Pembina Pipeline Corp

TSX:PPL

Q3-2025 Earnings Call

[Operator]

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

[Dan Tucunel, executive]

Thank you, Danny. Good morning, everyone. Welcome to Pembina's conference call and webcast to review highlights from the third quarter of 2025. On the call today, we have Scott Burrows, President and CEO; and Cameron Goldade, Senior Vice President and Chief Financial Officer, along with other members of Pembina's leadership team. I would like to remind you that some of the comments made today may be forward-looking in nature and are based on Pembina's current expectations, estimates, judgments and projections.

Forward-looking statements we may express or imply today are subject to risks and uncertainties, which could cause actual results to differ materially from expectations. Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see the company's management's discussion and analysis dated November 6, 2025, for the period ended September 30, 2025, as well as the press release Pembina issued yesterday. All materials are available online at pembina.com and on both SEDAR+ and EDGAR. I will now turn things over to Scott.

[J. Burrows, executive]

Thanks, Dan. Yesterday, we reported our third quarter results, which were highlighted by quarterly adjusted EBITDA of $1.034 billion. We remain on track to deliver full year results within our original 2025 adjusted EBITDA guidance range. And as Cam will discuss in more detail and as we are 3 quarters of the way through 2025, we have updated and narrowed our guidance range to $4.25 billion to $4.35 billion.

As we highlighted in the release yesterday, Pembina continues to execute its strategy through which we strive to do 2 things: one, ensure the long-term resilience of our business; and two, provide investors with visibility to attractive growth through the end of the decade and beyond. The execution of Pembina's strategy is highlighted by a number of recent developments. First, earlier this week, we were pleased to sign a 20-year agreement with PETRONAS for 1 million tonnes per annum of Pembina liquefaction capacity at the Cedar LNG facility. PETRONAS is a global LNG industry leader and one of the largest gas producers in Canada. We are very excited to expand our relationship with them and see this as an important development in Pembina's ongoing expansion of its export business.

Pembina previously signed a 20-year take-or-pay liquefaction tolling service agreement for 1.5 million tonnes per annum of LNG to support the final investment decision on Cedar in June of 2024 and ultimately maintain key project timing and economic parameters within the expectation of remarketing the capacity at a later stage. By remarketing our Cedar capacity, we are fulfilling Pembina's commitment to its financial guardrails and ensuring that the company's expansion into the LNG business is done within the risk profile of its existing business, characterized by its predominantly long-term, highly contracted fee-based cash flow stream.

We expect to reach definitive agreements for the remaining 0.5 million tonnes of our capacity by the end of 2025. Meanwhile, the project itself remains on time and on budget. Construction of the floating LNG vessel, including the hull and topside facilities remain on schedule. And Cedar LNG has significantly advanced the onshore construction work. Pipeline construction is ahead of schedule, including the completion of all horizontal directional drill crossings. This is a major achievement and derisk that portion of the project.

Second, during the quarter, Pembina and its partner, Kineticor, had an exciting announcement on the advancement of the Greenlight Electricity Center, a proposed up to 1.8 gigawatt natural gas-fired power generation project designed to advance Alberta's innovation economy. Recent achievements include securing a 907-megawatt power grid allocation, which was subsequently assigned to a potential customer of Greenlight to enable development of the customers' innovation infrastructure development as early as 2027 prior to the start-up of Greenlight in 2030. In addition, a recently signed agreement with a reputable equipment manufacturer provides certainty of availability and delivery timing of 2 turbines to support the approximately 900-megawatt first phase of Greenlight. Pembina and Kineticor continue to progress towards a final investment decision in the first half of 2026.

We see Greenlight as an on-strategy extension of Pembina's existing value chain and an opportunity to enhance growth by investing in long-term contracted infrastructure with investment-grade counterparty, while diversifying our customer base. Greenlight would create incremental demand for natural gas and associated liquids production within Western Canada, and we believe Pembina is well positioned to leverage the assets and capabilities of our current core business to further support the project and serve customer demand for gas egress and liquids handling and transportation. Most notably, the proximity of Pembina's Alliance Pipeline offers a potential accretive expansion opportunity to supply natural gas to Greenlight.

Third, we continue to realize contracting successes that are strengthening the core business. In our conventional pipeline business, we now have recontracted substantially all volumes available for renewal under contracts with expiry dates in 2025 and 2026. In addition to the previous updates we have provided around various recontracting successes, we recently signed new transportation agreements on the Peace Pipeline system for the renewal and addition of volumes totaling approximately 50,000 barrels per day with a weighted average term of approximately 10 years.

