National Post (National Edition)
Inter Pipeline sells terminals as Alberta plant cost rises
Petrochemical project needs EU assets cash
CALGARY Inter Pipeline Ltd. is selling most of its European oil storage business for $715 million to pay for the growing cost of an under-construction petrochemical facility in Alberta.
Calgary-based Inter Pipeline surprised the market Tuesday by announcing a deal to sell its oil terminals in the United Kingdom, Ireland, the Netherlands and Germany for $715 million to Madrid-based CLH Group.
The facilities have a combined capacity of 18 million barrels of oil, and have been a bright spot in the oil crisis as producers are seeking storage options to avoid selling their crude in a down market. The terminals generated approximately $72 million in earnings before interest, taxes, depreciation and amortization for Inter Pipeline last year, and represent about half of its European terminal business.
Shares of Inter Pipeline closed two-per-cent higher in Toronto to $13.54 after the announcement. The deal is expected to close by the end of 2020.
The company said it will retain storage tanks in Sweden and Denmark capable of holding 19 million barrels.
“This is a very positive transaction for Inter Pipeline,” president and CEO Christian Bayle said in a release Tuesday, noting that the sale allows the company to refocus on its “higher-growth Canadian business.”
“As such proceeds from the sale will be used to reduce debt, strengthen our balance sheet and assist with financing our large capital expenditure program, including the Heartland Petrochemical complex,” he said.
The petrochemical project near Edmonton has been one of the company's main focus areas in recent years and also a source of stress as the project's costs were revised upward from $3.5 billion to $4 billion earlier this year. The facility, which will process 22,000 barrels of propane per day into polypropylene plastic pellets, has also secured $200 million in royalty credits from the Alberta government's petrochemical diversification program.
Inter Pipeline has been looking to sell part of its interest in the project to a joint-venture partner. As costs have risen, so too has investor and analyst pressure on the company to find a partner for the facility. The company is also looking to sign up customers for longterm contracts for the project.
The Europe deal will help Inter Pipeline pay the remaining costs of the petrochemical complex by 2022 but “doesn't significantly move the needle in terms of deleveraging,” Raymond James analyst Chris Cox said in a research note Thursday.
“We continue to view a partial sell-down of the (Heartland facility) and successfully achieving the 70 per cent to 85 per cent contracting threshold for the project as key hurdles to the story garnering support from institutional investors,” Cox said.
The sale could also signal an additional disposition of its remaining oil storage terminals in Sweden and Denmark.
“We believe these assets could provide (Inter Pipeline) with a further sales opportunity in the future,” Canaccord Genuity analyst John Bereznicki said in a research report, noting that those storage tanks have been 98-per-cent full in the first half of the year.