Earnings Call Transcript - PBA Q1 2023

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Pembina Pipeline Corporation Q1 2023 Results. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Friday, May 05, 2023. I would now like to turn the conference over to Cameron Goldade, Chief Financial Officer. Please go ahead.

Cameron Goldade, CFO

Thank you, Joanna, and good morning, everyone. Welcome to Pembina's conference call and webcast to review highlights from the first quarter of 2023. On the call today, we also have Scott Burrows, President and Chief Executive Officer along with other members of the Pembina Senior Officer team including; Jaret Sprott, Janet Loduca, Stu Taylor, and Chris Sherman. 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's Discussion and Analysis dated May 04, 2023, for the period ended March 31, 2022, as well as the press release Pembina issued yesterday, which are available online at pembina.com and on both SEDAR and EDGAR. I will now turn things over to Scott to make some opening remarks.

Scott Burrows, CEO

Thanks, Cam. For the first quarter, Pembina reported earnings of $369 million and adjusted EBITDA of $947 million, which reflects continued strength in the Western Canadian Sedimentary Basin, growing demand for services from customers and another strong contribution from our marketing business. Overall, we maintained first quarter volumes across the conventional pipelines, consistent with the same period in the prior year and we were happy to see volume growth from rising industry activity sufficiently offset the impact of the previously disclosed Northern Pipeline system outage. We resumed partial service of the Northern system on February 23 and look forward to the resumption of full service sometime in the latter half of the second quarter and with that, seeing our full impact of growing producer activity reflected in Pembina's results for the rest of the year. As we highlighted with our release yesterday, there's been exciting progress on a number of fronts. First, Cedar LNG, recently received its Environmental Assessment Certificate from the BC Environmental Assessment Office and a positive decision statement from the Federal Minister of Environment and Climate Change, which collectively represent a significant step forward for the project. In addition, we signed a Memorandum of Understanding with ARC Resources for a long-term liquefaction services agreement for half the capacity of Cedar LNG. Work towards signing of definitive commercial agreements is ongoing. Cedar LNG is expected to be structured as a tolling business, providing a low risk, long-term cash flow stream, further strengthening Pembina's financial resilience. We continue to expect activities related to our four work streams; engineering, regulatory, commercial and financing to converge for final investment decisions to be made in the end of the third quarter of 2023. Second, we have continued to achieve many commercial successes, securing and strengthening the contractual underpinning of our business. Strong liquid prices and financially well-positioned and capable producers are leading to current growth in the basin and longer term, we see the industry readying itself to capitalize on West Coast LNG development, the Trans Mountain pipeline expansion and growth in Alberta's petrochemical industry. We maintain our positive outlook for growth in the WCSB and in the Northeast BC Montney, in particular, where certain large producers continue to signal the potential for significant visible multi-year growth. We previously disclosed the long-term midstream service agreement signed in 2022 with three premier Northeast BC Montney producers for transportation and fractionation services. Based on the company's public disclosure, this could represent in excess of 120,000 barrels per day of incremental NGLs and condensate by 2030 for which Pembina has contractual rights to substantially all. In addition, we have recently secured additional long-term production and facility dedications and executed new pipeline transportation contracts with existing customers for approximately 65,000 barrels per day of incremental volume across the Peace Pipeline system. Customers continue to demonstrate the value they place on the Peace system, the backbone of Pembina's integrated value chain. Given its many advantages, including its extensive reach capacity of 1.1 million barrels per day, product segregation across four commodities, high reliability, low operating cost and multiple delivery points, service on the Peace pipeline continues to be in high demand. Third, the sale of permanent gas infrastructure's interest in the key access pipeline system was completed on April 26. Proceeds from the sale were used to reduce debt at Pembina gas infrastructure. Fourth, the Phase VIII Peace pipeline expansion continues to progress well. Pipe manufacturing is complete and construction progressed at several locations in the first quarter of 2023. The project has an estimated cost of approximately $530 million and is now trending under budget. We expect Phase VIII to enter service in the first half of 2024 with three pump stations expected to enter service in 2023. This continues our track record of pipeline construction being a core competency at Pembina. And finally, I am pleased to say that we have raised our quarterly common share dividend by $0.015 per share, or 2.3%, beginning with the dividend to be paid in June. Inclusive of the increase declared last September associated with the closing of PGI transaction, our dividend is approximately 6% higher year-over-year, reflecting both the impact of our strategy and our financial resilience. I will now turn things over to Cam to discuss in more detail the financial highlights of our first quarter of 2023.

