2017 Messages to Shareholders

Transcription

1 2017 Messages to Shareholders Building Something Extraordinary TSX: PPL; NYSE: PBA

2 2017 Messages to Shareholders Pembina Pipeline Corporation Message from the Chairman Dear fellow shareholders, On behalf of the Board I would like to express our appreciation for allowing us to represent you was a significant year for the company as we saw the culmination of a multi-year growth strategy and the successful acquisition of Veresen, two milestone events that have positioned Pembina for continued growth and enduring shareholder value creation. The Board is delighted that despite lingering uncertainty and volatility in the broader energy sector, in 2017 Pembina sustained strong operational and financial performance, successfully placed $4.8 billion of projects into service, and completed the largest corporate acquisition in our history. Further, we progressed the portfolio of growth projects, increased the dividend while reducing the risk profile of the business, and maintained an unwavering commitment to safety and supporting the communities where we operate. In my letter one year ago, I introduced the financial guardrails that serve as the framework for how the Board and management develop strategy and evaluate projects. To recap, Pembina strives to: generate 80 percent of our Adjusted EBITDA (1) from contracted or fee-based assets; maintain a dividend that's entirely covered by our fee-based revenue streams; ensure a customer mix where at least 75 percent are investment grade or secured counterparties; maintain our strong BBB investment-grade credit rating; and deliver our sector-leading existing growth and ensuring that Pembina continues to strengthen its competitive positioning long into the future. In 2017, not only have these guardrails increasingly become part of Pembina's culture but as a Board we were able to put the framework to the test in a meaningful way as part of our evaluation of the Veresen transaction. Acquiring Veresen offered numerous intuitive benefits an opportunity to increase our size, scale and options for growth, create greater diversification, and broaden our service offering. Beyond those considerations, the Board was supportive of the deal because we expect it will improve Pembina's results across all five of the guardrails. Pembina is committed to growing shareholder value through strategic project development and acquisitions that support the long-term success of both the company and our customers. The Board will continue to expect that, over the long-term, any initiatives fit within this overall framework. Whether future growth comes from within traditional operating areas or further afield, we believe our track record of strategic discipline and following through on our commitments should give you confidence that the company will continue driving long-term shareholder value. As Pembina becomes a larger, more diverse company, expands beyond our legacy operating areas and enters new lines of business, the Board remains committed to being a good corporate citizen and environmental steward. We recognize that we have a responsibility to work with our communities and protect the environment which is why your Board is supportive of management's plan to develop the company's first Corporate Social Responsibility report to be released in We believe this will bring greater transparency to Pembina's social and environmental performance, showcasing the positive impact made by the company's ongoing initiatives. From a corporate governance perspective, your Board remains committed to maintaining the high standards expected of us by our shareholders. We continue to monitor ongoing and emerging governance trends such as board diversity, proxy access, and board/shareholder engagement. Our education plan includes efforts to enhance the Board's understanding of the petrochemical industry and global energy markets to align with our corporate strategy. We are committed to board governance best practices. To ensure we are aligning our Board with the direction and strategy of Pembina, we regularly assess ourselves and seek out new and complementary skills when considering potential candidates for nomination to the Board. We continue to add to the diversity of the Board in terms of geography, skillset and gender. In 2017, we were pleased to welcome Mr. Doug Arnell, Ms. Maureen Howe and Mr. Henry Sykes to the Board. These three directors were appointed to the Board upon the closing of the acquisition of Veresen on October 2, Each individual brings unique skills, experience and qualifications that complement the current directors. They also offer valuable historical knowledge of the assets and entities that we acquired, which will help ensure continuity and the smooth integration of the new business. The ongoing renewal of the Board often comes with mixed emotions when long-standing colleagues depart. After serving more than 20 years as a director of Pembina, Lorne Gordon will retire from the Board this year. Lorne has been a director since October 1997 and was previously Pembina's Chairman from September 1997 to April The Board and Pembina's shareholders have benefited

