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Edited Transcript of IPL.TO earnings conference call or presentation 8-Nov-19 4:00pm GMT

Q3 2019 Inter Pipeline Ltd Earnings Call

Calgary Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Inter Pipeline Ltd earnings conference call or presentation Friday, November 8, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brent C. Heagy

Inter Pipeline Ltd. - CFO

* Christian P. Bayle

Inter Pipeline Ltd. - President, CEO & Director

* James J. Madro

Inter Pipeline Ltd. - SVP of NGL Processing

* Jeffrey D. Marchant

Inter Pipeline Ltd. - SVP of Transportation

* Jeremy Allan Roberge

Inter Pipeline Ltd. - VP of Finance and IR

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Conference Call Participants

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* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* Linda Ezergailis

TD Securities Equity Research - Research Analyst

* Patrick Kenny

National Bank Financial, Inc., Research Division - MD

* Robert Catellier

CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research

* Robert Hope

Scotiabank Global Banking and Markets, Research Division - Analyst

* Robert Michael Kwan

RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to Inter Pipeline's Third Quarter 2019 Conference Call and Webcast. I would now like to turn the meeting over to Mr. Jeremy Roberge, Vice President, Finance and Investor Relations of Inter Pipeline. Please go ahead, Mr. Roberge.

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Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance and IR [2]

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Thank you, Judy, and good morning, everyone. On the call with me today are Chris Bayle, Inter Pipeline's President and Chief Executive Officer; Brent Heagy, Chief Final Officer; Jeff Marchant, Senior Vice President, Transportation; and Jim Madro, Senior Vice President, NGL Processing.

For today's call, Chris will discuss our third quarter highlights and Brent will conclude with some remarks on our financial performance.

To start though, I'd like to remind you that certain information on 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 actual results may differ materially from those stated or implied by our comments today. Undue reliance should not be placed on such information. Discussion of related risk factors, uncertainties and assumptions is available in our MD&A, which you can find on our website or at sedar.com.

Please go ahead, Chris.

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [3]

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Thanks, Jeremy, and good morning, everybody. Third quarter of 2019 was very active for Inter Pipeline, and included a number of milestones related to the expansion of the Central Alberta system as well as the Heartland Petrochemical Complex. Specifically, during the quarter, Inter Pipeline continued to execute its phased expansion for the Central Alberta system. Phase 1 remains on track, and in October, we successfully added 10,000 barrels a day of truck unloading capacity at the Stettler terminal. Two new 130,000 barrel storage tanks, which represent the final component of Phase 1, are expected to be completed by the spring of 2020.

Construction of Phase 2, the $100 million Viking Connector, is also underway, which will link our Bow River and Central Alberta pipeline systems. When complete, for the first time, Alberta Viking producers will have pipeline access to preferred Edmonton market.

During the third quarter of 2019, additional transportation agreements were entered into underpinning the investment, with fixed-term contracts ranging from 5 to 10 years. Ultimately, we expect to attract an incremental 10,000 to 15,000 barrels a day of conventional volumes once it's completed during the first half of 2020.

Moving to the Heartland Petrochemical Complex, I'm pleased to report that the project continues to track well. During the quarter, we invested $338 million on HPC, and successfully erected the first structural steel for the polypropylene facility as well as installed the first major components of the central utility block. We also completed our final major lift, a purge bin, which was installed in September, where it continues to progress well on the propane dehydrogenation facility, which is expected to be mechanically complete by the end of 2020, approximately a year before the complex is projected to enter clinical service. To date, we have invested approximately $1.9 billion on the project and have derisked approximately 60% of the total project cost, and we expect to exit the year with 65% of cost de-risks through the successful execution on lump sum contracts from purchase orders and substantially completed time and materials work.

In addition to our growth initiatives during the quarter, we also completed our scheduled maintenance at the Redwater Olefinic Fractionator as well as the Pioneer I and II offgas facilities. As previously communicated, maintenance was performed during planned turnarounds at producer upgrading facilities and our offgas operations were impacted for approximately 3 weeks. All operations have returned to normal.

