Earnings Call Transcript - PBA Q3 2025

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Pembina Pipeline Corporation Q3 2025 Results Conference Call. This call is being recorded on Friday, November 7, 2025. I would now like to turn the conference over to Dan Tucunel, VP of Capital Markets. Please go ahead.

Dan Tucunel, VP of Capital Markets

Thank you, Danny. Good morning, everyone. Welcome to Pembina's conference call and webcast to review highlights from the third quarter of 2025. On the call today, we have Scott Burrows, President and CEO; and Cameron Goldade, Senior Vice President and Chief Financial Officer, along with other members of Pembina's leadership team. I would 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 November 6, 2025, for the period ended September 30, 2025, as well as the press release Pembina issued yesterday. All materials are available online at pembina.com and on both SEDAR+ and EDGAR. I will now turn things over to Scott.

Scott Burrows, President and CEO

Thanks, Dan. Yesterday, we reported our third quarter results, which were highlighted by quarterly adjusted EBITDA of $1.034 billion. We remain on track to deliver full year results within our original 2025 adjusted EBITDA guidance range. As Cam will discuss in more detail and as we are three quarters of the way through 2025, we have updated and narrowed our guidance range to $4.25 billion to $4.35 billion. As we highlighted in the release yesterday, Pembina continues to execute its strategy through which we strive to do two things: one, ensure the long-term resilience of our business; and two, provide investors with visibility to attractive growth through the end of the decade and beyond. The execution of Pembina's strategy is highlighted by a number of recent developments. First, earlier this week, we were pleased to sign a 20-year agreement with PETRONAS for 1 million tonnes per annum of Pembina liquefaction capacity at the Cedar LNG facility. PETRONAS is a global LNG industry leader and one of the largest gas producers in Canada. We are very excited to expand our relationship with them and see this as an important development in Pembina's ongoing expansion of its export business. Pembina previously signed a 20-year take-or-pay liquefaction tolling service agreement for 1.5 million tonnes per annum of LNG to support the final investment decision on Cedar in June of 2024 and ultimately maintain key project timing and economic parameters within the expectation of remarketing the capacity at a later stage. By remarketing our Cedar capacity, we are fulfilling Pembina's commitment to its financial guardrails and ensuring that the company's expansion into the LNG business is done within the risk profile of its existing business, characterized by its predominantly long-term, highly contracted fee-based cash flow stream. We expect to reach definitive agreements for the remaining 0.5 million tonnes of our capacity by the end of 2025. Meanwhile, the project itself remains on time and on budget. Construction of the floating LNG vessel, including the hull and topside facilities, remains on schedule. Cedar LNG has significantly advanced the onshore construction work. Pipeline construction is ahead of schedule, including the completion of all horizontal directional drill crossings. This is a major achievement and derisk that portion of the project. Second, during the quarter, Pembina and its partner, Kineticor, had an exciting announcement on the advancement of the Greenlight Electricity Center, a proposed up to 1.8 gigawatt natural gas-fired power generation project designed to advance Alberta's innovation economy. Recent achievements include securing a 907-megawatt power grid allocation, which was subsequently assigned to a potential customer of Greenlight to enable development of the customer's innovation infrastructure development as early as 2027 prior to the start-up of Greenlight in 2030. In addition, a recently signed agreement with a reputable equipment manufacturer provides certainty of availability and delivery timing of two turbines to support the approximately 900-megawatt first phase of Greenlight. Pembina and Kineticor continue to progress towards a final investment decision in the first half of 2026. We see Greenlight as an on-strategy extension of Pembina's existing value chain and an opportunity to enhance growth by investing in long-term contracted infrastructure with investment-grade counterparty while diversifying our