Good day, and welcome to the Pembina Pipeline Corporation 2021 Fourth Quarter Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Cameron Goldade Interim Financial Officer. Please go ahead..

Thank you, Jennifer. Good morning, everyone. Welcome to Pembina's conference call and webcast to review highlights from full year 2021.

On the call with me today are Scott Burrows, President and Chief Executive Officer; Jaret Sprott, Senior Vice President and Chief Operating Officer, Pipelines and Facilities; Stu Taylor, Senior Vice President, Marketing & 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's Discussion & Analysis dated February 24, 2022, for the period ended December 31, 2021 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..

Thanks, Cam. As announced earlier this week, the Board of Directors has completed its process regarding the CEO search. I am honored and humbled to have been entrusted with this role on a permanent basis, and I am thrilled to have the opportunity to work with such a dynamic and dedicated team.

Pembina's future is full of exciting opportunities, and I'm confident that, together with our many stakeholders, we will accomplish great things.

2021 was another remarkable year for Pembina as we once again navigated the uncertainty and ever-changing reality of the pandemic and its consequences of global economy and energy prices, while still moving the company boldly forward.

A year ago, we spoke about hitting pause in 2020, but getting ready to hit play again in 2021, and we did exactly that. Our accomplishments include restarting construction on several previously deferred capital projects and delivering record financial results that exceeded our annual guidance.

Cam will speak more to the details in a moment, but our strong results reflect much improved commodity prices across all products within Pembina's value chain, crude oil, natural gas and natural gas liquids.

Further, volumes on many of Pembina systems improved throughout 2021 and higher prices and margins on crude oil and NGLs -- as well as NGL sales volumes in the year led to strong annual results in our marketing business. Complementing these strong results was a step change we achieved in the execution of our ESG strategy.

Pembina is embracing the opportunity to adapt, respond and contribute to a more sustainable future, and our strong commitment to ESG is being demonstrated by the ambitious new projects, partnerships and targets we announced this past year. We announced the full target and laid out plans to reduce Pembina's GHG emissions intensity by 30% by 2030.

We further demonstrated Pembina's commitment to employee diversity, equal opportunity and ensuring a safe and inclusive workplace with the announcement of employee equity/diversity inclusion target as we announced 3 significant partnerships that combine strong business opportunities with compelling ESG attributes.

Early in 2022, we are poised for another exciting year ahead. As we have previously noted, our enthusiasm is due in part to the overall improvement in commodity prices and the expectation of post-pandemic economic recovery.

We continue to observe strong industry fundamentals, including the extraordinary financial health of our customers, new third-party infrastructure and continued petrochemical support and investment.

Finally, I would like to congratulate Jaret Sprott on his appointment to the newly combined position of Senior Vice President and Chief Operating Officer, Pipelines and Facilities. This appointment recognizes his strong leadership and significant contributions to Pembina over the past 7 years.

And I would like to welcome Eva Bishop, who will be joining Pembina in April as Senior Vice President, Corporate Services.

Eva has nearly 30 years of experience across energy, consumer goods and network industries, and her new role will support the executive committee in developing new opportunities to benefit Pembina's various stakeholders, including our employees.

I will now pass the call over to Cam to discuss the financial highlights for the fourth quarter and full year..

Thanks, Scott. Pembina reported record quarterly adjusted EBITDA of $970 million, representing a 12% increase over the same period in the prior year.

Fourth quarter adjusted EBITDA was positively impacted by higher margins on NGL and crude oil sales, combined with a higher contribution from Aux Sable as well as higher contributions from Prince Rupert Terminal and Duvernay III coming into service in March 2021 and November 2020, respectively, and also Veresen Midstream as a result of the Hythe Developments project entering service in March 2021 and higher volumes at the Dawson assets.

Fourth quarter of 2021 was also negatively impacted by higher realized losses on commodity-related derivatives financial instruments, expiration of contracts on Nipisi and Mitsue pipeline systems and a lower contribution from Ruby Pipeline.

