Income | | | | | | | | | | 69 | 18 | — | | | | | | 87 | | | | | | 31 | 15 | | | | | | — | 46 |
| Total external revenue | | | 1,020 | 435 | 1,484 | | | | | | 2,939 | 793 | 377 | | | | | | 2,606 | 3,776 |
| (1) | Revenue recognized over time. |
| (2) | Revenue recognized at a point in time. |
| b. Contract LiabilitiesSignificant changes in the contract liabilities balances during the period are as follows: |
| | | | | 6 Months Ended June 30, 2020 | | 12 Months Ended December 31, 2019 |
OtherTotalOther |
| | Contract | | | | Contract | Contract | | | | | | Total Contract |
| ($ millions) | | | Take-or-Pay | Liabilities | | | | Liabilities | Take-or-Pay | Liabilities | | | | | | | Liabilities |
| Opening balance | 8 | 223 | | | | | | 231 | | 9 | 159 | 168 |
| Additions (net in the period) | | | | 43 | 90 | | | | | | 133 | | 4 | 35 | 39 |
| Acquisition (Note 3) | | | | — | — | | | | | | — | | — | 77 | 77 |
| Revenue recognized from contract liabilities(1) | | | | (4) | (25) | | | | | | (29) | | (5) | (48) | (53) |
| Closing balance | | | | 47 | 288 | | | | | | 335 | | 8 | 223 | 231 |
| Less current portion(2) | | | | (47) | (47) | | | | | | (94) | | (8) | (31) | (39) |
| Ending balance | | | | — | 241 | | | | | | 241 | | — | 192 | 192 |
| (1) | Recognition of revenue related to performance obligations satisfied in the current period that were included in the opening balance of contract liabilities. |
| (2) | As at June 30, 2020, the balance includes $47 million of cash collected under take-or-pay contracts which will be recognized within one year as the customer chooses to ship, |
| process, or otherwise forego the associated service. |
| Contract liabilities depict Pembina's obligation to perform services in the future for cash and non cash consideration which has been received from customers. Contract liabilities include up-front payments or non-cash consideration received from customers for future transportation, processing and storage services. Contract liabilities also include consideration received from customers for take-or-pay commitments where the customer has a make-up right to ship or process future volumes under a firm contract. These amounts are non-refundable should the customer not use its make-up rights. |
Pembina Pipeline Corporation Second Quarter 2020 50 |
| 12. OPERATING SEGMENTS |
| Pembina's operating segments are organized by three divisions: Pipelines, Facilities and Marketing & New Ventures. |
| 3 Months Ended June 30, 2020 | | | | Corporate & |
| | | Marketing & New | | Inter-division |
| | Pipelines(1) | Facilities | | | | Ventures(2) | Eliminations | Total | ($ millions)Revenue from external customers |
| | | | | | | 492 | 215 | | | | | | | | 561 | — | 1,268 |
| Inter-division revenue | | | | | | 36 | 75 | | | | | — | (111) | — |
| Total revenue(3) | | | | | | 528 | 290 | | | | | | | | 561 | (111) | 1,268 |
| Operating expenses | | | | | | 107 | 86 | | | | | — | (39) | 154 |
| Cost of goods sold, including product purchases | | | | | | — | 2 | | | | | 565 | (75) | 492 |
| Realized gain on commodity-related derivative |
| financial instruments | | | | | | — | — | | | | | (36) | — | (36) |
| Share of profit (loss) from equity accounted investees | | | | | | 57 | 14 | | | | | (6) | — | 65 |
| Depreciation and amortization included in operations | | | | | | 102 | 51 | | | | | 12 | 2 | 167 |
| Unrealized loss on commodity-related derivative |
| financial instruments | | | | | | — | 2 | | | | | 99 | — | 101 |
| Gross profit | | | | | | 376 | 163 | | | | | | | | (85) | 1 | 455 |
| Depreciation included in general and administrative | | | | | | — | — | | | | | — | 9 | 9 |
| Other general and administrative | | | | | | 1 | 4 | | | | | 7 | 38 | 50 |
| Other expense (income) | | | | | | 3 | 1 | | | | | — | (24) | (20) |
| Reportable segment results from operating activities | | | | | | 372 | 158 | | | | | | | | (92) | (22) | 416 |