customer base. Greenlight would create incremental demand for natural gas and associated liquids production within Western Canada, and we believe Pembina is well positioned to leverage the assets and capabilities of our current core business to further support the project and serve customer demand for gas egress and liquids handling and transportation. Most notably, the proximity of Pembina's Alliance Pipeline offers a potential accretive expansion opportunity to supply natural gas to Greenlight. Third, we continue to realize contracting successes that are strengthening the core business. In our conventional pipeline business, we now have recontracted substantially all volumes available for renewal under contracts with expiry dates in 2025 and 2026. In addition to the previous updates we have provided around various recontracting successes, we recently signed new transportation agreements on the Peace Pipeline system for the renewal and addition of volumes totaling approximately 50,000 barrels per day with a weighted average term of approximately 10 years. Approximately 80% of the volumes are currently being serviced today, and 20% are new volumes taking effect in 2026. Within our transmission business unit, recent shipper elections on Alliance Pipeline have significantly strengthened its long-term contractual profile with shippers taking an average of a 10-year toll option on approximately 96% of the 1.325 Bcf per day of firm capacity available. Fourth, we continue to deliver on our capital projects on time and on or under budget. In total, Pembina and Pembina Gas Infrastructure are nearing completion on approximately $850 million of projects that are expected to enter service throughout the first half of 2026. RFS IV, the new fractionator within our Redwater Complex, has progressed to approximately 75% complete. It continues to trend under budget, and we have narrowed the expected in-service date to the second quarter of 2026. PGI's Wapiti Expansion, which will increase natural gas processing capacity at the Wapiti Plant, is trending on budget, and we have narrowed its in-service date to the first quarter of 2026. And PGI's K3 cogeneration facility is now trending under budget, and we have narrowed its in-service date to the first quarter of 2026. Finally, we are progressing numerous accretive investment opportunities to meet growing demand for pipeline and transportation services. Pembina is well advanced on the development of approximately $1 billion of conventional pipeline projects to enable WCSB growth and position Pembina to win new liquid transportation opportunities. These investments would be supported by a combination of long-term take-or-pay agreements, a cost of service structure, and the land and facility dedications. Engineering activities are ongoing, and subject to regulatory and board approval, Pembina expects to move forward with the Fox Creek-to-Namao Expansion of the Peace Pipeline system, a Taylor-to-Gordondale Project, and a Birch-to-Taylor Northeast BC System Expansion. As well, we continue to observe continued growth from the Clearwater area and strong customer demand for incremental services on the Nipisi Pipeline. Following successfully recontracting Nipisi over the last few years, Pembina expects it to be highly utilized in 2026 and is currently evaluating opportunities to increase egress capacity. Alliance Pipeline previously solicited nonbinding expressions of interest for a new short-haul point-to-point transportation service on the Canadian segment of its system in Northwest Alberta. The proposed expansion would provide natural gas delivery to a new meter station in Fort Saskatchewan for up to 350 million standard cubic feet per day of incremental capacity with an anticipated in-service date in the fourth quarter of 2029. Based on the results, Alliance Pipeline is planning to launch a binding open season in the first quarter of 2026 for all interested parties. Pembina continues to differentiate itself as the only Canadian energy infrastructure company with an integrated value chain that provides a full suite of midstream and transportation services across all commodities: natural gas, NGL, condensate, and crude oil. Our scope, scale, and access to premium North American and global markets uniquely positions us to capture incremental new volumes while unlocking new avenues for growth. I will now turn things over to Cam to discuss in more detail the financial highlights of the third quarter.

