2020 Highlights
- Annual funds from operations (FFO) totalled $792 million
- Oil sands transportation business generated record annual FFO of $616 million
- Net income of $359 million
- Declared cash dividends of $336 million, or $0.79 per share
- Annual payout ratio* of 42 percent
- Completed the divestiture of the majority of our European bulk liquid storage business
- Announced acquisition of Milk River pipeline system in exchange for Empress II and V straddle plants
- Completed $180 million Central Alberta pipeline system expansion, including a 75 km pipeline and 260,000 barrels of additional storage
- Materially advanced construction and readiness programs of the Heartland Petrochemical Complex
- Closed a new $1 billion committed credit facility and successfully issued $700 million of senior unsecured medium-term notes
Fourth Quarter 2020 Highlights
- Quarterly FFO of $204 million
- Total pipeline throughput volume averaged 1,486,700 barrels per day (b/d)
- Bulk liquid storage utilization rates averaged 99 percent for the quarter
- Quarterly payout ratio* of 25 percent
- Declared cash dividends of $52 million, or $0.12 per share
* Please refer to the “Non-GAAP Financial Measures” section of the MD&A. |
COVID-19 Response
Inter Pipeline continues to align its protective measures with the requirements and recommendations from both the government and public health authorities. The wellbeing of Inter Pipeline’s workforce and the continued operation and development of the business remains the top priority.
“In 2020, Inter Pipeline was focused on the health and safety of our workforce, our ongoing build of the Heartland Petrochemical Complex, and completing several transactions to secure significant financial flexibility to address the considerable challenges brought on by the COVID-19 pandemic,” remarked Christian Bayle, President and Chief Executive Officer. “As we enter 2021, Inter Pipeline is well positioned to provide meaningful shareholder value through our substantial growth program, disciplined cost management and highly resilient asset base.”
Financial Performance
For 2020, Inter Pipeline generated funds from operations of $792 million, nine percent lower than 2019. Inter Pipeline’s oil sands transportation business demonstrated exceptional stability, yielding record annual FFO. The bulk liquid storage business also produced record FFO in 2020, with European storage at near full capacity for the year. However, the pandemic’s dramatic impact on global energy supply-demand balances, and correspondingly on energy pricing, had a negative impact on our NGL processing and conventional oil pipeline businesses. Weaker NGL frac spread pricing as well as lowered production volumes from conventional oil producers directly impacted financial results in these two business segments.
Fourth quarter funds from operations in 2020 totaled $204 million, down six percent from the comparable quarter of 2019. During the final quarter of 2020, Inter Pipeline’s oil sands business remained consistent year over year, while NGL processing improved due to higher paraffinic and Cochrane propane-plus frac spread pricing. FFO from the bulk liquid storage business decreased from the fourth quarter in 2019 as a result of Inter Pipeline divesting the majority of its European assets in November 2020.
For the fourth quarter and full year 2020, Inter Pipeline’s four business segments generated funds from operations as follows:
Funds from operations |
Three Months Ended |
Twelve Months Ended |
Oil sands transportation |
$154.0 |
$615.5 |
NGL processing |
$58.5 |
$189.7 |
Conventional oil pipelines |
$34.5 |
$128.9 |
Bulk liquid storage |
$23.9 |
$129.2 |
Overall corporate costs, including general and administrative, financing and current tax expenses for the three and twelve months ended December 31, 2020 were $67 million and $271 million, respectively.
Cash Dividends
Dividend payments to shareholders in 2020 were $336 million or $0.79 per share, resulting in an annual payout ratio of 42.4 percent. In the fourth quarter, Inter Pipeline declared dividends of $52 million, or $0.12 per share, resulting in a quarterly payout ratio of 25.2 percent.
Inter Pipeline’s monthly dividend rate is $0.04 per share, or $0.48 per share on an annualized basis.
Oil Sands Transportation
Inter Pipeline’s oil sands transportation business generated record financial results in 2020. Annual funds from operations were $615.5 million, an increase of $11.9 million compared to the full-year 2019. This increase was as a result of higher capital fee revenue from the Cold Lake and Polaris pipeline systems. This business generates cash flow from a variety of long-term, cost-of-service contracts and is not materially impacted by throughput volume fluctuations.
In the fourth quarter of 2020, funds from operations were $154.0 million, consistent with the same period in 2019. Average throughput volume was 1,321,500 b/d in the fourth quarter of 2020 compared to 1,324,900 in Q4 2019.
Volume |
Three Months Ended |
Twelve Months Ended |
Cold Lake |
621.2 |
621.3 |
Corridor |
422.1 |
374.3 |
Polaris |
278.2 |
244.7 |
NGL Processing
NGL processing business generated annual funds from operations of $189.7 million in 2020, compared to $236.6 million in 2019. These results were primarily impacted by depressed frac-spread pricing in both our natural gas and offgas processing operations, offset slightly by higher throughput volumes.
For 2020, Inter Pipeline’s three straddle facilities produced 108,300 b/d of ethane and propane-plus, which was consistent with 2019 levels. Annual sales volume from the Redwater Olefinic Fractionator improved year over year to a record 34,900 b/d, representing a nine percent increase compared to 2019.
