Pembina Earnings: Wildfires and Pipeline Outages Trim Outlook

Pembina’s PPL second-quarter earnings were weak, as the ongoing Canadian wildfires and reduced operating pressure on the Northern pipeline system until mid-May hurt results. Pembina narrowed its 2023 EBITDA outlook to a range of $200 million from $300 million, effectively removing some earnings upside, while maintaining a midpoint of CAD 3.65 billion. We will maintain our 2023 EBITDA CAD 3.7 billion forecast, our CAD 41 per share fair value estimate, and no moat rating. Our USD fair value estimate moves up slightly to USD 31 per share due to refreshed exchange rates.

Overall, second-quarter EBITDA fell 3% from last year’s levels to CAD 823 million, primarily due to volume impacts as overall Pembina volumes fell 5% from last year’s levels. The impact was a mix of less-frequent items and more normal seasonal effects. The Northern pipeline system released natural gas liquids in mid-January and operated under reduced pressures from February to May. The negative EBITDA impact here was CAD 23 million for the second quarter. Wildfire impacts on Pembina assets and its customers’ operations hurt operations by another CAD 24 million. From a seasonal perspective, Pembina’s natural gas liquids marketing business was negatively affected as typical in the second quarter and volumes fell about 7% from last year’s levels.

Fortunately, at this point in the third quarter, volumes have generally recovered to normal levels. Full-year pipeline volumes are expected to be 4% higher than 2022 levels. However, we’d expect weaker oil, gas, and natural gas liquids pricing to pressure marketing volumes and profits for the rest of the year, offsetting some of the volume-driven earnings.