Ladies and gentlemen, thank you for standing by, and welcome to the Pembina Pipeline Corporation 2020 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Scott Burrows, Senior Vice President and Chief Financial Officer. Thank you. Please go ahead.

Thank you, Chris. Good morning, everyone, and welcome to Pembina's conference call and webcast to review highlights from the first quarter of 2020. I'm Scott Burrows, Senior Vice President and Chief Financial Officer. On the call with me today are Mick Dilger, President and Chief Executive Officer, Jason Wiun, Senior Vice President and Chief Operating Officer, Pipelines, Jaret Sprott, Senior Vice President and Chief Operating Officer, Facilities, and Stu Taylor, Senior Vice President, Marketing, New Ventures and Corporate Development Officer. I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina's current expectations, estimates, judgments, and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations. Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see the company's various financial reports, which are available at pembina.com, and on both SEDAR and EDGAR. Let me start by saying we hope everyone and their families are safe, healthy, and finding a way to manage through these uniquely difficult times. In addition to those impacted by the pandemic, the residents of Fort McMurray are top of mind with the recent flooding in that city. Pembina is pleased to be supporting the community with donations to both the Wood Buffalo Food Bank and the Red Cross fund for flood relief efforts. It's a challenging time for everyone, both professionally and personally, yet each day, we are feeling a bit more optimistic. There is evidence here in Alberta that we have successfully flattened the curve of the COVID-19 pandemic, and we are perhaps past the peak. Parts of the economy are starting to open up, with various jurisdictions putting plans in place to cautiously do more. As well, both our share price and oil price are well off their lows. While the road to recovery could be long and bumpy, we can all be excited that progress is being made. Today, Pembina has delivered strong quarterly financial and operational results as we have completed our first full quarter with the benefit of the recent acquisition of Kinder Morgan Canada and the Cochin pipeline. Earnings of $314 million during the quarter were in line with the same period last year. While we benefited from the contribution of additional assets from the Kinder acquisition, this was offset by lower margins on crude oil and NGL sales in our marketing business despite higher unrealized gains on commodity-related derivatives. Also, net finance costs increased during the quarter. However, the increase was primarily attributable to unrealized foreign exchange losses associated with the decrease of the Canadian dollar relative to the US dollar to the tune of approximately $100 million or $0.18 per share. Adjusted EBITDA in the quarter was $830 million, a 7% increase compared to the same period last year. In addition to the contribution from new assets following the Kinder acquisition, Pembina saw increased revenue volumes on the Peace Pipeline system. These positive contributions were partially offset by lower margins on crude oil and NGL sales in the marketing business as a result of a sharp decline in commodity prices during the first quarter of 2020 and a lower contribution from Alliance due to narrower AECO-Chicago natural gas price differentials driving lower interruptible volumes. While the first quarter results are indeed strong and reflective of the hard work our teams have done in executing Pembina's strategy, we know the impact of COVID-19 pandemic and the resultant decline in global energy prices will begin to materialize more fully in subsequent quarters. Pembina and its customers, employees, communities, and investors are rightfully focused more on the future than in the past, and we have previously announced Pembina has taken decisive action to protect all of its stakeholders. Since early March, Pembina has taken significant action to respond to the current crisis. We took the necessary steps to protect human health and support government and community efforts to slow down the spread of the COVID-19 virus. In line with recommendations from health authorities, Pembina restricted business travel, canceled large group meetings, and required non-essential employees and contractors who can work from home to do so. Pembina was classified by the government as an essential service. We determined the essential staff and critical infrastructure required to ensure uninterrupted service to customers while maintaining the safety of our assets, employees, and other stakeholders. Pembina has not experienced any operational disruptions to its assets as a result of COVID-19. And we announced the deferral of some of our capital projects to reflect current market realities and uncertainty over the duration of this downturn. Additional discretionary capital investment has also been removed from Pembina's 2020 capital budget. The result is a $900 million to $1.1 billion reduction to the company's 2020 capital investment plans. These reductions will be directed toward reducing Pembina's leverage and enhancing its financing position. The remaining CapEx program remains self-funded. Importantly, these cost reduction measures will have no impact on Pembina's existing asset base or its ability