Approximately 80% of the volumes are currently being serviced today and 20% are new volumes taking effect in 2026. Within our transmission business unit, recent shipper elections on Alliance Pipeline has significantly strengthened its long-term contractual profile with shippers taking an average of a 10-year toll option on approximately 96% of the 1.325 Bcf per day of firm capacity available.

Fourth, we continue to deliver on our capital projects on time and on or under budget. In total, Pembina and Pembina Gas Infrastructure are nearing completion on approximately $850 million of projects that are expected to enter service throughout the first half of 2026. RFS IV, the new fractionator within our Redwater Complex has progressed to approximately 75% complete. It continues to trend under budget, and we have narrowed the expected in-service date to the second quarter of 2026.

PGI's Wapiti Expansion, which will increase natural gas processing capacity at the Wapiti Plant is trending on budget, and we have narrowed its in-service date to the first quarter of 2026. And PGI's K3 cogeneration facility is now trending under budget, and we have narrowed its in-service date to the first quarter of 2026. Finally, we are progressing numerous accretive investment opportunities to meet growing demand for pipeline and transportation services.

Pembina is well advanced on the development of approximately $1 billion of conventional pipeline projects to enable WCSB growth and position Pembina to win new liquid transportation opportunities. These investments would be supported by a combination of long-term take-or-pay agreements, a cost of service structure and the land and facility dedications. Engineering activities are ongoing and subject to regulatory and board approval, Pembina expects to move forward with the Fox Creek-to-Namao Expansion of the Peace Pipeline system, a Taylor-to-Gordondale Project a Birch-to-Taylor Northeast BC System Expansion. As well, we continue to observe continued growth from the Clearwater area and strong customer demand for incremental services on the Nipisi Pipeline.

Following successfully recontracting Nipisi over the last few years, Pembina expects it to be highly utilized in 2026 and is currently evaluating opportunities to increase egress capacity. Alliance Pipeline previously solicited nonbinding expressions of interest for a new short-haul point-to-point transportation service on the Canadian segment of its system in Northwest Alberta. The proposed expansion would provide natural gas delivery to a new meter station in Fort Saskatchewan for up to 350 million standard cubic feet per day of incremental capacity with an anticipated in-service date in the fourth quarter of 2029. Based on the results, Alliance Pipeline is planning to launch a binding open season in the first quarter of 2026 for all interested parties.

Pembina continues to differentiate itself as the only Canadian energy infrastructure company with an integrated value chain that provides a full suite of midstream and transportation services across all commodities, natural gas, NGL, condensate and crude oil. Our scope, scale and access to premium North American and global markets uniquely positions us to capture incremental new volumes while unlocking new avenues for growth. I will now turn things over to Cam to discuss in more detail the financial highlights of the third quarter.

[Cameron Goldade, executive]

Thanks, Scott. As Scott noted, Pembina reported third quarter adjusted EBITDA of $1.034 billion. This represents a 1% increase over the same period in the prior year. In Pipelines, major factors impacting the quarter included higher demand on seasonal contracts on Alliance Pipeline, higher revenue on the Peace Pipeline system due to increased tolls mainly related to contractual inflation adjustments, higher interruptible volumes on the Peace Pipeline system, higher contracted volumes on the Nipisi Pipeline and lower firm tolls on the Cochin Pipeline due to recontracting in July 2024 and lower interruptible volumes due to narrower condensate price differentials, offset by higher contracted volumes.

In facilities, factors impacting the quarter included higher contribution from PGI, primarily related to transactions with Whitecap Resources, higher capital recoveries and higher volumes at the Duvernay Complex. In Marketing & New Ventures, third quarter results reflect the net impact of lower net revenue due to a decrease in NGL margins as a result of lower NGL prices, coupled with higher input natural gas prices at Aux Sable, higher NGL marketed volumes, including no similar impact of the 9-day outage at Aux Sable in 2024 and lower realized gains on crude oil-based derivatives, partially offset by lower realized losses on NGL-based derivatives.

