Pembina Pipeline Corp. (PBA) engages in the provision of transportation and midstream services; the company was founded in 1954 and is headquartered in Calgary, Canada, observes Robert Rapier, editor of Investing Daily's Utility Forecaster.
The firm's Pipelines segment includes conventional, oil sands and transmission pipeline systems, crude oil storage and terminalling business and related infrastructure.
The Facilities segment consists of processing and fractionation facilities and related infrastructure that delivers the firm’s customers with natural gas and NGL services.
The Marketing and New Ventures segment undertakes value-added commodity marketing activities including buying and selling products and optimizing storage opportunities.
Pembina’s more than 11,000 miles of pipelines can move 3.5 million barrels of oil equivalent (boe) per day across the energy-rich provinces of Western Canada to parts of the Upper Midwest. The company’s extensive natural gas gathering footprint feeds into 19 gas-processing facilities with 6 billion cubic feet per day of capacity.
Pembina’s businesses are highly contracted, with the vast majority under long-term, take-or-pay agreements with creditworthy counter-parties. These types of fee-based contracts mean that Pembina still gets paid even if a customer chooses not to fully utilize its contracted capacity.
Additionally, the company has diversified its business mix, and its integrated assets now comprise most of the hydrocarbon value chain. The resulting scale gives Pembina a competitive edge when securing new contracts with producers, while also affording the flexibility to respond to different operating environments.
In addition to the fact that Pembina is organized as a corporation, it enjoys other favorable characteristics relative to its MLP peers. For one, Pembina has generally been far more conservative on the financial front than its MLP cousins.
Equally important, Pembina covers its dividend by a comfortable 1.7 times, based on adjusted cash flows from operations over the previous quarter. And speaking of the dividend, Pembina pays its dividends monthly, which is rare among corporations.
Pembina did take a hit last year when the pandemic caused the price of oil to plummet. Sales pulled back, but the company still managed to increase EBITDA to a record $2.6 billion (U.S.). This was remarkably still within the range of pre-pandemic guidance. Over the past five years, Pembina’s EBITDA has increased at an average annual rate of 21.2%.
Pembina has also grown through acquisitions, with a number of high-profile purchases in recent years. Most recently, the company announced that it would acquire Inter Pipeline to create one of the largest energy infrastructure companies in Canada.
This transaction will be immediately accretive to cash flow, and the company estimates annual synergies of ~$150 million. The transaction is expected to close in Q4 of this year, at which point Pembina will increase its dividend by 4.8%.
Pembina currently yields 6.2% and is a buy in the Income Portfolio up to $33 a share.
