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Inter Pipeline Fund Announces Strong Second Quarter 2006 Results
CALGARY, ALBERTA, August 10, 2006: Inter Pipeline Fund (Inter Pipeline) (TSX: IPL.UN) announced today its financial and operating results for the three and six month period ended June 30, 2006. Please click HERE for the MD&A and Financial Statements
| Highlights |
- Funds from operations* increased $16.0 million or 48.9% to $48.8 million compared to the same quarter last year
- Quarterly payout ratio* of 80.2%; year-to-date payout ratio of 80.8%
- Net income of $30.8 million, up $13.8 million or 80.6% from the same quarter a year ago
- Cash distributions* to unitholders totalled $39.2 million or $0.1950 per unit
- Volumes on the Cold Lake pipeline system reached a new quarterly record, transporting 334,000 barrels per day (b/d), up approximately 54,800 b/d or 19.7% over the comparable period in 2005
- Southbound crude oil volumes sourced at Hardisty, Alberta and delivered on the Bow River pipeline system to refining markets in the northwest United States averaged 24,000 b/d, up 252% from the second quarter of 2005
- Subsequent to quarter end, completed expansion of the Bow River south pipeline system, finalized construction of Cactus Lake pipeline interconnection facilities at the Kerrobert terminal and filed regulatory application for the Cochrane Ethane Recovery Project
* Please refer to the "Non-GAPP Financial Measures" section of the MD&A.
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Funds From Operations
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During the second quarter of 2006, Inter Pipeline generated funds from operations of $48.8 million, up $16.0 million over the comparable 2005 period. For the six month period ended June 30, 2006, funds from operations increased $21.8 million to $96.7 million over the same six months of 2005. The increases are primarily due to the addition of Inter Pipeline’s European bulk liquid storage businesses and strong frac-spread prices on propane plus volumes at the Cochrane natural gas liquids (NGL) extraction facility.
In the second quarter, Inter Pipeline’s NGL extraction, conventional oil pipeline, oil sands transportation and bulk liquid storage business segments contributed $25.4 million, $18.3 million, $10.6 million, and $9.4 million respectively to funds from operations. Corporate charges including general & administrative and interest expenses totalled $14.9 million. |
Cash Distributions
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Cash distributions to unitholders during the quarter totaled $39.2 million, or $0.1950 per unit, representing a very positive payout ratio of 80.2% of funds from operations. These results compare favourably to a 104.4% payout ratio achieved during the second quarter of 2005, which were impacted by lower than expected conventional crude oil and NGL throughput volumes due to severe weather conditions.
Inter Pipeline’s monthly cash distributions are currently $0.0650 per unit, or $0.78 per unit on an annualized basis. |
NGL Extraction
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The NGL extraction business continued to generate strong results during the second quarter as throughput volumes and commodity prices remained favourable. During the quarter, Inter Pipeline’s three NGL extraction facilities processed 3.6 billion cubic feet per day of natural gas, producing an average of 124,400 b/d of NGLs, comprised of 79,000 b/d of ethane and 45,400 b/d of propane plus.
Inter Pipeline’s realized frac-spread, or the difference between the weighted average price of propane-plus products and AECO natural gas, averaged $0.529 US/US gallon in the quarter, compared to $0.281 US/US gallon in the same quarter last year. The frac-spread increases in commodity environments when NGL prices rise and natural gas prices fall, as characterized by the market conditions in this quarter. In general, NGL commodity prices are correlated to the price of crude oil.
On August 9, 2006, Inter Pipeline filed a regulatory application with the Alberta Energy and Utilities Board for the construction of a new gas processing unit to increase the ethane recovery efficiency at the Cochrane extraction plant. This project, known as the “Cochrane Ethane Recovery Project”, or CERP, will increase the ethane extraction capacity of the plant by 15,000 b/d to 80,000 b/d making it among the largest and most efficient NGL extraction facilities in North America. CERP involves the installation of a single, new state-of-the-art cryogenic extraction unit capable of processing 750 million cubic feet per day of natural gas.
