Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Pembina Pipeline Corporation (NYSE:PBA)
Q3 2019 Earnings Call
Nov 8, 2019, 3:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen thank you for standing by and welcome to the Pembina Pipeline Corporation's Third Quarter Results Conference Call. [Operator Instructions].

I would now like to hand the conference over to your speaker today Scott Burrows, Senior Vice President and Chief Financial Officer. Thank you. Please go ahead.

Scott Burrows -- Senior Vice President & Chief Financial Officer

Thank you, Christina. Good morning everyone and welcome to Pembina's conference call and webcast to review highlights from the third quarter of 2019. I'm Scott Burrows, Pembina's Vice President and Chief Financial Officer. On the call with me today are Mick Dilger, Pembina's President and Chief Executive Officer; Jason Wiun, Senior Vice President and Chief Operating Officer, Pipelines; Jaret Sprott, Senior Vice President and Chief Operating Officer, Facilities; and Stu Taylor, Senior Vice President, Marketing and New Ventures and Corporate Development Officer.

Before we start, I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina's current expectations, estimates, judgments and projections. Forward-looking statements we may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations. Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see the Company's various financial reports, which are available at pembina.com and on both SEDAR and EDGAR.

Earnings during the quarter was positively impacted by higher gross profit in both Facilities and Marketing & New Ventures, due to higher terminalling revenue combined with realized and unrealized gains from commodity-related derivative contracts respectively, partially offset by lower Pipelines gross profit as a result of higher deferred revenue recognition during the third quarter of 2018, compared to the third quarter of 2019. Pembina's third quarter results included adjusted EBITDA of $736 million, which was consistent with the same period in 2018. Quarterly results were driven by period-over-period increases in the Pipeline and Facilities divisions as a result of new assets being placed into service, including Phase IV and V Peace Expansions, Redwater Co-generation and Burstall Ethane Storage.

Also impacting adjusted EBITDA with the adoption of IFRS 16, offset by decreased NGL and crude margins in Marketing & New Ventures, due to a lower pricing environment and a $5 million one-time payment within one of our joint ventures. Adjusted cash flow from operating activities was also consistent with the same period in 2018 and $530 million primarily due to an increase in operating results after adjusting for non-cash items, offset by an increase in current tax expense, timing of preferred share dividend payments and lower distributions from our equity-accounted investees.

Based on year-to-date results and our outlook for the balance of the year, we have raised the low end of our adjusted EBITDA guidance range by $100 million. The revised guidance range is now $2.95 billion to $3.05 billion. Further, current income tax expense in 2019 is now anticipated to be $250 million to $270 million with the increase of our prior guidance related to higher taxable income in the current year and adjustment to prior period tax deductions.

Now I will turn things over to Mick for an update on some of our key growth projects and business development activities.

Michael Dilger -- President & Chief Executive Officer

Thanks, Scott. Good morning, everyone. The highlight of the quarter was of course the announcement of our $4.35 billion acquisition of Kinder Morgan Canada and the US portion of Cochin Pipeline. This acquisition is highly strategic for Pembina providing enhanced integration with our existing franchise, extension of our value chain and clear visibility to creating long-term value for all stakeholders. Since our initial announcement, we have received clearance under the Canada Transportation Act and early termination from the US Federal Trade Commission pursuant to the Hart-Scott-Rodino Act. We are making progress on satisfying the remaining closing conditions and look forward to the December 10, 2019 Kinder Morgan Canada shareholder vote.

Our teams are busy preparing for closing, which we now expect will occur in the first quarter of 2020. We remain solidly of the view that this transaction will make us better, not just bigger. We're also pleased to announce that we have approved the first stage of the Peace Phase IX Expansion. Since our Phase VIII announcement earlier this year, we have continued to secure additional long-term contracts with producers operating in the Montney. The first stage of Phase IX includes pipeline to debottleneck the corridor north of Gordondale, as well as upgrade one pump station. This will allow us to access approximately 100,000 barrels a day of latent downstream capacity. Phase IX also enables us to complete our vision of full product segregation across the Peace Pipeline. This will drive operational and capital efficiencies, strengthen Pembina's competitive advantage and ultimately benefit our customers. This all leads to further very low cost debottlenecking opportunities throughout the system, which we call Phase X and which we we're working on next.

