Inter Pipeline Fund Q1 2010 Earnings Call Transcript

Inter Pipeline Fund Q1 2010 Earnings Call Transcript
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Inter Pipeline Fund (IPPLF.PK)

Q1 2010 Earnings Call Transcript

May 6, 2010 4:30 pm ET


Bill van Yzerloo – CFO

Jeremy Roberge – VP, Capital Markets


Tony Courtright – Scotia Capital

Robert Kwan – RBC Capital Markets

Matthew Akman – Macquarie

Linda Ezergailis – TD Newcrest

Carl Kirst – BMO Capital Markets

Bob Hastings – Canaccord

Steven Paget – FirstEnergy



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Good afternoon, ladies and gentlemen. Welcome to Inter Pipeline Fund's Q1 conference call and webcast. I would now like to turn the meeting over to Mr. Bill van Yzerloo, Chief Financial Officer of Inter Pipeline Fund. Please go ahead, sir.

Bill van Yzerloo

Thank you, Jenny and good afternoon, ladies and gentlemen. Welcome to Inter Pipeline Fund's first quarter 2010 conference call. Joining me today is Jeremy Roberge, Inter Pipeline's Vice President of Capital Markets. And today, we will discuss our first quarter operational and financial results.

Before we get into the discussion of our results, we would like to remind you that certain information relating to this conference call may contain forward-looking information that involves risks, uncertainties, and assumptions. Such information, although considered reasonable by Inter Pipeline at this time, may later prove incorrect and the actual results may differ materially from those stated or implied by our comments today. Undue reliance should not be placed on such information. A discussion of the related risk factors, uncertainties, and assumptions is available in our year-end MD&A available at

With that said, we will now move on to a discussion of our first quarter 2010 results. Inter Pipeline has another strong quarter with very positive financial and operating results. Funds from operations were over 85 million Canadian dollars for the quarter, up 29% from the comparable period of 2009. These successful results allow Inter Pipeline to remain a very strong payout ratio of only 67% before sustaining capital and 69% after sustaining capital.

Strong propane-plus frac spreads which impact our revenue from the sale of a product extracted at our Cochrane NGL facility primarily accounted for the increase in funds from operations.

Total throughput volumes on all of Inter Pipeline crude oil transportation systems averaged over 800,000 barrels per day, a new quarterly record. Cold Lake pipeline system volumes increased by over 60,000 barrels per day compared to the first quarter of 2009, more than offsetting declines on conventional pipeline systems and reduced throughput on the Corridor system. As expected, Corridor's volumes were lower due to commissioning activities related to the capacity expansion project, but did not impact cash flows due to the Corridor's cost of service contract.

The Corridor expansion project is entering its final phase in 2010. Final commission activities on the 42-inch diameter pipeline are underway with diluted bitumen volumes being injected for line fill. Commissioning of the other components of the expansion will occur later this year. First quarter expenditures on this project were approximately 22 million Canadian dollars, bringing the total expenditure to date to just over 1.6 billion Canadian dollars. The project remains on schedule and on budget and will begin generating revenue when fully in service or in any event, no later than January 1st, 2011.

When in service, the Corridor expansion will free up an existing 12-inch diameter pipeline for other business. This 12-inch line is being designated Polaris Pipeline system and will provide diluent transportation service to Alberta's oil sands region. As previously announced, the Polaris Pipeline system will initially provide diluent transportation for the Kearl oil sands project, a joint venture between Imperial and ExxonMobil. Engineering and regulatory groundwork on the project are continuing according to schedule.

Now, we will move on to discuss our NGL extraction business. This segment generated very strong results in the first quarter of 2010, exceeding first quarter 2009 funds from operations by over 80%. The increase is due to a much stronger commodity price environment as frac spreads have rebounded strongly since the end of 2008. Jeremy will provide more detail on frac spreads and our commodity hedging program.

Inter Pipeline's other three business segments, oil sands transportation, conventional oil pipelines, and bulk liquid storage, also performed very well during the quarter with all three segments producing stable funds from operations compared to Q1 of 2009.

Before turning things over to Jeremy, I'd like to briefly comment on Inter Pipeline's position with respect to general economic conditions. Inter Pipeline continues to be very well positioned to operate and grow despite recent weakness in the economic environment. The positive position results from strong long-term business fundamentals in all four of our business segments and a very well capitalized balance sheet.

In fact, we have a recourse debt to total capitalization ratio of only 34.4%, giving us substantial room to debt finance future growth projects. Supporting this strong balance sheet are our two main bank credit facilities, which have significant unutilized credit capacity and long remaining tenure.

We continue to have success advancing capital growth projects according to budget and plans. The solid progress made on the Corridor expansion project is a great example of this, mitigating the risk and adding certainty to future cash flow. The Corridor project, the recently completed Bow River segregation project, and development of the Polaris Pipeline system solidify our view that Inter Pipeline is well positioned to maintain its current cash distribution levels to unitholders once we become taxable in 2011 and in the years beyond.

With that, I will now turn the floor over to Jeremy to provide additional details on our first quarter financial results.

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