| Net finance costs | | | | | | 9 | 6 | | | | | (12) | 69 | 72 |
| Reportable segment earnings (loss) before tax | | | | | | 363 | 152 | | | | | | | | (80) | (91) | 344 |
| Capital expenditures | | | | | | 129 | 62 | | | | | 10 | 10 | 211 |
| Contributions to equity accounted investees | | | | | | — | — | | | | | 2 | — | 2 |
| 3 Months Ended June 30, 2019 | | | | Corporate & |
| | | Marketing & New | | Inter-division |
| | Pipelines(1) | Facilities | | | | Ventures(2) | Eliminations | Total | ($ millions) |
| Revenue from external customers | | | | | | 409 | 189 | | | | 1,210 | | | | | — | 1,808 |
| Inter-division revenue | | | | | | 34 | 86 | | | | | — | (120) | — |
| Total revenue(3) | | | | | | 443 | 275 | | | | 1,210 | | | | | (120) | 1,808 |
| Operating expenses | | | | | | 92 | 82 | | | | | — | (40) | 134 |
| Cost of goods sold, including product purchases | | | | | | — | 1 | 1,129 | | | | | (80) | 1,050 |
| Realized gain on commodity-related derivative |
| financial instruments | | | | | | — | — | | | | | (1) | — | (1) |
| Share of profit from equity accounted investees | | | | | | 67 | 12 | | | | | 18 | — | 97 |
| Depreciation and amortization included in operations | | | | | | 58 | 37 | | | | | 15 | (2) | 108 |
| Unrealized gain on commodity-related derivative |
| financial instruments | | | | | | — | — | | | | | (15) | — | (15) |
| Gross profit | | | | | | 360 | 167 | | | | | | | | 100 | 2 | 629 |
| Depreciation included in general and administrative | | | | | | — | — | | | | | — | 13 | 13 |
| Other general and administrative | | | | | | 7 | 4 | | | | | 6 | 46 | 63 |
| Other expense (income) | | | | | | 1 | — | | | | | 2 | (2) | 1 |
| Reportable segment results from operating activities | | | | | | 352 | 163 | | | | | | | | 92 | (55) | 552 |
| Net finance costs | | | | | | 3 | 1 | | | | | 4 | 70 | 78 |
| Reportable segment earnings (loss) before tax | | | | | | 349 | 162 | | | | | | | | 88 | (125) | 474 |
| Capital expenditures | | | | | | 234 | 148 | | | | | | | | 47 | 5 | 434 |
| Contributions to equity accounted investees | | | | | | — | — | | | | | 28 | — | 28 |
| (1) | Pipelines transportation revenue includes $49 million (2019: $10 million) associated with U.S. pipeline revenue. |
| (2) | Marketing & New Ventures includes revenue of $15 million (2019: $95 million) associated with U.S. midstream sales. |
| (3) | During both periods, one customer accounted for 10 percent or more of total revenues, with $164 million (2019: $207 million) reported throughout all segments. |
Pembina Pipeline Corporation Second Quarter 2020 52 |
6 Months Ended June 30 | | | | | Corporate & |
| | | Marketing & New | | Inter-Division |
| Pipelines(1) | Facilities | | Ventures(2) | Eliminations | Total | ($ millions) |
Revenue from external customers | 1,020 | 435 | | 1,484 | | | — | 2,939 |
Inter-division revenue | | | | | | | | 71 | 159 | | | | | | | — | (230) | — |
Total revenue(3) | 1,091 | 594 | | 1,484 | | | (230) | 2,939 |
Operating expenses | | | | | | | | 233 | 182 | | | | | | | — | (82) | 333 |
Cost of goods sold, including product purchases— | 4 | 1,448 | | | (154) | 1,298 |
Realized gain on commodity-related derivative financial instruments—— | | | | | | (53) | — | (53) |
Share of profit from equity accounted investees | | | | | | | | 115 | 30 | | | | | | 3 | — | 148 |
Depreciation and amortization included in operations | | | | | | | | 201 | 104 | | | | | | | 25 | 4 | 334 |
Unrealized gain on commodity-related derivative financial instruments— | (3) | | | | | | (5) | — | (8) |
Gross profit | | | | | | | | 772 | 337 | | | | | | | 72 | 2 | 1,183 |
Depreciation included in general and administrative——— | 19 | 19 |
Other general and administrative | | | | | | | | 10 | 5 | | | | | | 15 | 71 | 101 |
Other expense (income) | | | | | | | | 3 | 1 | | | | | | 12 | (19) | (3) |
Reportable segment results from operating activities | | | | | | | | 759 | 331 | | | | | | | 45 | (69) | 1,066 |
