Earnings Call Transcript - PBA Q2 2021

Cameron Goldade, Vice President, Capital Markets

Good morning, everyone. And welcome to Pembina's conference call and webcast to review the highlights from the Second Quarter of 2021. On the call with me today are Mick Dilger, President, and Chief Executive Officer. Scott Burrows, Senior Vice President and Chief Financial Officer, Harry Andersen, Senior Vice President and Chief Operating Officer, Pipelines, Jaret Sprott, Senior Vice President and Chief Operating Officer, Facilities, Stu Taylor, Senior Vice President Marketing and New Ventures, and Corporate Development Officer and Janet Loduca, Senior Vice President External Affairs, and Chief Legal and Sustainability 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 Management Discussion and Analysis dated 8/5/21 for the period ended 6/30/21, which is available online at pembina.com and on both SEDAR and EDGAR. With that, I'll now turn things over to Mick.

Mick Dilger, President and CEO

Thanks, Cam. Good morning, everyone. We were pleased yesterday to announce that based on the year-to-date results and the outlook for the remainder of the year, Pembina has updated its 2021 Adjusted EBITDA guidance by raising the low end of the range. Adjusted EBITDA is now expected to be $3.3 billion to $3.4 billion, effectively positioning us in the upper half of our original guidance range. Similar to what we have seen in our year-to-date results, growing confidence in our 2021 outlook reflects stronger than expected full-year marketing results, net of significant realized hedging losses and modestly higher volumes across many of Pembina pipeline systems and facilities. Relative to our original guidance range, these positive factors are being partially offset by stronger than expected Canadian dollar relative to the U.S. dollar, increased operating costs due to higher integrity spending, and higher power costs in the conventional and oil sands pipeline businesses, and lower contributions from certain assets. In addition, the revised outlook reflects higher general and administrative expenses due to Pembina's rising share price and the resulting increase in the long-term incentive compensation costs. While supporting Pembina's 2021 guidance update, stronger commodity prices and rising volumes also mean Pembina's customers are in ever better financial positions generating significant free cash flow and improving their balance sheets, with many reaching their leverage targets earlier than expected. This sets the stage we believe for increased drilling activity and increased capital spending by producers into 2022, with positive implications for Pembina's business. Constructive outlook for the WCSB and customer demand for incremental service led to the reactivation of the Peace Phase 9 pipeline expansion to support customers' long-term development plans while furthering product segregation on the Peace Pipeline system. Further decisions on the Peace 8 Pipeline expansion and the Prince Rupert Terminal expansion are expected later this year. The same outlook also supports our confidence in the development of a portfolio of growth projects totaling more than $5 billion. This quarter, Pembina announced three significant and transformational strategic partnerships with compelling ESG attributes. A partnership with the Haisla Nation to develop the Cedar LNG project, a partnership with TC Energy Corporation, which envisions the development of the Alberta carbon grid. And Chinook Pathways, a partnership with the Western Indigenous Pipeline Group to pursue ownership of the Trans Mountain Pipeline once that project is de-risked. Collectively, these partnerships support Pembina's global market access strategy, allow for meaningful indigenous participation in Canadian energy development, and provide important large-scale infrastructure platforms to assist Alberta-based industries to manage their greenhouse gas emissions and contribute to a lower-carbon economy. We are proud of this work with communities and our role in creating meaningful solutions. Finally, in recent weeks, Pembina announced and ultimately terminated its proposed acquisition of Inter Pipeline. The industrial logic of a combined Pembina Inter Pipeline remains unparalleled, and the value creation between certain of our assets is impossible to replicate. While we're disappointed with this outcome, we will continue to seek opportunities for growth through focused acquisition. I say that not as a signal for any imminent or specific targets but as a reminder that such acquisitions have been part of Pembina's success story over many years and will continue to be. The execution of Pembina's long-term strategy is never reliant on a single investment. The record continues to show that while acquisitions may be a tool to execute our strategy, we will remain disciplined, prioritizing shareholder returns and our financial guardrails. But for now, we are enjoying the receipt of a $350 million termination fee. We're studying the options available to best invest the termination fee, including business reinvestment, debt repayment, and share buybacks. With that, I'll pass it over to Scott to discuss the financial highlights.