Cameron Goldade, CFO

Thanks, Scott. As Scott noted, Pembina reported first quarter adjusted EBITDA of $947 million, which represents a $58 million or 6% decrease over the same period in the prior year. The combined impact across pipelines and facilities from the Northern Pipeline system outage was approximately $54 million in the first quarter. The other major variants quarter-over-quarter was in the marketing and new venture segment, where adjusted EBITDA declined by $98 million compared to the prior period. In the first quarter of last year, marketing and new ventures' adjusted EBITDA saw record quarterly results due to sharp increases in commodity prices. Compared with the prior period, marketing and new ventures results this quarter reflected lower NGL margins as a result of lower propane and butane prices and lower margins on crude oil resulting from the lower prices across the crude oil complex, realized gains on commodity related derivatives for the quarter, compared to losses recognized during the first quarter of 2022 and a lower contribution from Aux Sable as a result of lower NGL prices and recontracting in the fourth quarter of 2022. In addition to the aforementioned drivers, first quarter adjusted EBITDA was impacted by the net effect of higher crude and condensate volumes and higher recoverable project costs on the Peace pipeline system, higher revenues from coaching pipeline, vantage pipeline and AEGS, lower adjusted EBITDA contribution from Ruby, lower revenue related to recoverable costs on the Horizon Pipeline system in the first quarter of 2022, the PGI transaction and stronger performance from certain gas processing assets, including the former EPC plants and the Dawson Assets and lower corporate, general and administrative expense, primarily due to lower long-term incentive costs, partially offset by higher information technology related maintenance costs. Earnings in the first quarter were $369 million, representing a $112 million or 23% decrease over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, excluding the lower contribution from Ruby, earnings were impacted by lower unrealized gains on commodity related derivatives, positive impacts captured in adjusted EBITDA from PGI, offset by interest expense, income tax expense and depreciation, resulting from the PGI assets recorded at fair value, which are all included in the share of profits from PGI, additionally, lower acquisition fees and lower income tax expense. Total volumes of $3.188 million BOE per day for the first quarter, represent a decrease of approximately 5% over the same period in the prior year. Volume decreases were attributable to both the pipelines and facilities divisions, including most notably the net impact of the Northern Pipeline system outage, the Ruby Pipeline, the previously announced disposition of the Empress I and Empress VI assets, higher crude and condensate volumes on the Peace pipeline system resulting from increased upstream activity, higher volumes at the former ETC plants and at the Dawson Assets and higher volumes at AEGS and on the Vantage pipeline due to third party outages in the first quarter of 2022. If we adjust for the impact of the dispositions and the Northern Pipeline outage, volumes in the quarter would have grown by approximately 2% over the first quarter of 2022. Based on the first quarter results and the outlook for the remainder of the year, our 2023 adjusted EBITDA guidance range of $3.5 billion to $3.8 billion remains unchanged and includes the impact of the Northern Pipeline system outage and positive effects of the widening frac spreads due to lower natural gas prices. Based on the 2023 guidance, cash flow from operating activities is expected to exceed dividends and capital expenditures. We continue to plan for excess free cash flow in 2023 to be used to pay down debt, further strengthening the balance sheet and preparing the company to fund future capital projects. At May 31, 2023, based on the trailing 12 months, the ratio of proportionally consolidated debt to adjusted EBITDA was 3.6 times or 3.5 times after adjusting for the closing of the sale of PGI's interest in KAPS, which occurred subsequent to the quarter. Pembina expects to exit the year with a ratio of 3.3 times to 3.6 times, supporting a strong BBB credit rating. I'll now turn things back to Scott for some closing remarks.