Net finance costs | | | | | | | | 16 | 13 | | | | | | 9 | 243 | 281 |
Reportable segment earnings (loss) before tax | | | | | | | | 743 | 318 | | | | | | | 36 | (312) | 785 |
Capital expenditures | | | | | | | | 457 | 198 | | | | | | | 25 | 14 | 694 |
Contributions to equity accounted investees— | 41 | | | | | | 155 | — | 196 |
6 Months Ended June 30, 2019 | | | | | Corporate & |
| | | Marketing & New | | Inter-Division |
| Pipelines(1) | Facilities | | Ventures(2) | Eliminations | Total | ($ millions) |
Revenue from external customers | | | | | | | | 793 | 377 | | 2,606 | | | — | 3,776 |
Inter-division revenue | | | | | | | | 66 | 169 | | | | | | | — | (235) | — |
Total revenue(3) | | | | | | | | 859 | 546 | | 2,606 | | | (235) | 3,776 |
Operating expenses | | | | | | | | 190 | 167 | | | | | | | — | (83) | 274 |
Cost of goods sold, including product purchases— | 2 | 2,394 | | | (152) | 2,244 |
Realized gain on commodity-related derivative financial instruments—— | | | | | | (20) | — | (20) |
Share of profit from equity accounted investees | | | | | | | | 146 | 24 | | | | | | 23 | — | 193 |
Depreciation and amortization included in operations | | | | | | | | 115 | 76 | | | | | | 32 | 1 | 224 |
Unrealized loss on commodity-related derivative financial instruments—— | | | | | | 30 | — | 30 |
Gross profit | | | | | | | | 700 | 325 | | | | | | | 193 | (1) | 1,217 |
Depreciation included in general and administrative——— | 22 | 22 |
Other general and administrative | | | | | | | | 17 | 9 | | | | | | 19 | 83 | 128 |
Other expense (income) | | | | | | | | 2 | — | | | | | | 3 | (1) | 4 |
Reportable segment results from operating activities | | | | | | | | 681 | 316 | | | | | | | 171 | (105) | 1,063 |
Net finance costs | | | | | | | | 5 | 3 | | | | | | 1 | 148 | 157 |
Reportable segment earnings (loss) before tax | | | | | | | | 676 | 313 | | | | | | | 170 | (253) | 906 |
Capital expenditures | | | | | | | | 426 | 260 | | | | | | | 102 | 7 | 795 |
Contributions to equity accounted investees— | 26 | | | | | | 92 | — | 118 |
(1) Pipelines transportation revenue includes $108 million (2019: $22 million) associated with U.S. pipeline revenue. |
(2) | Marketing & New Ventures includes revenue of $65 million (2019: $158 million) associated with U.S. midstream sales. |
(3) | During both periods, one customer accounted for 10 percent or more of total revenues, with $301 million (2019: $438 million) reported throughout all segments. |
53 | Pembina Pipeline Corporation Second Quarter 2020 |
13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
| | | Pension and |
| | | other Post- |
| Currency | Cash Flow | Retirement |
| Translation | Hedge | Benefit Plan |
($ millions) | Reserve | Reserve | Adjustments(2) | Total |
Balance at December 31, 2018 | 348 | | | | — | (31) | 317 |
Other comprehensive loss before hedging activities | (161) | | | | — | — | (161) |
Balance at June 30, 2019 | 187 | | | | — | (31) | 156 |
Balance at December 31, 2019 | 134 | | | | — | (36) | 98 |
Other comprehensive gain before hedging activities | 253 | | | | — | 14 | 267 |
Other comprehensive gain (loss) resulting from hedging activities(1) | | | | | | | 11 | (1) | — | 10 |
Tax impact | | | | | | | (1) | — | — | (1) |
Balance at June 30, 2020 | 397 | | | | (1) | (22) | 374 |
(1) | Amounts relate to hedges of the Company's net investment in foreign operations (reported in Currency Translation Reserve) and interest rate derivatives designated as cash |
flow hedges (reported in Cash Flow Hedge Reserve)(Note 14). |
(2) | Pension and other Post-Retirement Benefit Plan Adjustments will not be reclassified into earnings. |
14. FINANCIAL INSTRUMENTS & RISK MANAGEMENT |
Risk Management |
Hedge of Net Investment in Foreign Operations |
