First Quarter Highlights
- Funds from operations (FFO) totalled $208 million
- Oil sands transportation FFO of $155 million, a five percent increase over first quarter 2019
- Net income for the quarter was $89 million
- Declared cash dividends of $181 million
- Quarterly payout ratio* of 87 percent
- Total pipeline throughput volume averaged 1,527,800 barrels per day (b/d), a 10 percent increase over first quarter 2019
- Bulk liquid storage utilization averaged 95 percent for the quarter
Subsequent to the Quarter
- Closed a new $1 billion committed credit facility to provide additional financial liquidity
- Updated Heartland Petrochemical Complex cost estimate to $4 billion
- Viking Connector pipeline was placed into service on April 1, on time and on budget
- Dividend reduced and other cost-containment measures identified to improve financial flexibility
* Please refer to the “Non-GAAP Financial Measures” section of the MD&A. |
Response to COVID-19
In March 2020, Inter Pipeline was one of many companies to begin aggressively managing the unprecedented consequences of both the decline in global energy prices and the COVID-19 pandemic.
Inter Pipeline’s operations were recognized as an essential service by government and many of its employees continue to work at its pipeline facilities, NGL extraction and offgas plants, European storage terminals and major project sites, such as the Heartland Petrochemical Complex. Measures were put in place to ensure the ongoing health and safety of the workforce and its surrounding communities, aligning with the recommendations of government and public health authorities. To date, Inter Pipeline’s global operations have not had any reported COVID-19 cases.
“2020 will undoubtably be remembered as a year of unparalleled challenges for our people, our business, our customers and the industry at large,” said Christian Bayle, Inter Pipeline’s President and Chief Executive Officer. “Our essential services personnel quickly adapted to the challenges of safely operating complex pipeline, processing and storage systems under trying circumstances and support staff successfully transitioned to working remotely and remain highly productive. I am immensely proud of the dedication and professionalism of the Inter Pipeline team.
“During this time of a worldwide pandemic on top of an already weakened energy market we are focused on continuing to protect our people and our critical operations and projects, while ensuring we place ourselves in the best possible financial position.”
Financial Performance
Inter Pipeline generated first quarter 2020 funds from operations of $207.5 million, compared to $211.5 million in the first quarter of 2019. Our oil sands transportation, conventional oil pipeline and bulk liquid storage segments outperformed the same period a year ago, while NGL processing was impacted by the lower commodity price environment.
As at March 31, 2020, Inter Pipeline’s four business segments generated funds from operations as follows:
Funds from operations (millions) |
Three Months Ended March 31, 2020 |
Oil sands transportation |
$154.5 |
NGL processing |
$43.2 |
Conventional oil pipelines |
$36.6 |
Bulk liquid storage |
$34.8 |
“Our financial resilience is underpinned by the long-term, stable cash flow generated from our oil sands transportation business,” added Bayle. “We also benefited from improved financial results from our European bulk liquid storage operations as utilization increased to an average of 95 percent for the quarter.”
Corporate costs, including employee, financing and tax expenses, were $61.6 million in the first quarter of 2020, five percent lower when compared to the first quarter of 2019.
Cash Dividends
Dividend payments to shareholders were $181.1 million, or $0.43 per share in the first quarter of 2020, compared to $173.9 million for the same period in 2019.
Effective with the April 2020 dividend, Inter Pipeline’s Board of Directors approved a 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 Premium DividendTM and Dividend Reinvestment Plan was also suspended to reduce dilution to shareholders. The reduction in the dividend results in annualized cash savings of approximately $525 million and positions Inter Pipeline to self-fund the remaining equity portion of the financing requirements of the Heartland Petrochemical Complex.
Inter Pipeline’s payout ratio for the quarter was 87.3 percent.
TM Denotes trademark of Canaccord Genuity Corp |
Oil Sands Transportation
Inter Pipeline’s oil sands transportation business first quarter funds from operations increased approximately five percent to $154.5 million, compared to the same period in 2019. Inter Pipeline generates cash flow from this business from a variety of high-quality, long-term cost-of-service contracts that are not generally impacted by throughput volume fluctuations.
Average total throughput volume for the first quarter increased by 146,400 b/d to 1,345,900 b/d, a twelve percent increase, over the same period a year ago. While some volume declines are anticipated in the second quarter of 2020 as a result of producer curtailments, the impact to funds from operations is expected to be nominal.
