Copy of news releaseI highlighted the things I found interesting.
News Release
Inter Pipeline Announces Record Quarterly Financial and Operating Results
CALGARY, ALBERTA, NOVEMBER 8, 2018: Inter Pipeline Ltd. (“Inter Pipeline”) (TSX: IPL) today announced record financial and operating results for the three and nine month periods ended September 30, 2018.
Third Quarter Highlights
• Funds from operations (FFO) totalled a quarterly record of $300 million, an 11 percent increase over third quarter 2017
• NGL processing business generated quarterly record FFO of $135 million
• Net income for the quarter was a record $169 million, a 19 percent increase over third quarter 2017
• Declared cash dividends of $163 million, or $0.42 per share
• Attractive quarterly payout ratio of 55 percent
• Total pipeline throughput volumes averaged 1,441,500 barrels per day (b/d)
• Inter Pipeline divested the $600 million Heartland Petrochemical Complex Central Utility Block to Fengate, reducing its overall capital cost obligation to the Complex
Subsequent to the Quarter
• Announced a USD $270 million acquisition of NuStar Europe, which has seven strategically located storage terminals in the Netherlands and United Kingdom
Financial Performance
Inter Pipeline generated record financial results in the third quarter of 2018, with funds from operations of $299.7 million, or $0.77 per share. This $30.8 million increase over the third quarter of 2017 was primarily driven by record performance in the NGL processing business, which continued to provide exceptional results from higher production volumes and increased frac-spread pricing.
“Inter Pipeline’s record results this quarter is proof of the company’s resilience despite the volatility in Western Canada’s commodity prices,” commented Christian Bayle, Inter Pipeline’s President and Chief Executive Officer.
“Our oil sands and conventional pipeline assets provide stability in challenging times, while our NGL processing franchise positions us for significant cash flow growth from elevated North American gas liquids pricing.”
Cash Dividends
Dividend payments to shareholders increased $11.2 million to $163.3 million, or $0.42 per share in the third quarter of 2018 when compared to the same period in 2017. Inter Pipeline’s current monthly dividend rate is $0.14 per share, or $1.68 per share on an annualized basis.
Inter Pipeline’s payout ratio for the quarter was an attractive 54.5 percent.
Oil Sands Transportation
The oil sands transportation business continued to produce reliable operating and financial results during the third quarter of 2018. Funds from operations were $150.3 million, a decrease of $5.1 million compared to the same period a year ago due to slightly lower capital cost recoveries.
Average throughput volumes increased by 80,100 b/d compared to the third quarter of 2017 to 1,227,200 b/d. Volumes on the Polaris pipeline system increased by 94,100 b/d or 60 percent to 251,000 b/d during the quarter. Strong volume growth continues to be driven by higher diluent deliveries to the Foster Creek, Christina Lake and Kearl oil sands projects.
Volumes on the Cold Lake pipeline system were relatively consistent increasing 1,400 b/d to 573,100 b/d in the third quarter of 2018 compared to the same period in 2017. Volumes on the Corridor pipeline system declined 15,400 b/d from the same period in 2017 largely due to maintenance activities at the Scotford upgrader.
NGL Processing
NGL processing generated record funds from operations of $134.8 million, a $56.7 million increase over the third quarter of 2017. This result was driven by increased frac-spread pricing and strong production volumes in both our natural gas and offgas processing operations.
Average propane-plus realized frac-spread pricing at the Cochrane straddle plant was $0.98 USD per US gallon, a 36 percent increase over the third quarter of 2017. Offgas olefinic and paraffinic frac-spreads, after benchmark adjustments, also strengthened during the quarter averaging $1.43 USD per USG and $0.43 USD per US gallon, respectively.
Natural gas flows to the Cochrane and Empress straddle plants during the quarter increased 20 percent compared to the third quarter a year ago. In aggregate, 3.1 billion cubic feet per day of natural gas was processed, extracting 97,700 b/d of ethane and propane-plus. Average sales volumes from the Redwater Olefinic Fractionator remained consistent with the same period a year ago averaging 32,300 b/d during the quarter.
Heartland Petrochemical Complex
During the third quarter, Inter Pipeline significantly lowered its capital cost obligation associated with the Heartland Petrochemical Complex by divesting the $600 million Central Utility Block (CUB) to Fengate Capital Management. Through the sale, Inter Pipeline recovered $53.5 million of development capital and is no longer responsible for funding construction costs associated with the CUB.