Scott Burrows, CEO

Thanks, Cam. Coming off a record year in 2022, I'm very pleased with the strong start to the first quarter. I remain extremely optimistic about the state of our business and our ability to capitalize on growth in the WCSB, while pursuing transformational projects such as Cedar LNG. I want to remind you that Pembina will hold its Annual Meeting of Common Shareholders today at 2:00 PM Mountain Time, 4:00 PM Eastern Time. It will be a virtual-only meeting 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, please visit the Shareholder Information page under the investor center tab at www.pembina.com. We'd once again like to thank all of our stakeholders for their support. Before we get to questions, I wanted to take a moment to address the wildfires in Alberta. Last night Brazos County Council declared a state of local emergency and an evacuation order has been issued for the town of Drayton Valley where our field office is located. This is a very difficult time for all the people in the area, including our employees, contractors, and customers. Our focus is on the safety of everyone involved. We have activated our emergency response and incident management processes, and we are working to ensure all our staff and families are safe and receive the support they need. Please stay safe, everyone. With that, please go ahead and open the line for questions.

Operator, Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. First question comes from Jeremy Tonet at JPMorgan. Please go ahead.

Jeremy Tonet, Analyst

Just wanted to start off with the conventional pipe outlook if I could, and if I recall correctly, last quarter I believe commentary might have suggested 3% to 5% gross and in the release last night, I think there was a reference to 4% to 6% growth. And just wondering if you're seeing kind of a little bit of incremental growth in the basin for you guys relative to where you were before or any color on that would be helpful?

Scott Burrows, CEO

Yeah, I think you're right Jeremy. I think there's obviously a strong start to the year and volumes came in higher than we were initially anticipating. So, we are still pretty optimistic about volume growth through the back half of the year and like I said, signaling that kind of 4% to 6% volume growth.

Jeremy Tonet, Analyst

That's helpful there. Thanks. And just pivoting to the guidance, the northern system having more of an impact in the first quarter than expected and lingering in the second quarter here represents the headwind. But guidance being reaffirmed and just wondering if you see offsets, if it's in the marketing business or pipes and facilities, just wondering how you see kind of these gives and takes and whether you see a kind of a bias within the guidance range towards the high end or the low end at this point in time.

Jaret Sprott, Executive Officer

Hey, Jeremy, I'll take that. Yeah, I think you're right; two probably tailwinds offsetting, obviously the impact of the northern headwind. You hit on the first one already. It would be in the marketing segment, obviously with natural gas prices having softened here as we've moved out of Q4 into Q1 and beyond. I think they've essentially halved from where they were sort of the middle of Q4 last year. And so that obviously in the short term is a tailwind for our marketing business and is contributing to making up a substantial amount and then some of the impact of the northern outage. As we referenced in the release and Scott was just speaking to him, obviously, we are seeing strong volumes on the conventional side as well, particularly the crude and condensate side continue to show strength and that's helping make it up. The rest of the business, sort of chugging along and actually obviously as we said before, many of our assets are running at very high utilization. So we're working to be able to find millions and tens of millions of dollars out of increasing utilization and increasing service that were possible.

Scott Burrows, CEO

Yeah, Jeremy, I think at the highest level, we're seeing a lot of tailwinds on the infrastructure side of the business. I think the headwinds really is on the NGL side. Propane's gone from $0.80 to $0.65 in the matter of a week to a week and a half. So, pick your day and pick your forecast. But right now, we're pretty comfortable with the guidance range.

Jeremy Tonet, Analyst

That's very helpful. And just one last one if I could, as it relates to Cedar on the LNG side, are there, is it fair to say there's not really any meaningful hurdles left to a positive FID at this point? Kind of crossing eyes, crossing Ts and dotting Is, and just as you think about construction here, the modular build seems like it would kind of de-risk construction and inflationary concerns that we've seen elsewhere. Is that still a fair way to think about things or any other updates you want to share there?

Jaret Sprott, Executive Officer

Sure, I’ll add my thoughts and then Stu can follow up. There are still some significant challenges ahead. Right now, we only have half of the capacity under the Memorandum of Understanding, but we are confident in our ability to utilize the facility until agreements are finalized. We are optimistic about this potential. Regarding engineering, the teams are still working on the details and we do not have a final cost estimate yet, but we anticipate receiving this information in the next couple of months. Capital costs are currently a major factor for the project, but to answer your question, we expect about 80% of the costs to fall under some type of lump sum agreement, which will help safeguard Pembina against capital cost fluctuations.