Scott Burrows, CFO

Thanks, Mick. Pembina reported adjusted EBITDA of $778 million for the second quarter, 1% lower than the same period last year. Within our core business segments, we saw a strong performance from existing assets along with Prince Rupert Terminal, Empress infrastructure, and Duvernay III being placed into service and facilities, and higher interruptible volumes on the Peace Pipeline system. In the marketing business, Pembina benefited from higher margins on NGL and crude oil sales and the positive impact of the higher marketed NGL volumes. However, a portion of this improvement in marketing fundamentals was offset by an increase in the realized loss on commodity-related derivatives as part of our systematic hedging program compared to a gain in the same quarter last year. In addition, second-quarter marketing results were negatively impacted by approximately $8 million of rail transportation cost to reposition propane to Corona for sale in the fourth quarter of 2021 and first quarter of 2022, rather than for a sale in the second quarter. Further, a portion of the period-over-period differences are due to the timing of storage-related margins as the majority of 2020 storage margins were earned in the second quarter of 2020, compared to 2021, where storage margins are being realized evenly throughout the year. Improved overall results in the marketing business were offset by a lower U.S. dollar exchange rate, higher power costs, a portion of which were not recoverable in revenue, and higher general and administrative expenses due to higher long-term incentive costs, driven by Pembina's increasing share price. It is worth noting that in 2021, specifically, each $1 move in Pembina's share price impacts compensation-related expense by about $2 million. As well, comparatively, the current quarter was impacted by lower revenue at the Edmonton South Rail Terminal due to a one-time $11 million leasing adjustment made in the second quarter of last year that resulted in that quarter being better than it would have otherwise been. In contextualizing our second quarter and year-to-date results, as well as our outlook for the full-year 2021 adjusted EBITDA, it is worth pausing on the impact of changes in foreign exchange rates. Approximately 25% of Pembina's business is exposed to foreign currency, primarily the U.S. dollar. This exposure primarily resides in our transmission assets in the Pipeline division, as well as our marketing business with a primary pricing benchmark for the purchase and sale of commodity products that occur in U.S. dollars. As part of Pembina's frac spread hedging program, we hedged the currency exposure embedded in those hedges. Over the last 12 months, the Canada - U.S. dollar exchange rate has exhibited significant volatility. During the second quarter of 2020, the Canadian dollar averaged nearly $1.39, while in the second quarter of 2021, it averaged nearly $1.23. For the balance of 2021, for each $0.01 change in the Canadian U.S. exchange rate, it equates to roughly $6 million of adjusted EBITDA, with 2 million being attributed to the transmission assets and $4 million attributable to the marketing business. Furthermore, given the seasonal profiles of our marketing business, these sensitivities will vary when applied to quarterly results. Second-quarter earnings of $254 million were 2% lower than the same period in the prior year. In addition to the factors impacting EBITDA, earnings were positively impacted by a lower unrealized loss on commodity-related derivatives and lower current tax expense, as well as various other factors outlined in our second-quarter report. Total volumes of 3.5 million barrels per day for the second quarter represent approximately a 2% increase over the same period in the prior year. In pipelines, higher interruptible volumes on Peace and Cochin pipelines as well as higher seasonal volumes on Alliance were offset by lower interruptible volumes on Vantage, as market conditions exist for end-users to source their supply from the Redwater complex and lower volumes on Ruby Pipeline due to contract expiries. In Facilities, increased revenue volumes associated with Duvernay III being placed into service in the fourth quarter of 2020, were largely offset by lower supply volumes on the East NGL system, as these assets are now being processed at the Empress NGL extraction facility. Overall, however, as Mick highlighted, we have seen strong year-to-date results, and our outlook for the remainder of the year and into 2022 remains very positive, reflecting a stronger economic backdrop, robust energy prices, and an improved outlook for producer activity levels. I'll now turn things over to Mick for closing comments.

Mick Dilger, President and CEO

Thanks, Scott. In closing, what has emerged over the course of an exciting past few months reflects continued progress towards a clear vision for Pembina's future. Our ambitions are being realized, and we look forward to continuing to build out our diversified and integrated value chain, providing an exceptional customer service offering, including global market access for their products. At the same time, we remain committed to providing industry-leading total shareholder returns, including a stable and growing dividend, and furthering our ESG strategy collectively in service of our employees, communities, customers, and investors. We'd once again like to thank all of our stakeholders for their support. And with that, we'll wrap things up. Operator, please open up the line for questions.

Ben Pham, Analyst

Hi, thanks, Margaret. I wanted to start off with Alberta Carbon Grid. When you first announced that project in relation to the timing of the Inter Pipeline acquisition, you mentioned it in your package this morning. Is that still an opportunity even though you are not moving forward with the IPO?

