Market Overview

Inter Pipeline Announces Record Third Quarter 2017 Financial Results


CALGARY, Alberta, Nov. 09, 2017 (GLOBE NEWSWIRE) -- Inter Pipeline Ltd. ("Inter Pipeline") (TSX:IPL) announced today record financial and strong operating results for the three and nine month periods ended September 30, 2017.

Third Quarter Highlights

  • Funds from operations (FFO) totalled $269 million, a new quarterly record and a 27 percent increase over third quarter 2016
  • Generated record net income for the quarter of $143 million, a 17 percent increase over the same period in 2016
  • Declared cash dividends of $152 million, or approximately $0.41 per share
  • Attractive quarterly payout ratio* of 56.6 percent
  • Total pipeline throughput volumes averaged 1,359,100 barrels per day (b/d)
  • Connections to provide oil sands transportation service to both the North West Redwater Sturgeon Refinery and the Canadian Diluent Hub were placed into commercial service
  • European bulk liquid storage utilization rates averaged 95 percent during the quarter

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

Financial Performance

Funds from operations were $268.9 million or $0.72 per share for the third quarter of 2017, an increase of $57.5 million over the third quarter 2016. These results were largely driven by record funds from operations in our oil sands transportation and conventional oil pipeline gathering businesses. NGL processing also generated strong results with the inclusion of the offgas processing business, as well as higher realized frac-spreads.

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

 Funds from operations (millions) Three Months Ended
Sept. 30, 2017
 Oil sands transportation $160.6
 NGL processing $78.1
 Conventional oil pipelines $54.5
 Bulk liquid storage $25.2

Third quarter 2017 corporate costs were $49.5 million, compared to $38.9 million for the same period in 2016 due primarily to higher financing and increased general and administrative charges. 

Cash Dividends

In the third quarter of 2017, dividend payments to shareholders were $152.1 million or $0.405 per share, an increase of $20.7 million compared to the same period in 2016.

Inter Pipeline's payout ratio for the quarter was an attractive 56.6 percent, compared to 64.8 percent in the third quarter of 2016.

Oil Sands Transportation

The oil sands transportation business segment generated record funds from operations during the third quarter of 2017. FFO totalled $160.6 million, up 13 percent or $18.3 million compared to third quarter 2016, primarily due to new supply connections and lower income tax expense resulting from tax synergies related to the 2016 offgas processing acquisition. 

Average throughput volumes across all oil pipeline systems were 1,147,100 b/d, an increase of 53,800 b/d, or approximately five percent, over the third quarter of 2016. Volumes on the Cold Lake pipeline system increased by 36,400 b/d, compared to the third quarter of 2016, due to volume increases from all shippers. Corridor's throughput decreased by 4,700 b/d to 418,500 b/d largely due to a scheduled turnaround at the Jackpine mine. Polaris volumes increased by 16 percent or 22,100 b/d for the third quarter 2017 compared to the same period a year earlier, on higher deliveries to the Foster Creek, Kearl and Sunrise oil sands projects. 

 Volumes (000 b/d) Three Months
Ended Sept. 30, 2017
 Cold Lake 571.7
 Corridor 418.5
 Polaris 156.9

Two connections were placed into commercial service in the quarter at a combined capital investment of approximately $22 million. The first connection provides bitumen blend transportation service from the Cold Lake pipeline system to North West Redwater Partnership's Sturgeon Refinery. The second is a diluent supply connection on the Polaris pipeline system to Pembina Pipeline's Canadian Diluent Hub. Both of these projects are underpinned by long-term cost of service agreements. 

NGL Processing

Inter Pipeline's NGL processing business generated $78.1 million of funds from operations in the third quarter. This represents a 172 percent increase compared to $28.7 million in the third quarter of 2016 when results included only eight days of offgas processing operations. This year-over-year improvement was primarily the result of strong performance by the offgas processing business which contributed $41.7 million to FFO and strong frac-spread pricing. 

Propane-plus realized frac-spread pricing for volumes sold at the Cochrane straddle plant in the third quarter of 2017 was $0.72 USD per US gallon or almost double the $0.37 USD per US gallon realized in the third quarter of 2016. Olefinic and parafinic realized frac-spreads, from offgas processing operations were approximately $1.16 and $0.35 USD per US gallon, respectively.

