In summary, these measures include:
- Dividend reduction of 72%
- Suspension of the Premium DividendTM and Dividend Reinvestment Plan
- Suspension of the European Bulk Liquid Storage sales process
- Expense reductions including compensation adjustments for management and the board of directors
- Exploring partnership opportunities on the Heartland Petrochemical Complex
Dividend Reduction and Dividend Reinvestment Plan Suspension
The board of directors has conducted a comprehensive review of the dividend policy and approved a 72 percent reduction to the monthly cash dividend from $0.1425 per share to $0.04 per share, or $0.48 per share on an annualized basis. The new declared dividend will be paid on or about May 15, 2020 to shareholders of record on April 22, 2020. Inter Pipeline’s dividend payments to shareholders are designated as “eligible dividends” for Canadian tax purposes.
Inter Pipeline has also suspended its Premium DividendTM and Dividend Reinvestment Plan (“DRIP”). Both the dividend reinvestment and premium dividend components of the DRIP have been suspended and will not be in effect for any future dividends declared, until further notice. Shareholders who have been participating in either component of the DRIP will receive the full cash dividend declared beginning with the May 2020 payment.
“The cost-of-service and fee-based cash flow from our pipeline and storage franchises are resilient as history has shown over many economic cycles,” stated Christian Bayle, Inter Pipeline’s President and Chief Executive Officer. “It is important to be clear that the decision of the board of directors to reset the dividend in no way reflects a lack of confidence in our core businesses. However, we are currently in a unique and very challenging business environment driven by the COVID-19 pandemic and oil supply conflict between OPEC+ member nations.
“Against this difficult backdrop, Inter Pipeline has a large and well-advanced capital program focused on the development of the Heartland Petrochemical Complex. Well considered action to improve our financial flexibility was necessary and the Board has determined that retained cash flow is the most effective form of equity financing for our capital program.
“The reduction in the dividend results in annualized cash savings of approximately $525 million, which positions us to self-fund the remaining equity portion of the financing requirements of the Heartland Complex without the need for external equity or DRIP financing.”
Inter Pipeline holds delivering a meaningful and sustainable dividend to its shareholders as a core business objective and will look for opportunities to increase the dividend in the future as business conditions permit.
Bulk Liquid Storage Sale Process Suspended
“Despite being at an advanced stage of this process, we have made the decision to suspend sale activities,” commented Bayle. “Europe, like the rest of the world, is urgently addressing the COVID-19 pandemic. All European countries we operate in have recently implemented sensible measures to greatly restrict travel and human contact. Potential purchasers of this business have been significantly affected which has had a material impact on the execution of our process.
“This is clearly not the right environment to pursue and complete a major pan-European transaction, though we may revisit this process at a later date.”
On a positive note, the severe decline of energy related commodity prices and return of strong contango pricing has notably benefited Inter Pipeline’s European operations. Demand for product storage is very high and utilization rates are currently approximately 95% across this business unit. For context, Inter Pipeline’s European operations generated over $100 million of take-or-pay and fee-based cash flow in 2019.
Additional Expense Reductions
Along with the previously announced reduction of its 2020 capital program related to non-Heartland Complex expenditures, Inter Pipeline has also implemented additional measures to restrict discretionary spending across the organization as well as lower fixed costs. As part of this effort the following actions will be taken effective April 1, 2020:
- President and Chief Executive Officer salary to be reduced by 20 percent;
- All other executive salaries to be reduced by 10 percent; and
- Board of Directors cash retainer reduced by 15 percent.
Inter Pipeline will continue to investigate additional operating and administrative expense containment and efficiency measures to lower its cost structure and further strengthen its business fundamentals.
Heartland Petrochemical Complex
Construction at the Heartland Petrochemical Complex is on-going and, to date, there have been no reported COVID-19 cases on our site. Robust controls have been implemented across our construction site in alignment with rules and recommendations from government agencies and public health authorities. It should be noted that our construction activities fall into the category of “essential services” under the recent Government of Alberta declarations addressing the COVID-19 pandemic.
“I am very pleased with the strong collaboration between the unions, construction contractors and Inter Pipeline to continue to maintain a safe and productive worksite in these unprecedented circumstances,” remarked Bayle. “We will continue to work together to assess the evolving landscape and will continue to take the necessary steps to safeguard our workforce.
“Additionally, since Inter Pipeline sanctioned the Heartland Project in late 2017, I have been asked by stakeholders if we would consider bringing a partner into this project given its scope and scale. I can confirm that in late 2019 we began a process to secure a partner to take a material interest in this project. That process remains active and ongoing.
“Heartland is a remarkable project which we believe will provide substantial benefits for all our stakeholders. It has been our belief that the halfway point of the project’s construction was the opportune time to solicit interest from potential strategic partners in the project. A partner would benefit from joining a very well-developed world-scale petrochemical project with substantial commercial advantages, and we would benefit from lowering our project concentration exposure.
“Originally it was our intention to keep this process confidential as there can be no certainty that a definitive agreement will be reached, and a transaction will be completed. However, in light of the current business environment and to be as transparent as possible, we have determined that informing our stakeholders of the existence of a process is the best course of action. As such, I am pleased to report that we have interested parties, however the pace of progress will inevitably be slowed by the impacts of COVID-19.”
In the interim, Inter Pipeline continues to execute the Heartland Petrochemical Project on a stand-alone basis and plans to operate under a self-funding equity model for the remainder of construction. Inter Pipeline remains well positioned to earn $450 million to $500 million in long-term average annual EBITDA from this project once it is in-service.
About Inter Pipeline Ltd.
Inter Pipeline is a major petroleum transportation, natural gas liquids processing, and bulk liquid storage business based in Calgary, Alberta, Canada. Inter Pipeline owns and operates energy infrastructure assets in western Canada and Europe. Inter Pipeline is a member of the S&P/TSX 60 Index and its common shares trade on the Toronto Stock Exchange under the symbol IPL. www.interpipeline.com