Cameron Goldade, CFO

Thanks, Scott. As Scott noted, Pembina reported third quarter adjusted EBITDA of $1.034 billion. This represents a 1% increase over the same period in the prior year. In Pipelines, major factors impacting the quarter included higher demand on seasonal contracts on Alliance Pipeline, higher revenue on the Peace Pipeline system due to increased tolls, mainly related to contractual inflation adjustments, higher interruptible volumes on the Peace Pipeline system, higher contracted volumes on the Nipisi Pipeline, and lower firm tolls on the Cochin Pipeline due to recontracting in July 2024 and lower interruptible volumes due to narrower condensate price differentials, offset by higher contracted volumes. In facilities, factors impacting the quarter included higher contribution from PGI, primarily related to transactions with Whitecap Resources, higher capital recoveries, and higher volumes at the Duvernay Complex. In Marketing & New Ventures, third quarter results reflect the net impact of lower net revenue due to a decrease in NGL margins as a result of lower NGL prices, coupled with higher input natural gas prices at Aux Sable, higher NGL marketed volumes, including no similar impact of the 9-day outage at Aux Sable in 2024, and lower realized gains on crude oil-based derivatives, partially offset by lower realized losses on NGL-based derivatives. Finally, in the Corporate segment, third quarter results were higher than the prior period due to lower incentive costs driven by the change in Pembina's share price in the period compared to the third quarter of 2024. Earnings in the third quarter were $286 million. This represents a 26% decrease over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, the decrease in earnings in the third quarter was primarily due to the net impact of the recognition of a gain on the sale of the North segment of the Western Pipeline, higher depreciation and amortization due to a decrease in the estimated useful life of an intangible asset, a share of loss in PGI due to an impairment on certain PGI assets, and higher depreciation expense, partially offset by the recognition of a gain in net finance costs and lower losses on the interest rate derivative financial instruments and commodity-related derivatives. Finally, lower share of loss from Cedar LNG, primarily due to the impact of hedging activities on the credit facility. Total volumes in the Pipelines and Facilities divisions were 3.6 million barrels of oil equivalent per day in the third quarter. This represents an increase of 2% over the same period in the prior year, primarily driven by higher contracted volumes on the Nipisi Pipeline and the Peace Pipeline system, higher volumes at Redwater and Aux Sable due to no similar outages that occurred in the third quarter last year. Now turning back to the full year. As Scott mentioned, we tightened our 2025 adjusted EBITDA guidance range to $4.25 billion to $4.35 billion, which reflects year-to-date results as well as the current commodity price outlook for the remainder of the year. I'll now turn things back to Scott.

Scott Burrows, President and CEO

Thanks, Cam. As we have summarized today, we have delivered solid quarterly and year-to-date results, both operationally and financially. We remain on track to deliver full year 2025 adjusted EBITDA within our original guidance range and look forward to providing our outlook for 2026 with the release of our guidance and capital budget update in mid-December. As we work successfully to close out 2025 and plan for 2026, we cannot be more excited about what is ahead for Pembina and its stakeholders. Developments within the WCSB are providing tremendous opportunities to strengthen and grow our business. Thank you for joining us this morning. Please open up the line for questions.

Operator, Operator

Our first question comes from Theresa Chen of Barclays.

Theresa Chen, Analyst

Given your updated guidance range and the mention of the current commodity outlook, can you share what you're seeing or hearing from your producer customers as far as the read-through to your pricing outlook as well as your volumetric expectations, not just for the remainder of this year, but also for 2026?

Jaret Sprott, Analyst

Theresa, Jaret here. Yes, right now, obviously, commodity prices are a little lower, hovering around that $60 WTI. So what we're really doing right now is just meeting with all of our customers, really listening to what their short-term needs are for transportation services going into '26. We'll have a much more refined outlook with respect to 2026 when we do our guidance and capital press release in December. But right now, we're just really in listening mode and going to really try to meet our customers' needs.

Scott Burrows, President and CEO

And then maybe just adding on to that from a direct Pembina exposure. As we look forward, we're seeing propane prices lower than we saw last year. There is some weakness in propane if you look at where inventory levels are, coupled with a strengthening AECO price, which, obviously, the opposite of that is good for our customers, but a high price does put pressure on our frac spreads. So we are seeing a little weakness compared to, say, last year in our outlook for frac spreads for Q4, just given those dynamics.

Theresa Chen, Analyst

And in relation to Greenlight and your partnership with Kineticor, what are the next steps from here? And if Alliance were to be a source of supply for gas, what kind of uplift would you expect?

Chris Scherman, CFO

Theresa, Chris Scherman, thanks for the question. As we shared in October, we're continuing towards the first half 2026 FID schedule. We're really continuing our commercial discussions with our customer, continuing our FEED work to get our engineering in line in hopes of that first half next year FID. As far as uplift associated with the pipe, I mean, they really are two separate projects, but we think each can stand alone on its own two feet and really support solid economics.