to continue to operate safely and reliably. The decision to continue spending on the remaining projects was informed by the fact that all were well advanced or nearing completion and therefore expected to contribute incremental adjusted EBITDA in the near future. By contrast, the deferred projects were in the early stages of planning or construction. Planning, engineering, and regulatory work done to date on the deferred projects will allow Pembina to resume these projects to meet customers' needs when global energy prices and the broader economic environment are supportive. This recent action complements our long-standing commitment to our financial guardrails, which have positioned Pembina well to address today's challenging business environment. To recap the key points underlying Pembina's resiliency, we are currently benefiting from the following. First, the underlying business remains highly contracted, with between 90% and 95% of 2020 adjusted EBITDA supported by long-term, fee-based contracts, including approximately 68% to 72% coming from cost-of-service or take-or-pay arrangements. This is coupled with a payout ratio and fee-based cash flows that more than cover its dividend. Second, direct commodity exposure in Pembina's business is limited to the Marketing & New Ventures division, and we have hedged approximately 50% of Pembina's frac spread exposure in 2020 and 35% in 2021, excluding Aux Sable. Third, approximately 80% of the company's credit exposure is with investment-grade and split-rated counterparties or with counterparties secured by letters of credit. And non-investment-grade and split-rated counterparty exposure is well diversified across industries. Fourth, the balance sheet is strong. Pembina is fully committed to protecting its BBB rating. We are currently rated BBB with stable outlook by both Standard & Poor's and BBB with stable trend by DBRS. Both agencies have publicly affirmed those ratings within the past two weeks. Finally, the company has ample liquidity, with $2.5 billion of available cash and borrowing capacity, including a new $800 million revolving credit facility Pembina recently announced and the proceeds from a 5-year $250 million nonrevolving term loan that we announced yesterday. With a recent May note repayment, we have no further maturities in 2020. Given the challenging circumstances facing us, we feel we have taken the steps necessary to protect Pembina's financial position, and we are demonstrating the strength and the resiliency of Pembina's diversified and integrated business during the most difficult period of Pembina's history. In addition to our own actions, we are carefully monitoring our customers' responses. As energy prices have fallen, our producing customers have drastically reduced their capital spending plans, which will result in slower growth or declining volumes. While we expect some of the volume declines across our system, much of Pembina's business is protected by strong contracts. Overall, we expect the impact to 2020 adjusted EBITDA in the Pipelines and Facilities division to be modest. We do, however, expect the marketing business will be more negatively impacted by the rapid and significant decline in energy prices. In light of these headwinds to the business, we have implemented approximately $100 million of operating and administrative cost savings throughout the business. Overall, considering all these factors together, Pembina continues to expect 2020 adjusted EBITDA to remain within the previously disclosed guidance range, albeit, we expect to be near the low end of the range based on our current forecast. While we have factored in reduced volumes and lower commodity prices, as I've mentioned previously, the duration of the current situation and large-scale shut-ins could cause Pembina to fall below the low end of the guidance range. In closing, it is worth remembering that Pembina has faced adversity before and always emerged strong. We faced the 2008-2009 financial crisis and the 2015-16 energy price collapse and remained resilient throughout these cycles. Thanks to our financial guardrails and decisive actions to defer capital spending, Pembina has the balance sheet strength and liquidity to weather the current storm and ensure that upon a return to more normal economic conditions and higher energy prices, Pembina will be ready to continue its long track record of delivering value to all stakeholders. Before we wrap things up, I want to inform you that in light of the current circumstances, Pembina will not be holding its Annual Investor Day, which we were looking forward to presenting in early June. We will continue to evaluate our options for rescheduling this event in the future. We do, however, look forward to providing an update at our AGM, which is held today at 2:00 p.m. Mountain time, 4:00 p.m. Eastern Time. This year, the AGM will be held as a virtual-only meeting which will be conducted via live audio webcast. Participants are recommended to register for the virtual webcast at least 10 minutes before the presentation start time. For further information on Pembina's virtual AGM, including a copy of the AGM presentation, please visit the Shareholder Information page under the Investor Center tab at www.pembina.com. We would once again like to thank all of our stakeholders for their support. With that, we'll wrap things up. Chris, please go ahead and open the line for questions.