Next, we are continuing to explore the potential sale of our European bulk liquid storage business. However, of course, there is no assurance that a transaction will result from the process and the definitive timeline has not been set.

Finally, we were very pleased to announce during the quarter an important 3-year partnership with Women Building Futures. We will be investing approximately $600,000 to support their efforts in raising awareness, providing pre-apprenticeship training for women in Alberta's Heartland area. Women are generally underrepresented in construction and operations within our industry, and this partnership is a great opportunity to assist women with entering the trades and unlocking rewarding careers.

So now I'll turn things over to Brent to provide additional details on our financial results.

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Brent C. Heagy, Inter Pipeline Ltd. - CFO [4]

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Thank you, Chris, and good morning, everyone. As expected, Inter Pipeline's Q3 2019 consolidated results were lower than historical averages, $204 million in funds from operations. Our oil sands transportation franchise continues to be the foundation of our business, generating $153 million in FFO, consistent with the comparable period in 2018. Financial results in our NGL Processing segment were impacted by lower sales volumes and higher costs, resulting from the scheduled turnaround at our offgas plants as well as weaker frac spread pricing realized during the quarter.

Our conventional oil pipelines business generated quarterly FFO of $40 million compared to $54 million in Q3 2018. Conventional results were impacted by lower volumes transported on our Central Alberta and Mid-Saskatchewan pipeline systems as well as a reduction in midstream marketing contribution. Midstream marketing activity generated $8 million in adjusted EBITDA during Q3 2019, compared to $14 million in Q3 2018. Our midstream marketing operations continued to benefit from attractive butane pricing, but the quarter was impacted by lower volumes as well as a prior period adjustment of approximately $3 million.

For full year 2019, midstream marketing is expected to generate approximately $35 million of adjusted EBITDA. We are also introducing our 2020 guidance and expect to generate between $30 million and $50 million in adjusted EBITDA, which is subject to pricing differentials, volume and corporate cost allocations.

Our bulk liquid storage business generated strong results during the quarter with FFO of $31 million, double from the comparable period in 2018. The $16 million increase reflects the additional cash flow from the NuStar acquisition as well as higher storage demand, particularly in Denmark. Consolidated utilization rates have continued to increase since the beginning of the year and averaged 92% in the third quarter of 2019, up from 74% in Q3 2018 and 83% last quarter.

Finally, we remain committed to operating in a financially prudent and flexible manner. On August 13, we entered into a new 1-year $500 million term facility, with proceeds directed towards repaying amounts under our existing $1.5 billion revolving credit facility. This term facility carries lower borrowing costs than our revolver and provides us with over $1.2 billion of available borrowing capacity as at September 30, 2019. We also ended the period with consolidated net debt to total capitalization ratio of 46.5%, well below our bank covenant level of 65%.

So this concludes the formal portion of the conference call. And I would now like to turn the meeting back to Jody to open the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Jeremy Tonet of JPMorgan.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

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Just wanted to start off with the Mid-Sask system there, it seems like that stepped down a bit versus the last quarter. Just wondering if you could provide a little bit more color on what's happening there? Have things stabilized? Or what should we expect in here?

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Jeffrey D. Marchant, Inter Pipeline Ltd. - SVP of Transportation [3]

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Yes, it's Jeff. I'll take a shot at that. We've really seen some consistency over the year, quarter-over-quarter in our overall volumes. But over in the Mid Sask, we of course, have that competitive situation with a secure pipeline. That piece has been relatively consistent, Mid-Sask was down about 32,000 barrels a day from the quarter last year. The competitive aspect impact on that is about 74% of that number, around 24,000 barrels a day. The balance of it is really weather-related and individual producers taking on a bit of a different capital spend. So we've seen some drilling slowdown out there, but mainly weather as we got closer to the fall in that Q3 is really what impacted volume. So we expect to see a pretty consistent run rate to what we've seen in Q2, albeit Q3 being down a little bit.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

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Got it. That's helpful. And then for the Viking Connector, you initially mentioned that you had secured 1/3 of the shipments for that. Could you give us any updates on how that's progressing and what the outlook is there?

