Inter Pipeline earns $104.6-million in Q1 2016
Inter Pipeline earns $104.6-million in Q1 2016
2016-05-09 12:05 ET - News Release
Mr. Jeremy Roberge reports
INTER PIPELINE ANNOUNCES STRONG FIRST QUARTER 2016 FINANCIAL AND OPERATING RESULTS
Inter Pipeline Ltd. today released strong financial and operating results for the three-month period ended March 31, 2016.
First quarter highlights:
Generated funds from operations (FFO) of $186-million, a 5-per-cent increase over the first quarter of 2015;
FFO for the bulk liquid storage business segment set a new record of $31-million, an increase of 53 per cent compared with the first quarter of 2015;
Net income for the quarter was $105-million, or 31 cents per share;
Declared cash dividends of $131-million, or 39 cents per share;
Attractive quarterly payout ratio of 75 per cent;
Total pipeline throughput volumes remained strong, averaging 1,312,700 barrels per day;
Completed construction of a $25-million diluent connection to the JACOS-Nexen Hangingstone project;
Secured a long-term diluent supply connection agreement with Pembina Pipeline on the Polaris pipeline system;
Entered into a long-term agreement to provide bitumen blend transportation service to the North West Redwater Sturgeon refinery;
Bulk liquid storage capacity utilization averaged 98 per cent for the quarter, up from 90 per cent in the first quarter of 2015.
Financial performance
Inter Pipeline generated strong financial results in the first quarter of 2016 with funds from operations of $186-million, or 55 cents per share, a gain of $9.5-million over the first quarter of 2015. FFO in the oil sands transportation, bulk liquid storage and conventional oil pipelines business segments increased in the first quarter of 2016, compared with the same period last year. The NGL (natural gas liquids) extraction segment had lower results due to reduced commodity prices and ethane production.
For the first quarter of 2016, Inter Pipeline's four business segments generated funds from operations as shown in the attached table.
FUNDS FROM OPERATIONS
(in millions of dollars)
Three months ended March 31, 2016
Oil sands transportation $139.4
Conventional oil pipelines $50.0
Bulk liquid storage $31.3
NGL extraction $23.6
Corporate costs increased $8.6-million in the first quarter of 2016 to $58.3-million, compared with the first quarter of 2015. This is largely due to a one-time onerous contract adjustment relating to non-cancellable office leases, in addition to higher interest, employee and income tax costs.
Cash dividends
Dividend payments to shareholders increased $9.5-million to $131.3-million, or 39 cents per share, in the first quarter of 2016, compared with the same period in 2015. Inter Pipeline's current monthly dividend rate is 13 cents per share, or $1.56 per share on an annualized basis.
Inter Pipeline's payout ratio for the quarter remained attractive at 74.6 per cent.
Oil sands transportation
The oil sands transportation segment, underpinned by long-term cost of service contracts with credit-worthy counterparties, generated stable financial and operating results in the first quarter of 2016. Funds from operations were $139.4-million, up 7 per cent, or $9.2-million, compared with the first quarter of 2015.
Throughput volumes increased slightly over the similar period of 2015, to 1,104,200 barrels per day. Volumes on the Cold Lake and Corridor pipeline system decreased slightly, while volumes on the Polaris system reached a new record, up 28 per cent, compared with the first quarter of 2015.
VOLUMES
(in thousands of barrels per day)
Three months ended March 31, 2016
Cold Lake 564.0
Corridor 369.5
Polaris 170.7
During the quarter, construction of a new diluent connection between the Polaris pipeline system and the JACOS-Nexen Hangingstone project was completed and is expected to enter commercial service in the third quarter of 2016. The total capital cost of this project, which included a new pipeline lateral and associated facilities, was approximately $25-million.
To further enhance the delivery and receipt options on its oil sands pipeline systems, Inter Pipeline completed two new long-term connection agreements during the first quarter of 2016. The first is a receipt connection agreement with Pembina Pipeline's Canadian diluent hub which will provide shippers on the Polaris pipeline system with an additional large-scale diluent supply option. The second agreement facilitates a bitumen blend delivery connection from the Cold Lake pipeline system to North West Redwater Partnerships' Sturgeon refinery. Inter Pipeline will invest approximately $23-million to complete these capital efficient and accretive projects, with incremental revenue expected to start in mid-2017.
Conventional oil pipelines
Funds from operations in the quarter totalled $50-million, up 7 per cent, or $3.2-million, compared with the same period in 2015. Transportation revenue decreased as a result of slightly lower pipeline system volumes, but was offset by a higher contribution from mid-stream marketing activities.
Average throughput volumes on Inter Pipeline's three conventional gathering systems totalled 208,500 barrels per day for the quarter, representing a 3-per-cent decrease from the same period a year ago. Despite a very weak crude oil pricing environment, volumes on the mid-Saskatchewan pipeline system increased 11,400 barrels per day to 87,600 barrels per day due to increased production from the Viking light oil play and the completion of a major system expansion in mid-2015. This increase was offset by somewhat lower throughput volumes on central Alberta and Bow River pipeline systems.