Your first question comes from Jeremy Tonet of JP Morgan.

I just want to go into the assumptions in your guidance a little bit more, if that's possible. When we think about slowing activity, possibly curtailment, are you able to share kind of any more color as far as like the depth and duration that might be kind of baked into ranges in your guidance? And I guess, what levels would push you below that bottom end there?

Jeremy, we've studied what's going on in the market, and we've done quite a forensic analysis around where the shut-ins might happen, what the impact on diluent demand is, and what the impact on gas demand is associated with reduced diluent. And so quite a comprehensive customer-by-customer analysis, including their liquidity and ability to execute through these difficult times. So all that thinking went into our guidance. Clearly, we didn't take our guidance lightly, but we do reaffirm where we are.

Fair enough. I understand. I'm just curious about your discussions with producer customers regarding whether they are requesting any actions to help them out, such as blending and extending contracts or changing contract terms. I’m trying to grasp what you are observing in the market.

We do have some end balances, as you would expect, everything from reductions on subleases to blend and extends to lower fees. And of course, we're willing to consider all requests. But our view is they have to be a bargain. Pembina is not going to be the shock absorber for the whole industry. But we are open to making bargains, and it will depend on each customer, their creditworthiness, how large of a customer they are, where they are, what our capabilities are. So it is on a case-by-case basis. But we just can't transfer wealth from our stakeholders to their stakeholders. That just can't happen. We need to defend ourselves.

That makes sense. Just one last question, if I may. I wanted to inquire about the possibility of asset sales and whether you have any broader thoughts on mergers and acquisitions in the industry, especially considering the current dislocation and in light of your recent purchase with KML. Is everything progressing as planned regarding integration and synergy expectations, particularly since things have changed due to COVID-19? I'd appreciate any insights you can share on that.

Yes, absolutely. Starting in reverse order, I'm humbled and amazed by what has been happening during these remote operations. We've maintained an excellent safety record and our reliability is at an all-time high. We've successfully moved every MCF of gas and every barrel of oil that was tendered. The integration with Kinder is completely on track, and the synergies are developing well. One of the last items on our agenda is training U.S.-based operators remotely. The Kinder integration has proceeded smoothly, and we handled the quarter's challenges effectively. Projects in the field are ongoing and performing well. It's astonishing what we've accomplished, particularly in stabilizing our balance sheet and enhancing our liquidity. Following our board meeting, I communicated to the team that our stabilization efforts are now officially concluded, allowing us to return to our primary focus, which is generating profits. We are looking ahead, and I'm confident that shareholders and all stakeholders appreciate the decisions we made. Now it's time to fully engage once again, and we will explore all opportunities.

Got it. That’s very helpful. That’s it from me. Thanks.

Your next question comes from Matt Taylor of Tudor, Pickering, Holt. Your line is open.

Hey good morning guys. Thanks for taking my questions. Just following up there on Jeremy's question. If you mind, can you just give a bit more detail there, especially on the level of pricing weakness duration that you're assuming and then a bit more on what you mean by large-scale shut-ins? And the reason I'm asking is, one of your competitors was out saying Canadian shut-ins could be as high as $1 million to $1.5 million in the near term. So any further thoughts there would be most helpful.

We have conducted a detailed analysis on a customer-by-customer basis. Our team is constantly interacting with customers, so we take into account market conditions and individual customer insights. Since our last update, we have specifically examined diluent demand and gas processing volumes to understand when disruptions in diluent supply might occur. For instance, we looked at whether Southern Lights would shut down before Cochin or if there would be a decline in diluent demand from WCSB. We have thoroughly assessed this situation and feel confident in our previous statements. Regarding the shut-in terminology, I understand it raised concerns, but please don’t take it as an indication that we lack confidence in our forecasts; we do stand by our guidance. We used those terms to address worst-case scenarios, acknowledging that while a complete shutdown of Enbridge is a possibility, it's not very likely.

I would just add, in terms of the question around duration, the way we modeled it, I would say, extremely similar to what we're seeing as kind of all third-party analysis and what peers are generally looking at, which is Q2 is probably going to be the hardest hit with a recovery through Q3 and then through Q4. So we're not assuming Q2 is the worst, and it stays that way. We are assuming some recovery through Q3 and Q4.

But again, those are things we're guessing at. Those are based on what we know from our customers.

That's great. That's really helpful. And just to help clear the air a bit. Can you provide some thoughts just on what your expectation is on base level EBITDA? Because, I mean obviously, your assets are highly contracted. So even if there is some potential downside there, just framing that against the backdrop of highly contracted assets.