Finally, in the Corporate segment, third quarter results were higher than the prior period due to lower incentive costs driven by the change in Pembina's share price in the period compared to the third quarter of 2024. Earnings in the third quarter were $286 million. This represents a 26% decrease over the same period in the prior year. In addition to the factors impacting adjusted EBITDA, the decrease in earnings in the third quarter was primarily due to the net impact of the recognition of a gain on sale of the North segment of the Western Pipeline, higher depreciation and amortization due to a decrease in the estimated useful life of an intangible asset, a share of loss in PGI due to an impairment on certain PGI assets and higher depreciation expense, partially offset by the recognition of a gain in net finance costs and lower losses on the interest rate derivative financial instruments and commodity-related derivatives.

And finally, lower share of loss from Cedar LNG, primarily due to the impact of hedging activities on the credit facility. Total volumes in the Pipelines and Facilities divisions were 3.6 million barrels of oil equivalent per day in the third quarter. This represents an increase of 2% over the same period in the prior year, primarily driven by higher contracted volumes on the Nipisi Pipeline and the Peace Pipeline system, higher volumes at Redwater and Aux Sable due to no similar outages, which occurred in the third quarter last year.

Now turning back to the full year. As Scott mentioned, we tightened our 2025 adjusted EBITDA guidance range to $4.25 billion to $4.35 billion, which reflects year-to-date results as well as the current commodity price outlook for the remainder of the year. I'll now turn things back to Scott.

[J. Burrows, executive]

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

[Operator]

[Operator Instructions] Our first question comes from Theresa Chen of Barclays.

[Theresa Chen, analyst]

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

[Jaret Sprott, executive]

Theresa, Jaret here. Yes, right now, obviously, commodity prices are a little lower, hovering around that $60 WTI. So what we're really doing right now is just meeting with all of our customers, really listening to what their short term, the latter half of year the end of '25 and what they need for transportation services going into '26. So we'll have a much more refined outlook with respect to 2026 when we do our guidance and capital press release in December. But right now, we're just really in listening mode and going to really try to meet our customers' needs.

[J. Burrows, executive]

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

[Theresa Chen, analyst]

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

[Chris Scherman, executive]

Theresa, Chris Scherman, thanks for the question. As we shared in October, we're continuing towards the first half 2026 FID schedule. We're really continuing our commercial discussions with our customer, continuing our FEED work to get our engineering in line in hopes of that first half next year FID. As far as uplift associated with the pipe, I mean, they really are 2 separate projects, but we think each can stand alone on its own 2 feet and really support solid economics.

[Operator]

Your next question comes from Jeremy Tonet of JPMorgan.

[Jeremy Tonet, analyst]

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

[Chris Scherman, executive]

Sure. Again, it's Chris. So I think there has been maybe a little bit of confusion that's entered the market, right? I think it's worth taking a second to maybe separate the 2 projects and clarify what's happening there. Our customer is progressing their innovation center, and that's really where the grid connections rest and the associated DTS arrangements. I know there have been some disclosure that referenced 2030. Our understanding is that's really an outside date, and they're still pushing towards as early as 2027 for that first phase. The innovation center and the associated grid connections are really our customers' projects. And since we assigned or sold our land and secured those allocated those megawatts to our customer, that's really between them and the AESO. But as far as our project, the related project, we're progressing our 1,800-megawatt gas-fired power generation facility. The first phase of 900 megawatts is, as you referenced, planned for 2030, and all of that remains on track.

[Jeremy Tonet, analyst]

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

[Cameron Goldade, executive]

Jeremy, it's Cam here. No problem. The first thing I'll mention and obviously, to step back for a second, as I think one of the things we anchor on is a very stable and resilient business. And I would say, notwithstanding a ton of variability in the market over the course of 2025, we remain squarely in the heart of our original guidance range from a year ago and continue to be anchored on that in a material sense for the year. When we looked at our outlook back in August for the balance of the year, I would say that based on where we were at that point, we likely expected some option value to come in the second half of the year and particularly the fourth quarter through the marketing business.

We probably expected a little bit more than we've now expected we've seen. So on the margin, we've tightened that guidance range a little bit, obviously, to just to give the market a bit of direction in terms of what we're seeing. At the same time, what I would say is that while it's early, the results in the core business outside of marketing are continuing to trend strong. I would say that from what we're seeing in terms of early results from our October volumes, they continue to be at or exceeding plan. So we're seeing a lot of constructive signs outside of the marketing business. At the end of the day, we saw a little bit -- a little less optionality in that commodity business. So we tightened it up a bit. But materially, we don't see a lot changing in our business.

[Operator]

Your next question comes from Saumya Jain of UBS.