Pembina recorded earnings in the fourth quarter of $80 million compared to a loss of $1.2 billion in the same period in the prior year. In addition to the factors impacting adjusted EBITDA, fourth quarter earnings were impacted by lower noncash after-tax impairments compared to the prior period.

Pembina recognized $335 million net of tax of impairments in 2021, largely related to the Nipisi and Mitsue pipeline systems as well as the Edmonton South Rail terminal compared to $1.6 billion net of tax of impairments in 2020.

Excluding impairments and the associated deferred tax recovery, earnings for the fourth quarter would have been $415 million compared to $338 million in the fourth quarter of 2020 or a 23% increase.

The fourth quarter was also impacted by unrealized gains on commodity-related derivatives compared to unrealized losses in the prior year, higher other expense, which increased due to higher transformation and restructuring costs and project write-downs, higher net finance costs due to lower foreign exchange gains and a lower share of profit from Ruby Pipeline.

Total revenue volumes of 3.4 million BOE per day in the fourth quarter were down approximately 5% compared to the same period last year.

Volume decreases were largely attributable to the Pipeline Division, most notably due to contract expirations on certain oil sands pipeline systems and Ruby Pipeline as well as a timing difference in the recognition of deferred revenue volumes, largely with the Peace Pipeline system.

The fourth quarter contributed to solid results for the full year, including record adjusted EBITDA of $3.43 billion, which was 5% higher than the 2020 result and exceeded our annual guidance range; adjusted cash flow from operations of $2.6 billion, which was 15% higher than 2020; and full year volumes of 3.5 million BOE per day, which were roughly consistent with 2020 despite the impact of contract expirations I just mentioned.

Strong financial performance allowed Pembina to exit 2021 in an even better financial position, with a stronger balance sheet, improved liquidity and having maintained or strengthened the company's financial guardrails. This is demonstrated by approximately 89% of adjusted EBITDA coming from fee-based sources.

Our dividend continues to be fully funded without relying on our commodity-exposed business. Fee-based cash flow more than covered our annual dividend payment with a payout ratio of 75% on this basis. Including our commodity-exposed cash flows, our all-in dividend payout ratio of adjusted cash flow from operating activities was 53%.

Likewise, roughly 82% of our credit exposure at year-end was with investment grade and secured counterparties. And we maintained our strong BBB credit rating with a year-end ratio of proportionally consolidated debt to adjusted EBITDA of approximately 3.6x.

On a proportionately consolidated basis, which includes debt at our joint ventures, Pembina reduced debt by about $500 million in 2021. As we previously announced during the fourth quarter, Pembina expects to deliver 2022 adjusted EBITDA of $3.35 billion to $3.55 billion in 2022.

Likewise, in 2022, cash flow from operations, cash from operating activities is expected to exceed dividend payments and the capital expenditure program.

In December, Pembina announced that it expects to allocate up to the first $200 million of the excess cash flow to common share repurchases by mid-2022, representing approximately 1% of the company's common shares. During the fourth quarter, we got an early start towards this goal, repurchasing $17 million of common shares.

I'll now turn things back to Scott for some closing comments..

Thanks, Cam. This is an exciting time for Pembina, and I believe our value proposition remains compelling. We have a diversified business, integrated asset base and a growing ability to reach higher value markets for our customers' product.

These prospects for the broader industry, particularly here in Western Canadian Sedimentary Basin remain bright and Pembina is well positioned to benefit. We are capitalizing on the many opportunities to build upon Pembina's base business while developing our multibillion-dollar portfolio of growth opportunities.

And we are a leading participant in the energy industry's evolution to a more sustainable future.

Before opening the line for questions, I want to say that with the loosening of COVID-related restrictions, I am particularly looking forward to welcoming dedicated employees back to our offices in the coming days, many of whom have been working from home throughout the pandemic.

Similarly, we look forward to enjoying more in-person meetings over the coming months with our many investors, customers and communities. We are excited by the prospect of reconnecting in-person after a long period of mostly virtual interactions. In closing, we would once again like to thank all of our stakeholders for their support.

With that, we'll wrap things up. Please open up the line for questions..