3 2017 Messages to Shareholders Pembina Pipeline Corporation greatly from his experience, wisdom and counsel throughout Pembina's history as a public company. On behalf of the Board, management and our shareholders, I thank Lorne for his service and wish him all the best in the future. Board independence continues to be a priority at Pembina. 12 of the 13, including myself as Chairman of the Board, are independent. Our Audit, Human Resources and Compensation, and Governance committees are entirely comprised of independent directors. We also ensure that all directors must individually stand for election each year and receive majority votes. We recognize that this is a time of rapid change for the industry and particularly for Pembina. As such, the Board is committed to maintaining the highest standards of corporate governance. In 2017, we are proud to report that we had near-perfect attendance from our directors at Board, committee and shareholders' meetings, demonstrating the commitment that our directors make to support the organization. I remain pleased with the overall effectiveness of the Board and the contributions of each member in stewarding your investment in Pembina. In conclusion, I would like to thank my fellow directors for their ongoing role in Pembina's success. I would also like to acknowledge the strong leadership of our management team and their dedication to creating a leading North American energy infrastructure company. Together, the Board and management, with the support of our many stakeholders, are committed to 'Building Something Extraordinary'. To Pembina's employees, thank you for working tirelessly to help deliver record financial and operational results year after year. And finally, on behalf of the Board, I would like to thank you, our shareholders. We are very respectful of the fact that you have trusted us with your investments and we remain committed to working diligently on your behalf. From a corporate governance perspective, your Board remains committed to maintaining the high standards expected of us by our shareholders. Sincerely, Randall (Randy) Findlay Chairman of the Board February 22, 2018 (1) Adjusted EBITDA is a non-gaap measure and is calculated as earnings for the year before net finance costs, income taxes, depreciation and amortization (included in operations and general and administrative expense) and unrealized gains or losses on commodity-related derivative financial instruments. The exclusion of unrealized gains or losses on commodity-related derivative financial instruments eliminates the non-cash impact of such gains or losses. Adjusted EBITDA also includes adjustments to earnings for loss (gain) on disposal of assets, transaction costs incurred in respect of acquisitions, impairment charges or reversals and write-downs in respect of goodwill, intangible assets and property plant and equipment, and certain non-cash provisions. The adjustments made to earnings are also made to share of profit from investments in equity accounted investees; Pembina's proportionate share of results from investments in equity accounted investees with a preferred interest is presented in Adjusted EBITDA as a 50 percent common interest. These additional adjustments are made to exclude various non-cash and other items that are not reflective of ongoing operations; see Non- GAAP measures in Pembina's 2017 Annual Report.

4 2017 Messages to Shareholders Pembina Pipeline Corporation Message from the President & CEO Dear fellow shareholders, 2017 was a transformational year for Pembina in all aspects of our business. I am extremely proud of all that we have accomplished through the disciplined execution of a consistent strategy built upon long-term goals, combined with the hard work and determination of our employees who make our success possible. Pembina continues to provide top-tier results for our shareholders; safe, reliable and cost-effective services for our customers; and harmonious relationships with our communities, while providing a positive work environment for our employees. Our commitment to keeping our promises to each of these groups is the 'purpose' of our company and is thus unwavering. It is the foundation underlying everything we do and positions us for further success as we look towards the future. During 2017, we completed the largest acquisition in our history, establishing us as one of Canada's leading energy infrastructure companies with an enterprise value of approximately $33 billion (1). The acquisition of Veresen supports the continued execution of Pembina's long-term strategy. We have increased our exposure to premier resource plays, further integrated and enhanced our service offering including adding an entire natural gas value chain, extended our reach into the U.S., while also increasing our portfolio of secured and unsecured growth projects. In short, we are not only larger, we are much more diversified. Throughout its history, Pembina has steadily built an industry-leading position and competitive advantage in the most prolific areas of the Western Canadian Sedimentary Basin, with significant exposure in the Montney, the Deep Basin, the Duvernay as well as the oil sands and the Bakken. We continue to focus our resources on some of the best geologic formations and areas that are expected to see further growth and development over the coming decades. I continue to admire the determination and tenacity of our customers as they continue to succeed in the face of a challenging commodity environment. At Pembina, we value the relationships with our customers and are actively working to support their future needs. This includes working towards creating solutions to market access constraints through expanded infrastructure and valueadded upgrading. Our goal is to help our customers realize the highest netbacks for their products which in turn will support the long-term viability of the Western Canadian Sedimentary Basin. Our integrated asset base and access to key markets combined with our ability to provide service for crude oil, natural gas liquids ("NGL") and natural gas has tremendous benefits for our customers. The ability to take product from regional hubs to end users positions us as a one-stop shop for customers, which was one of the more compelling strategic reasons underlying the Veresen acquisition. Along with the completion of this transformational acquisition, we also placed the largest suite of capital projects in our history into service, marking the culmination of an unprecedented period of organic growth that began in At the outset of this strategic initiative, we committed to the multi-year construction of large-scale assets, on-time and on-budget, and I'm proud to say that we have successfully delivered on that promise. In 2017, we placed $4.8 billion of projects into service, including the Phase III Expansion, our third fractionator at Redwater, our Canadian Diluent Hub, four major gas processing facilities, additional pipeline expansions as well as several other value-added capital projects. Essentially all these projects are underpinned by long-term, fee-based contracts that will generate incremental cash flows to support the stability and growth of our dividend a longstanding promise to our shareholders that we take pride in upholding. Thanks to the newly in-service assets and the acquisition of Veresen, we set new financial and operational records in In our Conventional Pipelines business, we set a new revenue volume record of 757 mbpd, an increase of 16 percent from In our Gas Services business, revenue volumes increased by 26 percent to 1,056 million cubic feet per day. These increased volumes, further supported by additional in-service projects across our operational base, contributed to record Adjusted EBITDA (2) and Adjusted Cash Flow From Operating Activities Per Share (3) of $1,705 million and $3.27 per share, an increase of 43 percent and 29 percent respectively. During 2017, we completed the largest acquisition in our history, establishing us as one of Canada's leading energy infrastructure companies. In addition to record financial results, we secured over $1.2 billion of new capital projects. The newly secured projects include the Phase IV and V expansions on our Peace Pipeline