Mick Dilger, President and CEO

Yes, it is.

Ben Pham, Analyst

Okay. And then, could you then comment on the hedging strategy? How do you think about that going forward?

Cameron Goldade, Vice President, Capital Markets

Ben, can you repeat the question? Sorry. We had trouble hearing you.

Ben Pham, Analyst

Yes. I had a question about the hedging strategy. As you think about the sensitivity of your goals and how do you think about the next 6 to 12 months?

Cameron Goldade, Vice President, Capital Markets

Yeah. Ben, as we think about the U.S. dollar, I mean, for some time, we've been talking about diversification of currencies as being core to our strategy. And through that, looking at a more global enterprise for Pembina and that naturally occurring. So part of our strategy there has been to hedge the marketing cash flows because across-the-board and including the commodities, as well as some of the foreign exchange on the frac spread business, knowing that that is some of the more variable cash flows in our business. At the same time, we have been in the past having a reasonably large U.S. dollar-denominated capital spend as well. And so we've always been somewhat naturally hedged a little bit less so in the last couple of quarters, which is why we've left the currency unhedged. But as we look forward, I mean, it's always something that we're thinking about as we execute our strategy.

Ben Pham, Analyst

Okay, great. And maybe to close off on acquisitions, I'm curious. What do you think the biggest sources of acquisitions could be for your next couple of years? You've been consolidating the Canadian side. Some of those Canadian assets have come up with U.S. exposure. But now, as you look at the landscape, there are just not many names left in Canada. If you need to go to the U.S. more, there is still a lot of opportunities. What's the thought process in the next couple of years?

Mick Dilger, President and CEO

We are focused on the advantages of operating in Canada, and we believe it is working out very well for us. Pembina is strategically positioned in the center of everything. For every potential acquisition, we find significant synergy. Most importantly, we can only acquire what is available for sale. We have been actively exploring all possibilities to identify those with the greatest strategic value, which typically involves vertically integrating our value chain and enhancing our access to tidewater for all products. Our primary goals are to pursue opportunities that support these two objectives.

Ben Pham, Analyst

Okay. Got it. Thank you.

Shneur Gershuni, Analyst

Let me start off by discussing PDH. In light of the IPL merger not proceeding, I'm curious about how we should think about your PDH requirements concerning Pembina. Are you considering the possibility of pursuing a joint venture with Brookfield to build?

Mick Dilger, President and CEO

Yes and no. When we initially halted the PDH project, it was mainly due to the pandemic and issues with the lump sum turnkey contracts, but we never indicated that the project was canceled; we stated it was suspended and maintained that LNG and value-added projects are part of our strategy. If you look at the bigger picture, to transport products to tidewater, we sometimes need to modify them. We aim to generate demand for our customers' products, which could involve direct exports of propane or converting propane to propylene or propylene to polypropylene for export. Everything follows a similar pathway. Developing fee-for-service infrastructure in the petrochemical sector is one way for us to stimulate local demand and deliver our customers' products to the most valuable markets. At times, that means keeping the product as it is, while other times it requires liquefying methane for transportation. All of this is still relevant to us, with the understanding that we anticipate continued hydrocarbon demand even after North America stabilizes, though we are uncertain when peak demand will occur here. Nevertheless, internationally, demand will continue to rise, and we need to link our top-tier basin with that demand.

Shneur Gershuni, Analyst

Okay. So the point is is that you're probably still pursuing that with this option? Is that the takeaway?

Mick Dilger, President and CEO

Yes. Yes. We've stated LNG and value-added projects, including production of polypropylene, provided they meet our guardrails. They are a petrochemical infrastructure. And not necessarily being in the commodity chemical business. They remain in strategy, yes.

Shneur Gershuni, Analyst

Right. Perfect. Maybe just pivot to a quick discussion about the guidance that you just laid out. From our perspective, to do with a bit of a challenge, but yet, you've definitely raised your guidance for this year. I'm curious what you're thinking about with respect to your kind of your exit rate for 4Q as we start to think about what that means as we set up for 2022.

