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Edited Transcript of IPL.TO earnings conference call or presentation 19-Feb-21 6:00pm GMT

·30 min read

Q4 2020 Inter Pipeline Ltd Earnings Call Calgary Feb 19, 2021 (Thomson StreetEvents) -- Edited Transcript of Inter Pipeline Ltd earnings conference call or presentation Friday, February 19, 2021 at 6:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Brent C. Heagy Inter Pipeline Ltd. - CFO * Christian P. Bayle Inter Pipeline Ltd. - President, CEO & Director * Jeffrey D. Marchant Inter Pipeline Ltd. - SVP of Transportation * Jeremy Allan Roberge Inter Pipeline Ltd. - VP of Finance & IR ================================================================================ Conference Call Participants ================================================================================ * Andrew M. Kuske Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research and Global Co-ordinator for Infrastructure Research * Jeremy Bryan Tonet JPMorgan Chase & Co, Research Division - Senior Analyst * Patrick Kenny National Bank Financial, Inc., Research Division - MD * Praneeth Satish Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst * 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 ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen. Welcome to Inter Pipeline's Fourth Quarter and Year-end 2020 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. -------------------------------------------------------------------------------- Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance & IR [2] -------------------------------------------------------------------------------- Thank you, Mariama, and good morning, everyone. On the call with me today are Chris Bayle, Inter Pipeline's President and Chief Executive Officer; Brent Heagy, Chief Financial Officer; Jeff Marchant, Senior Vice President, Transportation; and Corey Neufeld, Vice President, NGL. On today's call, Chris will discuss recent developments, including our recently announced strategic review process and business outlook. Brent will remark on our financial performance and capital priorities, and I will conclude with a discussion on our recent financing and hedging activity as well as our corporate ESG initiatives. I would 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. A discussion of the 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. -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Jeremy, and good morning, everybody. As we reflect on 2020, we're proud of Inter Pipeline's business resiliency and accomplishments during this difficult period of protracted economic weakness compounded by the ongoing COVID-19 pandemic. We sincerely wish to thank all Inter Pipeline workers and their families as well as our customers, suppliers, communities and investors for helping us successfully navigate one of the most challenging years in our company's history. Brent, Jeremy and I will first direct our remarks to the performance of the business in 2020. I will address the strategic review at the end and then take questions. Beginning with oil sands transportation. I'm pleased to report record funds from operations of $616 million during 2020. This business segment continues to be a foundation of our organization, providing stable cash flows supported by long-term contracts with strong investment-grade counterparties. Although the near-term growth outlook remains challenged by the current environment, we continue to be optimistic about the future. Recent producer consolidation has improved the strength of our customer base and demonstrates the adaptiveness of our industry. Additional pipeline egress at Alberta through projects such as the Enbridge, Line 3 Replacement and the Trans Mountain Expansion are supportive of oil sands development. And we remain well positioned to provide existing and prospective customers enhanced transportation services with approximately 2.3 million barrels per day of available capacity. Keeping with the transportation theme, our conventional business fundamentals continue to improve as volumes return to our pipeline systems. Fourth quarter volumes of approximately 165,000 barrels per day are over 25,000 barrels per day higher than the trough in the second quarter of 2020. As we progress through 2021, we expect volumes will continue to trend upwards towards pre-pandemic levels, supported by the recent strength in oil price, the completion of the Central Alberta pipeline system expansions and the previously announced asset swap for the Milk River pipeline system. We continue to advance through the regulatory approval process and have updated our timing for the close of this transaction for the first half of 2021. Once completed, we expect to generate approximately $25 million of annual EBITDA, including both tolling arrangements and midstream marketing activities. European bulk liquid storage. In November, we successfully closed the sale of 18 million barrels of storage capacity across 15 storage terminals to the CLH Group. The transaction was valued at $727 million before closing adjustments, with proceeds used to strengthen our balance sheet by reducing debt and assist with internally financing our capital expenditure program. Strategically, this divestiture refocused our efforts on developing our higher growth Canadian businesses. In the near term, the business outlook for our remaining storage assets in Sweden and Denmark is strong, as we expect high utilization rates as a result of increased demand for storage. Our last segment, NGL processing, had a challenging 2020 with significant price volatility. Strong operating performance was led by record sales volumes at Redwater and higher liquids extraction at our Cochrane facility despite 2 months of partial outage during October and November. Looking forward, I'm happy to report that we started the year with materially higher realized