Stuart Taylor, Executive Officer

Jeremy, it's Stu. We are making progress on our four main areas: regulatory, commercial, engineering, and finance. While significant work remains, we have made good strides in regulatory matters and commercially with our first MOU, and we are diligently working on additional agreements. The plan is to construct this in a shipyard in Asia, and we are collaborating with the EPC contractors and shipyards to finalize arrangements. By mid-year, we expect to have more clarity on the location and anticipated costs, but, as Scott mentioned, the majority of our capital expenses will be under a lump sum contract.

Jeremy Tonet, Analyst

That's very helpful. I'll leave it there. Thank you.

Operator, Operator

Thank you. The next question comes from Linda Ezergailis at TD Securities. Please go ahead.

Linda Ezergailis, Analyst

Thank you. Just following up on Cedar LNG, is there a reason why you're targeting FID by the end of the third quarter? Such as, are there any sort of expiring supply or component procurement agreements or commercial discussions that dictate that timing? Or is it okay if the FID slips into Q4 or next year? And can you please indicate the minimum level of capacity that needs to be firmly contracted at FID?

Stuart Taylor, Executive Officer

Linda, it's Stu again. We always had it as the third quarter of 2023. As I mentioned already, we have four work streams trying to coordinate all four to stay on track and, as we sit here and look and make some progress, we did kick off an additional feed study to be done and the timing of that pushed it a little bit further back. So it's just coordinating all of that work stream, trying to align on a date and we're currently sitting with working hard to have that FID by the end of the third quarter as mentioned in the press release. It could possibly slip, but at this point in time, everything is full speed and targeting that end of September for that. As far as the contracting, we've gone forward. We're looking to contract 100% of the capacity at this point in time. We will make some call in the future as to that level, but we're pretty confident on the MOU work that we're going through in the definitive progress that we've already made that we'll be able to contract 100%. We haven't contemplated or sat back and looked at a minimum number. Right now everything is pushing to contract the entire capacity.

Linda Ezergailis, Analyst

Okay, thank you. And just as a follow up in terms of your discussions with producers in the region, can you talk about how your discussions are going in terms of the services that they're looking to add. When it is new services, are they trending any way based on choosing full path versus discrete services and any other attributes in terms of the duration that they're preferring longer versus shorter and conviction they have on firming things up would be helpful?

Jaret Sprott, Executive Officer

Good morning, Linda. It's Jaret. I believe the question pertains to our producers. Currently, we hear that gas egress is the main constraint in Western Canada. We're seeing continued excellent well performance, which consistently excites our customers. There’s progress in Northeast BC, and recent announcements suggest that some customers are becoming more optimistic about their short-term development plans, meaning within the next two to three years, which is very encouraging for Pembina. Regarding your question about services, some customers decide to build their own gas plants while others choose to utilize PGI for those services. The peace pipeline is vital for many customers in Western Canada to reliably transport their products to the Edmonton market. Additionally, with the introduction of RFS IV, there's a strong demand for existing frac services, both incremental and those closing quickly. It really varies depending on the customer’s needs. We recently mentioned that the 65,000 barrels on the peace system averaged about six years, indicating that while some customers prefer shorter terms, others value the stability of longer-term plans extending beyond seven to ten years.

Linda Ezergailis, Analyst

Thank you. And just as a short term, will any of your facilities potentially directly or indirectly be affected by any sort of NGTL maintenance this summer?

Jaret Sprott, Executive Officer

The stuff is definitely up in Northeast BC, some of our customers in and around the Dawson Creek area, they do see restrictions, but they're pretty savvy and they also have many of our customers have alliance capacity. So they're pretty savvy in capturing IT, moving volumes from receipt points, moving volumes on to their firm contracts on alliance, etcetera, but, we did see some noise in Q1, but the overall performance of the assets kind of muted the noise of the northern outage and any announced maintenance.

Operator, Operator

Thank you. The next question comes from Rob Hope at Scotiabank. Please go ahead.

Rob Hope, Analyst

Good morning, everyone. Questions on capital allocation, you reiterated kind of the view that 2023 cash flow would be quite strong and CapEx would be much less than that. Just in terms of the dividend with the increase there to preserve that financial flexibility, can you maybe add some color on the future growth plans that you see out there, I guess, beyond Cedar that could give you some near term capital expenditures to eat into your financial capacity?