“The Cochrane Ethane Recovery Project will provide significant incremental ethane feedstock to Alberta’s petrochemical industry in a very cost effective manner”, commented David Fesyk, President and Chief Executive Officer. “Higher ethane recovery rates at Inter Pipeline’s Cochrane plant will help alleviate current concerns regarding the tight supply of ethane extracted from natural gas produced in the Province of Alberta”.
“We strongly believe our project will provide the Alberta ethane market with a superior alternative to the proposed Harmattan field plant conversion and new pipeline construction project being proposed by Taylor NGL Limited Partnership. Our project provides key advantages with respect to the production of truly incremental ethane volumes and less landowner, operational and environmental impacts”.
Pending regulatory approval, CERP is expected to commence construction in the spring of 2007, and be operational by late 2008 at a cost of approximately $80 million. |
Conventional
Oil Pipelines
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Throughput volumes on Inter Pipeline’s Bow River, Central Alberta, Mid-Saskatchewan, and Valley conventional pipeline systems averaged 200,300 b/d during the second quarter, compared to 198,400 b/d one year ago. The increase in conventional volumes is primarily the result of higher Bow River southbound volumes sourced at Hardisty, Alberta which increased by 17,200 b/d to 24,000 b/d over the comparable period in 2005. The average revenue per barrel from the conventional oil pipelines in the second quarter of 2006 was $1.49 versus $1.47 per barrel in the second quarter of 2005.
Subsequent to quarter end, Inter Pipeline completed two organic growth projects on its conventional oil pipeline systems. The first project was the expansion of the Bow River pipeline system to facilitate the transfer of higher southbound crude oil volumes from the oil storage hub at Hardisty to refining markets in the United States. Total southbound capacity from Hardisty is now approximately 36,000 b/d. The final cost of the project was approximately $13 million.
The second growth project involved the construction of new metering and interconnection facilities at Inter Pipeline’s Kerrobert terminal to provide storage and condensate supply services to shippers on the Cactus Lake pipeline system. The cost to build the additional facilities was approximately $3.6 million. |
Oil Sands Transportation
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Throughput volumes on the Cold Lake pipeline system continued to increase during the quarter establishing a new quarterly record of 334,000 b/d. This represents an increase of approximately 54,800 b/d over volumes delivered during the second quarter of 2005. Aggressive development by the producers in the Cold Lake region continues to increase oil sands production. Cold Lake receipt volumes reached an all-time record in June, averaging approximately 339,000 b/d.
In the second quarter, Inter Pipeline incurred approximately $6.8 million of growth capital on the Cold Lake system, primarily for capacity expansions at the Foster Creek and Wolf Lake pump stations. |
Bulk Liquid Storage |
Inter Pipeline’s European bulk liquid storage business continued to meet expectations in the second quarter by contributing $34.3 million to revenue and $9.4 million to funds from operations.
During the second quarter, approximately $2.6 million of growth capital was invested, primarily related to the reconfiguration of existing storage facilities at the Immingham West terminal to accommodate biodiesel. |
Financing Activity
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| Inter Pipeline has applied excess cash generated in the quarter to partially fund the organic growth projects identified in each of the four business segments. At June 30, 2006, Inter Pipeline’s outstanding debt balance, including convertible debentures, was $670.0 million, resulting in a total debt to total capitalization ratio of approximately 36.4%. |
Conference Call
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Inter Pipeline will hold a conference call and webcast today at 2:30 p.m. (Mountain Time) / 4:30 p.m. (Eastern Time) to discuss second quarter 2006 financial and operating results.
To participate in the conference call, please dial 888-280-8277 or 416-695-5261. A recording of the call will be available for replay until August 17, 2006, by dialing 888-509-0081 or 416-695-5275. The pass code for the replay is 627805.