[Saumya Jain, analyst]

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

[Jaret Sprott, executive]

Saumya, Jaret. Great question. So yes, as the demand for condensate as oil sands production grows, as oil egress pipelines get debottlenecked out of Western Canada, more and more condensate is going to be required. And a lot of that condensate is coming from the Montney, which does have associated sour gas with it. PGI through our Hythe facility, our K3 facility, Kakwa River, I'm probably leaving a couple off the list, but we have an extensive network of sour gas processing, sulfur recovery and also acid gas injection.

Pembina has successfully -- we're the only entity who's actually built a sulfur recovery unit here in the last -- 25 years, and we did that on time and on budget. So I think our project execution, our understanding of operations in that space and the platform and the footprint that PGI offers, I think we're in a really good spot to enhance the customers' needs and continue to allow them to grow that sour gas production in face of condensate demand.

[Saumya Jain, analyst]

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

[J. Burrows, executive]

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

[Operator]

Your next question comes from Aaron MacNeil of TD Cowen.

[Aaron MacNeil, analyst]

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

[Jaret Sprott, executive]

Aaron, yes, thanks for the question. So our most recent announcement of the 50,000 barrels of recontracting is a tremendous outcome for Pembina. And why I want to say that is 100% of those volumes are within the competitive alternative transport area. 20% of those volumes flow to the alternative today. And upon reconnection, they will be -- once that project is complete, they'll be flowing on the Peace system. And essentially, all of the volumes, I can tell you, maintained current contracted toll. There's obviously a lot of things that go into a transportation agreement. A lot of different things are important to our customers. Toll is obviously one of them. But there are other factors that go into that negotiation. And in this particular instance, we were able to maintain that.

Obviously, in some areas, at certain receipt points, we will discount our tolls if it's prudent to do so. But those are very calculated decisions that we make. I would point out that I know we don't externally show this information, but since the inception of the alternative pipeline, the EBITDA per barrel of our conventional business actually has been increasing. And the factors that go into that, there's a few of them that I want to outline for you. The first one is we've been extremely focused on lowering our cost structure, providing safe, reliable, cost-efficient operations through our supply chain strategies and through our continuous improvement in our operational excellence journey that we've been on here internally at Pembina. Additionally, as we move west further away from Edmonton market, obviously, that garners a higher toll just due to the proximity and the distance into the market. And then thirdly, the majority of all of our contracts on the pipe side have CPI inflators built into them.

So -- and then finally, what I would leave you with on how we maintain margin is our industry-leading project execution and our ability, and I said it earlier, safe, reliable, cost-efficient operations continue to be a competitive advantage. We basically can allow our commercial teams to go out there, maintain the internal expectations of Pembina. Teams are bringing our projects on time and under budget. And that really allows them to have some flexibility with the customers to meet their needs, but also maintain our margin and our internal financial expectations. Hopefully, that answers your question.

[Aaron MacNeil, analyst]

Yes. That was more detail than I expected. For my follow-up, I got to ask on PGI. You've previously talked about the benefits and the capital efficiency of owning 60% but 100% would also likely add benefits such as perfect alignment on incremental capital, just given that you had -- like KKR doesn't have the downstream benefits that you do. So again, to sort of get you on the record one way or another, can you speak to your potential appetite to want to consolidate that remaining 40%?

[J. Burrows, executive]

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

[Operator]

Your next question comes from Spiro Dounis of Citigroup.

[Spiro Dounis, analyst]

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

[Cameron Goldade, executive]

Spiro, thanks for the question. And it's a really good one because I think that's one of the things we're most proud about. As we set out about 1.5 years ago and put that guidance range out at our 2024 Investor Day, we obviously had a lot of confidence in that range and frankly, a lot of confidence in being in the upper end of that range, continue to execute along the same ways that Jaret just talked about through the core base business, through the commercialization as well as some really, really accretive and attractive sort of bolt-on M&A opportunities across our business. And obviously, what we've seen is, is on one hand, a couple of headwinds, primarily related to the revised Alliance CER settlement. But what we've also done, as Jaret mentioned, is really taken a keen eye to our business and looked for opportunities to operate differently, to operate more efficiently to focus on work that is higher value add versus lower value add.