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Jeffrey D. Marchant, Inter Pipeline Ltd. - SVP of Transportation [5]

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Yes. The connector is progressing really well, actually. We just finished welding out the pipeline. We've got 75 kilometers of pipe that's welded up. It's going to connect our Throne Station on Bow River to our Central Alberta System near our Stettler [extent] to our Stettler Station, where that expansion is currently underway, as Chris mentioned. We do have a few different producers signed up, ranging in contract terms from 5 to 10 years. We're not going to get into too many details under those contracts, but suffice it to say, we are lining them up and are targeting that 10,000 to 15,000 barrels a day once we're fully operational.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [6]

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That's very helpful. And then just a couple of housekeeping items on the accounting side, if I could. And I just wanted to see with the NGL processing with the turnarounds there, does that run through OpEx? Or was that capitalized during the quarter? I just wanted to be clear there? And then also with HPC with the employees hired in advance, is that something that shows up as an expense? Or is it capitalized at this point? Just for modeling purposes, that would be helpful.

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James J. Madro, Inter Pipeline Ltd. - SVP of NGL Processing [7]

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Jeremy, it's Jim here. With respect to the turnarounds, there is about $5 million, $5.5 million in turnarounds that hit our expenses, and then another $13.5 million, that was capital. And that compares to last year where we had about $1.7 million in internal costs. Well, that answers that question.

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Brent C. Heagy, Inter Pipeline Ltd. - CFO [8]

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Jeremy, it's Brent here. I'll speak to the HPC, and maybe I'll also just sort of comment at the same time, on the overall quarter-over-quarter increase in G&A. So yes, HPC is going to start coming into both of our G&A expenses and our operating costs. The amounts are fairly minimal this year. And as we get into 2020, we'll provide more detail as to how those costs are impacting our G&A and operating costs. When you look at this quarter over the prior quarter, we had an increase of about $10 million overall in G&A. Half of that is related to costs for the potential sale of Inter Terminals, and the other half is directly related to LTIP with the increase in our share price.

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Operator [9]

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And our next question comes from the line of Linda Ezergailis of TD.

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Linda Ezergailis, TD Securities Equity Research - Research Analyst [10]

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I'm wondering if you could help us with some capital allocation and financing decision-making thoughts and priorities? If we're thinking of a depressed commodity price environment that we've seen in the past, and if that continues, if there was kind of systemic low cash flows from NGL processing for a prolonged period of time, how might you think of considering other financing scenarios beyond retained cash flows? And similarly, if, for some reason, you were not to complete a sale of your European storage business, would there be other less core assets that you could partially or fully sell? Or might you -- or is your base plan already to continue on the premium DRIP for part of the construction process? Or all the way through to HPC commissioning in 2021?

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Brent C. Heagy, Inter Pipeline Ltd. - CFO [11]

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Linda, it's Brent here. I'll respond to that. So when it comes to our financing, really what our plan is right now, really, first up is to be looking at the potential sale of Inter Terminals. I think, is what we've discussed in the past. It's probably the best source of funding that we have in front of us at this time. Yes, as you pointed out, NGL pricing and commodity prices are much lower. So really, right now, we'll be keeping the PDRIP on until we do -- if we do have a sale of the Inter Terminals business, that sale would allow us to turn off the PDRIP. If we do not conclude a sale, what we'll do is we'll update the market at that time as to what our financing plans would be for HPC.

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [12]

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Yes, Linda, it's Chris. Maybe I'll just add a few thoughts to that as well. When we FID-ed the Heartland project, it was never predicated on outsized NGL profits as a source of funding. I think we actually had a relative conservative view of the cash flow from that business, and it significantly outperformed the NGL business last year, which provided us with, frankly, a lot more cash undistributed cash flow to put into the investment that we actually planned on. So even with, let's call it, modest profits that we're experiencing today, our financing plan is fully intact.