Mick Dilger, President and CEO

We believe we're making progress as the year goes on. Raising the lower end of our guidance is a positive step. Some analysts were expecting us to raise the upper end as well, but it's still early in the year, and there are many factors at play. We didn't see enough evidence to justify making any further adjustments beyond what we've done so far, but we are definitely moving forward. For instance, some quarterly results, like CNRL, indicate they are increasing their capital spending this year. We're beginning to see companies drilling additional wells, and each well can yield significant gas and liquid production. These developments are noteworthy, as clients are reaching their debt targets sooner and repurchasing their shares. However, as more general investors enter the market and share prices rise, there will come a point when producers may find drilling more financially attractive than buying back shares. When their trading multiples are at 3 or 4 times cash flow, it makes sense for them to repurchase shares, but many wells also present a strong return on investment. We don't believe the tipping point for increased drilling will happen until debt goals are met, but we anticipate changes for many producers soon. I'm eager to see the 2022 capital guidance, as I expect it to reveal exciting developments in the basin.

Shneur Gershuni, Analyst

So the key takeaway here is that we should - outside of seasonal factors which are always there, we should - on the base business be seeing sequential improvements like 3Q versus 2Q, 4Q versus 3Q, and it sets up for ’22 if the tipping point that you just articulated comes to fruition. Is that the fair way to think about it?

Mick Dilger, President and CEO

Yeah, that's how I see it. You heard the forward-looking information waiver; a lot can happen in the unpredictable world we’re in right now. However, our second quarter is typically our weakest, and last year was unusual since we generated all our storage revenue in one month instead of spreading it throughout the year. We feel optimistic about how the year is going to conclude. We're noticing some positive indicators, such as Alliance returning to profitability. The basis differential has been stable, and the Canadian dollar has slightly decreased since the end of the second quarter. Oil prices are stabilizing around $70. These factors contributed to us raising the lower end of our guidance. However, I feel it’s still a bit early to go further beyond that based on what we're currently reporting. I believe raising the lower end of our guidance was a sensible decision.

Shneur Gershuni, Analyst

Perfect. Thank you very much. We really appreciate the color today, and have a great weekend.

Mick Dilger, President and CEO

You as well.

Robert Kwan, Analyst

Good morning. I want to revisit how you're approaching acquisitions. You have completed IPOs and other corporate transactions that have generally gone smoothly, though there is some friction when equity aligns with the price. When considering a specific asset deal, where the seller may prefer not to take equity, how much does the size of the financing influence the scope of what you pursue from a deal size perspective?

Mick Dilger, President and CEO

I'll just give you my layman's perspective, and then I'll turn it over to Cameron Scott, who has a much deeper knowledge. But if you look at the Kinder, I'll give you a real-life example. I mean, the bid-ask spread with Kinder after it was close to a year of negotiating was really conquered by the seller taking our equity. That was, I think, $100 million, give or take at that point, and that was the bid of spread. Those are important dollars to retain between the buyer and the seller. And if you look back at all of our large acquisitions, they've been funded with Pembina equity. And if you look back, things went well for the people who took our equity. They generally got 100 cents on the dollar or maybe at a point of leakage. But often, they actually held a little while and made money. Some of the happiest shareholders I have the privilege of meeting came in at Provident, and they've really, really rung the bell, and they have really low ECBs, and I wouldn't hazard to say if we had to close Inter Pipeline, a bunch of those shareholders would have been very happy as well as synergies unfolded. So it's an important part of value sharing between buyers and sellers. Cameron, Scott, do you have anything to add to that?

Scott Burrows, CFO

Maybe I will just jump in here. I mean, obviously, Robert, to the extent that we do anything in the public market, there are pretty significant friction costs that come along with that. Our preference has always been to work directly with sellers and meet our shares directly. But backing up a step and answering the question more directly as it relates to kind of discrete assets. I think from our perspective, with access to the equity markets, the debt markets, hybrids, preps, what I can say is that we haven't run across a transaction that's been inhibited by our ability to access capital. We feel pretty comfortable, and not just our own opinion, but the advice of our third-party advisors of our ability to raise pretty significant capital. Now that being said, I think what has evolved over the last couple of years is our thinking around capital recycling, to the extent that we are limited by Capital Markets, or it makes sense. We have options as it relates to capital recycling. And also, over the last couple of years, we've developed some pretty significant relationships and could look at various partnerships or JV opportunities as well to help bridge financing. All that to be said, it's certainly something that we think a lot about, but to date, we haven't run into any major roadblocks as it relates to that.

Robert Kwan, Analyst

Got it. Just as part of the guidance, you had a quote, temporary what you did just with a lower contribution or expected lower contribution from certain assets. Just wondering which ones are you referring to specifically? And maybe as part of that, can you just give some comments on the Ruby situation?

Mick Dilger, President and CEO

Who wants that? Scott?

Cameron Goldade, Vice President, Capital Markets

Scott, you want to take that?