Yes, definitely. If you take a step back, we started the year without much support from our marketing team, and their involvement has since decreased. Currently, we are operating at about 90% to 95% fee-for-service, likely closer to 95%. We are at a level where our agreements provide us with protection. This gives us solid resilience based on the creditworthiness and liquidity of our customers, which appears to be stable. I hope this information helps, and I believe we will begin to see some stability around these levels.

That's great. One more, if I may. Then on PDH/PP, the other major project in the province is looking for a partner. Can you just address that? Is there anything you'd be willing to combine there? Or is there any contractual provision that prevents your partner from moving over to that project, which is, as everyone knows, is currently under construction versus staying with your currently deferred project?

In terms of our project, the first priority was to safely defer all the projects that Scott discussed. We moved forward with the ones that were well advanced and could be executed safely in the current market, which will provide incremental EBITDA once operational. The second priority was to safely defer the earlier-stage projects, like Phase 7, 8, 9, and the petrochemical project. We have invested hundreds of millions of dollars into those projects, and we want to protect that investment so that when we advance them, the value remains intact and we avoid capital loss. We have reached a mutual understanding with our Kuwaiti partners on how to approach this. Our teams are committed to safeguarding that value. We have successfully protected Pembina and are currently very resilient. Your question is something we couldn't have anticipated until now. We are aware of the situation and maintain a strong relationship in our pipeline, but our current focus is on bringing our project back at the appropriate time.

Your next question comes from Linda Ezergailis of TD Securities.

Switching to your cost savings. I'm wondering, first of all, how much of that $100 million is already reflected in Q1. And if it's not fully reflected, which I'm assuming it's not, how might we think of the ramp over the year? How much might be deferred versus sustainable prospectively, i.e., temporary versus permanent? And can you just also confirm that it's all incremental to any sort of previously identified synergies relating to Kinder Morgan Canada and the Veresen integration?

Yes, Linda, the $100 million was an internal target we established and we view it as a permanent saving. This saving applies to the remainder of this year and does not overlap with any Kinder Morgan synergies, which I believe is your main concern. It is genuinely incremental and primarily stems from us reducing our investment plan by $1 billion. It takes a lot of skilled individuals to effectively invest that amount, but we are unlikely to pursue that this year. Looking ahead to next year, you may wonder if the $100 million relates to the $712 million for this year and, by the way, none of it was recognized before this reporting period. The question is whether this could be more sustainable annually next year. While I don’t want to delve too deeply into future projections, I believe we can maintain most of this for the foreseeable future.

That's helpful. And recognizing that your reporting systems might be a little bit more challenging to access remotely while everyone's working safely, I'm wondering if you could give us a sense of what April looked like for your marketing business. Did you see any sort of reductions in volumes on the condensate side, whether it's in Cochin or on your local production? Can you talk about your NGL contracting year and how things might have shifted versus the attributes of the contracts that you established on April 1st this year versus last year?

That's a fair amount of detail. I don't know if we can dive into that. But Linda, what we're seeing week-by-week is more favorable than people might expect. There's a lot of media coverage on declining volumes, but if you zoom out and consider, for instance, the curtailment program initiated by the Alberta government, which involved 0.5 million barrels, that had no impact on Pembina. We will discuss this more at the AGM, but we are surprisingly resilient given our product mix. Our oil sands pipelines, for example, consist of synthetic crude and cost of service, which are not affected. We have limited interactions with producers beyond diluent supply, and Southern Light seems to act as the initial buffer for that diluent demand disruption. Our systems like Cochin are protected by agreements, so if we begin to reduce that supply as a secondary measure, we're still safeguarded. When you analyze it closely, we prove to be very resilient. Regarding our marketing business, I don't want to look too far ahead. April appears similar to March, but it seems to be improving slightly. However, it's quite volatile, and we can't predict with certainty. Please keep in mind that it only represents about 5% to 7% of our current forecasts.

Okay. Just as a follow-up on your marketing. You're always finding different ways to make money under different market conditions. And I'm just wondering, one of the opportunistic aspects that might manifest itself, but might not, is around storage and maybe finding opportunities for the industry to potentially store product crude in unused pipelines in your system or anything like that. Are you seeing any opportunity to kind of bring back asset capacity to help the industry, or is that something that's not really a possibility?

