Market Overview

Inter Pipeline Announces Second Quarter 2017 Financial and Operating Results

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CALGARY, Alberta, Aug. 10, 2017 (GLOBE NEWSWIRE) -- Inter Pipeline Ltd. ("Inter Pipeline") (TSX:IPL) announced today financial and operating results for the three and six month periods ended June 30, 2017.

Second Quarter Highlights

  • Funds from operations (FFO) totalled $207 million, a 5 percent increase over  second quarter 2016
  • Generated net income for the quarter of $102 million
  • Declared cash dividends of $151 million, or approximately $0.41 per share
  • Quarterly payout ratio* of 72.9 percent
  • Total pipeline throughput volumes, averaged 1,326,600 barrels per day (b/d)
  • Successfully commissioned 175,000 barrels of new chemical storage capacity at Seal Sands terminal in the U.K.

Subsequent to the Quarter

  • A connection to provide bitumen blend transportation service to the North West Redwater Sturgeon Refinery was placed into commercial service
  • A diluent supply connection on the Polaris pipeline system from Pembina Pipeline's Canadian Diluent Hub was placed into commercial service

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

Financial Performance

Inter Pipeline generated positive financial results in the second quarter 2017, with funds from operations of $207 million, or $0.56 per share, which was an increase of $10.3 million over the second quarter 2016. Strong results in the oil sands transportation and the conventional oil pipeline segments softened the impact of lower sales volumes in the NGL processing business segment as a result of scheduled maintenance turnarounds.

For the second quarter 2017, Inter Pipeline's four business segments generated funds from operations as follows:

Funds from operations (millions)     Three Months Ended June 30, 2017
Oil sands transportation     $149.5
NGL processing     $28.4
Conventional oil pipelines     $52.7
Bulk liquid storage     $25.3
       

Corporate costs for the second quarter were $48.9 million which includes interest, income tax and general and administrative charges.

Cash Dividends

In the second quarter of 2017, dividend payments to shareholders were $150.9 million or $0.405 per share, an increase of $19.5 million compared to the same period in 2016. Inter Pipeline's current monthly dividend rate is $0.135 per share or $1.62 per share on an annualized basis.

Inter Pipeline's payout ratio for the quarter was 72.9 percent, compared to 70.3 percent in the second quarter of 2016.

Oil Sands Transportation

The oil sands transportation segment demonstrated strong results in the second quarter of 2017. Funds from operations totalled $149.5 million, up six percent or $8.1 million compared to second quarter 2016.  

Average throughput volumes across all pipeline systems were 1,121,100 b/d, an increase of 108,500 b/d, or approximately 11 percent, over the second quarter of 2016. Volumes on the Cold Lake pipeline system increased by 31,300 b/d, compared to the second quarter of 2016, on continued strong production from the Foster Creek and Wolf Lake oil sands projects. Corridor pipeline system throughput increased by 56,300 b/d to 384,200 b/d on higher volumes from the Muskeg River mine and the Polaris pipeline system realized an increase of 20,900 b/d, or 13 percent, from higher diluent deliveries to the Foster Creek, Sunrise and Kearl oil sands projects.

Volumes (000 b/d)     Three Months Ended June 30, 2017
Cold Lake     554.0
Corridor     384.2
Polaris     182.9
       

Subsequent to the second quarter of 2017, two previously announced construction projects were completed and entered into commercial service in July 2017. The first was a bitumen blend delivery connection from the Cold Lake pipeline system to North West Redwater Partnership's Sturgeon Refinery. The second was a connection to Pembina Pipeline's Canadian Diluent Hub which provides shippers on the Polaris pipeline system with an additional large-scale diluent supply option.

Inter Pipeline invested approximately $23 million to complete these capital efficient, accretive projects which are supported by long-term service agreements.

NGL Processing

Funds from operations generated by the NGL processing business segment in the second quarter were $28.4 million compared to $30.5 million the second quarter of 2016. The results were impacted by lower sales volumes resulting from a 29-day maintenance turnaround at the Cochrane straddle facility and a 20-day maintenance shutdown at the Redwater olefinic fractionator which occurred in the quarter.

Second quarter propane-plus realized frac-spread pricing, for volumes sold at the Cochrane straddle plant, was $0.50 USD per US gallon or $0.05 USD per US gallon higher than in the second quarter of 2016. Olefinic and parafinic realized frac-spreads, from offgas processing operations were $1.03 USD per US gallon and $0.17 USD per US gallon, respectively.

