Inter Pipeline's bet on the oil sands continues to pay off

Inter Pipeline's bet on the oil sands continues to pay off

Canadian midstream player Inter Pipeline delivered solid first quarter results this week, despite low oil prices and a dip in revenues. Almost 75% of the company's cash flow now comes from their oil sands operations, powered by strong demand for diluent in the oil patch. The company announced plans to further grow their oil sands business, entering into 2 new contracts for diluent and bitumen delivery. 


  • Total oil volumes: 1,312,700 bbl/day (unchanged yr/yr)
    • oil sands transportation: 1,104,200 bbl/day (up 0.6% yr/yr)
    • conventional oil: 208,500 bbl/day (down 3% yr/yr)
  • Total NGL extraction volumes: 105,800 bbl/day (down 6% yr/yr)
  • Bulk liquids storage utilization: 98% (up from 90% in Q1/15)
  • Revenues: 416.4 million (down 3% yr/yr)
  • Cash flow from operations: 186 million (up 5% yr/yr)
  • Net income: 104.6 million (down 15% yr/yr)

First quarter earnings came in below expectations at $0.28 per share (versus consensus of $0.37). The decline was blamed on higher depreciation and amortization costs, as well as a one-time contract adjustment. Operating costs were generally higher across the board but still represents a small fraction of the company's expenditures.


Inter Pipeline has 3 main assets in their oil sands business: the Cold Lake, Corridor and Polaris pipeline networks which encompass 3,300 km of operating pipelines and 3.8 million barrels of storage. 

Cold Lake Pipeline System

  • Transportation capacity: 1.2 million bbl/day of diluted bitumen, expandable to 1.9 million bbl/day
  • Q1/16 volumes: 564,000 bbl/day (down 3.3% yr/yr)

The Cold Lake pipeline network consists of a bitumen blend and diluent pipeline system that collects product from heavy oil producers operating in the Cold Lake area. Diluent is shipped from the Strathcona region to Cold Lake, used to dilute the bitumen product. Diluted bitumen is then pipelined to crude oil terminals in Edmonton and Hardisty, Alberta. The network collects product from Imperial Oil's Cold Lake in-situ facility, CNRL's Wolf Lake and Kirby South, OSUM's Orion operation and Cenovus' Foster Creek SAGD plant. Inter Pipeline owns an 85% interest in the system. 

Corridor Pipeline System

  • Transportation capacity: 465,000 bbl/day of diluted bitumen, expandable to 1.4 million bbl/day
  • Q1/16 volumes: 369,500 bbl/day (down 2.8% yr/yr)

The Corridor pipeline consists of 3 lines that serve the Athabasca Oil Sands Project, which include the Albian Sands Mine and the Scotford Upgrader, both operated by Shell Canada. Diluted bitumen produced at Albian is pipelined to the Scotford Upgrader; a return diluent line sends solvent back to the mine site. Corridor also includes a feedstock supply pipeline that runs from the Edmonton storage terminal to Scotford.

Polaris Pipeline System

  • Transportation capacity: 865,000 bbl/day of diluent, expandable to 1.3 million bbl/day
  • Q1/16 volumes: 170,700 bbl/day (up 27.5% yr/yr)

Polaris is a dual pipeline system (one 12 inch and one 30 inch line) that transports diluent from the Edmonton area to heavy oil producers in central and northern Alberta, stretching from the Cold Lake area to SAGD and mining operations more than 100 km north of Fort McMurray. Customers include Imperial Oil’s Kearl Mine, Husky’s Sunrise, Suncor, CNRL's Kirby South, Athabasca Oil's Hangingstone and Cenovus' Foster Creek and Christina Lake operations.

During the first quarter, a new diluent connection was made between the Polaris pipeline network and the JACOS Hangingstone project. The new branch is expected to commence operation in the third quarter of this year. The capital cost of this connection was reported at approximately $25 million.



Two new long-term agreements were finalized during the first quarter.

  1. A receipt connection agreement was reached with Pembina Pipeline’s Canadian Diluent Hub which will provide the Polaris pipeline network with an additional diluent supply.
  2. A bitumen blend delivery connection will be constructed from the Cold Lake pipeline system to the new Sturgeon Refinery, operated by North West Redwater Partnership.

Both systems should be operational by the middle of 2017. Total capital investment is estimated at $23 million. In total, Inter Pipeline operates 7,200 km of petroleum pipelines, including natural gas liquids, and 4.8 million barrels of storage in western Canada.


Inter Pipeline has $4.85 billion in debt, resulting in a debt-to-capitalization ratio of 60%. IPL stock pays a quarterly dividend of $0.39 per share, representing a payout ratio of 75%. IPL stock trades on the TSX and yields approximately 6%.

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