Operator, Operator

Your next question comes from Jeremy Tonet of JPMorgan.

Jeremy Tonet, Analyst

I want to go to Project Greenlight a little bit more. I believe last quarter, there was talk about potential for 2029 entering service. And just want to see, I guess, latest thoughts on how you see this unfolding with all the unfolding of the interconnection queue. It seems like there might be some concern in the market. So just wondering if you could provide a little bit more color there.

Chris Scherman, CFO

Sure. Again, it's Chris. So I think there has been maybe a little bit of confusion that's entered the market, right? I think it's worth taking a second to maybe separate the two projects and clarify what's happening there. Our customer is progressing their innovation center, and that's really where the grid connections rest and the associated DTS arrangements. I know there have been some disclosures that referenced 2030. Our understanding is that's really an outside date, and they're still pushing towards as early as 2027 for that first phase. The innovation center and the associated grid connections are really our customers' projects. And since we assigned or sold our land and secured those allocated megawatts to our customer, that's really between them and the AESO. But as far as our project, the related project, we're progressing our 1,800-megawatt gas-fired power generation facility. The first phase of 900 megawatts is, as you referenced, planned for 2030, and all of that remains on track.

Jeremy Tonet, Analyst

Got it. That's very helpful. And just want to touch on the guidance tightening a little bit. It seems like the midpoint moved down just a little bit there. I was wondering if you could dive in a little bit more on the drivers there and just what trends you see coming out of '25 into '26 and how we should think about that?

Cameron Goldade, CFO

It's Cam here. I want to highlight that we have a stable and resilient business. Despite the fluctuations in the market throughout 2025, we are still within our original guidance range from last year and are committed to that for the current year. Looking at our outlook in August for the remainder of the year, we anticipated some opportunity coming in the second half, especially in the fourth quarter from the marketing sector. However, we expected slightly more than what we've observed, which has led us to tighten our guidance a bit to provide clearer direction to the market. That said, it’s early, and the results in our core business, excluding marketing, continue to show strength. Early October volume results have met or exceeded our expectations, reflecting positive signs outside of marketing. Ultimately, we've seen a slight reduction in options within the commodity sector, prompting us to adjust our forecast, but overall, we don’t see significant changes in our business.

Operator, Operator

Your next question comes from Saumya Jain of UBS.

Saumya Jain, Analyst

Could you provide more color on the brownfield opportunities you're looking at in the sour gas space? How is sour gas infrastructure currently positioned in the basin? And how would Pembina benefit from it?

Jaret Sprott, Analyst

Great question. As the demand for condensate increases with the growth of oil sands production and the expansion of oil egress pipelines from Western Canada, more condensate will be needed. A significant portion of that condensate is sourced from the Montney region, which is associated with sour gas. PGI operates an extensive network for sour gas processing, sulfur recovery, and acid gas injection through our facilities like Hythe, K3, and Kakwa River. Pembina is unique as we are the only company to have built a sulfur recovery unit in the last 25 years, and we accomplished that on time and within budget. Our project execution, operational expertise in this area, and the capabilities of PGI position us well to meet customer needs and support the growth of sour gas production in response to the rising demand for condensate.

Saumya Jain, Analyst

Okay. Great. And then on the regulatory side, what progress are you seeing at the federal or provincial level? And are there any policies or changes that will especially impact Pembina in the near term?

Scott Burrows, President and CEO

Yes. I think overall, we're definitely seeing a constructive tone from the federal government. We like what we're seeing. We're seeing it, I think, on the ground in terms of our interactions as well. I think it's a little too early to comment on what new projects may or may not come out of that, but certainly a constructive and supportive tone from the federal government.

Operator, Operator

Your next question comes from Aaron MacNeil of TD Cowen.

Aaron MacNeil, Analyst

It's great to see Pembina continue to announce contract renewals on conventional pipe. The question we always get is on pricing. I can appreciate that you're not going to get into specifics here. But given the emergence of a competitive alternative, how should we think about renewal pricing and your ability to maintain current margins on a per barrel basis?