Scott Burrows, CFO

Sure. I think as we looked at Q2 specifically, we had slightly lower contributions as it relates to Ruby. Alliance volumes were okay. I think the interruptible performance was slightly lower. Our Kinder tanks had slightly lower revenue this quarter. As we stated previously, there were some lower interruptible volumes on Vantage, so I wouldn't say, Robert, it was any kind of one specific asset. It was a small amount across a couple of different assets.

Robert Kwan, Analyst

Got it. And if I can just finish with a question here on hedging. I think the '22 hedges, based on your disclosure, were all out either in Q2 or subsequent to the quarter if you've had additional activity. Can you just frame, best you can, what that pricing looks like for '22? I don't know if you can just do it against the elimination of the realized losses that you've had on the hedge book today?

Cameron Goldade, Vice President, Capital Markets

Sure, go ahead.

Scott Burrows, CFO

No, you go ahead.

Cameron Goldade, Vice President, Capital Markets

I was just going to say, I think your point is accurate in terms of when those hedges have been added. And you can look across the frac spreads for Q2 relative to Q1 and recognize that there have been fairly consistent on a ratable basis. And I think that's a good proxy for where the numbers are. And then, just looking forward to the realized losses, I think a bit about your answer. But to put into context, the losses from this year have been realized obviously for hedges that were put on throughout the balance of 2020, through till the end of October 2020 on a relatively ratable basis. And if you look back, those levels are sort of close to half of where we are today. So I think that gives you a bit of a framework of how the losses might calibrate to what we see currently and looking forward to 2022.

Robert Kwan, Analyst

That is great. Thanks so much.

Robert Catellier, Analyst

Good morning. Mostly its going to be follow-ups, but I wondered if you could provide a little bit more color on the best use of the break fee. On the one hand, you have a lot of projects you could do internally, but some major projects have long development cycles. At what point does it make more sense to just buy back the stock quickly we're suggesting? And if one of the projects hits, then you can always finance later. I was wondering if you could provide more color on the best use of the break fee in the next six months.

Scott Burrows, CFO

Robert, we often have the same internal discussion. The finance team prefers to pay off debt, while I advocate for investing in future projects, and others focus on supporting the stock, which we believe has a high yield and is somewhat undervalued. This discussion is ongoing, and our management team is evaluating how and when our business will grow. It wouldn’t make sense to buy back stock only to then incur a significant cost to raise new funds. That could appear unwise. Conversely, we have this unexpected windfall that we didn't anticipate 90 days ago, and it’s here now. So, while it's exciting, we truly don’t have a definitive answer. All three potential uses seem valid.

Robert Catellier, Analyst

That puts a vague answer. A little bit more of a detailed question here, but just on the Alberta crude terminal capacity: can that be repurposed for biofuels or anything else? What's the plan there?

Cameron Goldade, Vice President, Capital Markets

Yeah, great question. It can be repurposed, but I think as we've talked about, it's under a long-term contract with our partner there. So obviously, that would be subject to negotiated arrangements with our partner.

Mick Dilger, President and CEO

Yeah. I mean, it's way underused, Robert. I mean, you're spot on. It's a shame the rate of under-utilization of that asset. So that's on our to-do list.

Robert Catellier, Analyst

Okay, great. And just last question there. Given that change in basis differential, have you seen much improvement in activity on the Alliance taking, not volumes, but the re-contracting efforts?

Cameron Goldade, Vice President, Capital Markets

Yeah, we see really positive signs. And even before, probably more of the shorter-term improvement in the basis until we've seen an uptick in interest. Feeling direction that really positive about it, Robert.

Mick Dilger, President and CEO

It's always challenging when there is a slight setback. However, if you look at the long-term perspective, the pipeline and the revenue it generates, especially considering the valuable natural gas liquids it transports, are impressive. This pipeline is exceptional, and trends usually return to a standard state. It's gratifying to see it back in a profitable position, to be honest. It's performing as we anticipated.

Cameron Goldade, Vice President, Capital Markets

On a more macro basis, we feel really strong in some of the structural advantages that align Haisla's 10BCF LNG facility still being constructed and commissioning, and I think our longer-term perspective we see from the market is that the U.S. is going to be on a net basis with LNG exports short. So we feel like Alliance is, on a longer-term basis, a really positive structural position.

Robert Catellier, Analyst

Okay, thanks, guys. Have a great weekend. Cheers.

Cameron Goldade, Vice President, Capital Markets

Thank you.