The Heartland Petrochemical Complex remains on schedule and on budget. Construction, equipment fabrication and procurement activities at the $3.5 billion Complex, excluding CUB capital costs, were significantly advanced during the quarter. Foundation work for the propane dehydrogenation facility as well as key components of the polypropylene plant were completed in the quarter. Fabrication of major vessels including the propane/propylene splitter and polypropylene reactor are in the final stages of completion at facilities in Edmonton, Alberta in preparation for the site installation program planned for early 2019.
In the quarter, $172 million of capital was invested on this project with approximately $830 million incurred since inception. Once the Heartland Complex begins producing polypropylene in late 2021, Inter Pipeline expects to earn approximately $450 to $500 million per year in long-term average annual EBITDA. For perspective, this represents approximately a 40% increase over Inter Pipeline’s 2017 annual EBITDA.
Conventional Oil Pipelines
Funds from operations for Inter Pipeline’s conventional oil pipelines business segment were $53.8 million during the third quarter of 2018, consistent with same period a year ago.
Volumes on Inter Pipeline’s three conventional gathering systems averaged 214,300 b/d for the third quarter, an increase of 2,300 b/d over the third quarter of 2017. Volumes on the Central Alberta pipeline system increased by 7,400 b/d largely due to the recent conversion into a batched system to capture multiple grades of crude oil. Volumes on the Mid-Saskatchewan pipeline system declined 7,700 b/d during the third quarter of 2018 driven by apportionment issues on a third-party pipeline system. Bow River pipeline system increased 2,600 b/d during the third quarter, primarily due to higher truck terminal receipts.
Construction of the $82 million Stettler Crude Oil Terminal expansion, announced earlier this year, continued in the quarter. This expansion will service growing production from the East Duvernay basin and is part of a
broader strategy to position the Central Alberta pipeline system to handle new oil production for the south-central Alberta region.
This expansion is expected to enter service in phases between mid-2019 and mid-2020. Additional pipeline and facility investments may be required to support area production growth.
Bulk Liquid Storage
Inter Pipeline’s bulk liquid storage business generated funds from operations of $14.8 million in the quarter, compared to $25.2 million in the third quarter of 2017. As expected, storage demand for certain petroleum products in Europe continued to be impacted by a backwardated commodity pricing environment.
Average utilization rates during the third quarter of 2018 were 74 percent compared to 95 percent for the same period a year ago. The decline in overall utilization was largely reflective of unfavourable market conditions in Denmark, where storage utilization rates averaged 50 percent during the quarter, compared to 96 percent in Q3 2017. Utilization remained at 90 percent or better in Sweden, the United Kingdom and Germany.
NuStar Europe Acquisition
On October 30, 2018, Inter Pipeline announced the acquisition of NuStar Energy, L.P.’s European bulk liquid storage business for cash consideration of USD$270 million (NuStar Europe). The acquired assets consist of seven high-quality coastal storage terminals located throughout the United Kingdom and in the Port of Amsterdam. NuStar Europe’s facilities have strong utilization rates, are located in key industrial centres and have historically generated stable cash flow underpinned by a variety of cost-of-service and fee-based contracts.
Upon closing, which is scheduled for the fourth quarter of 2018, Inter Terminal’s storage capacity will increase by approximately 33 percent to 37 million barrels and establish it as the largest independent storage operator in the United Kingdom.
Financing Activity
Inter Pipeline continues to maintain a strong balance sheet with significant liquidity available on its committed revolving credit facility. As at September 30, 2018, Inter Pipeline had approximately $900 million of capacity on its $1.5 billion revolving credit facility and a consolidated net debt to total capitalization ratio* of 51.8 percent. This ratio has decreased from 53.5 percent as at December 31, 2017.
“Inter Pipeline’s impressive financial results in 2018 have enabled us to meaningfully improve our debt ratios despite investing over $600 million of new capital, largely directed to the Heartland Petrochemical Complex,” stated Brent Heagy, Inter Pipeline’s Chief Financial Officer.
“Furthermore, should our strong financial performance continue, we may be in a position to suspend the premium dividend reinvestment program in relation to the financing of the Heartland Complex by the end of 2019. This would be roughly two years earlier than originally planned and would materially reduce the equity required to fund this investment before service commencement in late 2021.”
Subsequent to quarter end, Inter Pipeline successfully completed a $200 million common share offering to support the funding of the NuStar Europe acquisition. Remaining financing for the acquisition will be provided by available capacity on Inter Pipeline’s revolving credit facility. No third-party debt will be assumed under the terms of the acquisition.
Inter Pipeline also maintains strong investment grade credit ratings. Standard & Poor’s and DBRS Limited have assigned Inter Pipeline credit ratings of BBB+ and BBB, respectively.