We have now approximately $1.8 billion of Peace Expansions under way, which in aggregate are trending on time and on budget. Also announced was the approval of $120 million Co-generation facility at Empress, Alberta, which will provide heat and power to the extraction and fractionation facilities and reduce overall operating costs and in addition will provide a reduction in GHG emissions intensity. With this newly announced project and our recently completed project at Redwater, Co-generation is becoming an area of growing competency for Pembina and we see more opportunities ahead. We're continuing to progress our potential Alliance Pipeline and Aux Sable expansions as well, as the Northeast BC fractionation facility and look forward to updating the market in due course. Our PDH PP project continues to progress as engineering, procurement and construction bids have been received, and are currently being evaluated. Early works preparation is under way and will continue through the fourth quarter of 2019. On Jordan Cove LNG, federal and state permitting process are ongoing. Subsequent to the quarter FERC revised the schedule for issuance of the final Environmental Impact Statement and now we are expecting that on February 13th of next year.

In closing, I'm pleased to report we have released our 2018 ESG Performance Metrics, which are now available on our website. Recognizing a growing focus on ESG, we are pleased to share our progress in developing two new ESG stands including a carbon stand and a diversity inclusion stand. Where stand means what we stand for. We are looking forward to providing further information on these developing strategies in future reporting. As always, I would like to thank all of our stakeholders, our customers, our investors, our communities and our employees for their ongoing support with that we'll wrap things up.

Operator, please open up the line for questions.

Questions and Answers:

Operator

Certainly. Thank you. [Operator Instructions] Our first question comes from Jeremy Tonet from JPMorgan. Please go ahead, your line is open.

Joe -- J.P. Morgan -- Analyst

This is Joe for Jeremy. I wanted to start off with the Peace IX, congrats on getting that sanctioned and -- so you mentioned it's kind of the first stage there. Could you talk about what the second stage could look like and maybe a timeline for potentially announcing that?

Jason Wiun -- Senior Vice President & Chief Operating Officer, Pipelines

Sure Joe, this is Jason. So really there -- if you think about what Phase IX, the broader project that we talked about earlier in the year was, it was really debottlenecking on the West End of our -- pipeline system and then it was a power-up of our our Pipeline system going into Edmonton from Fox Creek. So the portion of the -- the project that we're really talking about is the debottlenecking on the West End of the pipeline and that really accesses the capacity that we're creating with Phase VII and VIII. The downstream power-up as sort of -- I guess its volume-dependent as our volumes begin to ramp up. We have a fair bit of running room that's been created with our expansions up to this point, so -- so the first phase of this really access 100,000 barrels of capacity that they're available for us, and and then Mick introduce the concept of Phase X. We're probably going to be looking at optimization opportunities now that we have the ability to segregate our products, I believe from LaGlace in because we're not batching, we'll be able to tune the way that we operate our pipeline system and we expect to be able to leverage some more capacity out of the assets that are already in the ground and so, ideally we'll be able to, before we have to proceed with the downstream expansion, which we formerly referred to as Phase IX, we'll be looking at the optimization projects and seeing how much capacity we can get, which is very cheap, effectively free I guess.

Joe -- J.P. Morgan -- Analyst

Okay, thanks. That's helpful. And then also wanted to ask, quickly on -- I guess the Alliance expansion. You mentioned kind of I guess discussions with customers continuing, but anything more you can say there, I guess when you kind of expect discussions with customers to conclude and kind of I guess how that's progressing?