Patrick Kenny, Analyst

Hey, good morning, everybody. Maybe just to start with some of the higher maintenance and integrity costs in the quarter. Just curious if there were any unforeseen geotechnical issues or any acceleration of activities that might actually reduce integrity expense going forward?

Cameron Goldade, Vice President, Capital Markets

From the geotechnical perspective, Patrick, there have been no surprises. Given the relatively dry spring season we had, it's been good from that perspective. The integrity work was really a rollover of some deferred work for last year that we were working through with our integrity group to get our heads around on when the spend needs to happen. And then, on the operating cost side, it's all driven by Alberta power cost pool prices.

Patrick Kenny, Analyst

Okay, great. And maybe on that front, Scott, thanks for the FX sensitivities, but just on the power cost exposure, it looks like about 2/3 of your power costs are flow-through if I'm reading that correctly. But maybe just some color on how far you are able to go out and hedge the remaining 1/3? How might you be thinking about mitigating your longer-term exposure? Perhaps a refresh on other co-gen opportunities across the portfolio? That'd be great.

Jaret Sprott, Senior Vice President, COO, Facilities

Good morning, Pat, this is Jaret. Regarding the co-gen, you are mostly right about the two-thirds that is recoverable. The co-gen being installed at Empress is a Pembina marketing asset. Once it becomes operational in the fourth quarter of 2022, it will significantly reduce our power exposure and associated costs. Additionally, we are actively working on engineering and front-end feed for two other sites in our gas processing business that will also help reduce power costs substantially. Now, I will hand it over to Stu to discuss the recent PPA we signed, which will assist in managing those costs moving forward.

Stu Taylor, Senior Vice President, Marketing and New Ventures

Hey Patrick. We are very pleased to be working with TransAlta on our first PPA contract for 100 megawatts of power. We appreciate the pricing, along with the credits and benefits associated with it. The power is currently being developed, and we expect short-term benefits while additional capacity increases from 50 megawatts to 100 megawatts over the next two years. We are excited about this initial 100 megawatts. We are actively pursuing additional PPA contracts, as we believe it's advantageous to secure those agreements. We are seeing positive trends in pricing, especially with the recent rise in power prices. We are engaged in larger power PPA contracts and exploring smaller opportunities as we assess our assets. Jaret has mentioned some of the co-generators, but we see further potential for more affordable power pricing for Pembina's assets, which will benefit both Pembina and our customers.

Patrick Kenny, Analyst

Excellent. That's a great color, guys. Last one for me. Just on the Cedar LNG. Just curious how the Coastal GasLink cost overrun might jeopardize the economics, and I guess your chances of reaching a positive FID on the project. I know you still have until 2023 to make the call. But given it's a very fluid situation right now, any color on how sensitive the $3 billion capital cost and overall returns might be to the pipeline project itself? That would be great.

Stu Taylor, Senior Vice President, Marketing and New Ventures

As we proceeded, we clearly recognized the challenges faced by Coastal GasLink. We incorporated that into our financial assessments. We remain confident in the Cedar LNG project, which benefits from being a floating LNG initiative, allowing us to manage costs effectively. The unique scale and the excellent efforts by the Haisla in securing capacity have also been significant factors. We have accounted for some cost increases and are collaborating closely with LNG Canada, the primary contractor for the Coastal GasLink pipeline, as well as engaging in numerous discussions with Coastal GasLink. We've considered these factors in our financial analysis and still view Cedar LNG as having favorable economic advantages for delivering LNG to Asian markets moving forward. As you've mentioned, there's still substantial work ahead as we navigate the FID engineering process. We expect many vigorous discussions in the near future, as substantial investments from various stakeholders are already in play. We are closely monitoring the situation and appreciate the valuable work the Haisla accomplished in establishing capacity and commercial agreements related to Coastal GasLink.

Patrick Kenny, Analyst

Okay, great. Thanks for that, Stu, and enjoy the rest of the summer, guys.

Stu Taylor, Senior Vice President, Marketing and New Ventures

Thanks.

Mick Dilger, President and CEO

Well, thanks everybody for your support through the call at the IPL saga. Thanks to all my colleagues here for the great work. It wasn't what we hoped for, as I mentioned, but it was still a good outcome for us. And I think it was kind of a window into the future for Pembina and all the things we can do and we'll be focused on over the years to come. So, have a great summer, everybody, and I hope to see you in person sometime soon.

Operator, Operator

This does conclude today's conference call. Thank you for your participation. You may now disconnect.