Inter Pipeline is an integrated energy infrastructure company in Canada engaged in the transportation, storage and processing of natural gas liquids for petroleum. Inter Pipeline owns an extensive network of oil pipeline systems stretching 3,900 kilometers in western Canada, transporting more than 1.4 million barrels per day.

The company also has petroleum and petrochemical storage terminals with a combined storage capacity of 19 million barrels across Europe. The natural gas and waste gas treatment plants can produce over 240,000 b / d NGL, and the three pipeline systems have a contractually agreed capacity of 2.3 million b / d.

Inter Pipeline operates four businesses: oil sands transportation (59% of EBITDA 2020), NGL processing (16%), conventional oil pipelines (13%) and bulk storage of liquids (12%). The company generates 95% of its profits in Canada and the remaining 5% in Europe.

Over the past two decades, Inter Pipeline has come a long way, with an extensive energy infrastructure base and a growing geographic presence in six countries. The company has developed Canada’s first integrated propane dehydrogenation and polypropylene plant, which will be an integral part of its growth strategy in the years to come.

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Investment data

Sales growth and market exposure

With two decades of experience, Inter Pipeline has built a solid reputation for industry-leading project delivery. Oil sands transportation is Inter Pipelines’ largest business and continues to generate consistent FFO.

The company owns and operates high quality energy infrastructure systems that generate almost 90% of its revenue from service costs and paid contracts. Strategically located, comprehensive energy infrastructure assets better position Inter Pipeline for future growth opportunities locally and internationally.

Inter Pipeline is one of Canada’s largest NGL processors and continues to benefit from favorable frac spreads and strong demand. Over 20 years (or 40 years if renewal provisions are exercised) of remaining with service cost contracts ensures sufficient transparency for stable cash flows.

The commodity-based cash flow continues to be reinvested to support growth opportunities. Approximately 97% of Inter Pipelines’ oil sands transportation revenues come from investment grade partners such as Chevron, Exxon Mobil, Cenovus, Imperial, etc. Canada’s first integrated propane dehydrogenation and polypropylene complex was also built.

Inter Pipeline reached a number of milestones related to construction activities at the Heartland Petrochemical Complex, a multi-phase expansion of the pipeline system in Central Alberta, and the sale of its European bulk storage business. Inter Pipeline’s ~ $ 4 billion HPC project represents the largest organic growth project in the company’s history and is expected to achieve long-term average annual EBITDA of $ 450 million to $ 500 million.

Inter Pipeline also carries out prudent pipeline connections and expansion projects that will provide their customers with improved market access and flexible transportation service solutions once they are operational. Inter Pipeline’s oil sands transportation achieved a record annual FFO of $ 616 million last year.

The conventional oil pipeline business was negatively impacted by lower throughput and lower crude oil prices. It also sold much of Europe’s bulk liquid storage business. The company continued to build the Heartland Petrochemical Complex and successfully completed the multi-phase pipeline expansion worth approximately $ 180 million in 2020.

Dividends

Inter Pipeline can look back on a solid track record with stable growth and financial performance. It has increased its dividend to over 8% over the past decade. The company has a dividend yield of 2.7% and a payout ratio of 57%.

Inter Pipeline rolled its monthly dividend back to $ 0.04 per share and cut it by ~ 70%, allowing it to withhold more than $ 0.5 billion in additional cash annually.

Inter Pipeline’s assets are well contracted to provide sufficient cash flow stability and support dividend growth. Oil sands FFO remained relatively stable over the past year due to long-term cost-of-service contracts that were not significantly affected by fluctuations in throughput volume.

Inter Pipeline has a strong investment grade rating due to its solid financial position and stable business. Cash flows are also stable: about 75% of Canadian sales in 2020 come from investment grade companies, and ~ 90% of EBITDA in 2020 comes from service costs and fee-based contracts.

In addition, Brookfield Infrastructure Partners will acquire all of the outstanding shares in Inter Pipeline. Shareholders have the right to receive either cash or BIP shares in exchange for IPL shares. Inter Pipeline continues to generate strong funds from operations, backed by strong and stable contributions from the oil sands transportation and conventional oil pipeline businesses.

Owning global energy infrastructure assets in strategic locations, a stable and diversified FFO, and attractive future growth opportunities should support future dividend growth.

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competition

Enbridge, TC Energy, Pembina Pipeline and Keyera Corp are Inter Pipeline’s leading competitors.

Enbridge is Canada’s largest natural gas distribution provider, while Pembina Pipeline is a leading midstream and transportation service provider in North America.

TransCanada Pipeline is a North American infrastructure company that supplies more than 25% of the natural gas consumed in North America every day.

Bottom line

Inter Pipelines’ diversified asset portfolio generates long-term and predictable cash flows backed by investment grade parties. Inter Pipeline is well positioned to sustain dividends and has upside potential due to its extensive energy infrastructure base, strong operational efficiencies and upcoming capital projects.

A strong portfolio of world-class energy infrastructure companies offers significant growth potential. The company should benefit from the continued development and execution of strategic projects such as the expansion of the HPC and Central Alberta pipeline and the growth opportunities for tar sands.

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