Jason Wiun -- Senior Vice President & Chief Operating Officer, Pipelines

I guess where, we've been -- we've been working on that project for a while now. There is a physical separation between production North and South of -- there is a large river in -- in the United States that sort of segregate that play. We're really focused on the northern side of that and we're talking to the customers, producing on that side. The development up there is starting to become more clear as we get toward the end of the year and producers put their budgets together and things like that. So we think as we come to the close of the year or very early next year I think that's when we'll be able to get some more concrete information about it.

Joe -- J.P. Morgan -- Analyst

Thanks, that's helpful. That's all from me.

Operator

Our next question comes from [Technical Issue] go ahead.

Unidentified Participant

Hey, good morning guys. It looks like volumes are down in Pipelines because they take or pay recognition that was less year-over-year. I'm just -- and work through, how do you explain that in the context of Phase IV and V coming on and are you seeing less volumes and you expected there as customer slow join plan?

Scott Burrows -- Senior Vice President & Chief Financial Officer

Yeah, Matt, I would say it's more of a timing issue. Obviously RFS 50 -- IFRS 15 came into account last year and the recognition and the timing of those barrels was more back-end loaded. So we didn't really recognize any take or pay revenue in Q1 or Q2 last year and then we took almost all of it into account in Q3 last year. And then if you look at this year, there has been kind of more of a smoothing of the recognition of that just as we refine some estimates and volume profile. So on a full year basis when it's all said and done, we obviously will be up in our -- in our pipelines -- conventional pipelines because of Phase IV and V. But really, if you look at the difference between this quarter and Q3 of last year, it's about a $20 million difference. If you normalize that Pipelines would actually be up close to $20 million this quarter, it's really just the timing of the recognition.

Unidentified Participant

Got you. And then what about the physical volumes are you guys seeing the volumes that you expected?

Michael Dilger -- President & Chief Executive Officer

Yeah. The physical volumes ramping up throughout each quarter, we're seeing volumes increment there. They're progressing as we expect and then on our contract profiles as well, we see a ramp in 2020 and 2021 in terms of the firm contract and pay profiles as we go forward. If you recall we put Phase IV and V into service, at the end of 2019, so the first year of the contract is really -- the end of 2019 and 2020 and -- sorry, pardon me, end of 2018 and 2019 and as we go into 2020 and 2021, that's when volumes continue to ramp on a contract basis.

Unidentified Participant

Okay, that's helpful. And over to LPG, is that expected to be primarily sourced just from Redwater being propane or would you also consider exploring butane there as well. And then I just wanted to get some color on how you're thinking about improved and maintain NGL spreads relative to US benchmarks, and how that would impact other pieces of your business? Specifically, how does this improve domestic pricing been accounted for in your PDH/PP assumptions?

Jaret Sprott -- Senior Vice President & Chief Operating Officer, Facilities

Good morning Matt. Jaret here. With respect to the Prince Rupert terminal, currently, we are only focused on exporting propane from that facility, customer demand though and with some soft pricing on butane in Western Canada, there are a lot of people asking us about the opportunities to export other LPG products off of that, but primarily right now we're focused on just a propane molecule, and I'll let Stu talk about some of the pricing.

Stuart Taylor -- Senior Vice President, Marketing and New Ventures & Corporate Development Officer

Yeah, I mean we've been -- we obviously are watching all of the commodity markets and yes we take into account as we update our economics. We are always updating with the most recent, there has been some uplift in some of the commodity value in recent days, but we do account for all of that as we look at it and we still see the basin with an abundant resource and are confident of the feedstock value beating the PDH in our export facilities being low cost opportunities that we can get to better netback pricing in the international markets are within better value added commodity. So we watch it all the time. We adjust all our economics and are still excited about both opportunities.

Unidentified Participant

Yeah, I mean just to clarify, were you guys anticipating or expecting improved domestic pricing here in some of your PDH/PP assumptions. So this is kind of as expected?

Jaret Sprott -- Senior Vice President & Chief Operating Officer, Facilities

Yeah, it's pretty much as expected. Again, it's a long-term or a long ways from being in service. And there is, we watch it and again it's more relative to what the other opportunities are, what is Mont Belvieu pricing and Conway pricing versus Edmonton pricing. We still believe that we will be advantaged feedstock in the Edmonton area, which supports the PDH/PP economics.