I commend Enbridge for their innovative approach to using a large out-of-service pipeline for storage. I think that was a fantastic idea and a great illustration of how infrastructure companies can collaborate with exploration and production companies. We have 30 million barrels of storage, and our teams are making significant efforts. We're exploring whether we can use storage typically designated for NGLs for crude, and if we can utilize storage normally reserved for operations in the upcoming months. We're also looking into whether we have tanks that are fully leased but not at capacity and whether subleasing could be an option. You're raising a valid point; these are some of the opportunities that may enhance our resilience, and we're not currently incorporating much positive news into our guidance. However, there will certainly be some positive developments if more negative news arises.

I'll just quickly add that we've taken steps to optimize our storage capacity in many cases, and it’s not going unused. The team is actively seeking opportunities, and as Mick mentioned, there is some spare space that is not currently utilized. We're examining that. We have contracts in place, and that's the model we've adopted. As those contracts come to an end, we'll reassess how we're managing that capacity. For now, we've maximized most of our available capacity and are focusing on what isn’t currently being utilized.

And Linda, regarding your question about the savings, some of that savings occurred in the first quarter when we take into account our compensation plans and similar factors. Clearly, this isn't going to be the best year for our staff in terms of compensation. Our plans are structured to adjust when we don't deploy all the capital we intended, and since we are at the low end of the range rather than the middle or high end, our compensation plans reflect that. Therefore, some of that was already reflected in the first quarter based on those results, but not to a great extent.

Thank you. Appreciate the context. I'll jump back in the queue.

Your next question comes from Patrick Kenny of National Bank Financial. Your line is open.

Hey guys. Hope everyone is keeping well. If we assume that quite a few of your Montney customers will be accessing the $100 million federal EDC loan program which obviously, they'll need to pay back in 12, 18, 24 months. Wondering if that relatively urgent need for them to raise cash and delever presents a unique opportunity for you guys to not go on the offense or anything but acquire some higher quality gas processing infrastructure from certain producers as part of any take-or-pay contract renegotiation while, as you say, making sure you don't transfer any wealth in the process.

Yes. I mean you wouldn't believe the number of ideas that we all have on what's possible in this market, but we've been focused mainly getting ourselves here and being able to stabilize the company. We've got tremendous balance sheet flexibility. I think, as I said, we're sticky on our ability to make money. But you make a fair point. Whenever you get in these situations, the difficult thing to know is what's the right amount to pay. I think the market right now for example, is wondering what multiple Pembina to have, what multiple Enbridge ought to have. And is there a new world, like on one hand, you've got conflicting signals. Stable dividends are worth more because interest rates are low, so that should push valuations up. But then you have a backdrop of how long is the demand destruction going to last offsetting that. You have generally lower growth. So those are things that the market's got to figure out, and we're trying to figure out. And so if there were a good gas plant opportunity, I don't know what to pay for that right now. So that's one of the things we've got to grind through here as we come out and transition from our always top-of-mind defense to offense. But certainly, that could be a capability.

Right. Yes. And kudos you guys for all the actions on the liquidity front and sustaining the BBB flat credit rating there as well with stable outlook. Just moving over to the marketing side. So 30%, 35% hedged, I guess, on the frac spread for '21. Not sure if there'll be an opportunity to move that up through the back half of the year. But at the same time, we're seeing the propane market has tightened up a little bit here. So just curious if your marketing team is able to take advantage of some seasonal arbitrage on the curve right now which could help support your marketing cash flows into next winter and into 2021.

Thanks, Pat. I'll start with that. We have a systematic hedging program aimed at achieving 50% hedged by around October 2021 when we finalize our budget. By that point, we expect to be about 10% hedged for 2022 as well. We will continuously roll in hedges throughout the year. You're highlighting an important point regarding propane. Currently, we're adding inventory at a relatively low cost. As Mick mentioned, our discussion today has focused on potential downsides, but we should also consider possible upsides. With our marketing business contributing roughly 5% of our EBITDA based on the current forecast, there isn’t much left to gain. Any price improvements could lead to significant positive shifts. Moreover, with U.S. propane inventories decreasing substantially and Canada having low levels, there is certainly a chance for an upswing in propane. Now, I'll pass it over to Stu to see if he would like to add any additional insights.

Yes, we are monitoring it, Pat. Currently, we have the chance to obtain the product at a very low cost, and we believe there is potential for some upside in that commodity in the near future, which we are keeping an eye on closely. We are reviewing this on a daily basis and planning accordingly, as Scott mentioned. We are optimistic as we are noticing some increases in pricing.