. And we'll go first to Jeremy Tonet with JPMorgan..

Just want to start off, Scott, if you might be able to expand a bit more with regards to your vision for the company at this point, assuming the role of CEO on a permanent basis.

Granted you've done integral to the formation of the strategy up to this point, but just wondering if you could provide a few more thoughts as far as what might change or what might not change or any other thoughts under your leadership going forward..

Thanks, Jeremy. I think as you pointed out, I've been here for 11 years, been CFO for 7, part of the strategy that got us to where we are today. So I wouldn't expect any tectonic changes in strategy or vision.

As we look forward, we're still excited about accretive growth, funded within cash flow, obviously looking to maintain and have modest growth to our dividend and maintain a strong balance sheet and live within our guardrails. I mean that's been fundamental to who we are. And I don't see any changing of that here in the short term..

Got it. I didn't think so. And so I want to also kind of follow up a little bit more on capital allocation. And I think you touched on it a bit there, but just wondering the balance between the different ways to allocate capital, and particularly as it relates to capital expenditures, growth CapEx going forward here.

I guess, how much of an emphasis do you see there within your whole capital allocation strategy?.

Yes. Thanks, Jeremy. I still -- we still believe that organic and brownfield opportunities are our best use of capital based on the rates of returns that we think we can achieve. So obviously, our -- maintaining our dividends are our first priority. But to the extent that we have solid accretive growth program, we're going to look to fund those first.

To the extent that there's some delays in that organic growth profile, I think we've been pretty clear that we're going to allocate that capital both to share buybacks, depending on where the share price is, as well as debt repayment, depending on where our leverage metrics is. So it's a bit of a fluid discussion.

As we pointed out in our conference call, we saw some dislocation in price in December and tried to take advantage of that. But if I back up a step, the first priority will be looking for additional organic opportunities..

Got it. Just a last one if I could. If I take the old annualized fourth quarter and compare that to the 2022 guide, it smells of a little bit of a traditional Pembina conservatism here, especially in commodity price environment that should put wind in your sales.

So just wondering, are there any other headwinds next year that we should be thinking about here? Or just kind of other -- any other gives and takes in the guide?.

I've always cautioned on the NGL side because the fourth quarter and the first quarter are always the strongest and the middle 2 quarters are not just due to the seasonality of that business. So it's a very dangerous game to just analyze or annualize the fourth quarter or the first quarter.

And again, NGLs are also -- depends on your rate of sales, depending on your cost of goods sold.

And so to the extent that we benefited in the fourth quarter from a rapid increase in commodity prices versus our carrying cost of our inventory, as we move through 2022 here, we're -- not only are we selling, but we're also adding inventory at quite high prices as well.

So I can see where you got to that conclusion, but I would be cautious at this stage..

We'll go next to at Linda Ezergailis with TD Securities..

I wanted to congratulate you, Scott and Jaret, both on your appointments. Very exciting time for you..

Thanks, Linda..

Thanks, Linda..

In terms of some of your projects, can you help us understand for the Peace IX expansion, are there any sunset clauses in your shipper agreements that might cause the contracts to expire if you're not in a position to make a reactivation decision by the middle of this year in the event that the B.C.

government and First Nations can't come to agreement by that time or some other factors that delay that decision?.

Sorry, Linda, maybe just to clarify, do you mean Phase VIII?.

Sorry, yes. Yes. Sorry, I got my numbers wrongs. Yes..

Yes. I would say there's a combination of -- through some of the optimization work that we've been doing, we've actually started to move some of those volumes today or will be shortly. So we're getting the benefit of some of that already. But to the extent that there is still a couple of contracts that relate to Phase VIII, there's no sunset clauses..

Okay. And maybe moving on to your Prince Rupert Terminal expansion. I guess the decision's imminent. The quarter's more than half done.

What still needs to be figured out in order to make that decision? And might any geopolitical developments recently potentially influence that decision as well?.

Linda, I'm going to let Stu talk about just the performance of our base assets just to touch on that briefly, and then I'm going to speak a little bit to the expansion..