commodity pricing, and we are constructive in our forward view on segment performance. To provide stability while capitalizing on the current pricing dynamics, Inter Pipeline has executed several material hedges subsequent to the quarter, which Jeremy will discuss shortly. Next, I would be remiss if I didn't comment on the remarkable work completed on the Heartland Petrochemical Complex to advance the project despite the global pandemic. With strong compliance to rigorous health and safety protocols, we have been able to keep our workforce safe and successfully limit the impact of COVID-19. Proud to announce that we recently achieved over 10 million work hours without a lost time incident on-site. With project completion in sight, we continue to transition our efforts from heavy construction to operational and business readiness. Major milestones during 2021 will be the substantial mechanical completion of the PDH facility expected in May and then we will be in a position to ramp down its construction workforce and move into commissioning. The polypropylene facility will be mechanically complete late this year and commissioned in early 2022. We remain engaged in a process to secure a partner for material interest in that project, which is expected to conclude in the first half of 2021, though as we have stated in the past, we remain fully prepared to execute HPC on a stand-alone basis. Commodity pricing tailwinds mentioned in support of our NGL processing business have also positively impacted the forecast economics underpinning HPC investment. Specifically, the spread between propane and polypropylene has widened to approximately USD 1,800 per tonne in January, roughly 35% higher than the 5-year historical average. This strengthening in price materially improves the indicative economics for current and prospective propane and polypropylene customers. In conclusion, the Board has determined that the company will, in the near term, provide a fulsome commercial update on the status of contracting for the Heartland Complex. At that time, we will also provide additional EBITDA guidance specific to the early years of the project. As such, we will be issuing a news release on these matters in due course. Now I'd like to turn things over to Brent to discuss our financial performance and capital allocation priorities. Please go ahead, Brent. -------------------------------------------------------------------------------- Brent C. Heagy, Inter Pipeline Ltd. - CFO [4] -------------------------------------------------------------------------------- Thank you, Chris, and good morning, everyone. Beginning with consolidated funds from operations, Inter Pipeline generated $204 million or $0.48 per share during the fourth quarter of 2020 compared to $217 million or $0.52 per share during the same period in 2019. The decrease was largely attributable to conventional results, which were impacted by lower volumes and reduced midstream marketing activity. In addition, bulk liquid storage FFO decreased as a result of the sale of a majority of the European storage business that was completed in November. Partially offsetting the decrease was strong oil sands transportation results as well as a relative improvement in paraffinic and propane-plus frac spread pricing within the NGL processing business. For full year 2020, FFO was $792 million compared to 2019 FFO of $873 million. Record 2020 FFO was generated by the oil sands transportation and bulk liquid storage businesses of $616 million and $129 million, respectively. Annual FFO was impacted by conventional results as previously indicated, as well as lower NGL pricing, particularly in the second and third quarters of 2020. Moving on to adjusted EBITDA. Inter Pipeline issued full year 2020 guidance in March of $780 million to $810 million from cost of service and fee-based sources within the oil sands conventional and bulk liquid storage segments. I'm happy to report that we demonstrated our financial resiliency and generated $797 million in adjusted EBITDA, approaching the higher end of the guidance range. For the quarter and full year 2020, total adjusted EBITDA was $232 million and $962 million, respectively. Both FFO and adjusted EBITDA were negatively impacted by onetime expenses relating to the European storage sale that needed to be accounted for to normalize our results. Specifically, FFO was impacted by transaction fees of $2.8 million for the quarter and $14.1 million for the full year. EBITDA was also impacted by the transaction fees as well as a realized loss on a foreign exchange financial instrument, which combined totaled $17.1 million and $28.4 million for the quarter and year-end, respectively. Now turning to capital allocation. Inter Pipeline remains committed to maintaining financial flexibility and is well positioned to self-fund our capital expenditure program including HPC. With the 3-year anniversary of project construction achieved in November, we have clear visibility to project completion and incremental cash flow which will be directed towards accomplishing our capital allocation priorities. Our primary objective is to reduce debt, followed by prudent dividend increases as business conditions permit. Decisions regarding Inter Pipeline's dividend are made by our Board of Directors and will be weighed against organic growth opportunities and share buybacks. Now I'd like to turn things over to Jeremy. So please go ahead, Jeremy. -------------------------------------------------------------------------------- Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance & IR [5] -------------------------------------------------------------------------------- Great. Thank you, Brent. 