I really want to emphasize that any sale of the bulk liquid storage business is opportunistic. If we don't feel we're getting fair value for the business, we will retain it, and we will continue with what I would call Plan A, which is tactically tapping the hybrid debt markets using what we hope is a relatively modest common equity injections into the investment through the DRIP. And using the rest of our balance sheet to fund the project. And we are in the second half of this project now. We're getting through the bulk of the construction, and we see the finish line in front of us here.

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Linda Ezergailis, TD Securities Equity Research - Research Analyst [13]

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And would there be any other asset sales? Maybe some small pipelines that might be of higher-value to someone that you would use as part of a financing consideration? And even if they weren't required for financing, would there be opportunities to potentially surface value if you considered JV-ing some of your assets or businesses to partners that might have a lower cost of capital?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [14]

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We're not actively looking at monetizing any other assets in the business right now. The one thing we're looking at is storage.

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Linda Ezergailis, TD Securities Equity Research - Research Analyst [15]

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Okay. And just maybe as a follow-up on your Heartland project, are there any substantive construction work processes remaining that could delay the project that are dependent on hitting certain weather construction windows or anything like that? Or that are dependent on procuring parts that might be tied up in some sort of trade issues or anything like that?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [16]

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Well, that's a good question, Linda. No. No, I'm not aware of anything that's any critical, major piece of equipment or any processing equipment that is particularly exposed to that. We -- the big things for us to get done that were particularly weather-related were the major lifts. And as we said in the quarter, we've completed the last major lift. So there certainly are a lot of things that have to get done correctly to hit our schedule, but we feel pretty good about the project as it stands today.

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Operator [17]

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Our next question comes from the line of Rob Hope of Scotiabank.

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Robert Hope, Scotiabank Global Banking and Markets, Research Division - Analyst [18]

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I want to start off with a question on the storage business. We've seen the utilization tick up there nicely, which actually bodes well for a sale. Can you talk about what's driving the higher utilization, if it is IMO 2020? And then as you look into Q4 and into 2020, is -- are these tailwinds expected to be sustainable?

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Brent C. Heagy, Inter Pipeline Ltd. - CFO [19]

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Sure, Rob. It's Brent Heagy, I'll take that question. Yes. Where we're seeing the increase in utilization happening, it's being primarily driven in Denmark, which is really a good news story. And yes, you're correct. It is being driven by IMO 2020, but we're also starting to sign up some other contracts that are supporting the business. As far as tailwinds and that? Yes, I think we're in a pretty good spot, talking to our folks over there, the line of sight on contracting is actually looking pretty good. So it's nice to see the results improving in Europe.

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Robert Hope, Scotiabank Global Banking and Markets, Research Division - Analyst [20]

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And then as a follow-up, we continue to see increasing volumes for gas out of Alberta or the western side. So I just want to get a sense of how you're thinking about Cochrane, especially as TransCanada increases capacity through the -- around the plant?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [21]

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Maybe I'll take that one, Rob. We -- I really like the position we're in at Cochrane right now. We're bypassing generally a reasonably material amount of gas pipe of plant, which means the plant can run at full capacity all day every day. We have looked at ways to potentially expand Cochrane, to be able to extract even more liquids from the gas into bypassing, but I think I've said this a number of times, not interested in making an investment that will simply produce another commodity-based cash flow stream.

So right now, we would only undertake an investment to expand Cochrane if we could get a more fee-based contracting structure to underpin it. And I'm not going to lie, that's challenging in this marketplace to get people to step up to essentially do toll processing through a facility like that, because it would be a multi-hundred million dollar investment. But we'll be patient on that front. Meanwhile, we'll have one of the largest gas plants in North America running flat out.

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Operator [22]

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And our next question comes from the line of Robert Catellier of CIBC Capital Markets.

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Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [23]

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I wanted to know a little bit more about the paraffinic frac spread. Looks like they were slightly negative in the quarter. So I wondered if you could describe what impact the turnaround at Redwater had on that? And what ability the company has to mitigate negative spreads? I'm thinking things like reinjection or storage times a week prices? Or are you really contractually obligated and that limits your ability to mitigate?