Jaret Sprott, Analyst

Thank you for your question, Aaron. Our recent announcement regarding the recontracting of 50,000 barrels is a significant achievement for Pembina. It’s important to note that all of these volumes are within the competitive alternative transport sphere. Currently, 20% of these volumes utilize the alternative; once the project is completed, they will flow on the Peace system. I can confirm that all of the volumes will maintain the current contracted toll. Transportation agreements involve numerous factors important to our customers, with tolls being one of them. In this case, we were able to keep the toll stable. In some instances, at specific receipt points, we may reduce our tolls if it makes sense strategically, but those are carefully considered decisions. While we don’t publicly share this data, I want to highlight that the EBITDA per barrel in our conventional business has been rising since the alternative pipeline started. Several factors contribute to this. Firstly, we have focused intently on reducing our costs and enhancing safe, reliable, and cost-effective operations through our supply chain strategies and continuous improvements in operational excellence. Moreover, as we move further west from the Edmonton market, we see higher tolls due to distance. Most of our contracts on the pipeline side include CPI inflators. Lastly, our ability to maintain margins stems from our strong project execution and continuous safe, reliable operations, which gives us a competitive edge. Our commercial teams can meet internal expectations while delivering projects on time and under budget, allowing them the flexibility to address customer needs without compromising our margins or financial goals. I hope this addresses your question.

Aaron MacNeil, Analyst

Yes, that was more detail than I expected. For my follow-up, I need to ask about PGI. You've discussed the benefits and capital efficiency of owning 60%, but owning 100% could also bring advantages like perfect alignment on incremental capital, especially since KKR lacks the downstream benefits that you have. So, to clarify, could you discuss your potential interest in consolidating that remaining 40%?

Scott Burrows, President and CEO

Yes. I think as a general concept, we generally don't comment on specific M&A situations. But what I can say in this specific situation is the fact that we still like the partnership. We like how it was set up, and we believe it's delivering what it was originally intended to do. So we're happy with it.

Operator, Operator

Your next question comes from Spiro Dounis of Citigroup.

Spiro Dounis, Analyst

I wanted to go back to the outlook quickly. So you've got the Alliance CER process out of the way. You've now got some Peace recontracting done. So I addressed a lot of maybe the larger unknowns headed into 2026. At the same time, you've got some tailwinds coming from M&A and headwinds from commodity. Just curious in the context of that original fee-based EBITDA you provided back in 2024 for 2026, how do you think a lot of these moving items and factors play into that original range?

Cameron Goldade, CFO

Spiro, thanks for the question. It's a really good one because I think that's one of the things we're most proud about. As we set out about 1.5 years ago and put that guidance range out at our 2024 Investor Day, we obviously had a lot of confidence in that range and frankly, a lot of confidence in being at the upper end of that range, continuing to execute along the same ways that Jaret just talked about through the core base business, through the commercialization, as well as some really, really accretive and attractive sort of bolt-on M&A opportunities across our business. What we've seen is, on one hand, a couple of headwinds, primarily related to the revised Alliance CER settlement. But what we've also done, as Jaret mentioned, is really taken a keen eye to our business and looked for opportunities to operate differently, to operate more efficiently to focus on work that is higher value-add versus lower value-add. I would say that without getting ahead of our 2026 guidance outlook, which will come in about a month's time, I would say we maintain a lot of confidence in obviously achieving that range and achieving a spot in that range, which would reflect something consistent with our own expectations and the market's expectations. We feel really good about that. We're working really hard on that. We continue to tell the resilience of our business in many ways and the benefits of the diversity of it, the exposure to multiple commodities, the place that we play in the Western Canadian Sedimentary Basin, and we think that performance even in light of headwinds, which they come in business, demonstrates that.

Spiro Dounis, Analyst

Got it. That's helpful color, Cam. Second one, going back to Greenlight as well. Could you maybe put a finer point on when we can expect to start to see cash flows from this project to Pembina? And when it comes to the phases, I think this initial phase is about half that total capacity envisioned, but I know I think you guys have mentioned four potential phases in total. Just maybe remind us again how you're thinking about the remaining phase scope and then the timeline?