Scott Burrows, CEO

Yeah, Rob, I think we continue, as we outlaid kind of some of the volume growth that we're seeing across the basin. We think that there continues to be opportunities to invest in our core business, whether it's incremental laterals or pump stations across the system to capture the growing volumes. In addition to that, we obviously have a suite of opportunities we're working on in our new ventures group, such as the Alberta carbon grid and some of the other projects that we're not quite ready to talk about just yet. But we are looking at all opportunities in the energy transition space, whether it's ammonia, hydrogen, methanol and we're working really hard on those projects and seeing great progress on that front. And so we expect as we move through this year, we're going to round out a capital program in 2024, 2025, that that's going to have an increased capital from where we are today. So we're making sure that we're well positioned from a financial point of view.

Rob Hope, Analyst

I appreciate that. And then just maybe turning over to your partnership to evaluate a TMX ownership stake. Can you maybe update us on your thoughts there, especially given kind of continued delays and expanded capital cost?

Cameron Goldade, CFO

Yes, Cam here. We're very proud of our partnership with WIPG and being chosen as their operating partner while considering the opportunity to invest in the pipeline. We still believe that this asset is world-class on its own. It will have access to a long-lasting and high-value crude market for the foreseeable future. Given the recent increases, we need to ensure that the economic proposition for the pipeline remains appealing, and we are actively working on that. However, we cannot pursue an acquisition that isn't currently for sale, so we will keep evaluating it over time. We believe the asset is excellent, but like any acquisition, it must be a good deal for Pembina and stay within our established guidelines, which we are committed to maintaining. These criteria will guide our evaluation of this opportunity just as they do for any other potential investment.

Operator, Operator

Thank you. Next question comes from Patrick Kenny at National Bank Financial. Please go ahead.

Patrick Kenny, Analyst

Thank you. Good morning. Just on the Northern Pipeline incident, sorry if I missed it, but is the cause still under investigation or do you have clarity on what needs to be done to rectify the system? Just wondering if there could be a continued drag on cash flow beyond Q2 if there's more integrity work that needs to be done across the system, depending on the findings?

Jaret Sprott, Executive Officer

Good morning, Pat. Jaret here. The investigation is still ongoing, but all signs suggest that stress corrosion cracking is the issue, resulting from a poor coating repair done about 25 years ago. Currently, the costs have increased from approximately $30 million last quarter to $54 million, as we’ve been able to complete more integrity work with the help of our surface land and integrity teams quicker than anticipated. We have performed a significant amount of integrity work on the pipeline so far, and all evidence indicates that this does not represent a systemic issue, suggesting it is likely an isolated case. Regarding your question about future integrity work and potential impacts on cash flow, we do expect some additional integrity work on similar assets, but it is not substantial. I can say that we are reassessing our spending, which is about $100 million and typically ranges from $150 million to $175 million annually on integrity, geotech, and environmental work, while we review our complete suite of 16,000 pipelines in our risk assessment for capital prioritization.

Patrick Kenny, Analyst

Okay. Thanks for that chair and then I guess on the flip side, it's a bit of a rarity to see pipeline projects under budget these days. So perhaps you could just walk us through some of the positive highlights of the Phase VIII expansion that's helping to drive costs below budget there?

Scott Burrows, CEO

Absolutely, that's a great question. We possess extensive knowledge of pipeline operations in Western Alberta and Northeast BC. Our experienced team is familiar with challenging areas, including difficult river crossings, and understands the seasonal work requirements. We have established strong partnerships that align with our values and safety commitments. Through effective contracting strategies, we've created win-win situations with our partners, enabling us to exceed our expectations. This success stems from our experience, proven track record, and in-depth knowledge.

Patrick Kenny, Analyst

Thank you. For my final question, could you clarify for Cam whether the target leverage ratio for deciding on executing the NCIB still falls within the range of 3.75 to 4.25? Would managing the buyback program be aimed at the midpoint of that range, or do you prefer to keep leverage below that long-term target for the time being, at least until interest rates decrease?

Scott Burrows, CEO

Yeah, I think we recognize Pat that we are below that stated range. Obviously, as Scott mentioned earlier, we have a number of exciting opportunities looking forward and obviously as we've done in the past, we've always positioned our balance sheet to be able to seize opportunities and be in a strong position to be able to weather cycles as they or as opportunities may come. And so when we look at the decision to use cash flow towards reducing debt this year, it is largely a function of seeing the opportunities come in the next two to three years and also, looking at the pure economics of it, we sort of look at interest rates obviously and where our cost of debt is. We look at that relative to the alternative and right now taking all that into account, we think it makes sense to temporarily retire some debt with free cash flow and have that capacity available for opportunities in the future.