We have a lot of capacity available right now to store through the summer and sell through the winter, which is different from the oil situation. It's important to remember that we are only 40% oil and condensate as a company. Some of our other businesses are based on gas economics, and ethane demand is staying relatively strong. While propane and butane aren't performing fantastically at the moment, we're not selling them right now, as we typically store most of that in the summer. There’s a complex and resilient picture of how Pembina generates revenue when you look at the details.

Okay. That's great color. And last cleanup question, if I could. Just on Alliance, if we can get an update on both the recontracting process to extend commitments beyond 2020. And then also the Bakken expansion, just given the pullback in North Dakota production, what's the status there and when we might see the need for incremental takeaway capacity?

So I'll start with this is Jason, Pat. The slowdown in crude oil development in the Bakken has clearly affected the associated gas, making it more challenging to maintain progress on that expansion. For now, I would say that project faces more challenges than it did last year. However, flaring gas in the Bakken remains a significant issue, and Pembina was preparing to engage with some officials on that front. Unfortunately, due to the current environment, we haven't been able to proceed with those discussions, but we are ready to initiate them throughout the summer. Regarding recontracting, several contracts renew annually, and some of those were renewed last year. We are also in discussions with various customers regarding expansions. In the first quarter of the year, conversations on this have been rather quiet due to recent events. Fundamentally, I don't believe there have been major changes. Currently, the price spreads between Alberta and Chicago are not very favorable. Alberta prices look promising, but as we look toward winter and 2021, those spreads are expected to increase. Therefore, we see potential long-term strength in the Alliance concerning recontracting.

Hey Pat, Jaret here. Also, any disruption that we have seen on the processing side in the Bakken through the Aux Sable assets hasn't been due to fundamentals. It's been that the customers haven't been able to access storage, so it's kind of a short term. So in the areas that we're processing, there still is light at the end of the tunnel, as Jason mentioned, through the flaring and the economic development of that resource to expand Alliance.

Okay. That’s great, thanks guys.

Your next question comes from Robert Kwan of RBC Capital Markets. Your line is open.

Good morning. So when you refresh guidance, it's been almost two months since then, so kind of since that time, what's come up that's made you more optimistic or is a little bit better than you had originally thought? And then what's that is an incremental headwind to your thinking?

The ongoing challenge is the continued decline in marketing earnings, and we recognize that this has been fully accounted for. We don’t have high expectations in that regard. As mentioned earlier, we believe there could be some upside, but we don’t find it wise to predict that. Robert, it's essentially about understanding how Pembina operates. The markets seem to behave as if a reduction of one million barrels from a total supply of about four or five million barrels would directly lead to a 20% or 25% drop in Pembina's EBITDA. It feels like that’s the market's assumption. However, digging deeper, the Veresen acquisition focused entirely on gas, which is performing relatively well. The Montney area is responsible for a significant portion of condensate, but it is primarily a gas play, even though it is often perceived as a condensate play due to its profitability. At present, gas is helping to cover costs, so production may lean more toward gas rather than condensate. Regarding condensate supply, 100 to 150 is expected from Southern Lights, but it’s common knowledge that the main customers for that line are marketers, who are currently not in a good position. Thus, they might stop their operations, while our customers actually use the product, which supports the economics of continued flow. Additionally, we have strong protections from our contracts, and there is robust demand for ethane. It's easy to overlook that Pembina plays a crucial role in supplying ethane across the country due to its applications in packaging and medical supplies. Demand remains stable. Initially, we projected that a portion of our interruptible volumes would decline, which turned out to be correct. However, we have since taken the time to assess how oil production in the region would be impacted. The least economic reservoirs will likely halt production first. We need to understand which producers will be affected, whether they use SAGD or mining methods. If they rely on SAGD, where will they obtain their diluent? They might not source it from Pembina, or they might, but it would depend on existing contracts. If they choose to stop buying condensate, we must consider their financial stability to continue meeting contract obligations. Thus, it's important to analyze the underlying data beyond the surface numbers. This afternoon, we will discuss how since the 2015 oil price crash, we have made significant strides in diversification, including acquiring a $10 billion natural gas-based company and a $4.5 billion company that operates a major import pipeline and maintains strong investment-grade credits linked to our Edmonton storage location. This diversification is currently benefiting us greatly.