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James J. Madro, Inter Pipeline Ltd. - SVP of NGL Processing [24]

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Sure, Robert. It's Jim here. And there's multiple assets to this story here that I will walk you through here and start off reading the propane story, first and foremost, because that was probably the most significant. So early in Q1, we did make some contractual commitments for the summer propane season, which was April 1 to September 30, which the market at the time saw some elevated differentials to -- in Edmonton compared to Conway, which we're basing our price off of. And this year was also relatively unique in that we had a larger portion of our sales volume contracted over the summer period.

We did this really because we had a propane cavern at ROF go out of service this summer for integrity testing, and we needed to ensure that we can keep the propane moving, and thus, keep the entire plant running with minimal propane storage. Compounding the issue on the propane side, so obviously, the Conway pricing for propane dropped fairly significantly throughout the year here, and particularly, when compared to last year. So with that, I can reassure you that we had no short-term spot deals in Q3 because of the pricing, and now that the cavern is back in service, we are utilizing that as best as we can to minimize any impacts of negative pricing. Now on the butane front, we also saw some weak pricing in Q3. However, in this scenario, it was a little different in that we did have storage available.

So we ended up storing a fairly large percentage of our butane production in Q3 and only selling our contracted volumes. That said, this did cause us to incur the production costs associated with that, but not the sales and revenue associated with it. And again, we didn't do any spot sales of butane at the low pricing, and instead, in that situation, did exactly what you referred to. We put it into storage right now. So with the outages out of the way and they were done safely on time and on budget, we're hopefully looking forward to a more normalized rates and hopefully, pricing in the future.

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Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [25]

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Okay. Just to follow-up. I just wanted to make sure I understand if you have any ability operationally to reinject the paraffins when the spreads are weak? And the second part of my question would be, what drives the widening of the benchmark differential?

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James J. Madro, Inter Pipeline Ltd. - SVP of NGL Processing [26]

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As far as your reinjection, it's very limited, because ultimately, our reinjection is back into our cavern. So we -- it probably has to come out at some point in time. So if we do do it, it's for a short time period. As far as what's driving really the benchmark, there's a variety of different things, volumes plays a huge impact. And with the turnarounds, we sold significantly less volumes and that was probably the biggest impact to our benchmark price adjustments.

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Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [27]

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Okay. And then a question for Brent here. Just directional guidance on the G&A. You gave some of the composition. I would imagine that there were some items that might be concerned more onetime in nature during the quarter, but that 48.6% we saw for Q3, how does that compare to a run rate we might expect in 2020?

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Brent C. Heagy, Inter Pipeline Ltd. - CFO [28]

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Sure, Robert. So let me talk about 2019 first. I think we'll probably be kind of coming in around $180 million. And then I would say, a reasonable run rate for annual G&A for 2020 is going to kind of look like about $190 million to $200 million, and you do have to remember, this goes back to my previous comments, we're going to start seeing the impact of all the work that we're doing to get ready for the successful commissioning and the full operations of HPC, so that's primarily what's going to be driving that?

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Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [29]

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Yes. I guess, before I move on, I'm a little surprised that more of that isn't capitalized. But what I'm getting from your messaging here is that it's not a surprise. This is part of the package of building HPC?

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Brent C. Heagy, Inter Pipeline Ltd. - CFO [30]

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No, that's exactly right, Robert. And of course, yes, maybe there is an expectation that all of these costs get capitalized, but the way that the accounting rules read some of these costs, when they're actually related to getting ready for operations, you do need to expense them. So this is not a surprise to us.

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Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [31]

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Okay. My final question then I think we can say that construction has gone well with the major lifts done, but I'm wondering what we could look to as construction milestones in 2020?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [32]

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On 2020, well, the biggest milestone will be late 2020, the full mechanical completion of the PDH plant, which is, as I said before, is the larger and more complicated of the 2 facilities. And as we've said many times, that is going extremely well. We are about 9 months -- 6 to 9 months ahead of schedule on that project. And the costs continue to track well. And then we'll see the ongoing mechanical execution of the PP plant, which remains on schedule for full operations in the fall of 2021.