Volume (000 b/d) |
Three Months Ended March 31, 2020 |
Cold Lake |
654.0 |
Corridor |
404.6 |
Polaris |
287.3 |
NGL Processing
NGL processing generated $43.2 million in funds from operations during the first quarter of 2020. Despite strong extraction and sales volume, results were impacted by lower frac-spread pricing in both our natural gas and offgas processing operations. In the near term, FFO from this business is expected to remain under significant pressure should markedly lower commodity prices persist.
The Cochrane and Empress straddle plants processed 3.39 billion cubic feet per of natural gas per day during the quarter and approximately 116,600 b/d of ethane and propane-plus was extracted. Average sales volume from the Redwater Olefinic Fractionator was 36,600 b/d, a 1,100 b/d increase over the first quarter of 2019.
Frac-spread (USD/USG) |
Three Months Ended March 31, 2020
|
Cochrane propane-plus |
$0.31 |
Offgas Olefinic* |
$0.60 |
Offgas Paraffinic* *Price after applicable benchmark adjustment |
$0.13
|
Heartland Petrochemical Complex
Inter Pipeline continues to remain highly focused on executing construction, commercial and operational readiness activities for the Heartland Petrochemical Complex (HPC). The project construction site remains active, with rigorous sanitation and social distancing controls in place to protect workers during the COVID-19 pandemic. To date there have been no reported COVID-19 cases at HPC, however increased precautionary measures have lowered construction site staffing and impacted near-term planned productivity.
First quarter 2020 expenditures for this project were $255 million, bringing the total project spend since inception to approximately $2.5 billion.
Inter Pipeline recently completed a detailed analysis of the remaining capital costs for the polypropylene plant (PP) and refreshed the contingency costs for the propane dehydrogenation facility (PDH). A full review of project commissioning and start-up plans has also been completed and Inter Pipeline has elected to devote additional resources to support these critical activities. Additionally, the COVID-19 pandemic has affected Inter Pipeline’s near-term construction execution plans, which will impact capital costs and may extend the construction schedule. As a result, the estimated cost of HPC is now approximately $4.0 billion, with the majority of incremental costs expected to be incurred in 2021 and 2022. The project in service date may shift to early 2022, however mitigation plans to address this are under development.
The 14 percent increase over the original estimate of $3.5 billion is broken down as follows:
Incremental Cost (millions) |
||
Revised PP/PDH Design and Construction |
$100 |
|
Incremental Commissioning and Start Up |
$170 |
|
COVID-19 Impact |
$150 |
|
Incremental Interest During Construction |
$80 |
|
Total |
$500 |
Inter Pipeline recently announced that a process to secure a partner to purchase a material interest in the Heartland Petrochemical Complex was launched in late 2019. A partner would benefit from joining a well-developed world-scale petrochemical project that has substantial commercial advantages, and it would lower Inter Pipeline’s overall project concentration exposure. While there can be no certainty that a definitive agreement will be reached, the process remains active and Credit Suisse and TD Securities have been retained to provide financial advisory services.
Conventional Oil Pipelines
Funds from operations for Inter Pipeline’s conventional oil pipelines business were $36.6 million for the first quarter of 2020. This seven percent increase over the first quarter of 2019 is primarily a result of higher volume on the Central Alberta pipeline system and lower operating expenses.
Average throughput for Inter Pipeline’s three conventional oil pipelines was 181,900 b/d for the first quarter, a three percent decrease from the first quarter of 2019. Volume increase on the Central Alberta pipeline system was offset by declines in throughput on the Bow River and Mid-Saskatchewan pipeline systems. Overall throughput on the conventional system is expected to fall in the second quarter of 2020 as producers shut-in production in response to the collapse in global oil pricing. April’s average volume was approximately 140,000 b/d and early indications for May are between 120,000 b/d and 130,000 b/d.
On April 1, 2020, the new 75-kilometer Viking Connector pipeline was placed into service on time and on budget. The Viking Connector is expected to add approximately 10,000 to 15,000 b/d of throughput volume to the Central Alberta pipeline system during normal market conditions, providing new access to the Edmonton market hub and additional flexibility for producers.
Bulk Liquid Storage
Inter Pipeline’s bulk liquid storage business generated quarterly funds from operations of $34.8 million, an $8 million increase from the first quarter of 2019. Storage demand has increased across Inter Pipeline’s pan-European platform, though most notably at its Danish terminals that predominately handle refined petroleum products.
During the first quarter, average storage utilization rate across all terminals increased from 78 percent during the comparable period a year ago to 95 percent. Inter Pipeline anticipates strong utilization rates to continue throughout 2020, with April 2020 utilization rates reaching 98 percent.