Michael Dilger -- President & Chief Executive Officer

Yeah, Matt, maybe just one incremental comment, I'd make is when we sanction these projects, we obviously ran multiple scenario analysis and Monte Carlo analysis to take a long-term view of the pricing. It wasn't based on strip pricing at a point in time that sanction the economics. We took a very long-term view of it. So that should give you some comfort around that.

Unidentified Participant

Great, Thanks for taking my questions guys.

Operator

Our next question comes from Rob Hope from Scotiabank. Your line is open. Please go ahead.

Rob Hope -- Scotiabank -- Analyst

Good morning, everyone. First question is just on the KML transaction. Can you give us an update on any status of the Rofers [Phonetic] there and as a follow-up there? If they are not exercised, would those be of interest to acquire additional interest in?

Scott Burrows -- Senior Vice President & Chief Financial Officer

So in terms of your first question I mean obviously we were willing to acknowledge that there is a Rofer. We really can't talk about the dynamics of that, we're covered under confidentiality agreements. So, can't comment on the specifics, but we would hope to have that wrapped up one way or another by the end of -- end of this year. And in terms of interest on the other assets, obviously we bought KML overall so we like all the assets. We haven't had those discussions, but certainly we do like those assets.

Rob Hope -- Scotiabank -- Analyst

All right. And then just more broadly speaking with KML, it does add some additional assets, let's call it in the the Chicago area region. With the Alliance expansion and potential Aux Sable expansion, just want to get a sense of how you're thinking about your assets in that region and whether or not that could be a new platform to build off of down there?

Michael Dilger -- President & Chief Executive Officer

Clearly, it's Mick. Clearly, we've been -- since we did the Veresen deal and stepped into Aux Sable, we just took over operatorship of that that asset, and we're starting to focus on what is possible around that asset. East leg of Cochin is proximate to the asset and we're looking at that. It's nothing we paid for in the acquisition, but that certainly is an asset we're studying, but we're studying all possibilities downstream, Rob, you know, that's how we do it right. We buy something, we study it, and then we -- we look for additional vertical integration opportunities. So absolutely we're looking.

Rob Hope -- Scotiabank -- Analyst

All right. I, maybe a little earlier. Appreciate the color. Thank you.

Scott Burrows -- Senior Vice President & Chief Financial Officer

Thank you.

Operator

Our next question comes from Robert Catellier from CBIC Capital Markets. Your line is open. Please go ahead.

Robert Catellier -- CIBC Capital Markets -- Analyst

Rob Catellier from CIBC. Just a couple of questions here. Obviously, we saw in kind of redomicile, I wondered if you can make a comment in what your expectations are for the Veresen Midstream Partnership and specifically their commitment to invest more capital in the area?

Scott Burrows -- Senior Vice President & Chief Financial Officer

Gary, do you want to take that.

Jaret Sprott -- Senior Vice President & Chief Operating Officer, Facilities

Sure. Good morning, Robert, Jaret here.

Robert Catellier -- CIBC Capital Markets -- Analyst

Hi Jaret.

Jaret Sprott -- Senior Vice President & Chief Operating Officer, Facilities

Yeah. Through Veresen Midstream, we're still seeing CRP, the partnership with Mitsubishi Encana. We're still seeing a lot of drilling up in that area -- they are, this is well documented. They are extremely focused on the liquids rich portion of that and obviously Pembina benefits, Jason talked about having to debottleneck going west of Gordondale, obviously that is primarily due to a significant amount of liquids being found up in that Dawson Creek, whose -- all the way up into Fort St. John Area. But right now we don't see any changes based on that announcement yesterday at all. And then further to that, we are extremely well positioned obviously on the dry gas side with LNG Canada Phase 1 going to be coming on stream and then the one side of that partnership Mitsubishi's ownership and that, and their desire obviously to fill drier gas molecules to those West, so it's business as usual from what we know.