A webcast of the conference call can be accessed on Inter Pipeline’s website at www.interpipelinefund.com under Investor Relations / Webcasts. A rebroadcast of the conference call will be available on the website for approximately 90 days. |
Selected Financial and Operating Highlights
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(millions of dollars, except where noted) |
Three Months Ended |
Six Months Ended |
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June 30, |
June 30, |
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2006 |
2005 |
2006 |
2005 |
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Extraction Production1 (000 b/d) |
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Ethane |
79.0 |
83.2 |
89.7 |
91.6 |
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Propane Plus |
45.4 |
45.7 |
50.8 |
51.4 |
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Total Extraction |
124.4 |
128.9 |
140.5 |
143.0 |
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Pipeline Volumes (000 b/d) |
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Conventional Oil |
200.3 |
198.4 |
205.2 |
202.5 |
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Cold Lake Pipeline1 |
334.0 |
279.2 |
323.1 |
291.0 |
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Total Pipeline |
534.3 |
477.6 |
528.3 |
493.5 |
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Revenue |
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NGL Extraction |
$133.0 |
$144.8 |
$328.6 |
$315.4 |
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Conventional Oil Pipeline |
$27.1 |
$26.5 |
$55.8 |
$53.6 |
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Oil Sands Transportation |
$15.3 |
$15.1 |
$29.2 |
$30.1 |
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Bulk Liquid Storage2 |
$34.3 |
n/a |
$65.9 |
n/a |
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Net Income |
$30.8 |
$17.1 |
$59.9 |
$43.9 |
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Per Unit (basic & diluted) |
$0.15 |
$0.09 |
$0.30 |
$0.24 |
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Funds From Operations3 |
$48.8 |
$32.8 |
$96.7 |
$74.9 |
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Per Unit |
$0.24 |
$0.18 |
$0.49 |
$0.41 |
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Cash Distributions3 |
$39.2 |
$34.2 |
$78.2 |
$68.2 |
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Per Unit |
$0.1950 |
$0.1875 |
$0.3900 |
$0.3750 |
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Payout Ratio3 |
80.2% |
104.4% |
80.8% |
91.1% |
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Capital Expenditures3 |
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Growth |
$15.2 |
$0.5 |
$25.8 |
$2.1 |
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Sustaining |
$2.5 |
$1.1 |
$4.2 |
$2.6 |
- Volumes reported on a 100% basis
- Simon Storage was acquired on October 4, 2005 and TLG as acquired on January 1, 2006. Therefore, there are no comparable figures.
- Please refer to the "Non-GAAP Financial Measures" section of the MD&A
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Inter Pipeline
Fund |
Inter Pipeline is a major petroleum transportation, bulk liquid storage and natural gas liquids extraction business based in Calgary, Alberta, Canada. Structured as a publicly traded limited partnership, Inter Pipeline owns and operates energy infrastructure assets in western Canada, the United Kingdom, Germany and Ireland.
Inter Pipeline is a member of the S&P/TSX Composite Index. Class A Units trade on the Toronto Stock Exchange under the symbol IPL.UN. |
Eligible
Investors
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| Only persons who are residents of Canada, or if partnerships, are Canadian partnerships, in each case for purposes of the Income Tax Act (Canada) are entitled to purchase and own Class A Units and debentures of Inter Pipeline. |
Disclaimer
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Certain information contained herein may constitute forward-looking statements that involve risks and uncertainties. Readers are cautioned not to place undue reliance on forward-looking statements. Such information, although considered reasonable by the General Partner of Inter Pipeline at the time of preparation, may later prove to be incorrect and actual results may differ materially from those anticipated in the statements made. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements often contain terms such as "may", "will", "should", "anticipate", "expects" and similar expressions. Such risks and uncertainties include, but are not limited to, risks associated with operations, such as loss of markets, regulatory matters, environmental risks, industry competition and the ability to access sufficient capital from internal and external sources. You can find a discussion of those risks and uncertainties in Inter Pipeline’s securities filings at www.sedar.com. Except to the extent required by applicable securities laws and regulations, Inter Pipeline assumes no obligation to update or revise forward-looking statements made herein or otherwise, whether as a result of new information, future events, or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary note.
All dollar values are expressed in Canadian dollars unless otherwise noted. |
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