And I would say that without sort of getting ahead of our 2026 guidance outlook, which will come in about a month's time, I would say we maintain a lot of confidence in obviously achieving that range and achieving a range or a spot in that range, which would reflect something consistent with our own expectations and the market's expectations. So we feel really good about that. We're working really hard on that. And I think, again, we continue to tell the resilience of our business in many ways and the benefits of the diversity of it, the exposure to multiple commodities, the place that we play in the Western Canadian Sedimentary Basin, and we think that performance even in light of headwinds, which they come in business demonstrates that.

[Spiro Dounis, analyst]

Got it. That's helpful color, Cam. Second one, going back to Greenlight as well. Could you maybe put a finer point on when we can expect to start to see cash flows from this project to Pembina? And when it comes to the phases, I think this initial phase is about half that total capacity envisioned, but I know I think you guys have mentioned 4 potential phases in total. Just maybe remind us again how you're thinking about the remaining phase scope and then the time line?

[J. Burrows, executive]

So the original phasing was 4 phases of $450 million. We are now talking about 2 phases of roughly $900 million. So again, we've gone from kind of a first phase of $450 million to a first phase of $900 million, if that makes sense. We would expect, based on our current time line and current estimations that cash flow would occur in 2030.

[Operator]

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

[Andrew John O'Donnell, analyst]

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

[Chris Scherman, executive]

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

[Cameron Goldade, executive]

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

[Andrew John O'Donnell, analyst]

Okay. Great. Appreciate the detail there. And then maybe if I could just go to Cedar real quick. There was an amendment filed for the increase of feed gas capacity from 400 to 500 mncf -- curious what the read-throughs are there, if you could speak to some of the details and potentially, does that equate to more volumes or more marketing upside for Pembina?

[Stuart Taylor, executive]

It's Stu Taylor. I'll maybe try to provide some clarity. So when we originally were scoping out the project and looking at the size, we did permit the project for 3 MTPA, 400 million cubic feet per day. As we were going through engineering design, we've seen an opportunity to, for very minor dollars, increase that capacity from 3 MTPA to 3.3 MTPA. And so we undertook that spend and our current -- we are currently designing and building to the 3.3 and our announced capital actually incorporates that size. We knew we would have to go back from an amendment to the permits. And so we did that. And again, there's no change to the scope of the project or any of the capital cost estimates. Again, as you go through these projects and you continue to work with engineering, we've seen, again, engineers don't design rate to the exact capacity. They do at FAT in their facilities and infrastructure. And so we've looked at since we were going for the amendment, we believe the facility has the opportunity for -- on days, particularly cold weather days, there will be an opportunity for incremental throughput through the facility.

And so as we were looking to do the amendment, we did increase that size of the amendment and increase it from 400 to 500 mncf. Obviously, we need incremental gas supply. These are potential volumes as we go forward. We will be working on that on a go-forward basis. And pardon me, these will be incremental cargoes -- sorry, beyond what we have contracted. We have only contracted the facility to the 3 MTPA size. So any incremental gas or incremental cargoes are upside for us.

[Operator]

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

[Maurice Choy, analyst]

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

[Jaret Sprott, executive]

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

[Maurice Choy, analyst]

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

[Cameron Goldade, executive]

Maurice, it's Cam here. Yes, I think good question because we've talked about that. And obviously, first thing worth reminding everyone is that is a proportionately consolidated number. So that reflects not only the debt that we carry at the Pembina level, but debt that is included in the PGI credit stack, notwithstanding the fact that it's recourse as well as at the moment, construction debt associated with Cedar LNG, which is obviously, again, nonrecourse, but carried at that level. So as we see exiting 2025, obviously, we see that in the sort of the mid-3s range because of the timing and really remember that 2026 is the peak investment year for Cedar LNG, obviously, without any of the commensurate earnings along with it. So if we go back and remind ourselves of our message from our 2024 Investor Day, we obviously talked about that 3-year outlook for capital being largely free cash flow neutral with some shape to it throughout those individual 3 years, and this would be consistent.

We obviously are expecting free cash flow positivity in 2025. We saw free cash flow positivity in 2024, and we would expect to see some free cash flow negativity in 2026. However, on the long term, we feel obviously that we set our balance sheet up to be able to handle that. And obviously, as we move through 2026, we would expect that to moderate back down to the type of range that we've been comfortable with longer term. Ultimately, that comfort zone is largely 3.5x to 4x. Could we go above that? It's not where we would intend to go in the near term. So that's the way we think about the balance sheet at the moment.