Robert Catellier -- CIBC Capital Markets -- Analyst

Okay. I wonder if you could, could just comment longer term, what happens with Ruby Pipeline? Obviously, I think the big leverage point is whether or not Jordan Cove moves forward, but failing that we're seeing some expansion from GTN etc., coming in the market. So what your updated view on the outlook for our Ruby Pipeline?

Jason Wiun -- Senior Vice President & Chief Operating Officer, Pipelines

Rob, this is Jason. I guess with Ruby, the contract renewal start coming up at middle to end of 2021, and so we're working with Kinder Morgan on that. There is a number of different things going on, including the -- there is the one-off pipeline that could be reversed that goes down into the Rockies Basin that will create a need for more egress for gas. There is -- there is conversion that certain parties are considering of gas egress pipelines to crude service. So we're definitely looking at it and we're looking at the options and working really closely with Kinder Morgan, who is the operator of that asset and looking at all the different scenarios there. Obviously, Jordan Cove would be a really positive outcome there and the timing of that is -- is still unknown at the moment. So I think at the moment it's a bit of a wait and see.

Scott Burrows -- Senior Vice President & Chief Financial Officer

Yeah, it's just my view, but I think that for buyers a gas at Malin, Ruby is an important diversification. If they have a single source of gas, that hub is not nearly as valuable to buyers a gas of having multiple analyst and that really goes back to the reason it was built in the first place. So my personal view is that people are not going to abandon diversification, it's just too risky for the buyers at that hub.

Robert Catellier -- CIBC Capital Markets -- Analyst

Yeah, that makes sense. It was my last conference, just thank you for putting out that ESG update. Thank you.

Jason Wiun -- Senior Vice President & Chief Operating Officer, Pipelines

Yeah. Thank you. Thanks for noticing.

Operator

Our next question comes from Robert Kwan from RBC Capital Markets. Your line is open. Please go ahead.

Robert Kwan -- RBC Capital Markets -- Analyst

Good morning. Coming back to KML on the timing. So you've tightened it up at the end of first quarter of 2020. I'm just wondering is that based on specific feedback in interactions with the Competition Bureau?

Scott Burrows -- Senior Vice President & Chief Financial Officer

Yes.

Robert Kwan -- RBC Capital Markets -- Analyst

Okay. I guess turning to to the Empress Co-Gen Facility, you've talked about it reducing costs. I'm just wondering, the economics around that from your perspective, is that based on kind of current math or do you have concerns about future delivered power costs?

Michael Dilger -- President & Chief Executive Officer

What we see happening is in the future is -- wire costs continuing to go up and this particular Co-Gen will not be on the grid. We will have demand in excess of this production and because we are capturing waste heat to offset other natural gas, we would otherwise have to buy [Indecipherable] there is great economics in it. So it's just a model. We're very pleased with how the Redwater Co-generation plant worked out and we see this as a strong analogy to that, the identical unit Robert how we build stuff. We build one, we like it, then we build a lot of them and we see two, maybe three future opportunities. These are just solid base for us to sell supply and consider that other projects like Suncor and other projects like this are going to continue to pull demand off the grid, which in turn will make the wire costs higher. So I think this may be the start of that kind of a trend.

Robert Kwan -- RBC Capital Markets -- Analyst

And is owning like you're clearly developing and constructing these facilities, but is owning the Co-Gen kind of a long-term business strategy or just given how many -- how much private capital is running around low cost of capital, would you look to monetize these things?

Michael Dilger -- President & Chief Executive Officer

It's an option, I mean Scott got layers of protection if anything ever went wrong at Pembina, we've got layers of stuff that we could do and that could be one of them, but we're in the business of constructing and operating infrastructure and so this is right down the fairway as I say. These are solid economics and we learned some both electricity business, while we're at it and it's an upstream vertical integration behind our assets into the value stand. So directly connected. For now it's right down the fairway, it wouldn't be the first thing we would sell, but it is that way.