Patrick Kenny, Analyst

Okay. Great. Thanks for that. I'll leave you there, guys.

Operator, Operator

Thank you. The next question comes from Robert Catellier from CIBC Capital. Please go ahead.

Robert Catellier, Analyst

Yeah, I just want to touch on Cedar LNG again. I'm wondering if how the recent economic weakness is influencing your risk appetite as well as the appetite of customers for offtakes. I know you sounded quite bullish in your opening remarks, and also the same question on the financing stream, how's the tightening credit market conditions impacting the availability of project financing?

Stuart Taylor, Executive Officer

Hey, Rob, it's Stu. We're sitting here, obviously it's a long-term project. We're looking, it's a tolling model as described 20-year, a 100% take or pay contracts. We have to FID and obviously we will be in service in the late 2027, early 2028 timeframe. So people are taking a longer term view of what the LNG market will be. It's gone through, as you're well aware, some fairly high pricing in the recent times. But people are long term forecast of some steady pricing. We are seeing with I think with our EA announcement, with our first MOU announcement, we've seen enhanced interest in people coming out and we've got a lot of requests for engagement. We're progressing a number of conversations for that second, third MOU. So, the long-term economic view, we're, we're managing the cost. As Scott mentioned, we'll have our EPC contract cost in the mid-summer here and, we're optimistic and anxious to get that and progress the commercial arrangements and everything is lining up for FID execution later this year.

Cameron Goldade, CFO

And just on the financing, Rob, a couple thoughts. Obviously the first is I think the partnership with the Haisla First Nation on this, it is just a real key aspect of the project over so many work streams and just strategically and it shows up in the financing side as well because obviously the opportunity to work with a group like that and be a part of this project really excites the financing market. People want to be involved with this and want to support this project. I would say the second thing is that obviously with the scale of the project as it is the area of magnitude of capital costs that we're talking about and an appropriate capital structure on top of that, to be blunt, we're not in the same stratosphere as the Gulf Coast mega projects. And so the aggregate capital need is smaller and obviously more digestible for the core LNG and core lenders to Pembina and to a project like this. So I think we're not seeing impact of that so far and quite honestly, people want to be involved with this project.

Robert Catellier, Analyst

Okay. That's good color, thank you. And then just on the variance in EBITDA impact from the Northern pipeline system outage, Jaret talked about additional investment integrity work. I just can't help but wonder just given the volumes, if there wasn't an investment in customer care as well, in other words, more investment in spending to truck volumes to other facilities, was that at all a factor in the $54 million versus the $30 million guide?

Cameron Goldade, CFO

All that's factored in. Rob, I would say that the big pieces were obviously, lost revenue and then the integrity work and the remediation work on that, but all of that would've been factored in.

Operator, Operator

Thank you. The next question comes from Ben Pham at BMO. Please go ahead.

Ben Pham, Analyst

Hi, thanks. Good morning. Can you comment on PTI, is it trending higher than your expectations or some positive commentary in your package? And then can you also comment on, is there any areas or gas processing assets that you're seeing utilization hit a level where you may need to look at the bottom net opportunities?

Jaret Sprott, Executive Officer

Great question, Ben. It's Jaret here. The integration of PGI and the commercial opportunities with the rest of our business continue to significantly exceed our initial expectations. We recently executed another deal with one of our larger customers for pipe and processing, which showcases the value of that integrated value chain. This is certainly exciting. Regarding volumes, they continue to grow; I specifically mentioned the former ETC assets and the Dawson assets. We're observing gas growth along with the liquid growth on the LVP side, and gas growth is a part of that. The HVP has been affected by Northern, but overall, volumes remain strong. I think there was a question earlier about this, possibly from Rob. Just last week, PGI management presented to the board, and PGI is actively pursuing engineering and commercial discussions on $750 million worth of incremental projects aimed at either debottlenecking or expanding our business. This is an exciting time with the diversity of our assets, including the oily Montney, the liquids-rich Montney, and even access to the Cretaceous. This diversity allows our customers to be flexible and dynamic in their drilling needs. It's an exciting portfolio, and I can confidently say on behalf of Pembina and our partners that we're thrilled about the growth opportunities ahead.