An average of 2.3 billion cubic feet per day of natural gas was processed and 75,500 b/d of ethane and propane-plus was extracted from natural gas flows to both the Cochrane and Empress V straddle plants in the second quarter 2017. Average sales volumes from the Redwater olefinic fractionator were 20,600 b/d for the quarter.

In the second quarter of 2017, $56 million of growth capital was invested to advance the development of an approximately $3.1 billion integrated propane dehydrogenation (PDH) and polypropylene (PP) complex. Civil work at the project site is underway and the engineering and design work required for the facilities is proceeding.

Inter Pipeline is continuing to steadily advance the PDH and PP opportunities, and negotiations with potential counterparties for long-term contracts, with strong "take or pay" features are proceeding constructively. A final investment decision is expected in the second half of 2017, with operations beginning in the second half of 2021.

Conventional Oil Pipelines

Inter Pipeline's conventional oil pipelines business segment generated strong funds from operations of $52.7 million for the quarter, up 12 percent or $5.6 million, compared to the same period in 2016. This was a result of slightly higher volumes on the Mid-Saskatchewan and Bow River pipeline systems and strong midstream marketing results.

Inter Pipeline's three conventional gathering systems had total average throughput volumes of 205,500 b/d in the second quarter 2017, representing an approximate two percent increase from the same period a year ago. Volumes on the Mid-Saskatchewan pipeline system were 86,800 b/d, an increase of 5,300 b/d compared to the same period in 2016, which was driven by continued producer activity from the Viking light oil play. Volumes on the Bow River pipeline system also increased by two percent to 92,000 b/d in response to higher volumes at third-party truck terminals.

Bulk Liquid Storage

Inter Pipeline's bulk liquid storage segment generated funds from operations of $25.3 million in the second quarter of 2017, a decrease from $29.6 million in the second quarter of 2016.

While utilization rates were 98 percent this quarter compared to 97 percent in the same period last year, decreased throughput activity and unfavourable foreign exchange rates contributed to lower funds from operations.

In early June, Inter Pipeline commissioned 175,000 barrels of new chemical storage capacity at the Seal Sands terminal in the U.K. Supported by long-term contracts, the total project cost for these five storage tanks was approximately $25 million.

Financing Activity

Inter Pipeline continues to maintain a strong balance sheet with significant liquidity available on its committed revolving credit facility. As at June 30, 2017, Inter Pipeline had $830 million of capacity on its $1.5 billion revolving credit facility.

At June 30, 2017, Inter Pipeline's consolidated net debt to total capitalization ratio* was 55.5 percent, compared to 54.2 percent at June 30, 2016.

In April 2017, Inter Pipeline issued $500 million of 7-year senior unsecured medium-term notes in the Canadian public debt market. The net proceeds were used to repay debt outstanding under its revolving credit facility and for other general corporate purposes.

Inter Pipeline has strong investment grade credit ratings. Standard & Poor's and DBRS Limited have assigned Inter Pipeline credit ratings of BBB+ and BBB (high), respectively, each with a stable trend.

Conference Call & Webcast

Inter Pipeline will hold its second quarter 2017 financial and operating results conference call and webcast on August 11 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 1-844-413-0863 or 216-562-0455. The conference ID is 51683268. A replay of the conference call will be available until August 19, 2017 by calling 1-855-859-2056. The code for the replay is 51683268.

           
  Select Financial and Operating Highlights
       
  (millions of dollars, except per share and percent amounts where noted) Three Months Ended Six  Months Ended
    June 30 June 30
  Operating   2017     2016     2017     2016  
   Pipeline volumes (000 b/d)        
     Oil sands transportation1   1,121.1     1,012.6     1,185.9     1,058.4  
     Conventional oil pipelines   205.5     201.3     207.7     204.9  
  Total pipeline    1,326.6     1,213.9     1,393.6     1,263.3  
           
   NGL processing volumes1 (000 b/d)        
    Ethane   44.1     51.9     52.5     56.4  
    Propane-plus   31.4     42.2     37.1     43.6  
    Redwater Olefinic Fractionator sales volume   20.6         -
    26.1         -
 
    Total NGL processing   96.1     94.1     115.7     100  
                           
   Bulk liquid storage capacity utilization   98%     97%     98%     97%  
                           
  Financial3         
  Revenue $516.0   $413.0   $1,094.7
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