2020 was an active year for financing activity to enhance our liquidity position and refinance near-term debt obligations. In April, we closed a $1 billion unsecured revolving credit facility that matures in August 2021 and extended that maturity on our $500 million term loan facility to August 2022. In June, we issued $700 million of senior unsecured medium-term notes in the Canadian public debt markets, and proceeds were primarily used to repay $500 million of notes that matured in July. In November, we completed the partial sale of inter terminals and used the proceeds to reduce indebtedness under Inter Pipeline's $1.5 billion syndicated credit facility. Overall, these financing initiatives resulted in almost $2.5 billion of available committed capacity available at year-end. Subsequent to December 31, we actually repaid $325 million of medium-term notes that matured in February, with funds available on our revolving credit facility. In addition, we reduced the pricing margin and extended the maturity on our $1 billion unsecured revolving credit facility to December 2022. Concurrently, Inter Pipeline also reduced borrowing costs associated with this $500 million term loan facility. Inter Pipeline has no remaining debt maturities in 2021, with our primary $1.5 billion facility maturing in December 2024. Moving to risk management. Inter Pipeline has been actively increasing its focus on optimizing and reducing risk to commodity-based cash flow. As a result of strengthening commodity prices in December, Inter Pipeline began to enter into a number of commodity swaps that have terms between 1 and 12 months. For the first quarter of 2021, Inter Pipeline has hedged approximately 40% of its propane, polymer grade propylene, butane and condensate volume exposure. For the remainder of the year, Inter Pipeline has additionally hedged approximately 35% of its polymer grade propylene volume exposure. These commodity hedges lock in strong pricing and are part of our strategy to actively manage commodity exposure and stabilize funds from operations. Lastly, to remark on corporate ESG initiatives, we began reporting on our sustainability efforts in 2016 and issued our inaugural sustainability report in 2017. Since then, there has been accelerated focus to develop and enhance our corporate ESG platform. Our third sustainability report will be issued in the fall of 2021, and we continue to actively work on the creation and implementation of formal ESG targets. Although it is premature to discuss what specific ESG targets we intend to set, we have made commitments that we intend to build on, including the examples such as the BlackNorth CEO Pledge, a 3-year partnership with Women Building Futures and a 10-year -- $10 million partnership with Northern Alberta Institute of Technology, known as Plastics Research in Action to research plastic recycling and waste reduction. Now I'd like to turn things back over to Chris for some final remarks. -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [6] -------------------------------------------------------------------------------- Thanks, Jeremy. We also announced yesterday that following the recently announced unsolicited expression of interest for the company, and we will be conducting a comprehensive review of strategic alternatives to maximize shareholder value. The process will be overseen by a special committee meet up of our independent directors. Our Board, consistent with its fiduciary duties, will evaluate a broad range of options, including exploring a possible corporate transaction and continuing to seek a partner for material interest in HPC. The company has not set a timetable for the conclusion of its review. In the interim, we remain focused on executing our strategy to maximize shareholder value for all of Inter Pipeline shareholders. This concludes the formal portion of the conference call, and I'd now like to turn the meeting back to Mariama to open the floor for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Praneeth Satish with Wells Fargo. -------------------------------------------------------------------------------- Praneeth Satish, Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst [2] -------------------------------------------------------------------------------- Just to start off on the Brookfield proposal and your planning to release more information on HPC contracting and an updated EBITDA forecast you said in due process. Just wondering if you could provide any more clarity on when that would be. Do you plan to provide something before your next earnings call? Or will it be when you -- when the search for a partner concludes? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [3] -------------------------------------------------------------------------------- Well, as we mentioned many times, we've been in regular contact with the Board on determining the appropriate timing for releasing more detailed information on contracting. And the Board clearly feels the time is right -- currently, the timing is right now, given the business dynamics going on. I'm highly confident that we'll be in a position to release more information well in advance of the Q1 results. -------------------------------------------------------------------------------- Praneeth Satish, Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst [4] -------------------------------------------------------------------------------- Okay. Great. And then just in terms of your interactions with Brookfield, have you spoken to them since their bid was proposed? Have you engaged with them at all? And have you provided any more information on HPC contracting to them? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [5] -------------------------------------------------------------------------------- Well, I don't think it would be appropriate for me to comment on confidential discussions that the Board may have had with Brookfield. I think the most material thing to point you to is the strategic review that was announced yesterday. The Board clearly came to the correct decision that running a disciplined, comprehensive process is the best way to maximize shareholder value. And just -- a few comments on the process, and a lot of this I went through in my prepared remarks, but a special committee has been established of independent directors to review this process and manage the process. We have retained TD Securities and JPMorgan to assist with advice to the special committee. And really, the intention is to evaluate a broad range of corporate options, one of which obviously is a possible corporate transaction. And I think it's fair to say that the Board certainly wouldn't preclude including Brookfield into that process if they wish to participate. However, no timetable has been set, and certainly, no decisions have been made regarding strategic alternatives. And the Board is fully prepared to keep the shareholder base well informed on the process as appropriate. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next question comes from Robert Catellier with CIBC Capital Markets. -------------------------------------------------------------------------------- Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [7] -------------------------------------------------------------------------------- Just first on the hedging, are you prepared to disclose the hedge prices for -- particularly for the frac spread? Or are you still actively engaging and reducing risk and then, therefore, not willing to make those disclosures? -------------------------------------------------------------------------------- Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance & IR [8] -------------------------------------------------------------------------------- Robert, this is Jeremy. We'll be disclosing those in our Q1 results. We're still in the middle of looking and reviewing and executing our hedging strategies. So I was commenting on the specific volumes that I mentioned in my prepared remarks, we're not going to get into various pricing for the various commodities that we have hedged. We do have a very comprehensive risk management policy that we did put in place. And that policy allows us to hedge up to 80% of our exposure for an 18-month period. So I think it's -- prices look like they've been quite strong. And we've been able to lock in a few of the hedges, but we're not going to get into the details of those until we're required to report those in a public fashion. -------------------------------------------------------------------------------- Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [9] -------------------------------------------------------------------------------- Yes, that makes sense. And just going to the Brookfield proposal. Correct me if I'm wrong, but in 2019, IPL acknowledged the existence of a conditional bid for the company, but did not disclose the negative bid range due to the number of subjectivities and conditions. Is that correct? And are you willing to disclose our price now? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [10] -------------------------------------------------------------------------------- No. I think we -- our public remarks regarding the conditional indicative proposal of 2019 stand on their own. I think the Board is clearly focused on the future. And as established, as I just mentioned, the strategic review process (technical difficulty) confident they'll crystallize the maximum shareholder value for our investor base in due course. -------------------------------------------------------------------------------- Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [11] -------------------------------------------------------------------------------- Okay. And then just what do you think you need to see from a partnering process to not take the company to a fully marketed auction process? So under what circumstances can you envision partnering to generate more value for shareholders than soliciting bids for the company? And I was hoping that you could address both value, which is obvious. And then more importantly, what other partnership attributes do you think would add value to shareholders? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [12] -------------------------------------------------------------------------------- Well, I think I need to be very careful not to speculate on hypothetical scenarios here. I just want to be very clear that the Board is fully engaged. And they're going to consider a broad range of options that they believe will maximize shareholder value. And again, that could include a corporate transaction. It could include a material sale of the Heartland project, but I don't want to get ahead of the Board on that topic. -------------------------------------------------------------------------------- Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [13] -------------------------------------------------------------------------------- Okay. And then just finally, my comment would be, I think the information you intend to put out on HPC, particularly with respect to contracting is very important because, as you know, the marketplace more for certainty. And I think the contract level at HPC is an important factor on that. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Your next question comes from Robert Kwan with RBC Capital Markets. -------------------------------------------------------------------------------- Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [15] -------------------------------------------------------------------------------- Just kind of coming back to the review here. First, just on timing. Do you anticipate that the special committee though would have the full evaluation done in time for that 105-day permitted bid period? And then just as it relates to evaluating all the potential alternatives, do you see that as being independent from the partnership discussions? Or do you see that partnership would be held up pending the Board's evaluation of all the different options and then selecting the one to go with? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [16] -------------------------------------------------------------------------------- Well, on your first question, I think the Board fully understands the time frames involved, if Brookfield makes a formal offer to shareholders for IPO. And I think the Board was prepared to conduct itself accordingly in that regard. And again, coming back to the partnering process, I think the Board is looking at this holistically. The most important thing is to consider all options to maximize shareholder value, and I think it will preclude any one option over another at this point. -------------------------------------------------------------------------------- Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [17] -------------------------------------------------------------------------------- So put differently, if you -- and again, I don't know if you want to answer, it's hypothetical. But if you were in the final discussions around partnering, you had a deal that came together in the next week. It sounds like from your original answer that given they're looking at it holistically that, that would be held up pending the full review to make sure that you're maximizing value? Is that fair? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [18] -------------------------------------------------------------------------------- Yes, Robert, I think it's very important for me to stay away from hypotheticals like that. So I'm not prepared to comment. -------------------------------------------------------------------------------- Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [19] -------------------------------------------------------------------------------- Understood. Maybe last on the review. You talked about a wide range of alternatives, I guess there was a couple of things that were put forwards. Can you talk about maybe some of the other things that might be on the table, whether that's sale -- larger sales of existing assets or even partial interest of large material segments? Are those types of things that will be looked at or is it really mostly confined to aspects of the 2 things that you laid out? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [20] -------------------------------------------------------------------------------- Well, Robert, I'd point you to the words that were chosen for the news release that the Board is looking at a broad range of options. And I don't want to speculate on what those options may or may not be and once again, get ahead of the Board with their deliberations in this regard. -------------------------------------------------------------------------------- Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [21] -------------------------------------------------------------------------------- Fair enough. If I can just clean up one question here. On the oil sands segment, there was some reference to remediation costs in the quarter. I'm just wondering, were those recovered in revenues this quarter? Or is it future quarters? Or are those just unrecoverable? -------------------------------------------------------------------------------- Jeffrey D. Marchant, Inter Pipeline Ltd. - SVP of Transportation [22] -------------------------------------------------------------------------------- Robert, it's Jeff here. Those are recoverable and being recovered under the terms of the contract. -------------------------------------------------------------------------------- Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [23] -------------------------------------------------------------------------------- And so were they recovered in fourth quarter revenues or -- it looked like fourth quarter margin was a little bit lower than previous quarters. So is that just timing and it will show itself up in '21? -------------------------------------------------------------------------------- Jeffrey D. Marchant, Inter Pipeline Ltd. - SVP of Transportation [24] -------------------------------------------------------------------------------- Yes. Well, there's a lot of pieces in there. But essentially, we are recovering costs in revenue as part of our capital fees and our operating fee recovery under those contracts. So the answer is yes. We're getting them. There is a bit of a timing difference, but it's fairly immaterial. -------------------------------------------------------------------------------- Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [25] -------------------------------------------------------------------------------- So it came out of Q4, it will come back in '21? -------------------------------------------------------------------------------- Jeffrey D. Marchant, Inter Pipeline Ltd. - SVP of Transportation [26] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Your next question comes from Patrick Kenny with National Bank. -------------------------------------------------------------------------------- Patrick Kenny, National Bank Financial, Inc., Research Division - MD [28] -------------------------------------------------------------------------------- Just on the dividend here and I guess, in light of the commercial disclosure for Heartland on its way. Curious how you're thinking about the timing for resetting the dividend back to more of a, I'll call it, normalized payout ratio? And obviously, you have to execute the project first on time on budget. But with this disclosure, if there is visibility towards sustainable long-term contracted EBITDA from Heartland, does this give you an opportunity to them at that point, give shareholders any comfort around going back to a more normalized dividend level, of course, again, conditional on no further cost overruns and no impairment to the base business? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [29] -------------------------------------------------------------------------------- Yes. I'll take that question, Pat. It's Chris. Obviously, this is a pivotal year for the company. We're 3 months away from substantial mechanical completion for the PDH plant, which is the larger and more complicated of the 2 facilities. And the polypropylene facility will follow there shortly thereafter at the end of the year. And our commissioning date remains intact of early 2022. And so at that point, once we've commercialized the facility, there will be substantial EBITDA, incremental EBITDA coming into the organization, which we'll disclose, as I mentioned, in the near-term here. And that in and of itself, will drive our payout ratio to be really quite low. So I think at that point, the Board will have lots of optionality, depending on the current business environment to consider dividend increases as well as management of the balance sheet. -------------------------------------------------------------------------------- Patrick Kenny, National Bank Financial, Inc., Research Division - MD [30] -------------------------------------------------------------------------------- Okay. Got it. And then I guess my other question is just -- it looks like one of the ways to crystallize value here for shareholders is improving the ESG narrative around the story, either in hands of a new owner or as a going concern. So but just thinking outside of just aligning disclosure and emission targets and whatnot, what other strategic moves from a business mix perspective could you think of making here, albeit in a bit of a crunch time frame, but any other asset portfolio optimization opportunities here in the next few months that you could be thinking of from an executive level perspective? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [31] -------------------------------------------------------------------------------- Well, 2 things that come to mind immediately are HPC and our offgas processing business. Both of those platforms have a great ESG story underpinning them. Our offgas processing business by virtue of stripping out these high-value liquids out of the offgas stream at the Horizon and Suncor upgraders substantially reduces the GHG footprint of those operations. And secondly, as we've mentioned many times in the past, HPC itself with the technology choices that we've made and the substantial investments into generating our on-site power as well as consuming our on-site produced hydrogen as a fuel source, means that our polypropylene will have a 65% lower GHG footprint than comparable projects around the world. And in this environment, particularly where plastics are both very necessary and in high demand, I think, really is a great story for Inter Pipeline on an ESG basis. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Your next question comes from Jeremy Tonet with JPMorgan. -------------------------------------------------------------------------------- Jeremy Bryan Tonet, JPMorgan Chase & Co, Research Division - Senior Analyst [33] -------------------------------------------------------------------------------- Just wanted to come back to HPC, if I could, to the extent you're able to discuss. If I think about the construction process as a whole, what are the largest obstacles left for HPC? And how do you think about the risk for additional cost overruns delays at this point? Have you guys kind of gotten everything in a good working process with COVID? Just wanted to get an update on your thoughts on those topics? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [34] -------------------------------------------------------------------------------- Well, I think given the how far advanced we are with the PDH facility, we're confident in our view on bringing that to mechanical completion here in the next several months. I think one macro issue around the project is we're still managing through COVID. I'm very pleased with how the team has been able to progress this project through the pandemic and -- but that still remains a risk that we have to manage. We're not out of the woods yet, that means around the corner, but the rollout will take time. And we have, on site, over 3,500 people as we speak. So that requires just constant attention. And that's, I would say, one of the areas that we remain very diligent on in terms of executing this project. -------------------------------------------------------------------------------- Jeremy Bryan Tonet, JPMorgan Chase & Co, Research Division - Senior Analyst [35] -------------------------------------------------------------------------------- Got it. That's helpful. And then just wondering for the project overall, could you generate much EBITDA from the facility before it's in full-service in early 2022? Just want to think about what could be possible there? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [36] -------------------------------------------------------------------------------- I think in the EBITDA, we might generate our revenue more importantly, I guess, that would be a better way to characterize it. It would be quite immaterial, Jeremy. As we commissioned the PDH facility in the back half of the year, it obviously has the potential to generate some polymer grade propylene, but we think the amounts will be relatively small from a sales perspective, especially considering you need to build up a pretty substantial amount of PGP inventory before you start up the polypropylene plant. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Your next question comes from Andrew Kuske with Crédit Suisse. -------------------------------------------------------------------------------- Andrew M. Kuske, Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research and Global Co-ordinator for Infrastructure Research [38] -------------------------------------------------------------------------------- I guess, as we think about the bridging exercise between now and the completion of HPC, could you provide any color on just maybe how the dialogue has changed in relation to either the contracting process on HPC or really seeking a partner just given what's happened in the same commodity markets overall and in particular in polypropylene prices? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [39] -------------------------------------------------------------------------------- That's a great question, and we tried to make that point in my prepared remarks that the margins are certainly the highest I've ever seen in terms of the analysis that we've done. So I think, obviously, that's an important tailwind if there -- as negotiations progress with perspective of both partners and customers. So today, which obviously, the plant is not running, but if it was running today, the rough math on the uplift of Alberta propane producer would crystallize through our facility is about triple the underlying value of propane, which not only is it a powerful diversification story for a producer, it's also economically quite lucrative. -------------------------------------------------------------------------------- Andrew M. Kuske, Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research and Global Co-ordinator for Infrastructure Research [40] -------------------------------------------------------------------------------- Okay. That's helpful. And then maybe related to just the processes you have in place at HPC and you think about value-maximizing across the whole enterprise, what's the balancing act of you bringing in potentially private capital on having partial interests in certain assets? How do you think about just that balancing act of crystallizing value now versus maybe complexity? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [41] -------------------------------------------------------------------------------- Well, that's obviously a consideration as we move through the partnering process. We are looking at the long-term. We're not just trying to consider the impacts to the business over the next 6 to 12 months. It's -- do we have the right partnering relationship for decades. So that's a very important consideration that we've got to balance. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- Your next question comes from Rob Hope with Scotiabank. -------------------------------------------------------------------------------- Robert Hope, Scotiabank Global Banking and Markets, Research Division - Analyst [43] -------------------------------------------------------------------------------- A follow-up question on the partnering process for HPC. Given the Brookfield bid, have you reengaged with all the parties involved? And have there been any changes just based off of the events that's been -- that have been -- have since transpired? -------------------------------------------------------------------------------- Christian P. Bayle, Inter Pipeline Ltd. - President, CEO & Director [44] -------------------------------------------------------------------------------- All I could comment on, Rob, in that regard is that the process remains active and ongoing with parties involved. -------------------------------------------------------------------------------- Robert Hope, Scotiabank Global Banking and Markets, Research Division - Analyst [45] -------------------------------------------------------------------------------- Okay. And then just in terms of the new hedging policy and the risk mitigation policy, does this include HPC in the future? And have you potentially thought about adding some hedges just based off where some of these commodities are trading on right now? -------------------------------------------------------------------------------- Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance & IR [46] -------------------------------------------------------------------------------- Robert, this is Jeremy. -------------------------------------------------------------------------------- Brent C. Heagy, Inter Pipeline Ltd. - CFO [47] -------------------------------------------------------------------------------- I'll take that one, Rob. -------------------------------------------------------------------------------- Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance & IR [48] -------------------------------------------------------------------------------- Okay. Go ahead, Brent. Sorry. -------------------------------------------------------------------------------- Brent C. Heagy, Inter Pipeline Ltd. - CFO [49] -------------------------------------------------------------------------------- Yes. No, you make a good point. It's a little bit early right now, Rob, to be considering putting on hedges and yes, albeit, prices are really, really good right now, but you've got to look basically, well, how much further could you hedge out. But I think that, that will be more of a decision that will be made as we get closer to ramping up the facility. And certainly, that's something that we would consider for the commodity exposed portion of HPC. -------------------------------------------------------------------------------- Operator [50] -------------------------------------------------------------------------------- There are no further questions at this time. I will now turn the call back to Mr. Roberge for closing remarks. -------------------------------------------------------------------------------- Jeremy Allan Roberge, Inter Pipeline Ltd. - VP of Finance & IR [51] -------------------------------------------------------------------------------- Great. Thank you for participating in our conference call today, and we look forward to discussing our first quarter 2021 results with you on May 7. Goodbye. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.