And finally, the completion of the CUB facility, which -- that's the central utility block, which is not an Inter Pipe asset. Of course, it's -- but we are managing the construction of that facility. We should see that kind of complete and commissioning starting in early 2021. So what you'll hear from us quarter after quarter is essentially just the ongoing progression of derisking the project in terms of securing the capital cost. And as you see, it rises about -- for this year, it's going to rise up to 65% by the end of the year, we'll continue in 2021 -- or 2020, I should say.

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Operator [33]

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Our next question comes from the line of Robert Kwan of RBC Capital Markets.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [34]

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Great. If I can start with bulk liquid storage. There was some commentary earlier just about the increasing utilization rates and that being in Denmark. But I'm just wondering, as it relates to dollars in the quarter, was the quarter operating margin clean? And if kind of rates stay about the same and utilization stays about the same, is this kind of a run rate we can expect in future quarters?

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Brent C. Heagy, Inter Pipeline Ltd. - CFO [35]

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It's Brent here. Yes. I'm not too sure what you say in terms of running clean. But my comment would be there's sort of nothing unusual that is kind of happening in the quarter. So yes, things can always change. But right now, with the visibility we have in bulk liquid storage, yes, I think the kind of operating margin that we're seeing right now, there's nothing that would cause us to think that, that's going to change in the future based on what we know right now.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [36]

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Okay. And just with that commentary too of Denmark improving. I'm just wondering, what drove then the goodwill impairment for those assets? Is it related to some of the valuations you've been getting in as part of the sale process?

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Brent C. Heagy, Inter Pipeline Ltd. - CFO [37]

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No, it's not. So the way that the accounting rules read is we always have to look for indicators of impairment. And so what that is, is actually have to develop a forward-looking cash flow for that business. So even though we had a really good -- better quarter for Denmark, what we do is we do have to put together a brand-new cash flow forecast. And we really did that as part of when we were looking at the potential sale of Inter Terminals, and we went through quite a rigorous buildup of that. And so, on a forward basis, when you do these impairment testing, we had to dial down that cash flow forecast a bit. So that's what really drove it. And if you look in the notes to our financial statements, we actually get into quite a bit of detail there as to what the accounting rules read, but it's just really us taking a look at that forward cash flow.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [38]

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Okay. So I guess, like if we think about the depth of 2018 for that business, you would have had an even more optimistic kind of cash flow deck than you might have today?

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Brent C. Heagy, Inter Pipeline Ltd. - CFO [39]

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Yes. I would have said maybe we were carrying something that was maybe a bit more slightly optimistic. But also too -- as part of when we're looking at the potential sale here, going through that whole process, we always do a scrub. And we particularly took a hard look at that business, and that just cause a little bit of bringing down what that cash flow forecast looks like in the future.

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [40]

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Rob, maybe -- it's Chris, maybe I'll just add. I think we couldn't ignore what happened in Denmark in 2018. That was a pretty bleak year for that business. So I think it was just prudent for us to take a little bit more conservative view on the variability of cash flow for Denmark. It's nothing more than that. So would that just kind of entered our thinking more on a long-term basis.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [41]

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Makes sense. Maybe just to finish up on bulk liquid storage and the sale process, I just want to kind of clarify, Chris, you mentioned about it's going to be opportunistic, so is really price almost the only factor at this point as to whether you're going to move forward or not before?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [42]

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That's a resounding yes.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [43]

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Okay. Okay. And if I can just understand with a question, just generally, how you're thinking about your business and the share price coming out of, say, the roller coaster you had at the beginning of August, it's starting to settle back to where you were. You obviously have the bulk liquid storage process. I'm just wondering, is there anything else that you're looking at to surface value in the share price? Or is it really just the focus on -- put your head down, complete Heartland on time, on budget, and the share price will eventually reflect what you see as fair value?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [44]

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Yes. As you can imagine, I always give a lot of thought to what's going on in the business. And I'll tell you what this quarter tells me, I think we're continuing to show that our oil sands transportation business is just bulletproof. We're also we're talking at length about numerous strategic investments we're making to expand our conventional gathering business that will start to yield results particularly in 2020, our European storage recovering nicely, and we're clearly benefiting from a strategic NuStar Europe acquisition.