[Operator]

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

[Robert Catellier, analyst]

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

[J. Burrows, executive]

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

[Chris Scherman, executive]

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

[Robert Catellier, analyst]

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

[Chris Scherman, executive]

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

[Cameron Goldade, executive]

Robert, it's Cam here. I guess I would just add on top of that, that I think, obviously, achieving a partnership with an entity of the prominence in the LNG space like PETRONAS is, I think, really important for us and essentially really validates Cedar LNG in the global scale from an LNG project in terms of both the competitiveness of it and the reality of it. I think what we would see is we already had a relationship with PETRONAS on the upstream side, dating back to the middle of the last decade in terms of servicing them on the Northeast BC side.

But we would certainly love and see this as a beachhead to continue to try and expand that. We have a ton of respect for them as an organization. I would say likewise that as we think about the remaining balance of Cedar and future LNG ambitions, obviously, we've had lots of interest from customers in our core business, looking to achieve diversity of market access for their volumes and say that there is a view that Cedar is a scarce resource and can continue to drive value both for them, but for Pembina in win-win type solutions. So I would say to answer your question pointedly, yes, we are seeing that type of value accretion through the rest of the core business.

[Robert Catellier, analyst]

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

[Jaret Sprott, executive]

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

[Robert Catellier, analyst]

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

[Jaret Sprott, executive]

No.

[Operator]

Our next call comes from Ben Pham with BMO.

[Benjamin Pham, analyst]

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

[Cameron Goldade, executive]

Yes. Ben, it's Cam. I'll start and then maybe pass it over to Jaret. I think one thing I would mention is that, obviously, if you stand back for a moment and look at our volumes that we report in our conventionals, those are obviously, as we said before, always the revenue volumes, which reflect our physical volumes plus take-or-pay contracts that we have in excess of that. And as you go through and try and look at the quarterly trend, it is a bit -- it can be a bit misleading if you sort of trying to make meaning out of that on a really narrow time frame, meaning quarter-to-quarter. If I stand back for a second and look at what our conventional volumes did in Q3 versus Q2 sequentially, those physical volumes would have been up about 4% quarter-over-quarter.

So we think if you sort of look at that relative to the industry, if you look at that relative to other basins, that reflects very competitive and consistent growth. I think as we sit and look at 2026, it's kind of the, I'll say, the heart of that budgeting season right now for everybody. And I think what we expect to see longer term is continued growth in that single-digit range. And that's all supported by, obviously, continuing demand growth from the oil sands. I think we continue to see other infrastructure debottlenecks by our peers. We continue to see the large operators talking about incremental debottlenecks on their projects to drive incremental supply. And we also see incremental gas demand outlet and incremental supply opportunities on the natural gas side, which, of course, drives the condensate and the NGL volumes.

So longer term, we are very, very confident in the continued growth in that -- at least in that single-digit level. I think in the near term, we have to be mindful that in the new business environment that our producers operate in, where returns and value are paramount over simply volume growth. They are making decisions to optimize their longer-term profiles and taking a longer-term perspective. So in any given year, the growth may be more producer-specific versus broad-based or it may be simply timing related. But longer term, we continue to see that. And I think if you look around our major producers, many are demonstrating growth in that same level. Some are choosing to defer some, but longer term, we continue to see growth in that single-digit level.

[Jaret Sprott, executive]

Yes. And just to add to that, Ben, I think some of the recent announcements you would have seen, the Ovintiv, NuVista transaction, the CNRL, Chevron transaction, although we talk about some customer consolidation sometimes puts some compression on our business, it also results in an acceleration of product being produced. So when Cam talks about specific producers accelerating or staying flat, we have a great relationship with Ovintiv and with NuVista. They're both very large and dedicated customers to Pembina. And so that transaction, Ovintiv talked about accelerating production and drilling and those types of things on those lands because they have available capacity. That stuff gets us excited, seeing those consolidations. It's sad to see one of our great customers go, but it's also exciting to see them talk about filling the gas plants faster with 600 million a day of incremental gas processing -- or sorry, of 600 million a day of contracted processing.

PGI, for example, has approximately services about 80% of that. So super excited to see those types of things. And really, we got to listen to our customers and kind of go through this. But overall, the macro trend is oil sands is growing, condensate demand is growing. Import pipelines are essentially getting really full. So that condensate has to come domestically, and we're in a great position to support our customers to get to Edmonton and up to the oil sands.

[Operator]

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

[J. Burrows, executive]

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

[Operator]

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