Linda, so we've been very, very pleased with the performance of PRT. Great work by our staff, both in the Redwater area and in our Prince Rupert location. We've managed to -- we're managing the export, just under 20,000 barrels a day. We've proven up our reliability. We are operating very effectively. We load unit trains consistently, reliably.

We moved them to the coast even through some very rough climate, environmental issues that took place in British Columbia. We got our trains to the coast. We loaded ships very effectively. And one of the key points that we've had is we've actually been able to manage the quality of our propane exceptionally well.

We are producing and selling propane out of Prince Rupert, that is what we refer to as petchem quality, very, very low methanol content. And so we're super excited about 2022. We've proven up our performance in the export market and we're getting lots of inbound. So it's worked out very, very well for us, and we're excited about where this is going..

Thanks, Stu. And then I'll just talk a little bit, Linda, on the expansion itself. So engineering is essentially complete. We're just right now refining the rail and the shipping opportunities and onshore opportunities. Stu's team is actively reviewing. There's some dynamics ex the geopolitical that you mentioned.

Dynamics on versus domestic and international pricing in the short term and long term, reviewing that, some shipping alternatives. Like Stu said, we're shipping pet chem quality propane product. So we're lining that up with the demand side. So everything is progressing as planned and wouldn't expect a decision here in the foreseeable future..

And just as a follow-up with respect to petchem initiatives in the region.

Not sure if there'd been any developments recently, but -- and again, given the moving pricing and demand/supply considerations globally, can you give us an update on how you're thinking about moving along the value chain and potential for getting involved in local petrochemical initiatives?.

Yes, Linda, we continue to look at those opportunities. And I think you've already parted -- addressed your own question. We watch and look at the supply-demand balance of the petrochemical feedstock. We're looking where that -- where those markets are, what the supply is looking like.

I mean there's been a dramatic change in the propane exports, our own facility in AltaGas facility. But along with that, the IPL development with their petchem space. So we're watching very closely the feedstock. We like our integrated assets. We think we can be a player in the petchem space.

That might be along the lines of infrastructure builder, feedstock supplier and perhaps even further along. And we're evaluating those opportunities as they come.

We are in conversations with a number of parties of petchem development in Alberta, in the industrial heartland in particular, and trying to determine our best way to participate in those upcoming activities..

We'll go next to Matt Taylor with Tudor, Pickering, Holt & Company..

I just want to start on volumes first.

Would you be able to provide some commentary on what you're seeing on the conventional side in terms of physical versus contractual? And then maybe a follow-on comment to whether or not the current drilling activity is included in your 2022 guidance?.

Matt, Jaret here, Yes, I won't speak too much to the contracted nature of Peace. I'll just focus on Peace here for right now. But physical volumes, obviously, we did see a little bit of a decline. Western Canada saw a prolonged 30-plus day at minus 30.

so we did see some of our customer volumes drop off through the holiday season there with the cold weather. That's pretty much all been alleviated, and we're seeing those volumes come back. The volumes in Alberta, we've seen, are obviously growing at a faster pace than on the B.C.

side due to the previously mentioned ongoing negotiation between the B.C. government and the Blueberry River, First Nation. So the resource, obviously, in B.C., it is -- it's an exceptional resource. We believe, long term, it will get developed prudently once that negotiation is complete.

But we've really seen that uptick on the Alberta side as capital has kind of flown across the border. So things are looking good..

Yes. Jaret, I noticed there's a lower recognition of deferred take-or-pay.

Can we interpret that as physical volumes are right up against contracts and you're starting to realize some interruptibles?.

I think the way to interpret that, Matt, would be if you go back to 2020, we typically, you'll recall, because of the recognition of take-or-pay volumes, that's back-end weighted. Often, it either becomes a significant recognition in Q3 or Q4.

Because of the dynamics of, obviously, the pandemic in 2020, that recognition was deferred into Q4 of last year when it has typically been more so in Q3. And I would characterize 2021 as a more normalized year. So as Jaret mentioned, we are seeing some positive momentum overall, quarter-over-quarter on the volume side.