Scott Burrows, President and CEO

So the original phasing was four phases of $450 million. We are now talking about two phases of roughly $900 million. So again, we've gone from kind of a first phase of $450 million to a first phase of $900 million, if that makes sense. We would expect, based on our current timeline and current estimations, that cash flow would occur in 2030.

Operator, Operator

Your next question comes from A.J. O'Donnell of TPH.

Andrew John O'Donnell, Analyst

Maybe if I could just sneak one more in about Greenlight. As the data center innovation center conversations continue to pick up momentum, I'm curious, is there a way to bridge the gap further? Have you guys explored potential mobile or module power solutions? Is that something that you have looked at before?

Chris Scherman, CFO

A.J., thanks for the question. We've looked at a variety of different modes and means to facilitate this business. From our perspective, what we have in place, the type of facilities and structure we have in place today is scalable and really, really effective for what our customers are looking for. And so that's really what we stay focused on.

Cameron Goldade, CFO

A.J., it's Cam here. I would just add on top of that. I think our experience has been when we've looked at other developments as this occurs, once you get the base, the core assets in place, they do tend to cluster. As we think about the advantages that our utilities, our access to water, all of the embedded advantages, we do see benefits, and we see that being an advantage in our offering for the future. So we think there's opportunity beyond this.

Andrew John O'Donnell, Analyst

Okay, great. I appreciate the detail. Now, regarding Cedar, there was a filing for the increase of feed gas capacity from 400 to 500 million cubic feet. Can you share the implications of this change, and does it suggest potential for higher volumes or marketing opportunities for Pembina?

Stuart Taylor, Analyst

It's Stu Taylor. I'll maybe try to provide some clarity. So when we originally were scoping out the project and looking at the size, we did permit the project for 3 MTPA, 400 million cubic feet per day. As we were going through engineering design, we've seen an opportunity to, for very minor dollars, increase that capacity from 3 MTPA to 3.3 MTPA. So we undertook that spend and are currently designing and building to the 3.3, and our announced capital actually incorporates that size. We knew we would have to go back for an amendment to the permits. We did that. Again, there's no change to the scope of the project or any of the capital cost estimates. As you go through these projects and continue to work with engineering, we've seen that engineers don't design rate to the exact capacity. They do it at FAT in their facilities and infrastructure. As we were looking to do the amendment, we did increase that size of the amendment and increase it from 400 to 500 mncf. Obviously, we need incremental gas supply. These are potential volumes as we go forward. We will be working on that on a go-forward basis. These will be incremental cargoes, sorry, beyond what we have contracted. We have only contracted the facility to the 3 MTPA size. So any incremental gas or incremental cargoes are upside for us.

Operator, Operator

Your next question comes from Maurice Choy of RBC Capital Markets.

Maurice Choy, Analyst

If I could just start with a question about project execution. When I think about how globally resources are being directed towards supporting the AI sector, and this could obviously lead to inflationary pressures globally in the coming years. I know that you've highlighted your project execution track record and capability. So just wondering what you tend to do in these early years before those pressures arrive? What actions do you tend to take to kind of get ahead of the curve?

Jaret Sprott, Analyst

Maurice. Yes, so I think the question was really about future pressures in certain areas. One of the things that we're really focused on and we're really aligned with our Board, and they ask us about it is creating long-lasting partnerships with Tier 1 contractors and obviously, indigenous communities. I think that's part of our overall strategy is not always going for the lowest dollar but committing ourselves to the safest, making sure that we have the A teams. We're aligned from the top with respect to our safety messaging and our project execution and the services that we'll be providing. I think we've made material ground with respect to that. I think internally here, I've talked about it before. I think we just have a culture of one team, one Pembina when we're approaching these projects. It's something that we've been cultivating and we're really good at.

Maurice Choy, Analyst

And if I could finish off with a question on balance sheet in general. Again, I just want to know philosophically, what is the comfortable or optimized cushion for you versus the 4.25 maximum debt to EBITDA? Where do you see that being by the year-end and peaking next year due to Cedar LNG CapEx?