Got it. If I can just finish with kind of digging in a little bit more on the guidance. So between the commodity and the volumes, I'm just wondering if you can highlight within those two buckets where some of the specific fee exposures that you're monitoring. Or put differently, what needs to happen to go below the low end of the range? And if there is something on the commodity side, if you do go below on the commodity side, how much of that might just be shifting into 2021 if you think about what you talked about earlier of commodity in some this year and you just put it in storage, and that's, in theory, should you give you better spreads in '21?

Yes, I understand your interest in the complexities involved. It's a really challenging question to address. You mentioned the legal language we included in our guidance, which pertains to extreme scenarios involving significant system-wide shut-ins. However, it's looking increasingly unlikely that such a situation will occur, as the industry seems poised to continue operating at reduced levels instead of completely shutting down. Factors that could cause us to fall below our guidance might include a substantial failure from a mid-cap customer, but with some support from the federal government, our mid-cap customers are starting to perform better than I initially anticipated. They are benefiting from government assistance and are profitable on the gas side, making them resilient. Companies like 7G and Avintiv are managing well with their gas operations. Nonetheless, an unexpected failure from one of these companies or a severe resurgence of COVID-19 in the U.S. could negatively affect the recovering demand for gasoline. While we don't expect these scenarios to materialize, we felt it was important to mention that they are still possibilities. If we hadn't included that legal language, you would have likely interpreted our guidance that way regardless, noting that if we hit storage limits, our guidance would likely be compromised.

Okay. So just to maybe summarize, either commodity prices stay flat and don't recover or go down is one. Second will be much more significant shut-in than what we're seeing today. And then the third would be extremely major, perhaps for bankruptcy?

Yes, I believe your first and second points are related. If prices are low, then your second scenario could occur. The question then becomes whether the companies that pay Pembina can continue to do so and for how long. I would suggest looking at our larger mid-cap companies and their liquidity and financial stability. Scott, do you have any insights?

That’s all I’ve got. Thank you very much.

Your next question comes from Robert Catellier of CIBC Capital Markets. Your line is open.

Hey, good morning. You've answered most of my questions. Just a couple of follow-ups here. First of all, I want to thank you for your comments on the blend and extend and the importance of protecting your own stakeholders. But to follow that up, what is the force majeure claims activity been like?

I don't think we've had a single FM, and that doesn't surprise us because our legal teams don't believe that, that condition would be met in our current agreements.

Okay. And just a little bit of a detail here. I see there was a little bit of support payment for Ruby, and you've also guaranteed something for CKPC. So my question is how much support do you think Ruby would need for the rest of the way? And is that included in your CapEx guidance?

Sure, I'll address that. Regarding CKPC, it's mainly just an accounting matter. Back in February, we established a project finance agreement with our partners, Pembina and PIC, who are backing that loan. The guarantee represents the discounted future difference between what the interest rate would have been if Pembina managed it versus the rate on that facility. Essentially, it's more like accounting noise, and we don’t anticipate that figure will change as we advance through the project. For now, it's deferred, so I would regard it as accounting noise. As for Ruby, we've consistently reported a similar note in our financial statements each quarter. We are amortizing roughly $16 million each quarter for another year. We just secured a term loan for another year on a note that was due a couple of years back, and we're gradually paying that note down.

Okay. For my last question, you’ve clearly stated your position regarding guidance. If the situation worsens in 2021, you may need to postpone capital investments again for the projects that were deferred from 2020. In that case, you would be in a significantly positive free cash flow situation. I’d like to understand your perspective on dividends in that scenario. You’ve already mentioned that for 2020, it doesn’t make sense to increase the dividend any further, which is reasonable. What is your outlook for 2021 if there are additional project deferrals and very limited capital?

If that were to happen, the committed capital for 2021 is around $300 million to $400 million. You're correct in thinking that if we maintain our current level of EBITDA and have several projects coming into service, it should lead to an increase. However, in a worst-case scenario with weakness in the market, we might end up flat with our current guidance, but we would still generate a significant amount of free cash flow. If we're unable to bring back those deferred projects due to the market situation, we could use that capital for our typical 5% dividend increase, which would likely be our primary focus. Additionally, we could consider acquisitions. Should this situation arise, we might find that acquisition multiples decrease significantly, but I'm unsure of the right price for those acquisitions at this moment. Therefore, instead of investing in those projects, we could allocate funds to acquisitions and higher dividends. In such a scenario, increasing dividends would be our first priority, followed by taking advantage of a weaker market.