But what you're speaking about is really sort of a year-over-year dynamic..

Okay.

And where you're seeing volumes today, how is that tracking to your assumptions in your guidance?.

Yes. I think so far, we're bang on. It's tracking according to expectations. I mean, we are pleased to see activity continuing and nothing is changing much relative to our expectations so far..

Okay. Great. And then maybe one last one.

Now that the TMX cost has been updated, can you give us an update there with how your partners are thinking about that in terms of, is that project still on the radar given the cost overruns and the government stepping back and saying they need to find their own financing? Just any update on what you'd need to see to still be involved in that process..

Yes. I'll take a stab at that one. And Janet, feel free to jump in if you want to add anything. I think, Matt, strategically, we still like the asset and we still think it makes sense. We obviously still have strong alignment with our partner. But clearly, last week's news was pretty material in terms of cost of schedule.

So we're currently digesting that..

Yes. I'd just add that at the end of the day, it needs to be a commercially viable pipeline. And so that's -- the cost is definitely a factor that we're looking at right now..

We'll go next to Rob Hope with Scotiabank..

Congrats on the appointments. Moving to a bit longer term here, frac capacity and utilization in Fort Saskatchewan is creeping up. We have kind of the expectations of increasing volumes with LNG Canada.

How are you looking at the needs for new frac capacity, whether it be Edmonton or trying to build out some additional opportunities in Northeast B.C.?.

Rob, thanks. It's Jaret here. So obviously, you've nailed it. Frac capacity in Fort Saskatchewan is becoming a scarce commodity. As you may recall, RFS II and RFS III, kind of that sanctioning in 20 -- or came on in 2016, 2017. And we have that 10-year, I believe, contracted windows. So we do have some expiries coming up in 4 to 5 years from today.

So we want to obviously ensure that we get our base assets fully contracted prior to announcing any expansions and maximize the utilization through RFS I, II and III today.

With that said, we recognize that a new frac buildout, we obviously have the land, we have the rail infrastructure, we have a lot of the utilities, we have the cavern on the front-end side and the sales side all essentially in place.

So what Pembina would need one of the advantages we have, obviously, is we just really need to build a fractionator and possibly another cogen to go along with that to generate some green power. So we're looking at it. It'll probably be about a 2-year build. It would be a replica of the fracs we already have in place.

So we wouldn't have to do a lot of upfront engineering, et cetera. We might just optimize around the corners a little bit from what we've learned on the previous builds. But Pembina can satisfy that fairly quickly. So actively looking at it, it's probably just a little bit premature right now, but it's definitely on our radar. You nailed it..

I appreciate the color. And then just an allocation of capital kind of clarification there. It looks like marketing could be another good year in 2022.

As you try to balance excess cash flow, how do you look at dividends versus buybacks?.

Yes, Rob, I think based on the current forecast, and kind of looking out over the next couple of years, I think we still, obviously subject to Board approval and other things, feel like there's room to grow the dividend modestly while still having cash flow for potential share buybacks or debt repayments.

And not necessarily debt repayment to the extent of significantly lowering the leverage, but more in the anticipation of incremental growth projects and positioning that balance sheet so that when we start to add the capital and not get the EBITDA, we don't want to get over our skis in terms of leverage metrics.

So it's a bit of a balancing act, but we still think that dividend -- modest dividend increases are on the table..

We'll go next to Robert Kwan with RBC Capital Markets..

Scott, if I can just come back to the strategic side of things. And can you just comment on any changes, even nuanced to Pembina's approach or your approach to acquisitions, just given prior statements that M&A is part of Pembina's DNA and historically you've been quite acquisitive relative to your Canadian peers..

Nuanced, well, we've known each other a long time, I'm obviously a little more conservative in nature, but I got a lot of peers like Stu who are very optimistic. So honestly, Robert, I don't think there's going to be too much of a change. I think we'll react when opportunities come available. We'll continue to look what's out there.

