Western Canada sedimentary basin production capacity explosion: Pembina (PBA.US) became the main beneficiary of growth dividends, Wells Fargo raised “two levels in a row” to “increase holdings”

The Zhitong Finance App learned that Wells Fargo upgraded the Pembina Pipeline (PBA.US) rating two levels in a row from “reduced holdings” to “increased holdings”, and raised the target price from 55 Canadian dollars to 76 Canadian dollars. Wells Fargo believes that as the Western Canada Sedimentary Basin (WCSB) export capacity increases and demand for diluents increases, the company is a major beneficiary, which has brought growth opportunities to Pembina's condensate business for decades.

Pembina Pipeline is a company responsible for transporting oil and gas to and from parts of western Canada. Analyst Planis Satish believes Western Canada's sedimentary basin production is expected to increase by as much as 2 million b/d by 2040, with support from a more constructive Canadian government, growing concerns about energy security, and potential New West Coast export routes. This increase in production will drive a significant increase in demand for diluents, which is likely to increase by about 800,000 b/d.

Assuming that Pembina can capture approximately 70% of new sales over its previous baseline and earn bundled expenses from collection and processing (G&P), transportation, and fractionation, Satish estimates that after funding the required infrastructure with a 6x construction factor, its compound annual growth rate of EBITDA could accelerate from the current 5% to 6% to around 7% by 2035, and estimated potential upside per share of around $14.

The analyst said that statements made by WCSB producers indicate that the oil sands business still has plenty of room for additional growth, including plans to increase production by about 3.5 million b/d in the near future, and long-term plans to increase production by about 7 million b/d on the premise of obtaining sufficient export channels. He added that it is now clearly foreseeable that oil sands production will increase by more than 1 million b/d, and if some of the proposed export solutions are completed, the growth potential will be even greater.