And frankly, we're on track to about double our EBITDA starting in 2 years through HPC, and that's a project that's going well. And yes, our NGL profits are largely exposed to variable commodity prices. That's nothing new. And I want to emphasize, that is why our dividend is fully covered by cost of service and fee-based cash flow, and any NGL profits, large or small, are solely used to reinvest back in the business. So frankly, I see what's to like in the story and, if you like creating long-term value.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [45]

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So it's really the latter then? Just do what you need to do, business-wise? Is that...

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [46]

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I like my answer better than just to say it's just the latter, but yes.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [47]

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Well, because there's the other argument of, look, you talk about oil sands being bulletproof, and certainly, we've been seeing that in the numbers. And we've also been seeing the amount of private capital that is chasing super core assets like that and the valuations that are being paid. So is there something out there to sell even a minority interest in that and getting a spectacular valuation versus where you're effectively selling your stock by the DRIP?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [48]

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We have -- we're halfway through a 4-year build out. So we -- like I said earlier, we see the light at the end of the tunnel here. And I think we are philosophically reluctant to make a permanent decision to divest of something that could be a more strategic asset to solve what is more of a short-term challenge.

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Operator [49]

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Our next question comes from the line of Patrick Kenny of National Bank Financial.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [50]

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I'll take a shot at bulk liquids as well. I know you can't provide any specific timeline for the sales process, but would you say you're at least somewhat closer to the finish line today relative to where you were in August? Just given the higher utilization rates across the business, I guess, another way to look at it is this healthy performance simply raises the valuation bar internally and could make it tougher for bidders to hit the mark? Or I guess, do you view these improving results as a net positive for the process?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [51]

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Yes. Well, clearly, we're closer to making a decision than we were in August just through the passage of time. But I don't know how to answer that, really. I think we just have to really carefully evaluate what the offers are. And obviously, we compare that against what our keep value is. And yes, I would say our keep value does slightly change as the business improves. But we've always taken a long-term view on the cash flow generating potential of the business and what it was doing in the summer of 2019, that run rate, our long-term forecast for the business would have far exceeded that. So I think we just need to be a bit patient here and let the process unfold, and then our Board will make a decision in the, I'd say, the medium term.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [52]

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Okay, great. I appreciate those comments, Chris. And then switching gears, have you guys experienced any indirect operational impact from the Keystone outage just across your conventional business. And also on the flip side, do you see any incremental volumes or marketing opportunities into 2020 from the incremental egress set to come down the Mainline and the Express pipelines?

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Jeffrey D. Marchant, Inter Pipeline Ltd. - SVP of Transportation [53]

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Patrick, it's Jeff. I'll take a shot at that. The answer to the first part of your question is no, not materially in any way have we've seen any impact, given the timeline that, that's been on. Going forward, though, we certainly are keeping abreast of the conversations and the progress like everybody else is in particular, when it comes to our oil sands business, as you guys know, we've got a well built-out system.

We took that step a number of years ago, and are sitting there with a fair bit of capacity that we can deploy. So projects out there like Imperial's Aspen project is well-known to be somewhat on hold while the egress question is addressed, and there are a number of other projects out there that are certainly shelf-ready, shall we say, and are definitely anticipated to move forward when the egress starts to materialize, and we're certainly in a really good position to take advantage of that and are spending time with those folks to make sure we're ready to help them if and when they decide to go forward.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [54]

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Okay, that's great. And then lastly guys, I know your plate is full right now with HPC, both from a funding and manpower perspective. But just wondering if you still might have an appetite for applying for additional royalty credits under the next round of the petrochemical diversification program?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [55]

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The short answer is yes. We have, call it, a long-term strategy to further expand our infrastructure-based petrochemical investments. And we're working hard on that. I will say that, just given the nature of some of these potential opportunities we're looking at, the timeframe if we were to actually action any of them would not materially overlap with HPC. So it's more about building the second wave of high quality investments. So we don't really see an issue there.