And if something's additive to our value chain, we'll look at it. I mean I'd reiterate the messages. You're not going to wake up tomorrow and see us buying a Permian pipeline. Like, it's not within strategy, it's not within value chain. I think we'll continue to be disciplined as it relates to acquisitions.

I think we showed that on the Inter Pipeline transaction. I think that will continue going forward. So I'd still -- I'd go back to, if we see good return, good risk return projects that fit within our guardrails, that fit within our strategy, that's going to probably be our first order of capital allocation.

Those obviously make our company better and add services to our producers. So that'll be the first order of allocation. And then after that, we'll go down the chain to buybacks and debt repayment..

Okay.

And then just on your initial answer around guardrails and the like, you did say in the short term, and I guess I'm just wondering what types of things might be on the table for changes over the medium to longer term in your view?.

Yes. Maybe I shouldn't have said short term, you're misinterpreting my words. I'd just say for now, I'm in the seat. This is how we're visioning it, and I don't foresee any changes..

Okay. Perfect. If I can just dive into something a little granular here.

Just as you think about your marketing business, and Scott, you talked about some of the things to think about as, say, your headwinds, can you just break down there for us 2021 between -- like what percentage of marketing came from frac spread? What percentage roughly came from crude oil midstream? And then what came from the NGL marketing, the buy-sell business?.

Yes. I think we've sort of intentionally not laminate it to that point, Rob. I think we've gone back over time, and if you go back to 2018, we were sort of 50-50 -- excuse me, 50-50 NGL and crude in the marketing book in that year. This was obviously an incredibly stronger year.

And much of the performance in 2021 has to do with the rapid acceleration or rapid change in price in the NGL book. So you can probably infer that the weighting in 2021 was more heavily weighted to the NGL book compared to that point..

But that NGL book was a combination of frac spreads and the buy-sell business, though, right?.

That's correct. Yes..

Yes. Do you have any sense for -- you have a sense.

Do you have -- any way you can give us just the weighting then between those 2 businesses?.

Yes. I mean, the frac spread business actually ends up being a smaller component of the NGL book relative to -- of the sales profile which was about for Q4, let's call it, 100,000, 190,000 barrels a day. The frac spread business would be, let's call it, 20% to 25% of that..

We'll go next to Patrick Kenny with National Bank Financial..

Just on the Alberta carbon grid. Now that you've had a little bit more time to work with TC on design and scope.

Wondering if you could help us distill this opportunity for Pembina a little more just as it relates to both the transportation of the CO2, but as well perhaps integrating the sequestration infrastructure with your Fort Sask footprint? And also lastly, if you still -- or if you feel like you need to perhaps bring in another strategic partner before you might be in a position to sanction..

Pat, it's Stu. We're pretty happy. We've been working through the process, the government-defined process. Bids or submissions were due earlier this year. We have submitted our documentation. We, again, believe we've submitted with our partner, TC, a very viable sequestration application. The government is reviewing those.

It is -- it changed through the year. We had originally came in with a larger vision, a provincial solution. The government's come out with the process of the first step being the industrial heartland emissions. We have put forward, in our submission, a sequestration and transportation plan for the Alberta industrial heartland emissions.

We still see opportunity to grow that to a provincial solution. It's in the industrial heartland. Our Redwater assets are in the industrial heartland. We see it very near those assets. We have our own emissions to capture and sequester and so we think we can integrate it very effectively.

And with our operations that take place there, we feel we're -- along with TC, that we have the experience and the capability to be an effective operator of that carbon sequestration hub that we're proposing..

Okay. I appreciate that. And then maybe for Scott, you have the Cedar LNG project in the works.

But I guess as you zoom out and think about energy transition, any thoughts around accelerating the company's market position within the North American LNG landscape, either through further greenfield, brownfield or perhaps M&A?.

Pat, I'm going to actually let Stu answer that question..

Pat, we're looking. We're working very diligently on our feed work with our partner, the Haisla First Nation. Everything is going well. We've submitted our environmental assessment application for the project. We like the Cedar project. We're looking for additional opportunities in the area, how to continue to grow and work that.