5 Pembina Pipeline Corporation systems, which will improve our service offering for our customers and support future development in the Montney and Deep Basin resource plays. We were also excited to announce the first tranche of infrastructure development under the 20-year infrastructure development and service agreement with one of the world's largest publicly traded oil and gas producers. This agreement will help us continue to enhance our foothold within the world-class Duvernay play, and has the potential to provide significant investment opportunities under a low-risk, long-term commercial framework. Securing significant projects underpinned by contracts with high-quality customers demonstrates the value proposition associated with Pembina's integrated service offering. In 2017, we placed $4.8 billion of projects into service As we look to the future, we are excited to build out our value chain to provide our customers with access to diverse, international markets for energy products derived from western Canadian hydrocarbons. During 2017, we advanced this strategy with the approval of the Prince Rupert liquefied petroleum gas ("LPG") export terminal ("Prince Rupert Terminal"). The Prince Rupert Terminal will have an export capacity of approximately 25,000 barrels per day of LPG and supports our objective to provide the growing Canadian LPG supply with access to premium-value end markets. To advance the world-scale integrated propylene and polypropylene production facility ("PDH/PP Facility") we are currently progressing the front-end engineering design, which we expect will be completed by late 2018, followed shortly thereafter by a final investment decision. Further, at the proposed Jordan Cove liquefied natural gas export facility ("Jordan Cove") we continue to focus on securing binding agreements for long-term natural gas liquefaction capacity, as well as securing regulatory and environmental permits for the project. With the approval of the Prince Rupert Terminal, combined with efforts to progress the PDH/PP Facility and Jordan Cove, we are making significant strides in advancing new market access for our customers. Throughout 2017, the capital markets continued to support Pembina. To fund growth plans and maintain the strength of our balance sheet, Pembina raised approximately $1.7 billion of debt, preferred shares and common equity. The public offerings of debt and preferred shares were all met with very strong demand and in all instances oversubscribed. Pembina's share price performance was the highest in our peer group, with a total return for the year of 13 percent and a 10-year total return of 17% per year. With new projects and their associated cash flows coming online, Pembina has never been in a stronger financial position. We are proud to have steadily grown the monthly dividend over our history. We have worked very hard to establish a dividend that is now fully supported by fee-based revenue, which includes low-risk, take-or-pay, and cost-of-service contracts. With continued success and financial strength, we were pleased to increase the common share dividend twice in 2017 for a total increase of 12 percent. This represents our sixth annual increase and we take pride in the fact that our dividend has never been reduced. Since our inception as a public company 20 years ago, Pembina has returned over $5.7 billion to common shareholders and maintained an annual dividend growth rate of approximately 4 percent. Ensuring we continue to deliver a growing and sustainable dividend to shareholders remains a top priority. Beyond Pembina's financial and operational success, we recognize the importance of employing responsible social and environmental practices throughout our business, and ensuring the communities where we operate experience net benefits from our development. Our management understands the responsibility to provide transparency on how we strive to achieve best practices in environmental stewardship, community engagement and safety performance. To live up to these values, we have committed to publishing Pembina's first ever Corporate Social Responsibility report in Our objective is to highlight the great things our company is already doing and to identify where and how we could improve in the future. With our continued success and financial strength, we were pleased to increase the common share dividend twice in 2017 for a total increase of 12 percent. Duvernay I Facility