Cameron Goldade, CFO

Maurice, it's Cam here. Yes, I think good question because we've talked about that. First, it's worth reminding everyone that is a proportionately consolidated number. That reflects not only the debt that we carry at the Pembina level, but also the debt that is included in the PGI credit stack, notwithstanding the fact that it's recourse as well as the moment, construction debt associated with Cedar LNG, which is obviously, again, nonrecourse, but carried at that level. As we see exiting 2025, we see that in the sort of the mid-3s range because of the timing and really remembering that 2026 is the peak investment year for Cedar LNG, obviously, without any of the commensurate earnings along with it. If we go back and remind ourselves of our message from our 2024 Investor Day, we talked about that 3-year outlook for capital being largely free cash flow neutral with some shape to it throughout those individual three years, and this would be consistent. We expect to see free cash flow positivity in 2025. We saw free cash flow positivity in 2024, and we would expect to see some free cash flow negativity in 2026. However, on the long term, we feel obviously that we set our balance sheet up to be able to handle that. As we move through 2026, we would expect that to moderate back down to the type of range that we've been comfortable with longer term. Ultimately, that comfort zone is largely 3.5x to 4x. Could we go above that? It's not where we would intend to go in the near term. So that's the way we think about the balance sheet at the moment.

Operator, Operator

Our next question comes from Robert Catellier from CIBC Capital Markets.

Robert Catellier, Analyst

Rob Catellier from CIBC. A lot to talk about given all your contracting this quarter. Maybe I can start with the mechanics on the synthetic liquefaction agreement with PETRONAS. Maybe you can walk us through that and the circumstances you need to see to generate that incremental value enhancement.

Scott Burrows, President and CEO

Yes. I'll talk about the contract in general, and then I'll turn it over to Chris to provide some further details. I think, as you can appreciate, we're still finalizing the other 0.5 million tonnes. So given the status of that, we're going to stay away from specific details. What I can tell you is that we were very pleased with the outcome of that negotiation. And maybe, Chris, I'll turn it over to you to talk about the contract.

Chris Scherman, CFO

As far as contract structure, it's effectively synthetic tolling. We are taking the obligations we have with Cedar and almost entirely passing those on to our customer. In addition to passing the terms on, we've been able to capture some participation in the upside of the market. So to the extent the arbitrage is open and attractive between Canadian AECO gas and the part East, we'll have an opportunity to capture some of that upside and participate in that.

Robert Catellier, Analyst

Okay. Just generally speaking, in terms of contracting the capacity at Cedar, have you been able to leverage that into other business with PETRONAS or otherwise? And I'm thinking downstream gathering, liquids, fractionation, et cetera?

Chris Scherman, CFO

Yes. I mean, I don't think we can get into that right now. But what we will say is we think we have a very strong relationship with PETRONAS that we're building on with this arrangement. Our hope is to continue to build on that and do much more together.

Cameron Goldade, CFO

Robert, it's Cam here. I guess I would just add on top of that that I think achieving a partnership with an entity of the prominence in the LNG space like PETRONAS is really important for us and essentially validates Cedar LNG in the global scale from an LNG project in terms of both the competitiveness of it and the reality of it. I think what we would see is we already had a relationship with PETRONAS on the upstream side, dating back to the middle of the last decade in terms of servicing them on the Northeast BC side. We would certainly love and see this as a beachhead to continue to expand that. We have a ton of respect for them as an organization. I would say likewise that as we think about the remaining balance of Cedar and future LNG ambitions, we've had lots of interest from customers in our core business, looking to achieve diversity of market access for their volumes, and say that there is a view that Cedar is a scarce resource and can continue to drive value both for them and for Pembina in win-win type solutions. To answer your question pointedly, yes, we are seeing that type of value accretion through the rest of the core business.

Robert Catellier, Analyst

Okay. That's good detail. And then just a couple of quick ones here. Just given the RFS IV revised timeline, it looks like a second quarter in-service date. I'm wondering how that interplays with the upcoming NGL contract here. In other words, do you have any available capacity to market there? Will you be able to market it into the upcoming contract here, given the service state seems to be tight with the start of that year?

