Inter Pipeline announces record Q3 2014 financial and operating results

Inter Pipeline Ltd has announced its financial and operating results for the three and nine-month periods ended 30 September 2014.

Financial performance

Inter Pipeline generated strong third quarter financial results. Funds from operations increased to a record CAN$ 141.0 million or CAN$ 0.43 per share, a gain of CAN$ 17.7 million over Q3 2013 results. Pipeline operations performed well in the quarter, with a major component of the ongoing Polaris pipeline expansion entering commercial service and contributing to results. Total throughput volumes reached record levels, driven by significant volume increases on our oil sands pipeline systems and the Mid-Saskatchewan conventional oil system. The NGL extraction business segment had lower results due to a variety of factors including reduced ethane production, lower natural gas throughput and frac-spread pricing. Inter Pipeline’s European bulk liquid storage segment generated stable results quarter over quarter.

By business segment, Inter Pipeline’s oil sands transportation, conventional oil pipelines, NGL extraction and bulk liquid storage businesses contributed CAN$ 82.5 million, CAN$ 48.7 million, CAN$ 34.4 million and CAN$ 19.8 million, respectively, to Q3 2014 funds from operations. Third quarter corporate costs, including interest, income tax and general and administrative charges totalled CAN$ 44.4 million.

Oil sands transportation

The oil sands transportation segment transported a record 942 300 bpd in Q3 2014, a gain of 13% over Q3 2013 levels. All three oil sands pipeline systems experienced growth in throughput volumes, with the Cold Lake and Polaris systems benefitting from new oil sands production facility connections. Throughput volumes on the Polaris pipeline system increased 205%, or 41 100 bpd, over Q3 2013 as new transportation agreements came into effect and the CAN$ 1.1 billion first phase of the Polaris pipeline expansion was placed in service. The Cold Lake, Corridor and Polaris pipeline systems transported 498 500 bpd, 382 600 bpd, and 61 200 bpd, respectively.

Q3 2014 funds from operations increased 48% to a record CAN$ 82.5 million compared to the CAN$ 55.7 million generated in the comparable quarter of 2013. Higher results were primarily due to the first phase of the Polaris expansion entering commercial service in July 2014.

The Cold Lake and Polaris pipeline systems are being expanded under a CAN$ 2.9 billion development programme anchored by long-term contracts with the FCCL Partnership, a business venture between Cenovus Energy and ConocoPhillips. Inter Pipeline has contracted to provide a total of 850 000 bpd of bitumen blend and diluent capacity combined for the Foster Creek, Christina Lake and Narrows Lake projects. Approximately 840 km of new pipeline is being constructed to accommodate these volumes, with pipeline construction largely complete and facilities work proceeding according to plan. The first phase of the development program, a 290 km mainline segment on the Polaris pipeline system, entered commercial service in July and began generating EBITDA of approximately CAN$ 90 million per year.

The remaining phases of the Cold Lake and Polaris expansions are on schedule and should enter commercial service in stages between late 2014 and mid 2017. In aggregate, this development program is expected to generate up to CAN$ 330 million in long-term annual EBITDA once fully in service.

During the quarter, a new 13 km connection between the Cold Lake pipeline system and Canexus Corporation’s unit train rail loading facility at Bruderheim, Alberta entered commercial service and began generating revenue for Inter Pipeline. The CAN$ 60 million project included construction of a 24 in. diameter pipeline lateral with a throughput capacity of 320 000 bpd, of which Canexus has contracted for 100 000 bpd. Under the terms of the 10-year firm ship-or-pay contract, Inter Pipeline is collecting approximately CAN$ 12 million in annual EBITDA from Canexus.

In total, Inter Pipeline’s CAN$ 3.1 billion oil sands transportation investment programme is expected to boost annual corporate EBITDA by approximately 60% over 2013 levels once all phases of the programme enter commercial service. This incremental cash flow is supported by the FCCL and Canexus contracts, as well as previously announced transportation arrangements with Imperial Oil, Athabasca Oil Sands, JACOS and Nexen. This expansion programme also provides a strong platform for future growth. Inter Pipeline has constructed significant mainline capacity beyond what is required to meet existing shipper commitments, providing opportunities for additional third party transportation arrangements over the next several years.