Robert Kwan -- RBC Capital Markets -- Analyst

Got it. And if I can just finish with guidance and you tightening up the range outside of things like commodity prices and say some volumes of the facilities. Are there any other key drivers that would move you around in the range or potentially even take you out of the range and how much would those drivers actually have to move to do that?

Michael Dilger -- President & Chief Executive Officer

The only, Robert, the only thing I would really take us out of the range is an absolute crash in commodity prices, but recall that we put in close to 50% hedges on our NGL business as well as some pretty significant hedges on our storage book over the winter. So we would have to be a pretty dramatic fall off on commodity prices .

Robert Kwan -- RBC Capital Markets -- Analyst

Got it. Okay, thanks so much.

Operator

[Operator Instructions] Our next question comes from Andrew Kuske from Credit Suisse. Your line is open. Please go ahead.

Andrew Kuske -- Credit Suisse -- Analyst

Thank you. Good morning. Maybe just following up on the power conversation, but to the extent you had Co-gen's that were actually physically connected to the grid. Do you see a market environment in the future that's more volatile and that you would actually sell power into the grid that backs us for you?

Scott Burrows -- Senior Vice President & Chief Financial Officer

I mean, we're not in this to be a merchant power player. We're just in it to self supply and off grid facilities are clearly more attractive, that's possible, but it's certainly not how we presented it to our Board as a merchant power play. With our -- our guardrails have being 80% fee-for-service, this -- that would not be something we would be entering into the merchant power business.

Andrew Kuske -- Credit Suisse -- Analyst

Okay. I appreciate the clarity on that. And maybe just on the budget status on a couple of projects, so Prince Rupert is trending a little over budget and I think Duvernay is under budget. What are the drivers that are happening on those two projects? Is everything else is sort of down the fairway on time and on budget?

Michael Dilger -- President & Chief Executive Officer

Yeah. We take more of a portfolio approach and everything is under budget, that means our guys are sandbagging their costs, so that's not good. And the inverse, -- so we're focusing from here forward about what the portfolio looks like and I think that, that's the most important guidance that we can give the street. What's happening or the minutia of what's going on in any given project can be related to scope changes, maybe we're pre-building, can be weather-related and all that and so we are, our guidance is going to be generic in that regard looking forward.

Andrew Kuske -- Credit Suisse -- Analyst

Okay. One final one, if I may with the rail curtailment announcement that came out. Do you see any major benefit to your to your business?

Michael Dilger -- President & Chief Executive Officer

Well, I mean we're co-owners if Kinder closes, we're co-owners and really the marquee rail facility in Canada. And so we don't really know what that means, but it has our attention for sure.

Jason Wiun -- Senior Vice President & Chief Operating Officer, Pipelines

And I would just add any incremental heavy oil production usually comes with condensate demand. So obviously not a direct benefit, but an indirect benefit through hopefully higher produced volumes.

Andrew Kuske -- Credit Suisse -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from Patrick Kenny from National Bank Financial. Your line is open. Please go ahead.

Patrick Kenny -- National Bank Financial -- Analyst

Thanks . Hey guys, just to follow up on Alliance outside of the expansion, and sorry if I missed it here. But when you expect to extend the existing contracts and how should we think about tools in term relative to the existing five year deal?

Scott Burrows -- Senior Vice President & Chief Financial Officer

So the first round of contract renewals come up at the end of October and we've been in active discussion with all our customers and I think we've made good progress on the extension of some of those terms. I think maybe in the fourth quarter, we can provide an update on, in terms of what the term of the overall average terms and things like that looks like?

Patrick Kenny -- National Bank Financial -- Analyst

Okay, great. And then just with the KML closing, right around the corner here. Curious to get your thoughts on what might be the most attractive market right now. Maybe for Scott here just in terms of the purchase price for US Cochin thinking about Canadian versus US public debt or perhaps new bank debt or private debt?

