Inter Pipeline struggles behind the competition

Inter Pipeline is an integrated energy infrastructure company in Canada dealing in petroleum transportation, storage and natural gas liquids processing. Inter Pipeline owns an extensive network of pipeline systems spanning over 7,800 kilometres and transports over 1.4 million barrels per day. In addition, the company also owns petroleum and petrochemical storage terminals with a combined storage capacity of 37 million barrels across Europe. It operates one of the largest NGL businesses in Canada with a processing capacity of 3.5 bcf/d.

Inter Pipeline operates four business segments namely oil sands transportation (55% of 2019 EBITDA), NGL processing (20%), conventional oil pipelines (15%) and bulk liquid storage (10%). The company derives 95% of its earnings from Canada and the remaining 5% from Europe. Over the last two decades, Inter Pipeline has come a long way owning an extensive energy infrastructure base and an expanding geographical footprint in six countries. The company has developed Canada’s first integrated propane dehydrogenation and polypropylene facility which will be a key part of its growth strategy over the coming years.

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Revenue Growth & Market Exposure

With two decades of experience under its belt, Inter Pipeline has earned a strong reputation for its industry-leading project execution. Oil sands transportation is Inter Pipelines’ largest business segment that continues to generate consistent FFO. The company owns and operates quality energy infrastructure assets that enable nearly 70% of its earnings from cost-of-service and fee-based contracts. Over 20 years (or 40 years if extension provisions are exercised) of remaining on cost-of-service contracts grants enough visibility to stable cash flows. Its commodity-based cash flow is further reinvested to support growth opportunities.

Inter Pipeline is one of Canada’s largest NGL processing businesses and continues to benefit from favourable frac spreads and strong demand. About 97% of Inter Pipelines’ oil sands transportation earnings are determined by investment-grade partners such as Chevron, Exxon Mobil, Cenovus, Imperial, etc. It has also constructed Canada’s first integrated propane dehydrogenation and polypropylene complex.

Inter Pipeline is growing organically as well as through acquisitions. Acquisition of NuStar Europe increased Inter Pipeline’s total European storage capacity by more than 30%. The company is also investing aggressively to strengthen and expand its pipelines across Canada. Inter Pipeline continued to execute on the $180 million multiphase development of the Central Alberta pipeline system, which is expected to be fully operational in Q2 2020 and generate ~$20 million of annual EBITDA. Strategically located extensive energy infrastructure assets positions Inter Pipeline better for future growth opportunities both locally and internationally.

Inter Pipeline achieved a number of milestones related to construction activities at the Heartland Petrochemical Complex, the completion of a new oil sands connection and the potential sale of its European bulk liquid storage business. The decision to explore the sale of Inter Terminals is consistent with IPL’s approach to long term portfolio management. Inter Pipeline’s $3.5 billion Heartland Petrochemical Complex represents the largest organic growth project in the company’s history. Inter Pipeline is also undertaking prudent pipeline connections and expansions projects, which once operational will provide improved market access and flexible transportation service solutions to its customers.

Results on the conventional business were driven by strong contribution from midstream marketing. Inter Pipeline continued to execute its phase expansion of the central operative system. The company successfully added 10,000 barrels a day of truck unloading capacity to the Stettler Terminal. Two new 130,000 barrels storage tanks which represent the final component of Phase 1 are expected to be completed by mid of 2020. During the third quarter of 2019, additional transportation agreements were entered for investment with fixed-term contracts ranging from 5-10 years. Inter Pipeline expects to attract an incremental 10,000 to 15,000 barrels a day of conventional volumes, once it’s completed in the first half of 2020. Inter Pipeline also completed the majority of design work, procurement, and installation of major equipment. It currently has $3.7 billion in active projects.


Inter Pipeline has a solid track record of stable growth and financial performance. The company has successfully registered a 12% CAGR in FFO per share over the last five years. Its dividends are strongly supported by cost-of-service and fee-based cash flow. Over 80% of Inter Pipeline’s revenue is sourced from investment-grade entities and nearly 84% of Inter Pipeline’s EBITDA is from cost-of-service and fee-based contracts.

2019 marked the 11th year of consistent annual dividend increase when this Canadian Dividend Aristocrat raised its dividend by 1.8%. Inter Pipeline has compounded its dividends at a rate of more than 7% in the last decade. The company sports a dividend yield of 29% and currently pays $1.71 in dividends for every share on an annual basis. Though the company has a high payout ratio, Inter Pipeline’s assets are well-contracted to provide enough cash flow stability to support dividend growth. The company maintains strong investment-grade credit ratings due to its sound financial position and stable businesses. The NuStar acquisition as well as higher storage demand contributed to $16 million of additional cash flow during the last year.

The company continues to generate strong funds from operations underpinned by strong and stable contributions from its oil sands transportation and conventional oil pipeline businesses. The expected sale of the European terminal business should enable the suspension of IPL’s DRIP earlier than expected, reduce debt and finance its current capital expenditure program. Inter Pipeline is expected to generate between $30 million and $50 million in adjusted EBITDA in 2020. Ownership of world-scale energy infrastructure assets in strategic locations, stable and diversified FFO and attractive future growth opportunities should support dividend growth in the future.


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, supplying more than 25% of natural gas consumed daily across North America.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:ENBENBEnbridgeEnergyOil & Gas Midstream0.6344.8871.4746.4246.420.970.07447.443.443343.340.191178Tollbooth - UnregulatedYESYESYESNOCanada1
TSE:TRPTRPTC EnergyEnergyOil & Gas Midstream0.7056.5741.7611.9711.974.720.05735.730.686443.240.127669Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:PPLPPLPembina PipelineEnergyOil & Gas Midstream0.6434.8819.1821.7021.701.610.07227.221.5652122.520.114578Tollbooth - UnregulatedNONOYESNOCanada1
TSE:IPLIPLInter Pipeline LtdEnergyOil & Gas Midstream0.4813.525.8019.7319.730.690.03553.550.6957120.480.064425Tollbooth - UnregulatedNONONONOCanada1
TSE:KEYKEYKeyera CorpEnergyOil & Gas Midstream0.5525.405.6135.2735.270.720.07567.562.6667121.920.138667Tollbooth - UnregulatedNONOYESNOCanada1
TSE:GEIGEIGibson Energy Inc.EnergyOil & Gas Midstream0.4321.353.1221.9421.940.970.06376.371.402141.360.063725Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Inter Pipelines’ diversified asset portfolio generates long-term and predictable cash flows that are supported by investment-grade parties. Its HPC project also represents a good opportunity to earn a strong return on invested capital upon completion. Inter Pipeline is well-positioned to sustain dividends, with upside growth potential given its extensive energy infrastructure base, strong operational efficiency, and upcoming capital projects. The company should gain from its ongoing development and execution of the Heartland Petrochemical Complex as well as the multi-phase build-out of the Central Alberta pipeline system. Its dividends are supported by cost-of-service and fee-based cash flow and should continue to grow at the same pace in the future.

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