Ben Pham, Analyst

Okay, great. Can you comment on how broadly you are considering the value chain for Ammonia in relation to the CapEx program? There are various components that require small investments, while others could involve multi-billion dollar projects.

Stuart Taylor, Executive Officer

Hey Ben, it's Stu. Yeah, we're looking across the board at this point in time. We have the Pembina asset base and looking to utilize the asset base from an operations perspective, from a feedstock perspective, from a citing and operation perspective, work in conversations with people ranging from small, as you mentioned, small dollar capital opportunities. We're looking at being a service provider in some cases, bringing water pipeline feedstock, pipeline integration, power integration to their asset. And then in other cases, we're taking a more fulsome view in trying to evaluate the opportunity where we might be partnered with under a major place such as an ammonia facility as well and so, it's a bit across the board at this point in time as we look at what those opportunities may be and trying to understand where Pembina best fits and where the best use of our capital will be.

Operator, Operator

Thank you. And the next question comes from Robert Kwan at RBC Capital Markets. Please go ahead.

Robert Kwan, Analyst

Hey, good morning. If I can just go back to your Northern outlook for the second quarter, how much of that estimate is still repair, clean up, ILIs versus lost revenue now that you've started up and are expecting to ramp up? I guess where I'm going is if you can't get to full rates, what's more of the ongoing loss revenue impact if this continues?

Stuart Taylor, Executive Officer

Morning, Robert? The majority of the costs in the second quarter is lost revenue, missing out on the C2 plus essentially from younger and obviously some of our other customers are currently still restricted, but that is most of it. There's some minor integrity repairs still ongoing, but that is the majority.

Jaret Sprott, Executive Officer

Yeah, I would say, it's sort of an around or less than about a third of that estimate, Robert.

Robert Kwan, Analyst

Can you elaborate on the process to achieve full rates? What are the regulatory requirements, and when do you anticipate receiving that approval?

Stuart Taylor, Executive Officer

Yeah, you bet. Great question. So although we don't have formal approval yet, we have been working with the AER, the Alberta Energy Regulator throughout this time to ensure we're aligned on bringing this pipeline back in safely. So I'd mentioned in, I think in Pat's question, the incremental integrity work we've done. So everything is pointing that we don't have a systemic problem, like I mentioned, but we will be working with the regulator to get this pipeline back on safely. And I would like to mention, Robert, that if there were any indications that this pipeline couldn't be operated safely and we were going to put our people, the communities or the environment in jeopardy, we obviously wouldn't be pursuing that path. So, what we've seen so far is giving us the confidence that we can get back to maintain the current operation at the restricted rate and get back to a full operation, in short order.

Robert Kwan, Analyst

Okay. I don't know, are you willing to disclose what full operation date is embedded in the $25 million to $30 million?

Cameron Goldade, CFO

It's a range, Robert, and the reason we haven't disclosed it is that there's still a couple hurdles with the regulator, and so it would be presumptive to be finer on that until we've obviously crossed those hurdles. So, it's obviously sort of the second half of the quarter here, but, hopefully we'll be able to be clear on that soon.

Robert Kwan, Analyst

Understood. If I can just finish with the NGL recontracting year, if you just give some color as to how that shook out both volume and pricing wise and frame that against what would've been embedded in guidance.

Chris Sherman, Executive Officer

Yeah, sure. Happy to take that. Hi, Robert. I think contracts here really went as expected. We had some volume impact here from Northern, but in general, everything sort of termed up like we thought it would. In addition, pricing really was relatively positive when you looked at it with some new demand coming on, with the new PDH as well as continued strong numbers off the West Coast. Pricing was shaking out really as expected through contractor.

Operator, Operator

Thank you. There are no further questions. I'll now turn it back over for closing comments.

Scott Burrows, CEO

Well, thanks again, everyone. We're pretty proud of our strong start to the year and thanks to all of our employees and our customers and our contractors for helping us along and I'd invite everyone to join into our AGM presentation this morning where we'll update you again on the business and our outlook for the year. Thanks everyone.

Operator, Operator

Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.