Pembina's Pipeline Potential

10/02/2018 5:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Since going public more than 20 years ago, Pembina Pipeline Corp. (PBA) — a holding in our conservative portfolio — has raised its distribution every year with no cuts, asserts income expert Roger Conrad, editor of Conrad's Utility Forecaster.

That includes years of sub-$10 per barrel oil and $1 per thousand cubic foot gas, price differentials between Canadian and US oil of $50 a barrel, the financial crisis and recession of 2007-09 and the Canadian government’s death sentence for income trusts, of which the company was one.

That’s an extraordinary record. And Pembina has accomplished it while growing its asset base by 20-fold since the end of 2002. Last year’s acquisition of the former Veresen added numerous choice gathering systems for gas and NGLs as well as stakes in the Alliance and Ruby pipeline systems.

The deal boosted the long-term, secure contracted portion of Pembina’s revenue streams, while opening up new opportunities to spur Canada’s moribund energy exports.

With a less than $17 billion market cap versus $63 billion for EPD, there’s plenty of room for Pembina to find projects that will significantly move the profit meter. Cash from operating activities per share surged 47.9 percent in the first six months of 2018. It continues at a robust pace in the second half of the year as management brings new projects on stream, many ahead of schedule and under budget.

Ironically, Pembina shares turned lower following its strong results. Aside from the lower Canadian dollar, likely blame goes to lower oil prices amid trade concerns and a Canadian court ruling delaying the Trans Mountain pipeline expansion, which Ottawa owns.

Pembina, however, has little exposure to pipeline delays, thanks to capacity based contracts with oil sands producers in it for the long haul. The upshot is nothing has changed. Now is a great time to buy Pembina up to our buy target of USD35.  

Pembina has no K-1. There’s no withholding of dividends for IRA accounts, non-IRAs can recover 15 percent withholding tax filing a Form 1116.

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