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Inter Pipeline announces second quarter 2020 financial and operating results


CALGARY, AB – Inter Pipeline Ltd. (“Inter Pipeline”) (TSX: IPL) today announced financial and operating results for the three and six month periods ended June 30, 2020.

Second Quarter Highlights

  • Funds from operations (FFO) totalled $184 million
  • Oil sands transportation FFO increased slightly quarter over quarter due to higher capital fee revenue
  • Net income for the quarter was $63 million
  • Declared cash dividends of $52 million or $0.12 per share
  • Quarterly payout ratio* of 28 percent
  • Total pipeline throughput averaged 1,373,000 barrels per day (b/d)
  • European bulk liquid storage capacity utilization averaged 98 percent for the quarter
  • Construction activities at the Heartland Petrochemical Complex (HPC) site continued to track according to the revised schedule and cost estimate
  • Completed the first two phases of Inter Pipeline’s Central Alberta pipeline system expansion, including a new 75 km pipeline and 260,000 barrels of additional storage
  • Successfully issued $700 million of senior unsecured medium-term notes to repay maturing debt and increase financial flexibility

* Please refer to the “Non-GAAP Financial Measures” section of the MD&A.

Continued Response to COVID-19

In the second quarter of 2020, Inter Pipeline continued implementing measures to ensure the ongoing health and safety of its workforce, which align with the recommendations of governments and public health authorities.  Personnel continue to work safely at its pipeline facilities, NGL extraction and offgas plants, European storage terminals and major project sites, such as HPC without material disruption to activities or service. Planning is now underway to begin transitioning personnel currently working from home back to Inter Pipeline offices in a phased, methodical fashion as conditions allow.

“Our people have remained resilient in these unprecedented times. Our operations are running smoothly, and our productivity levels remain high,” said Christian Bayle, President and Chief Executive Officer of Inter Pipeline. “Most importantly, Inter Pipeline’s commitment to the wellbeing of its workforce has ensured our essential services personnel remain safe while they continue to operate our diverse asset base safely and reliably.”

Financial Performance

Inter Pipeline generated funds from operations of $184.4 million in the second quarter of 2020, compared to $240.2 million in the second quarter of 2019.

“Our oil sands transportation business generated strong, consistent financial results and European bulk liquid storage capacity utilization rates climbed to near record levels during the quarter,” added Bayle. “However, as expected, throughput was down on our conventional pipeline systems as producers shut-in volume in response to the collapse in global oil pricing. Our NGL processing results were also significantly affected by the lower commodity price environment.”

For the second quarter of 2020, Inter Pipeline’s four business segments generated funds from operations as follows:

Funds from operations

Three Months Ended

(millions)

June 30, 2020

Oil sands transportation

$151.8

NGL processing

$37.1

Bulk liquid storage

$34.2

Conventional oil pipelines

$26.3

In the second quarter of 2020, corporate costs increased to $65 million compared to $58 million in the same period of 2019, primarily as a result of higher employee costs.

Cash Dividends

Dividend payments to shareholders were $51.5 million, or $0.12 per share in the second quarter of 2020. Inter Pipeline’s current monthly dividend rate is $0.04 per share, or $0.48 per share on an annualized basis.

Inter Pipeline’s payout ratio* for the quarter was 27.9 percent.

Oil Sands Transportation

Inter Pipeline’s oil sands transportation business produced strong operating and financial results in the second quarter of 2020. Funds from operations during the period were $151.8 million compared to $149.7 million for 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 throughout volume or commodity price fluctuations.

Average throughput volume for the entire system increased by over six percent from 1,158,100 b/d to 1,232,900 b/d in the second quarter compared to the same period in 2019.

Volume

Three Months Ended

(000 b/d)

June 30, 2020

Cold Lake

583.9

Corridor

433.0

Polaris

216.0

NGL Processing

NGL processing generated funds from operations of $37.1 million for the second quarter of 2020, compared to $72.1 million for the second quarter of 2019.  Results continued to be unfavourably impacted by lower frac spread pricing on Cochrane propane-plus and Offgas olefinic NGL production, which was partially offset by higher sales volume and higher Offgas paraffinic frac-spread pricing. In the near term, FFO from this business would remain under pressure should lower commodity prices persist.

The Cochrane and Empress straddle plants processed 3.1 billion cubic feet of natural gas per day during the second quarter of 2020, consistent with volumes processed during the same period a year ago. Approximately 120,200 b/d of ethane and propane-plus was extracted during the quarter, an increase of 18,900 b/d compared to the second quarter of 2019. Average sales volume from the Redwater Olefinic Fractionator (ROF) increased by six percent, from 32,600 b/d in the second quarter of 2019, to 34,700 b/d during the second quarter of 2020.

 Frac-spread

Three Months Ended

(USD/USG)

June 30, 2020

Cochrane propane-plus

$0.29

Offgas Olefinic*

$0.32

Offgas Paraffinic*

$0.21

*Price after applicable benchmark adjustment

Heartland Petrochemical Complex

In the second quarter of 2020, Inter Pipeline continued to advance construction at the $4 billion Heartland Petrochemical Complex. Construction at HPC remains very active with approximately 2,600 workers currently on site each day, protected by rigorous sanitation and social distancing controls. Second quarter 2020 investment into the project was $238 million, bringing the total project spend since inception to approximately $2.7 billion.

Several construction milestones were met at the propane dehydrogenation facility over this period including the installation of the electrical systems, the interior components of the splitter tower and the condensers. Activities at the polypropylene plant include the completion of the reactor structure and the installation of the cycle gas compressor and the flare stack. Significant progress was also made on advancing the rail loading yard, a critical supply chain component for the transportation of polypropylene to market.