Funds from operations from this business were $58.5 million for the fourth quarter 2020, an increase of $8.2 million from the same quarter in 2019. This increase was primarily driven by improved paraffinic and propane-plus frac spread pricing during quarter and lower operating costs.
Inter Pipeline’s Cochrane and Empress straddle facilities produced 91,200 b/d of propane-plus and ethane during the quarter. Average sales volume from the Redwater Olefinic Fractionator for the fourth quarter of 2020 was 36,500 b/d, an increase of approximately eight percent compared to the same period in 2019.
Frac-spread |
Three Months Ended |
Twelve Months Ended |
Cochrane propane-plus |
$0.43 |
$0.35 |
Offgas Olefinic* |
$0.65 |
$0.55 |
Offgas Paraffinic* |
$0.30 |
$0.21 |
*Price after applicable benchmark adjustment |
Heartland Petrochemical Complex (HPC)
Despite the extraordinary complexities created by the global pandemic, Inter Pipeline safely and successfully concluded HPC’s third year of construction with all major milestones met. The project continues to track the revised schedule and cost estimate. The propane dehydrogenation facility is expected to be substantially mechanically complete by May 2021, and the polypropylene facility by the end of the year. The full HPC in-service date remains early 2022, supported by strong business and operations readiness programs.
In the fourth quarter of 2020, Inter Pipeline invested approximately $270 million on the HPC project, bringing the total capital investment to approximately $3.2 billion.
Significant work performed at site in 2020 included installation of remaining modules and major equipment. At the propane dehydrogenation facility, work has transitioned from general construction to systems completion. As systems are completed, they are being turned over to the start-up and commissioning teams. At the polypropylene facility, notable 2020 installations included completion of the reactor structure, pelletizer and flare stack. In addition, the railyard was completed which will enable HPC to ship polypropylene to various North American markets.
The process to secure a partner to purchase a material interest in the Heartland Petrochemical Complex is ongoing and is expected to conclude in the first half of 2021. While there can be no certainty that a definitive agreement will be reached, a partner would benefit from joining a well-developed, world-scale petrochemical project that has substantial commercial advantages.
Conventional Oil Pipelines
Results from our conventional oil pipeline business were impacted by lower global energy prices that resulted in lowered production volumes and reduced marketing activities. Funds from operations for this business were $128.9 million, a decrease of $39.1 million compared to 2019.
Year over year, the conventional oil pipeline systems reported an average volume of 161,600 b/d in 2020, down 13 percent from 2019.
For the fourth quarter of 2020, funds from operations were $34.5 million, a $10.1 million decrease from FFO of $44.6 during the comparable quarter in 2019. Average throughput volume for the fourth quarter of 2020 was 165,200 b/d, compared to 189,300 b/d during the same period in 2019.
In the first half of 2020, the 75-kilometre Viking Connector pipeline and 260,000-barrel storage tank expansion project was placed into service on time and on budget. This $180 million investment concluded the first two-phases of Inter Pipeline’s Central Alberta pipeline system and provides enhanced access to the Edmonton market hub and additional market flexibility for producers.
In the third quarter of 2020, Inter Pipeline reached an agreement to acquire the Milk River pipeline system from Plains Midstream Canada ULC in exchange for its 100 percent ownership interest in the Empress II and 50 percent ownership interest in the Empress V straddle plants. Inter Pipeline will also receive cash proceeds of $35 million. Closing of this transaction is expected to occur in the first half of 2021, following completion of customary conditions.
Bulk Liquid Storage
In the fourth quarter 2020, Inter Pipeline completed the agreement to divest the majority of its European bulk liquid storage business to the CLH Group for approximately $727 million, before closing adjustments. Inter Pipeline retains eight terminals in Sweden and Denmark, comprising of approximately 19 million barrels of storage capacity.
The bulk liquid storage business reported record 2020 financial results, benefitting from nearly full capacity utilization during the year. With annual funds from operations of $129.2 million, this business posted a $14.2 million increase compared to 2019.
Funds from operations for the quarter were $23.9 million, a decrease of $6.9 million over the same period in 2019. This result was impacted by the November 12, 2020 closing of the bulk liquid storage sale. Overall, the average storage utilization rate during the fourth quarter increased to 99 percent compared to 93 percent for the same period a year ago.
Financing Activity
As at December 31, 2020, Inter Pipeline had approximately $2.5 billion of available capacity on its committed revolving credit facilities. Inter Pipeline also continues to take additional measures to ensure balance sheet flexibility and capacity is available to fund near term capital expenditures, including remaining costs for the Heartland Petrochemical Complex. In June of 2020, Inter Pipeline successfully issued $700 million of 7-year senior unsecured medium-term notes to reduce indebtedness under its $1.5 billion revolving credit facility and to repay $500 million of medium-term notes that matured in July 2020.
In February 2021, Inter Pipeline reduced the pricing margin and extended the maturity of its $1 billion credit facility to December 2022. Concurrently, Inter Pipeline also reduced the borrowing costs associated with its $500 million term loan facility, which matures in August 2022.