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Operator [56]

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And our next question comes from the line of John Butler, a shareholder.

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Unidentified Shareholder, [57]

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Okay. Yes, I was wondering why we couldn't have had the $30 offer price presented to the shareholders because your price is way below the $30? Second question, I was wondering if you could get out of Heartland complex and stick to piping?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [58]

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Well, this is Chris speaking, I'll answer that question. You know, there's -- unfortunately, John, there's nothing that we can really say about the article that was in The Globe and Mail beyond what we already said back in August. We're just -- for selective disclosure reasons, we're really prevented and our hands are tied on that topic. So we have nothing more to say on that topic. Related to Heartland, it is a fair question to ask why as a energy infrastructure company involved in an investment like that.

And we do view Heartland as -- not as a petrochemical investment per se, but really, what we're doing is making the energy infrastructure investment to turn propane, which is a pretty standard hydrocarbon, into a high-value plastic, which is polypropylene. And we do intend to do it on using an energy infrastructure contracting philosophy, which is largely underpinned by take-or-pay contracts, which will give us a very stable cash flow, much like our pipeline operations.

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Unidentified Shareholder, [59]

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So couldn't you sell that instead of some of your other assets?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [60]

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Well, it's strictly an investment in, call it, the future. The way we view, particularly the Alberta landscape, is it's not going to get easier as time goes on to build major export infrastructure that's required to get higher value prices for our products, whether it's oil or gas. So that means we have to do things differently in the province to a degree. We still have to pursue the export pipelines, obviously, that's very central. But we also need to create more value-added services in the province. And the way to do that is through petrochemical investments. And we don't think this will be the last one...

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Unidentified Shareholder, [61]

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I don't know if that's what IPL is meant to do. I thought they were a transmission company, basically, transmission and storage?

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [62]

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No, we are an energy infrastructure company. And that broad mandate does include the investments we're doing, like HPC.

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Operator [63]

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And our next question comes from the line of Linda Ezergailis of TD.

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Linda Ezergailis, TD Securities Equity Research - Research Analyst [64]

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I realize there's some commercial sensitivities around discussing your HPC contracting, but I'm wondering if you could help us understand if there is the potential maybe to accelerate completion of that process in advance of the end of 2021? And is the nature of those discussions shifting anyway? Or any sort of commentary around that process would be appreciated.

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Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [65]

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Yes, it's Chris again, Linda. Yes, I appreciate this is a very tough conversation for folks, given that we provide very little insight to what's going on. All I can say is I'm confident in how we're approaching these contracts, and I can very clearly say, we are making progress. So we just need people to be patient as we complete the work. And again, once again, we're not guaranteeing we're going to hit our threshold by the time it goes in service, but I have confidence that we will. And we'll just let it progress.

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Linda Ezergailis, TD Securities Equity Research - Research Analyst [66]

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Okay. And just as more of an operational follow-up. Is it -- are you able to share any sort of forward pricing you're seeing on the NGL side in terms of frac spreads or anything like that?

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Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance and IR [67]

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Certainly, Linda. It's Jeremy. Just on the Cochrane C3+ frac spread for 2020 and 2021, we're seeing about USD 0.44 per U.S. gallon both of those years.

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Linda Ezergailis, TD Securities Equity Research - Research Analyst [68]

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And that compares to what is it today or this quarter to date?

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Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance and IR [69]

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Today, it's about $0.43.

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Operator [70]

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And there are no further questions at this time. I will turn the call back over to Mr. Roberge.

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Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance and IR [71]

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Okay. Well, thank you for participating in our conference call today, and we certainly look forward to discussing our fourth quarter and year-end 2019 results with you on February 20, 2020. Thank you.

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Operator [72]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.