That's very good color. Thank you.

Your next question comes from Ben Pham of BMO. Your line is open.

Okay. Thanks. I know a couple of questions on your guidance and puts and takes and then whatnot. But I guess we got to appreciate that you guys are working with some pretty tight ranges there on guidance. So really going down to the lower end is really not that big in terms of materiality. So I guess my question really is on your dividend payout and your yield and you mentioned sustainability and then also leverage. I mean even if you do move below the lower end of your range perhaps, I mean it has to be really dramatic for you to see a concern around your dividend and your balance sheet. Is that correct?

Correct. We have no concerns about the dividend.

Okay. You mentioned a two times coverage, which is quite conservative compared to competitors. Considering your experience through multiple cycles like 2015, 2016, and the financial crisis, what level or range do you believe is appropriate and where do you aim to be in the long run?

Yes. I would say, longer term, we'll probably be between 55% and 65%.

You're at the lower end. Can I ask, I know you provided some good insights about 2015 and 2016 and how resilient you were during that period? The facts indicate that in 2015 and 2016, you were quite resilient, although there were maybe one or two quarters where you faced pressure due to high capital expenditures. You also had a dividend reinvestment program in place, so you're in a much better position now. However, I am curious about your response to the current uncertainty or downturn, which seems more dramatic or faster compared to 2015 and 2016. Is this primarily a result of this downturn being more uncertain, or does it relate to flexibility in capital expenditures, or is there another factor influencing your response?

The primary reason for the decision was safety. With thousands of workers involved in a $4.5 billion project in a limited area, we prioritized safety when deciding to defer the petrochemical project. Two months ago, there was significant uncertainty regarding mortality rates and productivity for such a large-scale facility. We wanted to avoid putting people at unnecessary risk. The second consideration was to preserve capital, and the third involved our customers. We questioned whether our customers truly needed an additional $1.5 billion of pipeline for volumes that were lacking. After speaking with the CEOs of companies involved in these expansions, they expressed gratitude for our decision to delay by a year, as they were bound by contracts and would have faced liquidity issues with additional capacity when their volumes were stagnant or declining. So, safety was our top priority, followed by the needs of our customers, and finally, ensuring we remain within our financial guidelines to protect our credit ratings. However, we are committed to keeping these projects viable to resume when conditions are favorable. Although we've experienced some staff changes, we are maintaining our essential capabilities in order to quickly rebound. We view this as a deferral, and while we could cut back further on these projects, that would be detrimental to their value. Thus, we're investing more than minimally required to ensure critical components are preserved rather than wasted. This investment goes beyond mere financial considerations; it reflects our obligation to all stakeholders.

Your next question comes from Rob Hope of Scotiabank.

I have a follow-up question regarding the specifics of how the systems function. I would like to understand your perspective on diluent storage in the basin and whether Southern Lights will be able to shift enough of its volumes, along with potentially Cochin, to counterbalance the reduced demand from the oil sands. Additionally, if there isn't any storage available, would that lead to a force majeure claim from your customers?

So the answer to your second question is, we don't believe so. Answer to your first question is absolutely, as SAGDs go down, there is lower diluent demand. And what we see so far is that, that's not coming at our expense. I mean we're seeing slight reductions in Cochin, but still at or above contracted levels on Peace. We're at or around our contracted levels with physical barrels, and so we are not seeing that coming out of our systems. So there's only one other place that can come from so far. We've asserted that for years because our customers on Cochin are the users of that product. And on Peace, they have gas economics to help support them, whereas importers don't have that on Southern Lights. So we've asserted for some time that, that would be the initial shock absorber. And as it rolls past the entire imports there to Cochin and to Peace, we have the contractual backstopping.

All right, appreciate the color. Thank you.

There are no further questions at this time. I will now return the call to Mr. Mick Dilger for closing comments.

Yes. First, thanks, Scott, for doing all the reading for me. He's a voracious reader, so he's a lot better at it than I am. I don't read a lot. So thanks, Scott. I want to thank all the listeners, those who are supporting us through this tough time. I'm very proud of the actions we've undertaken. And I've got some great charts and graphs this afternoon for the AGM, which I'm looking forward to sharing with you. And I'm feeling cautiously optimistic where we are today. So, thank you, and we'll see you at the AGM.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.