We like the opportunity for more Western Canadian gas to get to Tidewater and LNG export. They're challenging. We have -- there's a large pipeline that is required to get to Tidewater in Canada. We have looked. Obviously, you're well aware of the Jordan Cove opportunity. We have looked further field at some of those opportunities.

But they just get further and further away for us, and there's many people who are operating in those areas, and we like the integration with our existing asset base.

We -- obviously, our gas plants and our pipelines in Northeast British Columbia, in particular, and in Alberta, connecting those and the demand raw on that gas, we think, is hugely valuable to us, to our customers and we think we can integrate those very effectively..

Okay. And then if I could sneak in one more, Cam, just on the bond maturity at Ruby this April. So you mentioned in the release that there's several options here to satisfy the maturity.

But perhaps you can just walk us through what those options are? And also, I guess, if handing over the keys to the bondholders might be an option that you're considering at this point as well, just given the outlook for volumes and incremental contracts?.

Yes, Pat, I appreciate the question. I'll probably avoid kind of going into too much detail, recognizing that this is an ongoing discussion. What I will say is that we're continuing to work towards a solution alongside our partner, Kinder Morgan. And clearly, we'd like to have a solution to this in advance of the first of April.

But really need everyone to come to the table. So probably just leave it there..

We go next to Robert Catellier with CIBC Capital Markets..

You've answered the majority of my questions, but maybe you can just provide some detail on the exposure of certain gas fees, gas processing fees tied to AECO prices.

How much of the processing fees that are tied that way? And is this some fee structure you intend to use more in the future? And related to that, there were some unrealized losses on related hedging.

I wonder if you could explain the hedging strategy and how that interplays with the frac spread business where you're naturally short gas and whether or not there's a natural hedge there..

Rob, I will take the first part of that question. So in the gas processing business, pre pandemic, we executed a blend-and-extend agreement with one of our customers in GBU.

And what it did, essentially, Rob, was -- it's a combination of a base fee, 100% take-or-pay, and then Pembina has the ability to participate in upside when, obviously, commodity prices go up. So it's -- it was considered a win-win with our customer. And we obviously, as you've seen, get to participate when commodity prices are strong.

It's the only type of deal we've done like that and it's not something typically we've done in the past. But in this particular one instance, it was a really good outcome with the customer at the time..

Yes, Rob, maybe just one additional point is I don't -- I mean it was -- call it a one and done, I don't think that's a fee structure we'll be doing in the future. And then maybe just to your question as it relates to hedging, nothing's changed with our hedging strategy as it relates to our frac spread business.

We continue to hedge approximately 50% of the frac spread business. And that's on our wholly owned business, that doesn't include Aux Sable. So we're hedging, obviously, the propane, the butane, the condensate and the gas purchases on a sales profile throughout the year..

Okay. That's all very helpful.

And then with the -- what has changed in the production outlook upstream to cause the impairment charges for Mitsue and Nipisi? And have those assets been fully written out?.

Yes, Rob. I'll take the first part and maybe give Jaret an opportunity to just weigh in, in terms of what we're seeing commercially. So you're right, the foundational contracts on Nipisi and Mitsue expired in Q4. And that led us to take a full impairment on the assets.

There are opportunities, potential opportunities, obviously, in the Clearwater area with that activity being very active at the moment. That said, nothing to the extended and substantial probability for us to bake into our assessment, but we are continuing to work on that. I'll give it to Jaret if there's anything else there..

The only thing I would add, Rob, is that, obviously, well-maintained, high integrity pipeline assets, we believe, are very valuable. And like Cam said, we continue to talk in and around the area on different commercial solutions to put different types of product in that fight..

Congratulations to everyone on their appointments..

Thanks, Rob..

We go next to Matthew Weekes with IA Capital Markets..

I think all my questions have actually been answered at this stage, so I'll just hop back in the queue..

Sorry, I was just going to say, I think that's it for questions. So I appreciate everybody taking the time today. We look forward to an exciting 2022. Thanks for all your support..

Thanks, everyone..

Thank you..

This does conclude today's conference. We thank you for your participation..