Midstream - Pipelines | Quarterly / Earnings Reports | First Quarter (1Q) Update | Midstream - Transportation & Pipelines

Inter Pipeline Sees Record Transportation Volumes

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   |    Monday,May 11,2015

Inter Pipeline Ltd. has announced record financial and operating results for the three month period ended March 31, 2015.

First Quarter Highlights

• Pipeline transportation volumes averaged a record 1,311,900 barrels per day (b/d), a 28 percent increase from the same period in 2014
• Completed construction and commissioned $1.6 billion of new pipeline and facilities on Cold Lake and Polaris pipeline systems
• Initiated a 400,000 barrel crude oil storage expansion project at the Kerrobert Terminal on the Mid-Saskatchewan pipeline system
• Average utilization rate in the bulk liquid storage business improved to 90 percent from 78 percent a year ago, as contango pricing relationships returned to the petroleum markets
• Issued $300 million of senior medium-term notes at an attractive interest rate of 3.173 percent

Subsequent Event

• Completed construction of new diluent connection to Athabasca Oil Corporation's Hangingstone project and placed into service April 1, 2015

Oil Sands Transportation

• The oil sands transportation segment generated record financial and operating results in the first quarter of 2015. Throughput volumes increased by 33 percent over the similar period of 2014, to a quarterly record of 1,097,700 b/d. The Cold Lake, Corridor and Polaris pipeline systems experienced volume increases, with throughput volumes on the Polaris system up by the largest margin at 316 percent. Volumes transported on the Cold Lake, Corridor and Polaris pipeline systems were 583,500 b/d, 380,300 b/d and 133,900 b/d, respectively.
• Cash flow in the oil sands transportation segment is not generally impacted by pipeline throughput volumes. Major transportation agreements with third party shippers are typically structured as cost-of-service contracts, which generate stable and predictable cash flow to Inter Pipeline. Funds from operations increased 105 percent to a record $130.2 million, representing a gain of $66.8 million over first quarter 2014 levels.
• In January 2015, Inter Pipeline completed construction activity on two major expansion projects on the Cold Lake and Polaris pipeline systems. These projects provide transportation service to the Foster Creek and Christina Lake oil sands projects owned by the FCCL Partnership, a business venture between Cenovus Energy and ConocoPhillips. As a result, Inter Pipeline began generating incremental EBITDA of approximately $165 million per year.
• Inter Pipeline also completed construction and commissioning activities on a new 12-inch diameter, 4-kilometre connection to Athabasca Oil Corporation's Hangingstone oil sands project in the first quarter. This $29 million project was completed on schedule and will generate approximately $5 million of annual EBITDA, under a long-term cost-of-service agreement.

Conventional Oil Pipelines

• The long term outlook for the conventional oil pipelines segment remains positive despite the current weak crude oil price environment. Funds from operations in the quarter totalled $46.8 million, consistent with Q1 2014 performance. Lower midstream marketing profits in the quarter were offset by higher throughput levels and tolls.
• Strong horizontal drilling and multi-stage fracturing activity, predominantly in the Viking formation in Saskatchewan, continues to support conventional throughput volumes. Aggregate throughput levels on Inter Pipeline's three conventional gathering systems totalled 214,200 b/d for the quarter, the highest quarterly level in eight years. The largest gain occurred on the Mid-Saskatchewan pipeline system with throughput levels rising nearly 12 percent year over year to a record 76,200 b/d.
• In the first quarter Inter Pipeline initiated a crude oil storage tank expansion at its Kerrobert terminal on the Mid-Saskatchewan pipeline system. Rapidly growing pipeline volumes have created demand for new operational and merchant storage infrastructure at the Kerrobert oil hub. The project has received strong customer support and includes construction of three new tanks, totalling approximately 400,000 barrels of storage capacity. The expansion is estimated to cost approximately $65 million and is expected to be ready for service in the latter half of 2016.

NGL Extraction

• The NGL extraction segment generated $28.7 million in funds from operations in the first quarter of 2015, compared to $48.5 million in Q1 of 2014. Financial results were impacted by significantly lower frac-spread pricing on propane-plus sales at the Cochrane NGL extraction facility. In the first quarter, realized frac-spread prices averaged US $0.37 per US gallon, down approximately 60 percent over the same period last year.
• Natural gas flows to Inter Pipeline's extraction facilities at Cochrane and Empress were strong in the quarter. In total, 2.8 billion cubic feet per day of natural gas was processed, extracting 113,000 b/d of natural gas liquids.

Bulk Liquid Storage

• Inter Pipeline's bulk liquid storage segment generated funds from operations of $20.5 million in the first quarter of 2015, compared to $21.6 million in the first quarter of 2014.
• First quarter 2014 results benefited from various one-time revenues that were not repeated in 2015. However, utilization rates in the first quarter of 2015 were substantially higher, averaging 90 percent compared to 78 percent in Q1 of 2014. Utilization was favourably impacted by stronger contango pricing relationships in certain petroleum futures markets. The stronger market conditions particularly benefit our Danish operations where utilization rates averaged 92 percent in the first quarter of 2015 compared to 69 percent in the same period of 2014.
• Inter Pipeline also completed a restructuring of its European bulk liquid storage operations in the quarter. The entire business has been rebranded Inter Terminals and operates under a single, harmonized leadership team. These changes are expected to provide a more efficient and cost effective organizational structure and enhance our marketing efforts.

Financing Activity

• Inter Pipeline continues to maintain a strong balance sheet with significant liquidity available on its committed credit facility. In March, Inter Pipeline issued $300 million of 10-year, senior medium-term notes in the Canadian public debt market at an attractive interest rate of 3.173 percent. Inter Pipeline used the net proceeds from the offering to repay bank indebtedness incurred through funding its capital expenditure program and for other general corporate purposes.
• At March 31, Inter Pipeline's recourse debt to capitalization ratio was 53.2 percent, compared to 54.2 percent at December 31, 2014.