Bulk liquid storage
Inter Pipeline's bulk liquid storage segment generated record funds from operations of $31.3-million in the first quarter of 2015, a 53-per-cent increase over the first quarter of 2015. The acquisition of Inter Terminals Sweden, as well as higher utilization rates across the business, drove this significant increase.
Inter Terminals continued to operate near capacity in the first quarter of 2016, with utilization rates averaging 98 per cent, compared with 90 per cent in 2015. Notably, the Danish operations reached 100-per-cent utilization for the quarter as demand for contango storage continued to drive positive results.
In the quarter, work was also substantially completed on the construction of six new storage tanks in Germany for a total cost of approximately $9-million. These new tanks provide 57,000 barrels of high-value chemical storage with the majority of the new capacity now contracted to BASF under multiyear agreements.
NGL extraction
The NGL extraction segment generated $23.6-million in funds from operations in the first quarter of 2016, compared with $28.7-million in the first quarter of 2015. Financial results were negatively impacted by lower frac-spread pricing on propane-plus sales and reduced ethane volumes due to downstream demand issues. In the quarter, realized frac-spread prices averaged 31 U.S. cents per U.S. gallon, down from 37 U.S. cents per U.S. gallon over the same period last year.
Natural gas flows to Inter Pipeline's straddle facilities at Cochrane and Empress were strong in the quarter. In total, three billion cubic feet per day of natural gas was processed, extracting 105,800 barrels per day of natural gas liquids.
Financing activity
Inter Pipeline continues to maintain a strong balance sheet with significant liquidity available on its committed revolving credit facility. As at March 31, 2016, Inter Pipeline had $558-million of capacity on its $1,250-million credit facility.
At March 31, 2016, Inter Pipeline's consolidated net debt to total capitalization ratio was 53.8 per cent, compared with 51.4 per cent at March 31, 2015.
Inter Pipeline continues to maintain strong investment-grade credit ratings. Standard & Poor's and DBRS Ltd. have assigned Inter Pipeline credit ratings of BBB plus and BBB (high), respectively.
Conference call and webcast
Inter Pipeline will hold its 2016 first quarter financial and operating results conference call and webcast on May 10 at 9 a.m. MT (11 a.m. ET) for interested shareholders, analysts and media representatives.
To participate in the conference call, please dial 416-340-2216 or 1-800-355-4959. A passcode is not required. A recording of the call will be available for replay until May 17, 2016, by dialling 1-905-694-9451 or 1-800-408-3053. The passcode for the replay is 3961740.
Annual general meeting
Inter Pipeline will hold its annual general meeting of shareholders on Monday, May 9, 2016, at 2 p.m. MT (4 p.m. ET) at the Metropolitan Conference Centre, 333 4th Ave. SW, in Calgary, Alta. The meeting will be webcast live with a link accessible on Inter Pipeline's website under investor information then 2016 annual general meeting.
SELECT FINANCIAL AND OPERATING HIGHLIGHTS
(in millions of dollars, except per-share and per-cent amounts where noted)
Three months ended
March 31,
2016 2015
Operating
Pipeline volumes (000s barrels per day)
Oil sands transportation (1) 1,104.2 1,097.7
Conventional oil pipelines 208.5 214.2
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Total pipeline 1,312.7 1,311.9
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Extraction production (1) (000s barrels per day)
Ethane 60.9 71.0
Propane-plus 44.9 42.0
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Total extraction 105.8 113.0
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Capacity utilization
Bulk liquid storage 98% 90%
Financial (3)
Revenue $416.4 $405.8
Funds from operations(2)
Oil sands transportation $139.4 $130.2
Conventional oil pipelines $50.0 $46.8
Bulk liquid storage $31.3 $20.5
NGL extraction $23.6 $28.7
Corporate costs $(58.3) $(49.7)
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Total funds from operations (2) $186.0 $176.5
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Per share (2) $0.55 $0.53
Net income $104.6 $122.8
Supplemental financial information
Net income attributable to shareholders $95.8 $113.7
Per share -- basic $0.28 $0.34
Per share -- diluted $0.28 $0.34
Cash dividends declared $131.3 $121.8
Per share $0.3900 $0.3675
Payout ratio (2) 74.6% 73.3%
Capital expenditures (2) (3)
Growth $32.2 $132.5
Sustaining $18.0 $9.5
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Total capital expenditures $50.2 $142.0
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(1) Empress V NGL production and Cold Lake volumes reported on a 100-per-cent
basis.
(2) Please refer to the non-GAAP (generally accepted accounting principles)
financial measures section of the management's discussion and analysis.
(3) Amounts reported on a 100-per-cent basis that includes non-controlling
interest.
MD&A, financial statements and notes
The MD&A and consolidated financial statements provide a detailed explanation of Inter Pipeline's operating results for the three month period ended March 31, 2016, as compared with the three-month period ended March 31, 2015. These documents are available on the company's website and on SEDAR.
We seek Safe Harbor.