6 Pembina Pipeline Corporation Safety continues to be an important priority that transcends everything we do. Pembina had a long record of zero employee lost-time incidents ("LTI"); however, in 2017 we unfortunately reported one LTI. Prior to this incident, our employees worked 14 consecutive quarters, totaling over 9.7 million hours without an LTI. Moving forward, our staff remain committed to the mantra that no project or job is important enough to compromise or jeopardize safety. From Pembina's perspective, the most important thing we can do is ensure our staff go home safely to their families at the end of each day. A safe work environment is integral to the Pembina way. If our people are not safe then no other accomplishments matter. Pembina strives to build lasting relationships through partnerships and volunteerism aimed at improving the quality of life and sustainability of our communities. Supporting local First Nations and the communities where we operate is vital to the success of Pembina. We support these relationships in a variety of ways though donations and volunteer hours. In 2017, Pembina's total investment in communities was $4 million and employees volunteered approximately 4,000 hours. Our single-largest opportunity to contribute to a charitable organization was through our annual company-wide United Way Campaign. In 2017, we raised an incredible $3.4 million dollars through our employees' and directors' generosity combined with Pembina's corporate matching program. The theme was centered on Canada's 150th anniversary, and our staff and retirees took part in many volunteer events, committing over 230 volunteer hours in our communities. We also want to support the development of tomorrow's leaders, so we're committed to making sure that all kids are able to reach their full potential. We know that a good day starts with a good breakfast, which is why, in 2016, we launched our signature community investment program, 'Fuel 4 Thought', in partnership with Breakfast Club of Canada. Through this program, we have invested over $1 million and 380 volunteer hours towards providing nutritious breakfast programs at 12 high-needs schools within our operating areas. In the first full school year of this program, over 1,200 students were fed daily for a total of 200,000 breakfasts served. This resulted in an average 67 percent improvement in the number of required daily interventions. Pembina has many other community investment initiatives. We feel privileged to be in a position to make meaningful contributions of time and resources and positively impact the quality of life for so many people within our communities. I invite you to visit to learn more about what we do in our communities. The success we have enjoyed over the last few years is only possible because of the quality and dedication of our staff. In 2017, we were named one of Canada's Top 100 Employers, and once again recognized as one of Alberta's Top 70 Employers. This is something we are extremely proud of as it reflects our philosophy of providing long-term career growth as well as ongoing training and development in a work environment that promotes equal opportunity and a culture of recognition. Our greatest asset really begins with our people. We are truly humbled by the hard work of our teams in making 2017 a transformational year. We were named one of Canada's Top 100 Employers, and once again recognized as one of Alberta's Top 70 Employers. When I look back over the past few years as CEO, I am incredibly proud of what we've accomplished. We have transformed into a leading North American energy infrastructure company. Looking forward, we remain excited to be on the forefront of the industry, seeking new markets for our customers. As a company, we are pleased that through the industry downturn we never-the-less enjoyed extraordinary growth. We have maintained the underlying principle of fulfilling the promises we make to our stakeholders and fully intend to continue this work into the future. We would like to thank our Board of Directors for their hard work and guidance. To our many shareholders we say thank-you for your interest and support. Pembina's future is bright and I am excited about the journey ahead of us in 2018 and beyond. Sincerely, Michael (Mick) H. Dilger President and Chief Executive Officer Pembina Pipeline Corporation February 22, ) As at February 22, 2018; includes Pembina's proportionate share of debt from investments in equity accounted investees. (2) Adjusted EBITDA is a non-gaap measure and is calculated as earnings for the year before net finance costs, income taxes, depreciation and amortization (included in operations and general and administrative expense) and unrealized gains or losses on commodity-related derivative financial instruments. The exclusion of unrealized gains or losses on commodity-related derivative financial instruments eliminates the non-cash impact of such gains or losses. Adjusted EBITDA also includes adjustments to earnings for loss (gain) on disposal of assets, transaction costs incurred in respect of acquisitions, impairment charges or reversals and write-downs in respect of goodwill, intangible assets and property plant and equipment, and certain non-cash provisions. The adjustments made to earnings are also made to share of profit from investments in equity accounted investees; Pembina's proportionate share of results from investments in equity accounted investees with a preferred interest is presented in Adjusted EBITDA as a 50 percent common interest. These additional adjustments are made to exclude various non-cash and other items that are not reflective of ongoing operations; see Non- GAAP measures in Pembina's 2017 Annual Report. (3) Adjusted cash flow from operating activities is a non-gaap measure which is defined as cash flow from operating activities plus the change in non-cash operating working capital, adjusting for current tax and share-based payment expenses, and deducting preferred share dividends declared; Per common share amounts are calculated by dividing adjusted cash flow from operating activities by the weighted average common shares outstanding; see Non-GAAP measures in Pembina's 2017 Annual Report.

7 Pembina Pipeline Corporation Building Something Extraordinary