Scott Burrows -- Senior Vice President & Chief Financial Officer

Yes. So we have multiple options on that front. I mean to start off, we hedged over 50 -- or just about 50% of the purchase price at economics slightly better than our Board economics, that was a good start to the funding plan. We obviously took a lot of money off the table back in September with the bond deal we did then at pretty attractive rates to pre-fund a portion of it. As we sit here today, we have an undrawn credit facility. We have an accordion with that credit facility to increase it even further we have a $1 billion term loan that we've negotiated that we could draw on as well. So from a pure liquidity on closing, obviously no issues there. We have ample capacity longer-term. Right now, we are doing that exact analysis between looking at the US Public, the US Private and the Canadian Public, and just kind of going through the pros and cons. If you put me on the spot today, I'd say that we're probably likely going to do an issue in the US private placement market.

Patrick Kenny -- National Bank Financial -- Analyst

Okay that's perfect. Thanks guys.

Operator

Our next question is from Elias Foscolos from Industrial Alliance Securities. Your line is open. Please go ahead.

Elias Foscolos -- Industrial Alliance Securities, Inc. -- Analyst

Good morning.

Scott Burrows -- Senior Vice President & Chief Financial Officer

Good morning.

Elias Foscolos -- Industrial Alliance Securities, Inc. -- Analyst

I would like to focus a bit on the Co-Gen facilities because I sort of clearly see a pattern here with Redwater Empress today and the central utilities block. Do you see a further trap line that's internal and I'll push it a bit further, would they roughly be the same size in terms of dollars or how do you look at that, because you mentioned that you see trap line?

Michael Dilger -- President & Chief Executive Officer

Again you look at our history, we built the same gas plan over-and-over, the same frac over-and-over and so we -- you might see us keep the build in the same kind of $100 million plus or minus units in a bunch of different locations. Co-Gen is not part of our PDH/PP now, but it very well could be in the years to come. Certainly there'll be power demand to support that. So that's just an another example of the opportunities, but again, our focus in the plan we have in front of us is self supply, it's not merchant power.

Elias Foscolos -- Industrial Alliance Securities, Inc. -- Analyst

Okay, thanks for that. Moving a bit too PDH/PP, a large capital project that I would consider moderately complex. What are you doing on the construction cost mitigation side that might be different too -- I mean, or what you would consider maybe standard practice, but still like to hear it to keep those costs in line?

Stuart Taylor -- Senior Vice President, Marketing and New Ventures & Corporate Development Officer

Elias, it's Stu Taylor talking. So we've been very clear from the outset of our EPC contracting strategy to be a lump-sum process, lump-sum contracts for us. So our model at this point in time is that for the two large packages the PDH and the PP, we are seeking and working with EPC contractors to receive those lump-sum bids. We continue to look at and work with those parties at this point in time to look at all cost reductions. We are watching our labor rates, we've negotiated labor rates in advance, we've ordered our long needed equipment, removed cost and uncertainty. So we're following a process of -- as you described removing cost uncertainly from the project and we continue to evolve and then [Indecipherable].

Elias Foscolos -- Industrial Alliance Securities, Inc. -- Analyst

Great. So no change in strategy, correct?

Stuart Taylor -- Senior Vice President, Marketing and New Ventures & Corporate Development Officer

No change in strategy.

Elias Foscolos -- Industrial Alliance Securities, Inc. -- Analyst

Okay, one last thing, just wondering if you know within six weeks or so you will provide another capital budget update or not, and could there be potentially new projects, I know there were to announce today that might come up?

Michael Dilger -- President & Chief Executive Officer

Yeah, we typically put out our capital press release in early December, so that that you should expect to see that. We may have some best color on our business and what we're up to, that won't be in the form of promises, but more directional similar to what you would see in an Investor Day as part of that release.

Elias Foscolos -- Industrial Alliance Securities, Inc. -- Analyst

Great, thank you very much for all those answers. And that's it for me.

Operator

Our next question comes from Ian Gillies from GMP. Your line is open. Please go ahead.