At year-end, Inter Pipeline had a consolidated net debt to total capitalization ratio of 42.2 percent, significantly below the maximum covenant level of 65 percent.
Inter Pipeline maintains investment grade credit ratings. Standard & Poor’s and DBRS Limited have assigned Inter Pipeline a credit rating of BBB- (negative outlook) and BBB (stable trend), respectively.
Conference Call and Webcast
Inter Pipeline will hold its year end and fourth quarter 2020 financial and operating results conference call and webcast on February 19, 2021 at 11:00 a.m. MT (1:00 p.m. ET) for interested shareholders, analysts and media representatives.
To participate in the conference call, please dial 1 (888) 231-8191. The conference ID is 5296602. A replay of the conference call will be available until February 26, 2021 by calling 1 (855) 859-2056. The code for the replay is 5296602.
Select Financial and Operating Highlights |
||||||||||||
(millions, except voume, per share and % amounts) |
||||||||||||
Three Months Ended December 31 |
Years Ended December 31 |
|||||||||||
Operating Results |
2020 |
2019 |
2020 |
2019 |
||||||||
Pipeline volume (000s b/d) |
||||||||||||
Oil sands transportation |
1,321.5 |
1,324.9 |
1,240.3 |
1,216.7 |
||||||||
Conventional oil pipelines |
165.2 |
189.3 |
161.6 |
186.3 |
||||||||
Total pipeline volume |
1,486.7 |
1,514.2 |
1,401.9 |
1,403.0 |
||||||||
NGL processing volume (000s b/d)(1) |
||||||||||||
Natural gas processing – Ethane |
50.3 |
59.8 |
63.8 |
63.4 |
||||||||
Natural gas processing – Propane-plus |
40.9 |
41.7 |
44.5 |
44.2 |
||||||||
Redwater Olefinic Fractionator sales volume |
36.5 |
33.7 |
34.9 |
31.9 |
||||||||
Total NGL processing volume |
127.7 |
135.2 |
143.2 |
139.5 |
||||||||
Bulk liquid storage capacity utilization |
99% |
93% |
98% |
87% |
||||||||
Financial Results |
||||||||||||
Revenue |
$ |
624.3 |
$ |
644.0 |
$ |
2,400.5 |
$ |
2,535.3 |
||||
Funds from operations |
||||||||||||
Oil sands transportation |
$ |
154.0 |
$ |
153.8 |
$ |
615.5 |
$ |
603.6 |
||||
NGL processing |
$ |
58.5 |
$ |
50.3 |
$ |
189.7 |
$ |
236.6 |
||||
Conventional oil pipelines |
$ |
34.5 |
$ |
44.6 |
$ |
128.9 |
$ |
168.0 |
||||
Bulk liquid storage(2) |
$ |
23.9 |
$ |
30.8 |
$ |
129.2 |
$ |
115.0 |
||||
Corporate costs |
$ |
(66.6) |
$ |
(62.7) |
$ |
(271.1) |
$ |
(250.3) |
||||
Total funds from operations |
$ |
204.3 |
$ |
216.8 |
$ |
792.2 |
$ |
872.9 |
||||
Per share(3) |
$ |
0.48 |
$ |
0.52 |
$ |
1.85 |
$ |
2.12 |
||||
Net income |
$ |
168.7 |
$ |
100.5 |
$ |
359.0 |
$ |
539.0 |
||||
Per share – basic and diluted |
$ |
0.39 |
$ |
0.24 |
$ |
0.84 |
$ |
1.31 |
||||
Adjusted EBITDA(3) |
$ |
232.3 |
$ |
263.4 |
$ |
961.9 |
$ |
1,051.2 |
||||
Supplemental Financial Information |
||||||||||||
Cash dividends declared |
$ |
51.6 |
$ |
179.3 |
$ |
335.7 |
$ |
706.4 |
||||
Per share(4) |
$ |
0.120 |
$ |
0.428 |
$ |
0.788 |
$ |
1.710 |
||||
Payout ratio(3) |
25.2% |
82.7% |
42.4% |
80.9% |
||||||||
Capital expenditures |
||||||||||||
Growth(3) |
$ |
302.4 |
$ |
414.8 |
$ |
1,095.2 |
$ |
1,524.0 |
||||
Sustaining(3) |
$ |
20.5 |
$ |
25.5 |
$ |
50.3 |
$ |
69.6 |
||||
Total capital expenditures |
$ |
322.9 |
$ |
440.3 |
$ |
1,145.5 |
$ |
1,593.6 |
(1) |
Empress V NGK production reported on a 100% basis. |
(2) |
Utilization for the European divestiture group is only included for periods up to November 12, 2020. |
(3) |
Please refer to the NON-GAAP FINANCIAL MEASURES section. |
(4) |
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 and natural gas liquids processing business based in Calgary, Alberta, Canada. Inter Pipeline owns and operates energy infrastructure assets in western Canada and is building the Heartland Petrochemical Complex — Canada’s first integrated propane dehydrogenation and polypropylene facility. 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