An average of 2.6 billion cubic feet per day of natural gas was processed and 83,800 b/d of ethane and propane-plus was extracted from the Cochrane and Empress V straddle plants in the third quarter 2017. Average sales volumes from the Redwater olefinic fractionator were 31,900 b/d during the quarter.

Inter Pipeline is continuing to place a high priority on advancing the commercial contracting of its proposed $3.1 billion integrated propane dehydrogenation (PDH) and polypropylene (PP) complex. Negotiations with potential counterparties for long-term contracts with strong "take or pay" features are proceeding, and an investment decision is anticipated before the end 2017. If sanctioned, operations are expected to begin in the second half of 2021. Approximately $44 million of growth capital was invested in the third quarter of 2017 to advance this project.

Conventional Oil Pipelines

Inter Pipeline's conventional oil pipelines business segment generated record funds from operations of $54.5 million for the quarter, up 11 percent or $5.4 million, compared to the same period in 2016. This was a result of higher volumes transported on the Mid-Saskatchewan and Bow River pipeline systems and strong performance from midstream marketing activities.

Inter Pipeline's three conventional gathering systems had total average throughput volumes of 212,000 b/d in the third quarter 2017, representing approximately a 10 percent increase over the same period a year ago. Increased light oil production from the Viking formation led to a 27 percent improvement in volumes shipped on the Mid-Saskatchewan pipeline system. Volumes on the Bow River pipeline system increased by approximately four percent in response to stronger drilling activity and higher southbound transmission volumes originating from Hardisty, Alberta.

Bulk Liquid Storage

Inter Pipeline's bulk liquid storage segment generated funds from operations of $25.2 million in the third quarter of 2017, a decrease from $30.2 million in the third quarter of 2016. The decline was primarily as a result of slightly lower contracted tank capacity, and a weakening contango pricing environment for certain petroleum products that impacted activity levels in our Danish operations.

Overall utilization rates remained strong at 95 percent this quarter, though down from 98 percent in the same period last year.  

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, 2017, Inter Pipeline had $890 million of capacity on its $1.5 billion revolving credit facility.

Inter Pipeline's consolidated net debt to total capitalization ratio* was 54.7 percent, at September 30, 2017, compared to 57.2 percent at December 31, 2016.

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.

Conference Call & Webcast

Inter Pipeline will hold its third quarter 2017 financial and operating results conference call and webcast on November 10 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 92207278. A replay of the conference call will be available until November 19, 2017 by calling 1-855-859-2056. The code for the replay is 92207278.

Select Financial and Operating Highlights
(millions of dollars, except per share and percent amounts
where noted)
Three Months Ended Nine Months Ended
  September 30 September 30
Operating 2017   2016   2017   2016
  Pipeline volumes (000 b/d)        
Oil sands transportation1 1,147.1   1,093.3   1,172.8   1,070.1
Conventional oil pipelines 212.0   192.8   209.1   200.8
Total pipeline 1,359.1   1,286.1   1,381.9   1,270.9
NGL processing volumes1,2 (000 b/d)        
Ethane 48.2   58.0   51.1   57.0
Propane-plus 35.6   42.5   36.6   43.2
Redwater Olefinic Fractionator sales volume2 31.9   -   28.1     -
Total NGL processing volumes 115.7   100.5   115.8   100.2
  Bulk liquid storage capacity utilization
95%   98%   97%   98%
Revenue $547.6   $434.5   $1,642.3   $ 1,263.9
Funds from operations3        
Oil sands transportation3 $160.6   $142.3   $458.3   $423.1
NGL processing $78.1   $28.7   $188.4   $82.8
Conventional oil pipelines $54.5   $49.1   $160.6   $146.2
Bulk liquid storage $25.2   $30.2   $76.7   $91.1
Corporate costs ($49.5)   ($38.9)   ($161.2)   ($149.1)
Total funds from operations $268.9   $211.4   $722.8   $594.1
Per share4 $0.72   $0.62   $1.94   $  1.76
Net Income
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