In the first quarter 2020, a decision was made to suspend the sales process of this business as a result of potential purchasers of this business being significantly affected by the COVID-19 pandemic. While this is not the right environment to pursue and complete a major pan-European transaction, Inter Pipeline may revisit this process at a later date.
Financing Activity
In the current challenging market environment, Inter Pipeline has undertaken several key measures over the past few months to enhance its financial strength and flexibility.
Inter Pipeline has eliminated certain discretionary expenditures within the 2020 capital program to further protect the balance sheet. This is an on-going process and, as at the end of the first quarter 2020, the remaining 2020 growth capital is approximately $675 million for HPC and $100 million in other smaller growth expenditures across the business. A further $50 million is planned for investment in certain sustaining capital projects for the balance of the year.
As of March 31, 2020, Inter Pipeline had significant liquidity on its $1.5 billion revolving credit facility and a consolidated net debt to total capitalization ratio* of 42.3 percent, significantly below the maximum covenant level of 65 percent.
Subsequent to the first quarter, Inter Pipeline closed a new $1.0 billion unsecured revolving credit facility with a syndicate of key lenders and extended the maturity date of its drawn $500 million term loan facility by two years to August 2022. As a result of these financial measures, Inter Pipeline has approximately $2.2 billion of available capacity on its existing revolving credit facilities and has significantly reduced its 2020 debt maturities.
Inter Pipeline maintains investment grade credit ratings. Standard & Poor’s and DBRS Limited have assigned Inter Pipeline a credit rating of BBB- (negative) and BBB (stable), respectively.
Conference Call and Webcast
A conference call and webcast have been scheduled for May 8, 2020 at 9:00 a.m. MT (11:00 a.m. ET) for interested shareholders, analysts and media representatives.
To participate in the conference call, please dial 1 (888) 231-8191. A replay of the conference call will be available until May 15, 2020 by calling 1 (855) 859-2056. The code for the replay is 2981946. A link to the webcast and updated investor relations presentation are available on Inter Pipeline’s website.
Annual and Special Meeting of Shareholders
Inter Pipeline will hold its virtual-only Annual and Special Meeting of Shareholders via live audio webcast, on Thursday, May 7, 2020 at 2:00 p.m. MT (4:00 p.m. ET).
Further information can be found at: www.interpipeline.com/investor/annual-general-meeting.cfm
Select Financial and Operating Highlights |
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(millions of dollars, except per share and percent amounts where |
||
noted) |
Three Months Ended
|
|
March 31
|
||
Operating Results |
2020 |
2019 |
Pipeline volume (000 b/d) |
||
Oil sands transportation |
1,345.9 |
1,199.5 |
Conventional oil pipelines |
181.9 |
187.1 |
Total pipeline |
1,527.8 |
1,386.6 |
NGL processing volume1 (000 b/d) |
||
Ethane |
70.5 |
72.2 |
Propane-plus |
46.1 |
49.5 |
Redwater Olefinic Fractionator sales volume |
36.6 |
35.5 |
Total NGL processing |
153.2 |
157.2 |
Bulk liquid storage capacity utilization |
95% |
78% |
Financial Results |
||
Revenue |
$603.8 |
$658.9 |
Funds from operations |
||
Oil sands transportation |
$154.5 |
$147.6 |
NGL processing |
$43.2 |
$68.0 |
Conventional oil pipelines |
$36.6 |
$34.1 |
Bulk liquid storage |
$34.8 |
$26.8 |
Corporate costs |
$(61.6) |
$(65.0) |
Total funds from operations |
$207.5 |
$211.5 |
Per share2 |
$0.49 |
$0.52 |
Net Income |
$89.1 |
$98.3 |
Per share – basic & diluted |
$0.21 |
$0.24 |
Adjusted EBITDA2 |
$255.2 |
$253.1 |
Supplemental Financial Information |
||
Cash dividends declared |
$181.1 |
$173.9 |
Per share3 |
$0.4275 |
$0.4275 |
Payout ratio2 |
87.3% |
82.2% |
Capital expenditures |
||
Growth2 |
$311.6 |
$316.7 |
Sustaining2 |
$4.9 |
$11.9 |
Total capital expenditures |
$316.5 |
$328.6 |
1. |
Empress V NGL production reported on a 100% basis. |
2. |
Please refer to the NON-GAAP FINANCIAL MEASURES section. |
3. |
Dividends to shareholders per share are calculated based on the number of common shares outstanding at each record date. |
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