On May 7, 2020, Pembina designated the U.S. $250 million non-revolving term loan it entered into as a hedge of the Company's net investment in selected U.S. functional currency foreign operations. The designated debt has been assessed as having no ineffectiveness as the U.S. dollar debt has an equal and opposite exposure to U.S. dollar fluctuations. Foreign exchange gains and losses on the designated debt are recognized in the currency translation reserve in accumulated other comprehensive income (refer to Note 13). |
Interest Rate Risk - Cash Flow Hedge |
On May 8, 2020, Pembina designated financial derivative contracts that fix the interest rate on U.S. $250 million of variable rate debt as cash flow hedging instruments. The designated cash flow hedge has been assessed as having no ineffectiveness as the critical terms are aligned. Unrealized gains (losses) on derivatives in designated cash flow hedging relationships are recognized in the cash flow hedge reserve in accumulated other comprehensive income, with realized gains (losses) being reclassified to net finance costs (refer to Note 13). |
54 | Pembina Pipeline Corporation Second Quarter 2020 |
Fair Values |
The fair values of financial assets and liabilities, together with the carrying amounts shown in the condensed consolidated interim statements of financial position, are shown in the table below. Certain non-derivative financial instruments measured at amortized cost including cash and cash equivalents, trade receivables and other, finance lease receivables, advances to related parties and trade payables and other have been excluded because they have carrying amounts that approximate their fair value due to the nature of the item or the short time to maturity. These instruments would be classified in Level 2 of the fair value hierarchy. A financial guarantee included in other liabilities has a carrying amount that approximates fair value at the reporting date due to the nature of the underlying development project and is classified in Level 3 of the fair value hierarchy. |
| June 30, 2020 | December 31, 2019 |
| Fair Value(1) | | | | Fair Value(1) |
| | | Carrying | Carrying |
| | | Value | Value | ($ millions) | Level 1 | | | | | Level 2 | Level 3 | Level 1 | | | Level 2 | | | Level 3 |
Financial assets carried at fair valueDerivative financial instruments(3) |
| | | | | | | | | 76 | — | | | | | 76 | — | | | | | | 48 | — | | | | | | | | | 48 | — |
Financial liabilities carried at fair valueDerivative financial instruments(3) |
| | | | | | | | | 29 | — | | | | | 29 | — | | | | | | 9 | — | | | | | | 9 | — |
Financial liabilities carried at amortized costLoans and borrowings(2) |
| | | 10,774 | — | | | | | 11,532 | — | 10,152 | — | | | 10,729 | | | — |
(1) | The basis for determining fair value is disclosed in Note 2. |
(2) | Carrying value of current and non-current balances. |
(3) | At June 30, 2020 all derivative financial instruments are carried at fair value through earnings, except for $1 million in interest rate derivative financial liabilities that have been |
designated as cash flow hedges (December 31, 2019: $nil) |
15. COMMITMENTS AND CONTINGENCIES |
Commitments |
Pembina had the following contractual obligations outstanding at June 30, 2020: |
Contractual ObligationsPayments Due by Period |
($ millions) | | | Total | Less than 1 Year | | | | | | 1 – 3 Years | 3 – 5 Years | | | | | | | | | After 5 Years |
Leases(1) | | | 1,111 | | | 132 | 229 | 177 | | | 573 |
Loans and borrowings(2) | | | 16,362 | | | 931 | 2,633 | 2,412 | | | | | | 10,386 |
Construction commitments(3) | | | 1,568 | | | 416 | 284 | 291 | | | 577 |
Other(4) | | | 599 | | | 103 | 152 | 83 | | | 261 |
Total contractual obligations | | | 19,640 | | | 1,582 | 3,298 | 2,963 | | | | | | 11,797 |
(1) | Includes terminals, rail, office space, land and vehicle leases. |
(2) | Excluding deferred financing costs. Including interest payments on senior unsecured notes. |