The process to secure a partner to purchase a material interest in the Heartland Petrochemical Complex remains active. 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

Inter Pipeline’s conventional oil pipelines business segment generated funds from operations of $26.3 million as throughput volume and marketing activities on this system declined in response to the collapse in global energy prices.

As expected, average throughput volume decreased to approximately 140,000 b/d, down approximately 45,000 b/d from the second quarter of 2019, due to producer production curtailments. At this time, early results for the third quarter of 2020 indicate that volume is beginning to recover. July’s average volume was approximately 157,000 b/d.

In April, the 75-kilometer Viking Connector pipeline, which provides new access to the Edmonton market hub and additional flexibility for producers, was placed into service on time and on budget. In addition, the construction of two,130,000-barrel storage tanks at the Stettler Terminal, was completed at the end of June. These activities conclude the first two-phases of Inter Pipeline’s planned multi-phased expansion of the Central Alberta pipeline system. Additional phases are expected to be developed when market conditions improve.

Bulk Liquid Storage

Inter Pipeline’s bulk liquid storage business generated strong financial results in the second quarter of 2020. Funds from operations increased to $34.2 million in the second quarter of 2020, from $26.9 million a year ago, with the Danish terminals continuing to experience strong refined petroleum storage demand.

Storage utilization rates increased to 98 percent in the second quarter of 2020, compared to 83 percent during the same period in 2019. Demand for storage infrastructure is expected to remain strong in Europe throughout 2020.

Financing Activity

Inter Pipeline is committed to maintaining financial flexibility and increased liquidity during the current challenging market environment. In the second quarter of 2020, Inter Pipeline closed a new $1.0 billion unsecured revolving credit facility with a syndicate of key lenders and extended the maturity date of our drawn $500 million term loan facility by two years to August 2022. 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.

As at June 30, 2020, Inter Pipeline had $2.5 billion of available committed capacity on its existing revolving credit facilities and is positioned to fund any near-term planned capital expenditures, including remaining costs for the Heartland Petrochemical Complex. At quarter end, Inter Pipeline had a consolidated net debt to total capitalization ratio* of 42.5 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) and BBB (stable), respectively.

Board of Director Change

Inter Pipeline also announces that Mr. Richard Shaw and Mr. Brant Sangster will be retiring from Inter Pipeline’s Board of Directors effective at the May 2021 annual general meeting. Mr. Shaw has served on the board since 2009 and in the role of Chair since 2014. Mr. Sangster also joined the board in 2009 and served on the EH&S Committee and chaired the Major Projects Review Committee.

Inter Pipeline intends to appoint Ms. Margaret McKenzie, a member of Inter Pipeline’s Board of Directors since 2015, as Chair of the board following the next annual meeting of shareholders. Ms. McKenzie has more than 30 years experience in the energy sector notably in the areas of finance, strategy development and corporate governance.

“Ms. McKenzie has a decade long track record in business leadership and strategic planning,” commented Richard Shaw, Chair of the Board. “She has the breadth of industry experience and understanding of this organization to be highly successful in leading Inter Pipeline’s Board of Directors.”

Conference Call and Webcast

Inter Pipeline will hold its second quarter 2020 financial and operating results conference call and webcast on August 7, 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 August 14, 2020 by calling 1 (855) 859-2056. The code for the replay is 7889542. A link to the webcast is accessible on Inter Pipeline’s website.

Select Financial and Operating Highlights

(millions, except volume, per share and percent amounts)

Three Months Ended June 30

Six Months Ended June 30

Operating Results

2020

2019

2020

2019

Pipeline volume (000s b/d)

Oil sands transportation

1,232.9

1,158.1

1,289.4

1,178.7

Conventional oil pipelines

139.7

184.9

160.8

186.0

Total pipeline volume

1,372.6

1,343.0

1,450.2

1,364.7

NGL processing volume (000s b/d)(1)

Natural gas processing – Ethane

71.6

59.5

71.0

65.8

Natural gas processing – Propane-plus

48.6

41.8

47.4

45.6

Redwater Olefinic Fractionator sales volume

34.7

32.6

35.7

34.1

Total NGL processing volume

154.9

133.9

154.1

145.5

Bulk liquid storage capacity utilization

98%

83%

97%

80%

Financial Results

Revenue

$539.5

$641.6

$1,143.3

$1,300.5

Funds from operations

Oil sands transportation

$151.8

$149.7

$306.3

$297.3

NGL processing

$37.1

$72.1

$80.3

$140.1

Conventional oil pipelines

$26.3

$49.6

$62.9

$83.7

Bulk liquid storage

$34.2

$26.9

$69.0

$53.7

Corporate costs

$(65.0)

$(58.1)

$(126.6)

$(123.1)

Total funds from operations

$184.4

$240.2

$391.9

$451.7

Per share(2)

$0.43

$0.59

$0.92

$1.11

Net income

$62.5

$260.3

$151.6

$358.6

Per share – basic and diluted

$0.15

$0.63

$0.36

$0.88

Adjusted EBITDA(2)

$232.5

$285.1

$487.7

$538.2

Supplemental Financial Information

Cash dividends declared

$51.5

$175.7

$232.6

$349.6

Per share(3)

$0.120

$0.428

$0.548

$0.855

Payout ratio(2)

27.9%

73.1%

59.4%

77.4%

Capital expenditures

Growth(2)

$275.7

$363.7

$587.3

$680.4

Sustaining(2)

$7.6

$18.8

$12.5

$30.7

Total capital expenditures

$283.3

$382.5

$599.8

$711.1

(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



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