Jaret Sprott, Analyst

Rob, Jaret here. Yes, you nailed it; we're working really closely with our execution team to bring that on as close as we can to the NGL season. Frac capacity is very tight in the IV right now. It does give our commercial teams a lot of flexibility to work with customers and bring them in the closer we can get to April 1. But yes, you nailed it.

Robert Catellier, Analyst

Okay. And finally, I'm just curious on the Alliance recontracting and the onetime option for term extension. You're now, I think, 96% of your firm capacity is contracted. I wondered if there were any contracts there with the marketing affiliates.

Jaret Sprott, Analyst

No.

Operator, Operator

Our next call comes from Ben Pham with BMO.

Benjamin Pham, Analyst

Ben here. I had a couple of questions on Peace in the conventional business segment. I'm wondering if you can characterize or comment on the volume trends in convention this year. It looks to be more in that 2% to 3% context versus the 6% to 7% plus before. I know you flagged a bit of a phased pickup in the volumes, but can you comment on that? And what's the thought process into 2026 with new contracts and the broader business environment?

Cameron Goldade, CFO

Yes. Ben, it's Cam. I'll start and then maybe pass it over to Jaret. One thing I would mention is that if you stand back for a moment and look at our volumes that we report in our conventionals, those are obviously, as we said before, always the revenue volumes, which reflect our physical volumes plus take-or-pay contracts that we have in excess of that. As you go through and try to look at the quarterly trend, it can be a bit misleading if you're trying to find meaning in that on a really narrow time frame, meaning quarter to quarter. If I stand back for a second and look at what our conventional volumes did in Q3 versus Q2 sequentially, those physical volumes would have been up about 4% quarter-over-quarter. We think if you sort of look at that relative to the industry, relative to other basins, that reflects very competitive and consistent growth. I think as we sit and look at 2026, it's kind of the heart of that budgeting season right now for everybody. What we expect to see longer term is continued growth in that single-digit range, supported by continuing demand growth from the oil sands. We continue to see other infrastructure debottlenecks by our peers. We continue to see large operators talking about incremental debottlenecks on their projects to drive incremental supply. We also see incremental gas demand outlet and incremental supply opportunities on the natural gas side, which, of course, drives the condensate and the NGL volumes. So longer term, we are very, very confident in the continued growth at least in that single-digit level. I think in the near term, we have to be mindful that in the new business environment, our producers operate in, where returns and value are paramount over simply volume growth. They are making decisions to optimize their longer-term profiles and taking a longer-term perspective. In any given year, the growth may be more producer-specific versus broad-based or it may be simply timing related. But longer term, we continue to see growth in that single-digit level.

Jaret Sprott, Analyst

Yes, to add to that, I believe that some of the recent announcements, like the Ovintiv and NuVista transaction, as well as the CNRL and Chevron transaction, indicate that while customer consolidation may sometimes put pressure on our business, it also leads to an increase in production. When Cam refers to specific producers either increasing or maintaining their output, we have a strong relationship with Ovintiv and NuVista, which are both large and committed customers of Pembina. Ovintiv has mentioned plans to boost production and drilling in those areas because they have the capacity available. We find these consolidations encouraging. While it's unfortunate to lose one of our valued customers, it is exciting to hear them discuss accelerating gas plant operations with an additional 600 million a day of contracted processing. For instance, PGI serves about 80% of that volume, which is thrilling to see. We must pay attention to our customers and navigate this landscape together. Overall, the broader trend shows that oil sands growth and condensate demand are on the rise, while import pipelines are nearing capacity. Therefore, condensate will need to be sourced domestically, and we are well-positioned to assist our customers in reaching Edmonton and the oil sands.

Operator, Operator

There are no further questions at this time. I will now turn the call back over to Scott Burrows, President and CEO. Please continue.

Scott Burrows, President and CEO

Great. Thank you, everyone, for your time, and we look forward to updating you in the middle of December with our 2026 outlook.

Operator, Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.