Conventional oil pipelines

The conventional oil gathering business segment generated strong cash flow in the third quarter on increased volumes and revenues. Third quarter funds from operations totalled CAN$ 48.7 million, a gain of 4% over Q3 2013 results. Higher overall throughput levels and strong margins from midstream marketing activities contributed to the increase. Average revenue per barrel increased to CAN$ 2.97 in the quarter from CAN$ 2.91 in Q3 2013.

Total quarterly throughput on Inter Pipeline’s conventional systems increased year over year due to very active producer drilling programmes. Volume growth remains particularly strong in the Kindersley-Kerrobert area of the Viking light oil play, which is serviced by the Mid-Saskatchewan pipeline system. In aggregate, the Bow River, Central Alberta, and Mid-Saskatchewan systems transported a total of 202 600 bpd in the quarter, a gain of 6600 bpd over Q3 2013 levels. The Mid-Saskatchewan pipeline system set a quarterly throughput record of 65 900 bpd.

During the quarter, Inter Pipeline announced a major CAN$ 100 million expansion of the Mid-Saskatchewan pipeline system to accommodate strong production volume growth. The expansion is supported by multiple contracts that will in aggregate generate an incremental CAN$ 25 – 30 million in annual EBITDA once the expansion is fully in service. The expansion includes 50 km of new mainline pipe and 40 km of laterals, plus associated facilities. In total, 95 000 bpd of new capacity will be added to the system, providing significant available capacity for additional third party connections. The expansion is currently underway and will be completed in phases beginning later this year with full completion expected by mid 2015. This investment programme is the largest in the history of Inter Pipeline’s conventional oil pipelines business segment.

NGL extraction

The NGL extraction business segment generated lower financial results in the third quarter due to several factors including reduced ethane production and product margins, lower natural gas throughput levels and weaker frac-spread pricing. Funds from operations totalled CAN$ 34.4 million in the quarter compared to CAN$ 43.2 million generated in Q3 2013. Ethane production was reduced at the Cochrane NGL and Empress V extraction facilities in response to unexpected operational issues at a key petrochemical customer’s facility. Ethane production was further impacted in the quarter by maintenance activities on a downstream third party ethane pipeline system.

Natural gas throughput was also lower at Empress where a 16-day maintenance unplanned outage impacted volumes at the Empress V facility. In total, Inter Pipeline’s Cochrane and Empress facilities processed 2.1 billion ft³/d of natural gas in the third quarter, which yielded 81 200 bpd of ethane and propane-plus production. In the third quarter of 2013, combined throughput levels were 2.9 billion ft³/d and total liquids extracted were 113 500 bpd.

Q3 2014 realised frac-spread pricing on propane-plus sales at the Cochrane facility averaged US$ 0.80 per US gallon, down from US$ 0.97 per US gallon the previous year.

Bulk liquids storage

Inter Pipeline’s bulk liquid storage business generated funds from operations of CAN$ 19.8 million in the third quarter, an increase of CAN$ 2.6 million over Q3 2013 levels. Foreign currency translations and certain one-time revenue adjustments offset the impact of lower utilisation rates at the Gulfhavn terminal in Denmark, which remains affected by the lack of contango in futures markets for certain petroleum products. However, Inter Pipeline’s Danish storage business is showing improvement with recent contract renewals and new storage contracts for approximately 2.35 million bbls of previously idle capacity. The quarter also marked the commencement of a wastewater storage contract at Gulfhavn, supporting a strategy to stabilise revenue through diversification of storage arrangements.

Overall utilisation rates for Inter Terminals’ Danish facilities were 71%, a notable improvement from the 65% rate recorded in Q2 2014, but down from 75% in Q3 2013. Simon Storage’s utilisation rates for the period were 88%, down slightly from the 91% rate in Q3 2013.

Construction continued on 6 new stainless steel storage tanks at Inter Pipeline’s terminal located near Mannheim, Germany. The CAN$ 9 million expansion will add 57 000 bbls of storage in response to strong demand for specialty chemical storage service from the adjacent BASF Ludwigshafen plant, one of the largest chemical production complexes in the world.

Adapted from press release by Rosalie Starling

Read the article online at: https://www.worldpipelines.com/business-news/07112014/inter-pipeline-announces-record-q3-2014-financial-and-operating-results-992/