Ian Gillies -- GMP FirstEnergy -- Analyst

Good morning, everyone. With respect to the Watson Island LPG terminal, I know it's not up and running yet. Obviously, but are you able to provide a bit of an update on what the potential scope and size could be, if the first phase is successful and what you have room for there?

Jaret Sprott -- Senior Vice President & Chief Operating Officer, Facilities

Yeah, absolutely and Jaret here. So obviously customer demand to get products off of the West Coast of British Columbia to either Latin America and/or Asian markets is extremely high. We are -- I do want to make sure that we're very, very focused on getting Phase I on stream, as per the timeline that we've publicly disclosed and getting all of our permits in place. But with respect to that in the Northeast BC area as that increased condensate and crude is coming on to fill Jason's [Phonetic] pipelines, with that comes incremental associated gas and a lot of NGLs, which is driving a lot of the customer request with respect to Northeast BC frac and tying it to potentially a Watson Island expansion in the future. So the demand is definitely there, but we are extremely focused on getting Phase 1 up and running.

Michael Dilger -- President & Chief Executive Officer

To be clear, there are expansion opportunities there, but we're evaluating those in concert with Northeast BC frac development.

Ian Gillies -- GMP FirstEnergy -- Analyst

Got it. It's perhaps too early to talk about this, but are you able to provide any high level details around some of -- I guess the operational optimization opportunities with running condensate of Cochin and then also having some of obviously the P system running in Edmonton and some of the benefits you may be able to realize there?

Michael Dilger -- President & Chief Executive Officer

We will do that if and when we close. It's not our place to do that at this time. We've got to focus on closing, and then we'll talk more about our plans there. Realistically, we have our Investor Day in May, that probably be a good time to further outline in detail what our plans are. We stand by that, we should be able to realize $50 millino of synergies at a very low nominal cost through this acquisition and then another $50 million kind of according to the types of metrics, you've seen from Pembina on average in terms of capital deployment.

Ian Gillies -- GMP FirstEnergy -- Analyst

Yeah. Last one from me. I mean, Scott, obviously, the cash tax guidance got bumped up for 2019, are you able to provide any insights into 2020. I know EBITDA guidance has been provided, but -- that would be helpful?

Scott Burrows -- Senior Vice President & Chief Financial Officer

Yes, on a current tax expense basis, we would expect it to be lower than what we're seeing in 2019 and again, that's just the timing of when certain assets are in deferral partnership, some aren't as well as some accelerated TCA deductions that start to come into place in 2020. So as we sit today, you could expect it to be marginally lower than in 2019.

Ian Gillies -- GMP FirstEnergy -- Analyst

Perfect, thank you very much, I'll turn it back over.

Operator

There are no further questions at this time. I turn the call back over to the presenters.

Scott Burrows -- Senior Vice President & Chief Financial Officer

Well, thanks everybody. Hope you had a great Halloween the last night, and thanks for your ongoing support. Have a great weekend.

Operator

[Operator Closing Remarks].

Duration: 39 minutes

Call participants:

Scott Burrows -- Senior Vice President & Chief Financial Officer

Michael Dilger -- President & Chief Executive Officer

Jason Wiun -- Senior Vice President & Chief Operating Officer, Pipelines

Jaret Sprott -- Senior Vice President & Chief Operating Officer, Facilities

Stuart Taylor -- Senior Vice President, Marketing and New Ventures & Corporate Development Officer

Joe -- J.P. Morgan -- Analyst

Unidentified Participant

Rob Hope -- Scotiabank -- Analyst

Robert Catellier -- CIBC Capital Markets -- Analyst

Robert Kwan -- RBC Capital Markets -- Analyst

Andrew Kuske -- Credit Suisse -- Analyst

Patrick Kenny -- National Bank Financial -- Analyst

Elias Foscolos -- Industrial Alliance Securities, Inc. -- Analyst

Ian Gillies -- GMP FirstEnergy -- Analyst

More PBA analysis

All earnings call transcripts

AlphaStreet Logo