(3) | Excluding significant projects that are awaiting regulatory approval, projects which Pembina is not committed to construct, and projects that are executed by equity accounted |
investees. |
(4) | Includes $38 million in commitments related to leases that have not yet commenced. |
Pembina enters into product purchase agreements and power purchase agreements to secure supply for future operations. Purchase prices of both NGL and power are dependent on current market prices. Volumes and prices for NGL and power contracts cannot be reasonably determined and therefore an amount has not been included in the contractual obligations schedule. Product purchase agreements range from one to 10 years and involve the purchase of NGL products from producers. Assuming product is available, Pembina has secured between 35 and 175 mbpd of NGL each year up to and including 2029. Power purchase agreements range from one to 25 years and involve the purchase of power from electrical service providers. Pembina has secured up to 80 megawatts per day each year up to and including 2044. |
55 | Pembina Pipeline Corporation Second Quarter 2020 |
| Commitments to Equity Accounted Investees | |
| Pembina is contractually committed to provide CKPC with funding to construct assets that will form part of CKPC's PDH/PP Facility, subject to certain conditions being met. Following CKPC's decision to defer investment in the PDH/PP Facility, Pembina has deferred future contributions to CKPC. |
| Pembina has a contractual commitment to advance U.S. $23 million to Ruby by March 31, 2021. |
| Pembina has commitments to provide contributions to certain equity accounted investees based on annual budgets approved by the joint venture partners. |
| Contingencies |
| Pembina, its subsidiaries and its investments in equity accounted investees are subject to various legal and regulatory and tax proceedings, actions and audits arising in the normal course of business. We represent our interests vigorously in all proceedings in which we are involved. Legal and administrative proceedings involving possible losses are inherently complex, and we apply significant judgment in estimating probable outcomes. While the outcome of such actions and proceedings cannot be predicted with certainty, management believes that the resolutions of such actions and proceedings will not have a material impact on Pembina's financial position or results of operations. |
| Letters of Credit |
| Pembina has provided letters of credit to various third parties in the normal course of conducting business. The letters of credit include financial guarantees to counterparties for product purchases and sales, transportation services, utilities, engineering and construction services. The letters of credit have not had and are not expected to have a material impact on Pembina's financial position, earnings, liquidity or capital resources. |
| At June 30, 2020 Pembina had $94 million (December 31, 2019: $103 million) in letters of credit issued to facilitate commercial transactions with third parties and to support regulatory requirements. |
Pembina Pipeline Corporation Second Quarter 2020 56 |
HEAD OFFICEPembina Pipeline CorporationSuite 4000, 585 – 8th Avenue SWCalgary, Alberta T2P 1G1 |
AUDITORSKPMG LLPChartered AccountantsCalgary, Alberta |
TRUSTEE, REGISTRAR & TRANSFER AGENTComputershare Trust Company of CanadaSuite 600, 530 – 8th Avenue SWCalgary, Alberta T2P 3S81.800.564.6253 |
STOCK EXCHANGEPembina Pipeline Corporation |
Toronto Stock Exchange listing symbols for:COMMON SHARES PPLPREFERRED SHARES PPL.PR.A, PPL.PR.C, PPL.PR.E, PPL.PR.G, PPL.PR.I, PPL.PR.K, PPL.PR.M, PPL.PR.O, PPL.PR.Q, PPL.PR.S, PPL.PF.A, PPL.PF.C and PPL.PF.E |
New York Stock Exchange listing symbol for:Common shares PBA |
INVESTOR INQUIRIESPhone 403.231.3156Fax 403.237.0254Toll Free 1.855.880.7404Email investor-relations@pembina.comWebsite www.pembina.com |
www.pembina.com |